Falcon Manufacturing Ltd$.($Falcon$)$ is negotiating a contract with JetWare Ltd$.($JetWare$),$ a

company that provides specialized equipment for industrial manufacturing. Falcon requires a

specific type of machinery for a production line, and JetWare has offered a contract under the

following terms:

$1.$ The contract gives Falcon the right to use a specific, identified machine $($Model X$500)$

owned by JetWare for five years.

$2.$ The machine will be located at Falcon's factory, and Falcon will have exclusive use of

the machine throughout the contract period.

$3.$ JetWare will be responsible for maintaining the machine and performing regular

repairs, but Falcon will determine how the machine is used, including how many shifts

it runs per day.

$4.$ Falcon will make annual payments of R$500,000$ to JetWare over the five years. The

machine has a useful life of $10$ years, and its fair value is R$4,000,000.$

$5.$ Falcon has the option to purchase the machine at the end of the lease term for

R$500,000,$ which is expected to be below its market value at that time.

Required:

$2\mathrm{.}1$ Explain whether the contract between Falcon Manufacturing Ltd$.$ and JetWare Ltd$.$

constitutes a lease under IFRS $16.$ Discuss the key elements of the contract, referring to IFRS

$16\text{'}$s definition of a lease.