Example 25.6: Grant relating to biological assets carried at fair value
Entity A receives a government grant under terms that require it to farm in a particular location for five years.
The entire government grant has to be returned if it farms for less than five years. In this case the government
grant is not recognised as income until the five years have passed.
Entity B receives a government grant on a similar basis, except it allows part of the government grant to be retained
based on the passage of time. Entity B recognises that part of the government grant as income as time passes.
6 DISCLOSURES
IAS 20 requires that entities should disclose the following information regarding
government grants:
(a) the accounting policy, including the methods of presentation adopted in the
financial statements;
(b) a description of the nature and extent of the grants recognised and an indication of
other forms of government assistance from which the entity has directly benefited;
and
(c) unfulfilled conditions or other contingencies attaching to government assistance
that has been recognised. [IAS 20.39].
Government
grants
1791
The extract below illustrates how companies typically disclose government grants
under IFRS. It should be noted that disclosures concerning the nature and conditions of
government grants are sometimes relatively minimal, possibly because the amounts
involved are immaterial.
Extract 25.5: Eskom Holdings SOC Ltd. (2018)
Notes to the financial statements [extract]
2.
Summary of significant accounting policies [extract]
2.16
Payments received in advance [extract]
Grants
Government grants for energy-efficiency initiatives are recognised in profit or loss within other expenses when the
related expenses are incurred. Government grants for electrification are recognised in deferred income when the
related asset has been connected to the electricity network.
2.17 Deferred
income [extract]
Grants
Government grants received relating to the creation of electrification assets are included in liabilities as deferred
income and are credited to profit or loss within depreciation and amortisation expense on a straight-line basis over
the expected useful lives of the related assets.
Government grants referred to in note 2.16 are allocated to deferred income and are credited to profit or loss within
depreciation and amortisation expense on a straight-line basis over the expected useful lives of the related assets
27.
Payments received in advance and deferred income [extract]
2018
Government
grant
Rm
27.2 Deferred
income [extract]
Group and company
Balance at beginning of the year
16 264
Transfers from payments received in advance
3 375
Income recognised
(1 050)
Balance at end of the year
18 589
Maturity analysis
18 589
Non-current
17
539
Current
1 050
Group
2018
2017
Rm
Rm
38.
Depreciation and amortisation expense [extract]
Depreciation of property, plant and equipment
23 721
20 575
Amortisation of intangible assets
461
593
Deferred income recognised (government grant)
(1 050)
(868)
23 132
20 300
Eskom Holdings also provided information relating to the parent company and for
other items of deferred income that is not reproduced above for reasons of space.
1792 Chapter 25
Additional examples of accounting policies for government grants can be found in
Extracts 25.2, 25.3 and 25.4 above.
6.1 Government
assistance
In addition to the disclosures noted above, for those forms of government assistance
that are excluded from the definition of government grants, the significance of such
benefits may be such that the disclosure of the nature, extent and duration of the
assistance is necessary to prevent the financial statements from being misleading.
[IAS 20.36].
References
1 IASB Completed projects, IASB archive site, 2
IFRIC Update, May 2016.
Work plan for IFRSs, All projects since 2006 in
3
IFRIC Update, May 2016.
alphabetical order, Government grants (Deferred).
1793
Chapter 26
Service concession
arrangements
1 INTRODUCTION ........................................................................................... 1797
1.1
The Interpretations Committee’s approach to accounting for
service concessions ............................................................................................ 1798
1.2
Terms used in this chapter .............................................................................. 1800
2 SCOPE OF IFRIC 12 ................................................................................... 1800
2.1
Public-to-private service concession arrangements within scope ........... 1801
2.1.1
Private sector entity (the operator) ................................................ 1802
2.1.2 Public
sector
body (the grantor) ..................................................... 1802
2.2
Other features of a service concession arrangement (‘SCA’) ..................... 1803
2.2.1
Public service nature of the obligation .......................................... 1803
2.2.2
Infrastructure assets within the scope of IFRIC 12 ...................... 1805
2.2.3
Operator does not ‘merely act as an agent’ ................................... 1805
2.2.4
A contract with the grantor .............................................................. 1805
2.3
Arrangements that are not in the scope of IFRIC 12 .................................. 1806
2.3.1
Outsourcing arrangements ................................................................ 1807
2.4
Interaction of IFRS 16 and IFRIC 12 .............................................................. 1808
2.4.1
Entities previously applying IAS 17 and IFRIC 4 ......................... 1808
2.5
Private-to-private arrangements .................................................................... 1809
2.6 Accounting
by
grantors
..................................................................................... 1809
3 THE CONTROL MODEL ............................................................................... 1810
3.1
Regulation of services ........................................................................................ 1810
3.2
Control of the residual interest ..................................................
