Difference Between Service Contract And Lease Agreement

ASC 842 did not explicitly contain guidelines for structuring a service contract, but was designed as a means of reviewing an agreement to determine whether the agreement is a lease or a lease agreement. In essence, the standard`s tests offer an analytical approach to assessing the nature of the agreement. Below, consideration should be taken of the way in which the structuring of a transaction can be undertaken in order to avoid, as far as possible, that it is interpreted as a lease or that it involves a lease. In the case of a solar energy installation, a typical electricity acceptance contract requires the lessee to acquire all of the power produced and the provider`s objective is to provide as much electricity as possible in order to maximize its turnover. As a general rule, the beneficiary does not have the right to purchase electricity from the establishment.