Ifric 18 Guide (Dtt 2009)
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IAS Plus Update . On 29 January 2009, International Financial Reporting Interpretations Committee (IFRIC) Interpretation 18 Transfers of Assets from Customers was issued to address divergent practice in the accounting by recipients for transfers of property, plant and equipment from ‘customers’. The Interpretation concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of the transfer, with the credit recognised as revenue in accordance with IAS 18 Revenue. For many entities with these sorts of arrangements, this Interpretation is likely to result in deferral of revenue recognition or increased amounts being recognised as revenue, depending on the accounting policy previously adopted. The Interpretation is to be applied prospectively to transfers of assets from customers received on or after 1 July 2009. Scope IFRIC 18 applies to all agreements in which an entity receives from a customer an item of property, plant and equipment (or cash to construct or acquire an item of property, plant and equipment) that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. In some cases, the transferor of the asset may not be the entity that will be the recipient of the ongoing supply of goods and/or services. However, for convenience, the Interpretation refers to the entity transferring the asset as the ‘customer’. Guidance issued on accounting for transfers of assets from customers IFRIC 18 does not apply to agreements in which the transfer is either: • a government grant as defined in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance; or • infrastructure used in a service concession arrangement that is within the scope of IFRIC 12 Service Concession Arrangements. The IFRIC considered, but rejected, extending the scope to transfers of other types of assets (e.g. intangible assets). However, the IFRIC has not prohibited application of IFRIC 18 by analogy to transfers of other types of assets. The Interpretation does not address the accounting for the transfer by the customer. February 2009 IAS Plus website We have had more than 7.8 million visits to our www.iasplus.com website. Our goal is to be the most comprehensive source of news about international financial reporting on the Internet. Please check in regularly. IFRS centres of excellence Americas New York Robert Uhl [email protected] Montreal Robert Lefrancois [email protected] Asia-Pacific Hong Kong Stephen Taylor [email protected] Melbourne Bruce Porter [email protected] Europe-Africa Johannesburg Graeme Berry [email protected] Copenhagen Jan Peter Larsen [email protected] London Veronica Poole [email protected] Paris Laurence Rivat [email protected] IFRS global office Global IFRS leader Ken Wild [email protected] For example, a developer builds a new office building in which there is an electrical substation that is handed over to the electricity supplier when the building is completed. The electricity supplier will use the substation to distribute electricity to the future occupier of the building. For the purposes of IFRIC 18, the ‘customer’ making the transfer is the developer, even though the ‘customer’ who will use the electricity provided through the substation is the future occupier.
Transcript of Ifric 18 Guide (Dtt 2009)
IAS Plus Update.On 29 January 2009, International Financial ReportingInterpretations Committee (IFRIC) Interpretation 18Transfers of Assets from Customers was issued toaddress divergent practice in the accounting byrecipients for transfers of property, plant and equipmentfrom ‘customers’. The Interpretation concludes thatwhen the item of property, plant and equipmenttransferred meets the definition of an asset from theperspective of the recipient, the recipient shouldrecognise the asset at its fair value on the date of thetransfer, with the credit recognised as revenue inaccordance with IAS 18 Revenue. For many entities with these sorts of arrangements, this Interpretation is likely to result in deferral of revenue recognition orincreased amounts being recognised as revenue,depending on the accounting policy previously adopted.
The Interpretation is to be applied prospectively totransfers of assets from customers received on or after1 July 2009.
Scope
IFRIC 18 applies to all agreements in which an entityreceives from a customer an item of property, plant andequipment (or cash to construct or acquire an item ofproperty, plant and equipment) that the entity mustthen use either to connect the customer to a networkor to provide the customer with ongoing access to asupply of goods or services, or to do both.
In some cases, the transferor of the asset may not bethe entity that will be the recipient of the ongoingsupply of goods and/or services. However, forconvenience, the Interpretation refers to the entitytransferring the asset as the ‘customer’.
Guidance issued on accounting for transfers of assets from customers
IFRIC 18 does not apply to agreements in which thetransfer is either:
• a government grant as defined in IAS 20 Accountingfor Government Grants and Disclosure ofGovernment Assistance; or
• infrastructure used in a service concessionarrangement that is within the scope of IFRIC 12Service Concession Arrangements.
