BROADCAST INFORMATION ON IFRS IN INDIA

Guidance note Service concession agreements
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Governments have introduced contractual service arrangements to attract private sector participation in the development, financing, operation and maintenance of such infrastructural facilities. The infrastructural facilities may already exist, or may be constructed during the period of the service arrangement.

 

The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes. Such an arrangement is often described as a ‘build-operate-transfer’, a ‘rehabilitate-operate-transfer’ or a ‘public-to-private’ service concession arrangement.

This Guidance Note applies to public-to-private service concession arrangements if:

(a) the grantor controls or regulates what services the operator must provide with the infrastructural facilities, to whom it must provide

(b) the grantor controls—through ownership, beneficial entitlement or otherwise  - any significant residual interest in the infrastructural facilties if remaining at the end of the term of the arrangement.

 

Infrastructural facilities within the scope of this Guidance Note should not be recognized as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructural facilities to the operator.

 

The operator should recognise and measure revenue in accordance with Accounting Standard (AS) 7, Construction Contracts and Accounting Standard (AS) 9, Revenue Recognition for the construction or upgrade and operating the services it performs. If the operator performs more than one service under a single contract or arrangement, consideration received or receivable should be allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable. The nature of the consideration determines its subsequent accounting treatment.

 

 

If the operator provides construction or upgrade services the consideration received or receivable by the operator should be recognised at its fair value. The consideration may be rights to:

a financial asset, or (a)

an intangible asset. (b)

 

The operator should recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset

 

The operator should recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.

 

If the operator is paid for the construction services partly by a financial asset and partly by an intangible asset it is necessary to account separately for each component of the operator’s consideration initially at fair value.

 

The operator should account for revenue and costs relating to operation

services in accordance with AS 9

 

The operator may have contractual obligations it must fulfill as a condition of its licence (a) to maintain the infrastructural facilities to a specified level of serviceability or (b) to restore the infrastructural facilities to a specified condition before these are handed over to the grantor at the end of the service arrangement. These contractual obligations to maintain or restore infrastructural facilities, except for any upgrade element (see paragraph 14), should be recognised and measured in accordance with Accounting Standard) (AS) 29, Provisions, Contingent Liabilities and Contingent Assets i.e. at the best estimate of the expenditure that would be required to settle the present obligation at the balance sheet date.

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