Recognition and measurement of liabilities (paragraphs B60-B74) (AASB1059_07-17_COMPdec21_01-22)

Where the grantor recognises a service concession asset in accordance with paragraph 5 (or paragraph 6 for a whole-of-life asset), the grantor shall also recognise a liability. The grantor shall not recognise a liability when an existing asset of the grantor is reclassified as a service concession asset in accordance with paragraph 8, except in circumstances where additional consideration is provided by the operator, as noted in paragraph 12.

The liability recognised in accordance with paragraph 11 shall be initially measured at the same amount as the service concession asset, adjusted by the amount of any other consideration (eg the transfer of an existing asset) from the grantor to the operator, or from the operator to the grantor.

The nature of the liability recognised is based on the nature of the consideration exchanged between the grantor and the operator. The nature of the consideration given by the grantor to the operator is determined by reference to the terms of the contract.

In exchange for the service concession asset, the grantor might compensate the operator for the service concession asset by any combination of:

(a) making payments to the operator (the ‘financial liability’ model); and

(b) compensating the operator by other means (the ‘grant of a right to the operator’ model), such as granting the operator:

(i) the right to earn revenue from third-party users of the service concession asset; or

(ii) access to another revenue-generating asset for the operator’s use (eg a private wing of a hospital where the remainder of the hospital is used by the grantor to treat public patients or a private parking facility adjacent to a public facility).

Where the grantor has a contractual obligation to deliver cash or another financial asset to the operator for the construction, development, acquisition or upgrade of a service concession asset, the grantor shall account for the liability recognised in accordance with paragraph 11 as a financial liability.

The grantor has a contractual obligation to pay cash if it has agreed to pay the operator specified or determinable amounts, such as payments relating to the following:

(a) third-party usage of a service concession asset, with or without guaranteeing a minimum amount to the operator; or

(b) the shortfall, if any, between amounts received by the operator from users of the service concession asset and any other specified or determinable amounts payable by the grantor, even if the payment is contingent on the operator ensuring that the service concession asset meets specified quality or efficiency requirements.

AASB 9 Financial Instruments, AASB 132 Financial Instruments: Presentation and AASB 7 Financial Instruments: Disclosures apply to the financial liability recognised under paragraph 11, except where this Standard specifies otherwise.

The grantor shall allocate the payments to the operator under the contract and account for them according to their substance as payments relating to the liability recognised in accordance with paragraph 11 or charges for services provided by or to be provided by the operator (including the future replacement of components of the service concession asset).

Charges for services provided by the operator (other than replacement components) in a service concession arrangement determined in accordance with paragraph 18 shall be accounted for in accordance with other relevant Standards.

Where the asset and service components of a service concession arrangement are separately identifiable, the service component of payments from the grantor to the operator shall be allocated accordingly (see paragraph B53). Where the asset and service components are not separately identifiable, the service component of payments from the grantor to the operator shall be determined using estimation techniques (see paragraph B54).

Where the grantor does not have a contractual obligation to pay cash or another financial asset to the operator for the construction, development, acquisition, or upgrade of a service concession asset, and instead grants the operator the right to earn revenue from third-party users or access to another revenue-generating asset, the grantor shall account for the liability recognised in accordance with paragraph 11 as the unearned portion of the revenue arising from the exchange of assets between the grantor and the operator.

The grantor shall recognise revenue, and accordingly reduce the liability noted in paragraph 21, according to the economic substance of the service concession arrangement (see paragraph B71).

Where the grantor compensates the operator for the service concession asset and the provision of services by granting the operator the right to earn revenue from third-party users of the service concession asset or access to another revenue-generating asset, the exchange is regarded as a transaction that will generate revenue for the grantor. As the right granted to the operator to access the grantor’s underlying service concession asset is effective for the period of the service concession arrangement, the grantor does not recognise revenue from the exchange immediately. Instead, a liability is recognised for revenue that is not yet earned. The revenue is then recognised according to the economic substance of the service concession arrangement, and the liability is reduced as revenue is recognised.

If the grantor compensates the operator for the provision of a service concession asset partly by incurring a financial liability and partly by the grant of a right to the operator, it is necessary to account separately for each part of the total liability recognised in accordance with paragraph 11. The amount initially recognised for the total liability shall be the same amount as that specified in paragraph 12.

The grantor shall account for each part of the liability referred to in paragraph 24 in accordance with paragraphs 15–23. The financial liability part shall be measured first, and the remainder of the total liability allocated to the part related to the grant of the right to the operator (see paragraphs B73 and B74).