....................... 1811
3.3 Assets
within scope ............................................................................................ 1813
3.3.1
Periodic payments to the grantor for the right to use
assets ..................................................................................................... 1814
3.3.2
Previously held assets used for the concession ............................ 1815
1794 Chapter 26
3.3.3
Accounting for service concession arrangements for
which the infrastructure is leased from a party other than
the grantor ............................................................................................ 1816
3.4
Partially regulated assets .................................................................................... 1817
4 ACCOUNTING BY THE CONCESSION OPERATOR: THE FINANCIAL
ASSET AND INTANGIBLE ASSET MODELS ................................................... 1818
4.1
Consideration for services provided and the choice between the
two models .......................................................................................................... 1820
4.1.1
Allocating the consideration ............................................................ 1821
4.1.2
Determining the accounting model ................................................ 1821
4.2
The financial asset model ................................................................................. 1823
4.3 The
intangible
asset model ............................................................................... 1826
4.3.1
Amortisation of the intangible asset ............................................... 1828
4.3.2
Impairment during the construction phase ................................... 1831
4.4
Revenue recognition implications of the two models ................................ 1831
4.5
‘Bifurcation’ – single arrangements that contain both financial and
intangible assets .................................................................................................. 1832
4.6
Accounting for residual interests ..................................................................... 1836
4.7
Accounting for contractual payments to be made by an operator to
a grantor ................................................................................................................ 1838
4.7.1
Accounting for variable payments in a service concession ....... 1839
4.7.2 Accounting
for
contractual payments under the financial
asset model .......................................................................................... 1839
4.7.3 Accounting
for
contractual
payments under the intangible
asset model .......................................................................................... 1841
5 REVENUE AND EXPENDITURE DURING THE OPERATIONS PHASE OF
THE CONCESSION AGREEMENT ................................................................ 1843
5.1
Additional construction and upgrade services.............................................. 1844
5.1.1
Subsequent construction services that are part of the
initial infrastructure asset .................................................................. 1844
5.1.2
Subsequent construction services that comprise a new
infrastructure asset ............................................................................. 1846
5.2
Accounting for the operations phase .............................................................. 1846
5.3
Items provided to the operator by the grantor ............................................. 1849
5.4
Interaction between IFRIC 12 and IFRS 15 ................................................... 1849
5.4.1
IFRIC 12 Illustrative Example 1 – The grantor gives the
operator a financial asset .................................................................. 1850
5.4.1.A
Step 1: Identify the contract(s) with a customer ...... 1850
5.4.1.B
Step 2: Identify the performance obligations in
the contract ..................................................................... 1851
5.4.1.C
Step 3: Determine the transaction price ................... 1852
Service concession arrangements 1795
5.4.1.D
Step 4: Allocate the transaction price to the
performance obligations in the contract ................... 1853
5.4.1.E
Step 5: Recognise revenue when (or as) the
entity satisfied a performance obligation .................. 1853
5.4.2
IFRIC 12 Illustrative Example 2 – The grantor gives the
operator an intangible asset (a license to charge users) .............. 1855
5.4.2.A
Step 1: Identify the contract(s) with a customer ...... 1855
5.4.2.B
Step 2: Identify the performance obligations in
the contract ..................................................................... 1856
5.4.2.C
Step 3: Determine the transaction price ................... 1856
5.4.2.D
Step 4: Allocate the transaction price to the
performance obligations in the contract ................... 1857
5.4.2.E
Step 5: Recognise revenue when (or as) the
entity satisfied a performance obligation .................. 1857
6 DISCLOSURE REQUIREMENTS: SIC-29 .................................................... 1858
List of examples
Example 26.1:
Residual arrangements ...................................................................... 1812
Example 26.2:
Payment mechanisms for service concessions ............................ 1820
Example 26.3:
The Financial Asset Model ............................................................... 1824
Example 26.4:
The Intangible Asset Model – recording the construction
asset ....................................................................................................... 1827
Example 26.5:
Output-based versus revenue-based amortisation when
prices change ....................................................................................... 1829
Example 26.6:
Revenue under the financial asset and intangible models ......... 1831
Example 26.7:
The bifurcated model ........................................................................ 1832
Example 26.8:
Contractual rights to cash in termination arrangements ............ 1837
Example 26.9:
Contractual payments made to a grantor under the
financial asset model ......................................................................... 1840
Example 26.10:
Contractual payments made to a grantor under the
intangible asset model ....................................................................... 1842
Example 26.11:
Executory and contractual obligations to maintain and
restore the infrastructure .......
........................................................... 1847
Example 26.12:
The Intangible Asset Model – recording the operations
phase ..................................................................................................... 1847
1796 Chapter 26
1797
Chapter 26
Service concession
arrangements
1 INTRODUCTION
Service concession arrangements (SCAs) have been developed as a mechanism for
governments to procure public services using private capital and management expertise.
The rights and obligations of the public sector body procuring the services and the
private sector entity providing the services are set out in a contract, the terms of which
can be complex depending upon the nature of the SCA. The most common forms of
arrangement are as follows:
• ‘Build-operate-transfer’ service concession arrangement – where a private sector
entity takes responsibility for funding and building infrastructure assets such as
roads, bridges, railways, hospitals, prisons, power stations and schools, in
consideration for a long-term contract from the public sector body giving the entity
the right to charge for services to the public using that infrastructure;
• ‘Rehabilitate-operate-transfer’ SCA – where the private sector entity restores or
improves an existing facility or public service up to an agreed standard and
continues to maintain and operate the related infrastructure for a contracted
period. This type of arrangement includes a range of projects from the
refurbishment of social housing and street lighting to major civil engineering
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 353
