Coco has a reporting date of 31 December 2017. It prepares its financial statements in accordance with International Financial Reporting Standards. Coco develops biotech products for pharmaceutical companies. These pharmaceutical companies then manufacture and sell the products. Coco received stage payments during product development and share of royalties when the final product is sold to consumers. A new accountant has recently joined the Cocos finance department and has raised a number of queries.

1. While searching for some invoices, the accountant found a contract which Coco had entered into on 1 January 2017 with Darby, another entity. The contract allows Coco to use a specific aircraft owned by Darby for a period of three years. Coco is required to make annual payments.
2. On 1 January 2017, costs were incurred negotiating the contract. The first annual payment was made on 31 December 2017. Both of these amounts have been expensed to the statement of profit or loss.
3. There are contractual restrictions concerning where aircraft can fly. Subject to those restrictions, Coco determines where and when the aircraft will fly, and the cargo and passengers which will be transported.
4. Darby is permitted to substitute the aircraft at any time during the three-year period for an alternative model and must replace the aircraft if it is not working. Any substitute aircraft must meet strict interior and exterior specifications outlined in the contract. There are significant costs involved in outfitting an aircraft to meet Calendars specifications.
5. The accountant requires advice as to the correct accounting treatment of this contract.

Required: Advise the accountant on the matters set out above with reference to IFRS. (9 marks)