Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p22
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 22/91)
Character Range: 66796–69721

owners, a lease liability, a financial liability or a provision.

    However, the promise to provide student accommodation is a sufficiently specific performance obligation related to the asset that AASB 15 applies, as the obligation to provide student accommodation for one student each year is distinct, and the university is able to identify that its obligation under the agreement will be satisfied by the end of 30 years (paragraph F20 of AASB 15).  The endowment is also an enforceable agreement.  Accordingly, as the consideration provided for the endowment is solely a performance obligation within the scope of AASB 15, AASB 1058 does not apply.

    Accounting treatment

    On recognition of the endowment financial asset in accordance with AASB 9, University A also recognises a contract liability in a contract with a customer in accordance with AASB 15 for its performance obligation to transfer an annual scholarship for 30 years.  University A recognises income immediately in profit or loss for any excess of the fair value of the cash transferred ($2 million) over the contract liability recognised in accordance with paragraph 106 of AASB 15.

    The journal entry on initial recognition is:

      Debit Credit

    Cash  2,000,000

      Contract liability  1,850,000

     Income  150,000

    Example 4—Refundable prepaid local government rates

    Local Council A calculates the rates it charges local residents on an annual basis approximately two months prior to the annual period to which the rates relate.  Residents and other ratepayers are able to pay their rates in advance on a quarterly or annual basis.  Rate payments received before the annual rateable period begins are fully refundable up to the beginning of the rateable period for which the payment is made.  For example, if the Council receives a payment in May 20X6 for the rateable period from 1 July 20X6 to 30 June 20X7, the receipt is refundable in May and June 20X6.

    The following transactions have occurred during May and June 20X6, in aggregate:

                    ratepayers prepaid 20X6/X7 rates of $120,000; and

                    refunds of prepaid rates totalling $7,000 were paid to ratepayers.

    On receipt of prepaid rates, the Council determines that it has acquired cash (a financial asset) for no consideration to further the objectives of the Council.  Accordingly, the transaction is within the scope of AASB 1058, and the Council seeks to identify any related amounts for recognition.

    As the taxable event for the rates has not yet occurred (see AASB 9, Appendix C), the prepaid rates are refundable at the request of the ratepayer.  Until the taxable event occurs, the prepaid rates do not have the character of non-contractual amounts arising from statutory requirements.  Therefore, during the refundable period, the rates received in advance give rise to a financial liability that is