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Contents
34.2 Agriculture – recognition and measurement.
34.2.1 Extract from FRS102: Section 34.2-.34.3B.
34.2.2.1 The meaning of biological assets and examples.
34.2.2.1.1 Agricultural activity defined.
34.2.2.1.1.1 Requirements for biological transformation.
34.2.2.1.1.2 Requirements for biological transformation to be managed.
34.2.2.1.2 Biological asset defined.
34.2.2.2 Recognition criteria.
34.2.2.3 Accounting for agricultural produce within the scope of Section 34.
34.2.2.4 Items excluded from the definition of agriculture.
34.2.2.5 Accounting policy choices:
34.2.2.5.3 Accounting policy choice by class.
34.2.2.6 Accounting for agricultural produce after point of harvest.
34.3 Measurement – fair value model.
34.3.1 Extract from FRS102: Section 34.4-.34.6A.
34.3.2.1 Initial and subsequent recognition.
34.3.2.2. Fair value hierarchy model.
34.3.2.2.1 Active market defined.
34.3.2.2.1.1. What market to use where there is more than one market and markets in other locations.
34.3.2.2.1.1.1 More than one market to sell the produce.
34.3.2.2.1.1.2 Market in different locations.
34.3.2.2.1.1.3 Use of cash flow model to determine fair value.
34.3.2.3 Application of the fair value model.
34.3.2.4 Fair values cannot be reliably measured.
34.5 Disclosures – fair value model.
34.5.1 Extract from FRS102: Section 34.7-34.7B.
34.5.2.2.1 Extract from accounting policies note for forestry.
34.5.2.2.2 Extract from accounting policies note for livestock (Extracted from Appendix to IAS 41).
34.5.2.3 Critical accounting estimates and judgments disclosure.
34.5.2.4 Notes to financial statements.
34.7 Measurement – cost model.
34.7.1 Extract from FRS102: Section 34.8-34.9.
34.7.2.1 Initial and subsequent measurement/
34.7.2.2 Choices when applying the cost model to agricultural produce.
34.8 Disclosures – cost model.
34.8.1 Extract from FRS102: Section 34.10-34.9.
34.8.2.3 Notes to the financial statements.
34.9.1 Extract from FRS102: Section 34.11-.34.11C.
34.10 Service Concession Arrangements.
34.10.1 Extract from FRS102: Section 34.12-.34.16A.
34.10.2.2 Service conditions arrangements defined.
34.10.2.2.1 Conditions that must apply.
34.11.1 Extract from FRS102: Section 34.17-.34.33.
34.11.2.2 Financial institution defined.
34.12 Retirement Benefit Plans: Financial Statements.
34.12.1 Extract from FRS102: Section 34.34-.34.48.
34.12.2.2 Full set of financial statements.
34.13.1 Extract from FRS102: Section 34.49-.34.56.
34.13.2.1 Heritage asset – defined.
34.13.2.2 Recognition and measurement.
34.13.2.3 What about old heritage assets where there are no records to determine cost.
34.13.2.4 Where should heritage assets be disclosed on the balance sheet.
34.13.2.5.1 Possible reasons for impairment.
34.13.2.6 Useful life and residual value.
34.13.2.7 Heritage assets received free of charge.
34.13.2.8.2 Illustration of some of the disclosure requirements for heritage assets.
34.14.1 Extract from FRS102: Section 34.57-.34.63 and Appendix A to Section 34.
34.15 Public benefit entities: Incoming Resources from Non-Exchange Transactions.
34.15.1 Extract from FRS102: Section PBE34.64-.PBE34.74 and Appendix B to Section 34.
34.15.2.1 Public benefit entity defined.
34.15.2.1.1 Requirement to disclose that an entity is a public benefit entity.
34.15.2.2 Special rules for public benefit entities.
34.15.2.2.1 Assets held for provision of social benefits.
34.15.2.2.2 Income resources from non-exchange transactions.
34.15.2.2.2.2 Accounting for non-exchange accounting.
34.15.2.2.2.2.1 Recognition for goods and measurement for goods.
34.15.2.2.2.2.1.1 Performance related conditions defined.
34.15.2.2.2.2.1.2 Conditions that are not performance related.
34.15.2.2.2.2.1.3 Examples of non-exchange resource transactions received in the form of goods.
34.15.2.2.2.2.2 Non-exchange resources received in the form of services/facilities.
34.15.2.2.2.2.2.2 Recognition and measurement.
34.15.2.2.2.2.2.2.1 Examples of non-exchange Transactions where services/facilities provided.
34.15.2.2.3 Public benefit entity combinations.
34.15.2.2.3.1.1 Business combinations defined.
34.15.2.2.3.2 Accounting Requirements.
34.15.2.2.3.2.1 Gift of a business for nil or nominal consideration.
34.15.2.2.3.2.1.1 Example of business combinations which is a gift that is not a merger.
34.15.2.2.3.2.1.2 Disclosures.
34.15.2.2.3.2.2 Examples illustrating merger accounting.
34.15.2.2.3.2.3 Meets the definition of a true acquisition and the purchase method applies.
34.15.2.2.3.2.3.1 Example business combination: Not a merger or gift – Purchase accounting method.
34.15.2.2.4 Public benefit concessionary loans.
34.15.2.2.4.2 Public benefit entity loan defined.
34.15.2.2.4.3 Accounting treatment of public benefit concessionary loans choices. 4
34.15.2.2.4.5 Examples of concessionary loans.
34.15.2.2.5 Government grants and accounting requirements.
34.15.2.2.5.1.1 Grants of all natures – Performance model.
34.15.2.2.5.1.2 Accrual model FRS 102 only.
34.15.2.2.5.2 Example of government grant accounting of PBE’S.
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34.10 Service Concession Arrangements
34.10.1 Extract from FRS102: Section 34.12-.34.16A
34.12 A service concession arrangement is an arrangement whereby a public sector body, or a public benefit entity (the grantor) contracts with a private sector entity (the operator) to construct (or upgrade), operate and maintain infrastructure assets for a specified period of time (concession period). The operator is paid for its services over the period of the arrangement. A common feature of a service concession arrangement is the public service nature of the obligation undertaken by the operator, whereby the arrangement contractually obliges the operator to provide services to, or on behalf of, the grantor for the benefit of the public.
