Silk Ltd (Customer) is a shoe retailer that only sells its shoes via its online platform. Silk Ltd enters into a contract with a manufacturer (Supplier) to produce shoes in its factory. Silk Ltd requires the shoes to be of a specific type, quality, and quantity. These requirements are specifically stated in the contract. Additionally, the contract stipulates that the Supplier cannot supply the shoes from another factory or outsource the manufacture of the shoes to another supplier.

 Although the Supplier only has one factory, it produces a large quantity of shoes of various types according to specifications required by its customers. The Supplier makes all decisions about how the capacity of the factory will be used to satisfy the demand of its customers. The Supplier also decides the output to be produced and the production level.

REQUIRED:

Based on the above facts, should the contract be treated as a lease contract in Silk Ltd's books in accordance with AASB 16 Leases? Discuss the rationales.