The IFRIC received a request for guidance on how an entity should account for contributions received from or on behalf of customers. Such contributions arise when the customer provides an infrastructure asset, or cash to fund the acquisition and/or construction of such an asset, in order to obtain an ongoing service or to secure the ongoing supply of goods from the entity. The submission asked for guidance on how the entity should account for the asset received.
The IFRIC noted that the issue was widespread in various industries, such as utilities and telecommunications, and that there was divergence in practice.
The IFRIC therefore agreed with the staff recommendation to take the issue on to its agenda.
The IFRIC noted that the issue could potentially apply to a diverse set of arrangements. If it were to consider all such arrangements, the scope of the project might be so wide as to make it unlikely that the IFRIC would be able to reach a consensus on a timely basis.
The IFRIC considered whether to limit the scope of this project to situations in which a physical asset was contributed by an entity other than the customer who would receive the ongoing service. However, the IFRIC rejected that proposal. Instead, the IFRIC decided first to consider situations in which the entity received a contribution of property, plant and equipment. If it reaches a consensus on this issue, the IFRIC will consider whether its conclusions could be applied to other situations, including those in which cash is received for the acquisition and/or construction of an asset.
The IFRIC also discussed its approach to the project. It concluded that it should consider whether the arrangement conveys a right to use an asset as described in IFRIC 4 Determining whether an Arrangement contains a Lease. Assuming that rights have been transferred, the IFRIC will consider whether the transfer was an exchange transaction and whether the asset received should be recognised at cost (which could be nil) or fair value. Only after having concluded on those issues will the IFRIC consider the accounting for any resulting credit.