34.12A Specifically an arrangement is a service concession arrangement when the following conditions apply:
(a) the grantor controls or regulates what services the operator must provide using the infrastructure assets, to whom, and at what price; and
(b) the grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the assets at the end of the term of the arrangement. Where the infrastructure assets have no significant residual value at the end of the term of the arrangement (ie the arrangement is for its entire useful life), then the arrangement shall be accounted for as a service concession if the conditions in (a) are met. For the purpose of condition (b), the grantor’s control over any significant residual interest should both restrict the operator’s practical ability to sell or pledge the infrastructure assets and give the grantor a continuing right of use throughout the concession period.
34.12B A service concession arrangement shall be accounted for in accordance with the requirements of paragraphs 34.12E to 34.16C.
34.12C A service concession arrangement may contain a group of contracts and sub-arrangements as elements of the service concession arrangement as a whole. Such an arrangement shall be treated as a whole when the group of contracts and sub-arrangements are linked in such a way that the commercial effect cannot be understood without reference to them as a whole. Accordingly, the contractual terms of certain contracts or arrangements may meet both the scope requirements of paragraphs 34.12 and 34.12A, and Section 20 Leases. Where this is the case, the requirements of this section shall prevail.
34.12D Where an arrangement does not meet the requirements of paragraphs 34.12 and 34.12A, it shall be accounted for in accordance with Section 17 Property, Plant and Equipment, Section 18 Intangible Assets other than Goodwill, Section 20 or Section 23 Revenue, based on the nature of the arrangement. Accounting by grantors – Finance lease liability model
34.12E The infrastructure assets shall be recognised as assets of the grantor together with a liability for its obligations under the service concession arrangement.
34.12F The grantor shall initially recognise the infrastructure assets and associated liability in accordance with paragraphs 20.9 and 20.10. If as a result of applying paragraphs 20.9 and 20.10 the grantor has not recognised a liability to make payments to the operator, it shall not recognise the infrastructure assets.
34.12G The liability shall be recognised as a finance lease liability and subsequently accounted for in accordance with paragraph 20.11.
34.12H The infrastructure assets shall be recognised as property, plant and equipment or as intangible assets, as appropriate, and subsequently accounted for in accordance with Section 17 or Section 18.
Accounting by operators
Treatment of the operator’s rights over the infrastructure
34.12I Infrastructure assets shall not be recognised as property, plant and equipment by the operator because the contractual service arrangement does not convey the right to control the use of the public service assets to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the arrangement.
Recognition and measurement of consideration
34.13 There are two principal categories of service concession arrangements: (a) In one, the operator receives a financial asset – an unconditional contractual right to receive a specified or determinable amount of cash or another financial asset from, or at the direction of, the grantor in return for constructing (or upgrading) the infrastructure assets, and then operating and maintaining the asset for a specified period of time. This category includes guarantees by the grantor to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts. (b) In the other, the operator receives an intangible asset – a right to charge for use of the infrastructure assets that it constructs (or upgrades) and then operates and maintains 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.
Sometimes, a single arrangement may contain both types: to the extent that the grantor has given an unconditional guarantee of payment for the construction (or upgrade) of the infrastructure assets, the operator has a financial asset; to the extent that the operator receives a right to charge the public for using the service the operator has an intangible asset.
Accounting – financial asset model
34.14 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from, or at the direction of, the grantor for the construction (or upgrade) services. The operator shall initially recognise the financial asset at fair value for the consideration received or receivable, based on the fair value of the construction (or upgrade) services provided. Thereafter, it shall account for the financial asset in accordance with Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues. In classifying the financial asset as basic or other, a payment being contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements does not in itself prevent its classification as basic.
Accounting – intangible asset model
34.15 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. The operator shall initially recognise the intangible asset at fair value for the consideration received or receivable, based on the fair value of the construction (or upgrade) services provided. Thereafter, it shall account for the intangible asset in accordance with Section 18.
