Deferred Standard - Notified by MCA - IND AS-11 Vs. IAS -11

IND AS -11 (in line with IAS -11) - "Construction Contracts" does not include IFRIC -12 "Service Concession arrangement" and SIC -29 "Service Concession arrangement - Disclosures.

Why this has been deferred

 

MCA received feedback regarding the adverse consequences which may ensue to the Indian companies in the event of immediate adoption of the IFRIC 12. Hence, MCA decided that Appendix A to Ind AS 11, corresponding to IFRIC 12, Service Concession Arrangements should be deferred and the same may be examined and applied with or without modification later.

 

SUMMARISES IFRIC -12

 

Please note that the below -

 

Service concession arrangements defined

A service concession arrangement is an arrangement whereby a government or other public sector body contracts with a private operator to develop (or upgrade), operate and maintain the grantor's infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. The grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement.

Two types of service concession arrangements

IFRIC 12 draws a distinction between two types of service concession arrangement.

• In one, the operator receives a financial asset, specifically an unconditional contractual right to receive a specified or determinable amount of cash or another financial asset from the government in return for constructing or upgrading a public sector asset, and then operating and maintaining the asset for a specified period of time. This category includes guarantees by the government to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts.
• In the other, the operator receives an intangible asset – a right to charge for use of a public sector asset that it constructs or upgrades and then must operate and maintain for a specified period of time. A right to charge users is not an unconditional right to receive cash because the amounts are contingent on the extent to which the public uses the service.

Accounting – Financial asset model

 

The operator measures the financial asset at fair value.  

 

Accounting – Intangible asset model

The operator measures the intangible asset at fair value.

Accounting by the government (grantor)

IFRIC 12 does not address accounting for the government side of service concession arrangements. IFRSs are not designed to apply to not-for-profit activities in the private sector or the public sector.