Chapter 15 Miscellaneous Topics PDF

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CHAPTER 15 MISCELLANEOUS TOPICSLearning ObjectivesAccount for Service Concession Arrangements by Grantor. Account for Interests in Joint Venture. State the accounting for The Effects of Changes in Foreign Exchange RatesDefinitions Service Concession Arrangement – is a binding arrangement between a ...

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MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS CHAPTER 15 MISCELLANEOUS TOPICS

Learning Objectives Account

for

Service

Concession

Arrangements by Grantor. Account for Interests in Joint Venture. State the accounting for The Effects of Changes in Foreign Exchange Rates

Definitions 

Service Concession Arrangement – is a binding arrangement between a grantor and an operator in which: a. The operator uses the service concession asset to provide a public service on behalf of the grantor for a specified period of time; and b. The operator is compensated for its services over the period of the service concession arrangement.

Parties to a Service Concession Arrangement 1. Grantor – is the public sector entity (government entity) that grants the right to use the service concession asset to the operator. 2. Operator – is the private entity that uses the service concession asset to provide public services subject to the grantor’s control of the asset.

Service Concession Asset 

Service Concession Asset – is an asset used to provide public services in a service concession arrangement that: 1. Is provided by the operator which: a. the operator constructs, develops, or acquires from a third party; or b. is an existing asset of the operator; or

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MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS 2. Is provided by the grantor which: a. is an existing asset of the grantor; or b. Is an upgrade to an existing asset of the grantor.

Recognition of Asset 

The grantor recognizes a service concession asset if: a. The grantor controls or regulates what services the operator must provide with the asset, to whom it must provide them, and at what price; and b. The grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the asset at the end of the term of the arrangement. (PPSAS 32.9)

Initial Measurement of Asset 

A service concession asset is initially measured at: a. Fair value, if the asset is provided by the operator in accordance with the recognition criteria in (a) and (b) above. b. Cost, in accordance with the measurement principles for PPE or Intangible Assets, as appropriate, if the asset is reclassified from the existing assets of the grantor, e.g., an existing asset is transferred to the operator for refurbishing.

Subsequent Measurement of Asset 

A service concession asset is subsequently accounted for as service concession tangible asset (a separate class of PPE) or as service concession intangible asset (a separate class of intangible assets), as appropriate.

Recognition and Measurement of Liability 

When the grantor recognizes a service concession asset, the related liability is measured at the same amount, adjusted for any other consideration (e.g., cash) received from or paid to the operator. Page 2

MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

Forms of Compensation of Operator 

The grantor may compensate the operator by one or a combination of the following: a. Making payments to the operator (‘financial liability model’); b. Granting the operator the: i.

Right to collect fees from users of the service concession asset; or

ii.

Right to access another revenue-generating asset for the operator’s use (e.g., 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). (PPSAS 32.17)

Financial Liability Model 

The grantor recognizes a financial liability if it incurs an unconditional obligation to pay cash or another financial asset to the operator in exchange for the service concession asset.



The financial liability is subsequently measured at amortized cost.

Grant of Right to the Operator Model 

The grantor recognizes a liability for the unearned portion of the revenue and recognizes it as revenue over the contract term according to the economic substance of the service concession arrangement.

Interests in Joint Venture 1. Joint Venture – is a binding arrangement whereby two or more parties are committed to undertake an activity that is subject to joint control. 2. Joint control – is the agreed sharing of control over an activity by a binding arrangement. (PPSAS 8.6)

Forms of Joint Ventures 

The following are the three forms of joint ventures: Page 3...