Operating services
34.16 The operator shall account for revenue in accordance with Section 23 for the operating services it performs.
Borrowing costs
34.16A Borrowing costs attributable to the arrangement shall be recognised as an expense, in accordance with Section 25 Borrowing Costs, in the period in which they are incurred unless the operator has an intangible asset. In this case borrowing costs attributable to the arrangement may be capitalised in accordance with Section 25 where a policy of capitalisation has been adopted in accordance with that section.
34.10.2 OmniPro comment
34.10.2.1 Overview
Sections 34.12 to 34.16A of FRS 102 provide the accounting treatment for service concession arrangements
34.10.2.2 Service conditions arrangements defined
A service concession arrangement is one where a public sector body or public benefit entity (the grantor) contracts with a private operator to develop (or upgrade), operate and maintain infrastructure assets.
34.10.2.2.1 Conditions that must apply
To meet the definition, the following two conditions must apply:
– The grantor controls or regulates which services, to whom, and at what price the operator provides using the infrastructure assets.
– The grantor controls any significant residual interest in the assets at the end of the term. From the operator’s perspective, there may be two types of arrangement:
– in the first type, the operator receives a financial asset, being the right to receive a fixed or determinable amount of cash. In this case the financial asset recognised is accounted for under Section 11 and 12 of FRS 102. In this case the entity must forecast the cash flows and the fair value of each task (i.e. the amount of the total consideration relating to the construction initially and the amount relating to the upkeep in the later years).
Once the fair value allocation is completed, the operator will recognise revenue from the construction phase (which has already been allocated) in accordance with Section 23 for long term contracts. The remaining amounts for the maintenance are recognised over the remaining life based on the fair value allocation and the financial asset is unwound over the life of the project and recognised as finance income.
Where the operator receives payment from the grantor, it will be necessary to allocate those payments between construction or upgrade of the infrastructure assets and the provisions of services. The standard does not prescribe a method for this allocation, although it is commonly made on the basis of the relative fair values of the component of the arrangement in line with Section 23.
Under this method borrowing costs are expensed.
– In the other, the operator receives an intangible asset, being the right to charge for use of a public sector asset that it constructs and then operates and maintains for a specified period.
Take an example of a road where the operator charges a toll for a period of years and in return the entity builds the road. In this instance, the operator constructs the road. When the road is open it will then charge the public a fee for the use of the infrastructure when it is opened.
On initial recognition, the operator must forecast the vehicle numbers over that period and the total cash inflows it will receive. It also has to assess the annual running costs for maintaining the road. This provides the total profit that will be made over the contracts life.
The amount to be capitalised as an intangible is the allocation of the fair value of the expected proceeds for building the road. This is then amortised over the life of the contract when the road has been constructed. The journals on initial recognition would be:
| CU | CU | |
| Dr Intangible Asset | XXX | |
| Cr Loan to Construct the Road | XXX | |
| Dr Cost of Sales | XXX | |
| Cr Revenue | XXX |
The liability is then written down as the net cash flows are received in over its life from toll receipts net of running costs. The revenue on the construction of the road is recognised in line with Section 23 and the fair value is allocated to the road construction.
Borrowing costs can be capitalised as part of the intangible in this particular case.
Where additional revenue is to be received at some point in the future for resurfacing the road, this revenue would be recognised separately when the work is to be completed. It is not included in the above calculations.
Alternatively if the operator has an obligation to resurface without the costs being reimbursed then a provision for reinstatement needs to be made and therefore this cost would have to be factored into the above calculations.
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Examples
Example 2: Application of the fair value model com.
Example 3: Application of the fair value model – livestock.
Example 4: Biological Assets held at fair value.
Example 5: Extract from notes to the financial statements for biological assets held at fair value.
Example 6: Extract from accounting policies notes for livestock/biological assets carried at cost.
Example 14: Donated goods or services – fixed assets.
Example 15: Donated goods or services – donated goods held for resale – impractical to measure.
Example 16: Donated goods or services – donated goods held for resale – practical to measure.
Example 18: Donated goods or services – donated services.
Example 19: Business Combinations: Gifts of business etc.
Example 20: Business Combinations: Mergers.
Example 21: Concessionary loans – option not to discount.
Example 22: Concessionary loans – option to discount.
Example 24: Accruals model (applicable for FRS 102 only and not Charities SORP) – capital grant.
Example 25: Accruals model (applicable for FRS 102 only and not Charities SORP) – revenue grant.
Example 26: Accruals model (applicable for FRS 102 only and not Charities SORP) – revenue grant.
Example 27: Performance model (applicable for FRS 102 and Charities SORP) – revenue grant.
Example 28: Performance model – Revenue Grant.
Example 29: Capital grants (FRS 102 and FRS 102 SORP – performance model).
Example 30: Grants and performance conditions.
Example 31: Grants and performance conditions.
Example 32: Grants and performance conditions.
Example 33: Grants and performance conditions.
Example 34: Grants and performance conditions.
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