The IFRIC considered, but rejected, extending the scopeto transfers of other types of assets (e.g. intangibleassets). However, the IFRIC has not prohibitedapplication of IFRIC 18 by analogy to transfers of othertypes of assets.
The Interpretation does not address the accounting for the transfer by the customer.
February 2009
IAS Plus website
We have had morethan 7.8 millionvisits to ourwww.iasplus.comwebsite. Our goal isto be the mostcomprehensivesource of newsabout internationalfinancial reporting onthe Internet. Pleasecheck in regularly.
IFRS centres of excellence
AmericasNew YorkRobert [email protected]
MontrealRobert [email protected]
Asia-PacificHong KongStephen [email protected]
MelbourneBruce [email protected]
Europe-AfricaJohannesburgGraeme [email protected]
CopenhagenJan Peter [email protected]
LondonVeronica [email protected]
ParisLaurence [email protected]
IFRS global officeGlobal IFRS leaderKen [email protected]
For example, a developer builds a new officebuilding in which there is an electrical substationthat is handed over to the electricity supplier whenthe building is completed. The electricity supplier willuse the substation to distribute electricity to thefuture occupier of the building. For the purposes ofIFRIC 18, the ‘customer’ making the transfer is thedeveloper, even though the ‘customer’ who will usethe electricity provided through the substation is thefuture occupier.
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Consensus
Recognition as an assetThe entity receiving the item of property, plant andequipment recognises it in its statement of financialposition when it meets the definition of an asset underthe Framewor k for the Preparation and Presentation of Financial Statements. The Interpretation emphasisesthat the entity must control the asset in order torecognise it, noting that right of ownership may not ofitself be sufficient to establish control.
Whether or not the entity controls the transferredproperty, plant and equipment is based onconsideration of all relevant facts and circumstances.For example, the Interpretation notes that although an entity may not have discretion as to the purpose forwhich the item is used, where it has the ability todecide how the item is operated and maintained andwhen it is replaced, the entity is likely to conclude thatit controls the transferred item.
Measurement of the asset on initial recognitionWhere an entity determines that the item of property,plant and equipment qualifies for recognition as anasset, the Interpretation then directs the entity torecognise the asset in accordance with IAS 16 Property,Plant and Equipment, and therefore to measure its coston initial recognition at its fair value.
Recognition of revenueIFRIC 18 states that the transactions within the scope of the Interpretation are exchanges for dissimilar goodsor services and, therefore, they give rise to revenue inaccordance with IAS 18. The timing of the recognitionof that revenue will depend on what the entity hasagreed to supply to the customer in exchange – i.e. on the separately identifiable services included in theagreement.
If only one service is included in the agreement (e.g. connecting to the utility network with ongoinggoods or services charged at the same rates as for othercustomers), the entity recognises revenue when thatservice is performed in accordance with paragraph 20of IAS 18. If more than one service is identified, the fairvalue received is allocated between the services, andthe recognition criteria of IAS 18 are then applied toeach service individually. If an ongoing service isidentified as part of the agreement, the period overwhich revenue is recognised for that service is generallydetermined by the terms of the agreement with thecustomer. If the agreement does not specify a period,the revenue is recognised over a period no longer thanthe useful life of the transferred asset used to providethe ongoing service.
The Interpretation suggests that when a connection toa network is delivered to the customer and representsstand-alone value for that customer, and the fair valueof the connection to that network can be measuredreliably, the entity would conclude that connecting thecustomer to a network is a separately identifiableservice, and is thus an event for which revenue shouldbe recognised.
Accounting for transfers of cash from customersWhen an entity receives a transfer of cash from acustomer, it must first determine whether theagreement is within the scope of IFRIC 18. If it is, theanalysis as to whether the item transferred is an assetof the entity and, if so, how to account for the creditside of the transaction is performed as above.
The timing of the recognition of therevenue arising from the transfer willdepend on the separately identifiableservices included in the agreement.
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Effective date and transition
IFRIC 18 applies prospectively to transfers of assets fromcustomers received on or after 1 July 2009.Retrospective restatement of previous financialstatements is not permitted.
The Interpretation may be applied to transfers before 1 July 2009 provided that the information needed toapply the Interpretation to past transfers (including fairvalue information) was obtained at the time thosetransfers occurred. Entities are required to disclose thedate from which the Interpretation is applied.
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