At its meeting in May 2007 the IFRIC took a project on to its agenda to develop guidance on the accounting by a service provider for the receipt of customer contributions. Such contributions arise in situations in which customers provide an asset to a service provider that is then used to deliver an ongoing service to customers.
The IFRIC discussed whether such a contribution met the criteria for recognition as an asset by the service provider. It concluded that, in some situations, the contributed asset would meet the criteria for recognition by the service provider.
The IFRIC then considered whether the ongoing service arrangement included a lease of the asset back to the customer. It concluded that in some situations IFRIC 4 Determining whether an Arrangement contains a Lease would apply and the ongoing service arrangement would include a leaseback of the asset to the contributor.
The IFRIC asked the staff to prepare a paper for the next meeting explaining how an entity would assess control over the asset, whether such an asset had been transferred as a result of a contribution and if the asset had then been leased back. The paper should also explain the implications of concluding that a leaseback had occurred.
The IFRIC then considered whether it was appropriate to account for customer contributions by applying IAS 20 Accounting for Government Grants and Disclosure of Government Assistance by analogy. The IFRIC noted that there were significant differences between government grants and customer contributions including that customer contributions are provided as part of trading relationships. The IFRIC concluded that it was not appropriate to account for customer contributions using IAS 20 by analogy.
The IFRIC discussed whether a contributed asset should be recognised initially at fair value or at cost. The IFRIC noted that paragraph 24 of IAS 16 Property, Plant and Equipment states that the cost of an item of property, plant and equipment that is acquired in exchange for a non-monetary asset is measured at fair value. The IFRIC believed that in a commercial transaction the contributed asset would be provided in exchange for another asset. That asset might take the form of an access right, an executory contract, or a right to future services. The IFRIC therefore concluded that a contributed asset should be measured initially at fair value in accordance with IAS 16.
The IFRIC also considered how an entity should account for the credit that arises as a result of recognising a contributed asset at its fair value. The IFRIC concluded that the credit does not arise from an equity contribution nor does it represent a reduction in the carrying value of an asset. Instead, it concluded that the credit relates to an income transaction.