Recognition and measurement (AASB 1058_12-16_COMPmar20_07-21)

Except as set out in paragraphs 18–22, an entity shall apply the requirements of other Australian Accounting Standards (as relevant) to an asset arising from a transaction within the scope of this Standard. Examples include:

(a)               AASB 9 Financial Instruments (eg cash received);

(b)               AASB 16 Leases;

(c)               AASB 116 Property, Plant and Equipment; and

(d)               AASB 138 Intangible Assets.

On initial recognition of an asset, an entity shall recognise any related contributions by owners, increases in liabilities, decreases in assets, and revenue (‘related amounts’) in accordance with other Australian Accounting Standards.  For example, related amounts may take the form of:

(a)                contributions by owners, in accordance with AASB 1004;

(b)                revenue or a contract liability arising from a contract with a customer, in accordance with AASB 15;

(c)                a lease liability in accordance with AASB 16;

(d)                a financial instrument, in accordance with AASB 9; or

(e)                a provision, in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

Except as set out in paragraphs 15–17, an entity shall recognise income immediately in profit or loss for the excess of the initial carrying amount of an asset over the related amounts recognised in accordance with paragraph 9.

Appendix F Australian Implementation Guidance for Not-for-Profit Entities of AASB 15 provides guidance on the identification of a contract with a customer in a not-for-profit entity context.  The Appendix also clarifies the measurement of revenue and contract liabilities where the transaction price includes an amount that would otherwise be separately recognised and accounted for as income immediately in accordance with this Standard.

For the purposes of this Standard, income is determined as the difference between the consideration for an asset and the asset’s fair value, after recognising any other related amounts.  An entity applies judgement in determining the extent to which the acquisition of an asset gives rise to income as specified by this Standard or to revenue, a liability or a contribution by owners recognised in accordance with another Australian Accounting Standard.

An entity might acquire an asset and also recognise related amounts that in total exceed the initial measurement of the asset.  In such cases, the entity shall reassess whether it has appropriately identified and measured all the related amounts.  If an excess remains after restating any related amounts, the entity shall recognise an expense immediately in profit or loss for the excess of the related amounts over the carrying amount of the asset acquired.  An entity does not adjust the excess against the recognised related amounts.

An entity shall subsequently apply the requirements of other Australian Accounting Standards applicable to the related amounts referred to in paragraph 9.

A transfer of a financial asset to enable an entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity is one that:

(a)                requires the entity to use that financial asset to acquire or construct a recognisable non-financial asset to identified specifications;

(b)                does not require the entity to transfer the non-financial asset to the transferor or other parties; and

(c)                occurs under an enforceable agreement.

An entity shall recognise a liability for the excess of the initial carrying amount of a financial asset received in a transfer to enable the entity to acquire or construct a recognisable non-financial asset that is to be controlled by the entity over any related amounts recognised in accordance with paragraph 9.  The entity shall recognise income in profit or loss when (or as) the entity satisfies its obligations under the transfer.

In such circumstances, the transferor has in substance transferred a recognisable non-financial asset to the entity.  The entity recognises the financial asset received in accordance with AASB 9 and subsequently recognises the acquired or constructed non-financial asset in accordance with the applicable Australian Accounting Standard (eg AASB 116 for property, plant and equipment).  This Standard requires the entity to initially recognise a liability representing the entity’s obligation to acquire or construct the non-financial asset and, if applicable, other performance obligations under AASB 15, which involve the transfer of goods or services to other parties.  The liability in relation to acquiring or constructing the non-financial asset is initially measured at the carrying amount of the financial asset received from the transferor that is not attributable to related amounts for performance obligations under AASB 15, contributions by owners, etc.  The liability is recognised until such time when (or as) the entity satisfies its obligations under the transfer.

Local governments, government departments, general government sectors (GGSs) and whole of governments shall recognise an inflow of resources in the form of volunteer services as an asset (or an expense, when the definition of an asset is not met) if:

(a)                the fair value of those services can be measured reliably; and

(b)                the services would have been purchased if they had not been donated.

Any not-for-profit entity (including those listed in the preceding paragraph) may, as an accounting policy choice, elect to recognise volunteer services, or a class of volunteer services, if the fair value of those services can be measured reliably, whether or not the services would have been purchased if they had not been donated.

Some volunteer services, such as professional services, might have readily observable market prices.  In such circumstances, obtaining a reliable measure of fair value would be relatively straightforward.  An entity is not required to perform an exhaustive search for volunteer services that might meet the recognition criteria in this Standard.  Volunteer services that would have been purchased if they were not donated should be readily identifiable from the entity’s operational requirements.

Recognised volunteer services shall be measured at fair value.

On the initial recognition of volunteer services as an asset or an expense, an entity shall recognise any related amounts in accordance with paragraph 9 (such as contributions by owners or revenue) and the applicable Australian Accounting Standards.  The entity shall recognise the excess of the fair value of the volunteer services over the recognised related amounts as income immediately in profit or loss.