Question A) Lion Airline (Customer) enters a 3-year contract with an aircraft owner, Jumbo Ltd (Supplier). Every Monday, Wednesday, Friday, Saturday, and Sunday Jumbo will exclusively transport passengers of Lion Airline from Sydney to Adelaide at 10 am and at the same day from Adelaide to Sydney at 6 pm. The type of aircraft is specified by Lion Airline. Jumbo Ltd owns more than one aircraft of this type. Jumbo is permitted to substitute the aircraft at any time during the contract period and must substitute the aircraft if it is not working. Furthermore, Jumbo is responsible for operating the aircraft, using its own crew. The contract requires Lion Airline to make monthly fixed payments to Jumbo Ltd as well as variable payments that are a percentage sale derived from sale of air tickets.

Requirement

Does the contract between Lion Airline and Jumbo Ltd contain a lease? Refer to AASB16 Leases in your response.

Question B)

Abbott Ltd, a supplier of sailing equipment was incorporated 10 years ago and is 60% owned by Xavier Ltd. Abbott Ltd has been a very successful business, averaging annual profit of $5 million. However, during the past two years the company has run into financial difficulties and has defaulted on its loan with Westpac bank. Consequently, the bank has used the powers in loan agreement to monitor the companys activities closely to obtain repayment of its debt. The company must now obtain the banks authorisation for any expenditure over $5,000 and no changes in operations of the company are permitted, without the banks approval.

Requirement:

Does Westpac bank have control over Abbott Ltd? Justify your response with reference to AASB3 Business combinations.