Telecom Network Operations

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What is the main purpose of Company A's project?

To build a passive fiber network to be leased by Vodafone

What is Company A's obligation to Vodafone according to the contract?

To provide a cohesive passive network with connecting routes between PoPs

Why did Vodafone decide to lease connecting lines from Company B instead of Company A?

To eliminate interference with connecting routes and have more control over the network

What is the financial arrangement between Vodafone and Company A regarding the connecting lines?

Vodafone pays Company B for the connecting lines and passes the costs to Company A 1:1 Signup and view all the answers

What is the advantage of renting the connecting lines from Company B?

Faster and cheaper expansion of the network Signup and view all the answers

What is the accounting issue that needs to be considered in this arrangement?

How to present the lease and subsequent charging of costs to Company A in the financial statements Signup and view all the answers

What is the primary objective of financial statements according to IAS 1.15?

To present fairly the financial position, financial performance, and cash flows of an entity. Signup and view all the answers

Why is it necessary to account for and present transactions and events in accordance with their substance and economic reality?

Because the substance of transactions or other events is not always consistent with their legal or contrived form. Signup and view all the answers

What two items would Vodafone, as a lessee, recognize in its financial statements according to IFRS 16?

A lease liability and a right-of-use asset. Signup and view all the answers

What is the basis for recognizing a lease liability in accordance with IFRS 16?

The liability to make lease payments. Signup and view all the answers

What is the importance of faithful representation in financial reporting?

It ensures that the financial statements accurately reflect the financial position, financial performance, and cash flows of an entity. Signup and view all the answers

Why is it necessary to look beyond the legal form of a transaction or event in financial reporting?

To capture the economic reality and substance of the transaction or event. Signup and view all the answers

According to IFRS Framework paragraph 49(b), what is a key characteristic of a liability?

An outflow of resources with economic benefits for the company. Signup and view all the answers

Why does the leasing of the connecting lines by Vodafone from Company B not result in the recognition of a lease liability?

Because the economic burden is borne 1:1 by Company A, and there is no outflow of resources for Vodafone. Signup and view all the answers

What is the economic consequence of recognizing a right of use asset?

It arises economically from the underlying liability. Signup and view all the answers

What is the outcome of the lease of the connecting lines from Company B and the subsequent direct 1:1 passing on of the costs to Company A?

It does not give rise to any lease liability or right of use asset. Signup and view all the answers

In what scenario does the recognition of a lease liability and a right of use asset arise?

From the subsequent lease of Company A’s passive network, which also includes the lease for the connecting lines. Signup and view all the answers

What is the economic reality of the transactions between Vodafone, Company A, and Company B?

The economic burden is borne 1:1 by Company A, and there is no outflow of resources for Vodafone. Signup and view all the answers