Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p23
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 23/91)
Character Range: 69451–72488

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 within the scope of AASB 9.  This is the related amount to be recognised in accordance with paragraph 9.

    Accounting treatment

    On recognition of the prepaid-rates financial asset, in accordance with paragraph 9 the Council also recognises the related amount of the financial liability in accordance with AASB 9, and no income is recognised by the Council.  Following the occurrence of the taxable event on 1 July 20X6, the financial liability is extinguished and the Council recognises income for the prepaid rates that have not been refunded.

    The journal entries for the accounting (aggregating the journal entries in May and June 20X6 for individual transactions) are:

      Debit Credit

     Receipt of prepaid rates (aggregate)

     Cash  120,000

     Financial liability  120,000

     Refunds of prepaid rates (aggregate)

     Financial liability 7,000

     Cash  7,000

      Debit Credit

     Taxable event occurs

     1 July 20X6

     Financial liability 113,000

     Income  113,000

Leases

IE4                 Example 5 illustrates the requirements in AASB 1058 regarding the recognition of a lease liability in accordance with AASB 16.

    Example 5—Lease with significantly below-market minimum lease payments

    Charity A (lessee) enters a 30 year lease with a local government (the lessor) for the use of a facility.  The lease contract specifies lease payments of $100 per annum.  At the inception of the lease, the entity assesses the terms and conditions of the lease, including restrictions, and determines the fair value of the right to use the facility for 30 years is $360,000.  The leased premises must be used to provide services to the homeless, or else Charity A will no longer be able to use the facility.

    There are no other conditions specified in the lease contract.

    Scope and asset recognition

    Charity A determines:

                    the $360,000 right-of-use asset is an asset the charity acquired for consideration significantly below fair value to further the objectives of the charity.  Accordingly, the asset is within the scope of AASB 1058; and

                    it controls a leased asset ($360,000) within the scope of AASB 16.

    On recognition of the right-of-use asset, Charity A determines the lease does not give rise to related amounts of the following types:

                    a contribution by owners, as the local government does not have an ownership interest in Charity A;

                    a contract with a customer in accordance with AASB 15, because the lease liability arises from a lease contract within the scope of AASB 16 and there are no other sufficiently specific performance obligations requiring transfers of goods or services to the local