Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p99
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 299915–302863

economic life. The Board considered that determining a proxy would be difficult and could result in a rule-of-thumb that might not be a faithful representation of the substance of an arrangement. Moreover, this option would not address the issue that for some arrangements the GORTO liability calculated under the modified retrospective approach might be significantly smaller compared to the asset;

         * Option 3 – include the calculation proposed in Option 1 as an accounting policy choice for entities. That is, make available both the current modified retrospective method and the calculation proposed in Option 1, and provide guidance to illustrate which option to apply under which circumstances. The Board noted that in finalising AASB 1059 it had mandated one calculation method so that the modified retrospective method would be applied consistently across entities. Introducing an optional alternative for the modified retrospective method could remove that consistency and permit entities to choose a method for the purpose of achieving better budget or actual results rather than the method that best reflects the economic substance of the transaction; and

         * Option 4 – to recognise a GORTO liability at the same amount as the current replacement cost of the asset received on transition to AASB 1059. This method is similar to the modified transitional approach in transitioning operating leases under AASB 117 Leases to AASB 16. Under paragraph C8 of AASB 16, a lessee recognises a lease liability under the Standard and has an option to recognise a right-of-use asset based on the amount of the lease liability on transition to AASB 16. However, the Board considered that the modified retrospective method should reflect that part of the service concession period has already passed.

     BC13            The Board considered the advantages and disadvantages of each option and decided to adopt Option 1 – change the modified retrospective GORTO liability calculation method so that it is initially measured based on the current replacement cost of the service concession asset at the date of initial application adjusted to reflect the remaining concession period relative to the total period of the arrangement, rather than relative to the remaining economic life of the service concession asset.

     BC14            Option 1 would result in a larger GORTO liability compared to the current modified retrospective calculation method when the service concession asset has a remaining economic life longer than the total concession period. The Board considered that this larger GORTO liability calculated under Option 1 better reflects the grantor's unearned revenue on transition date, under a short-cut method, compared to the current calculation method. This is because the grantor would be able to continue to benefit from the asset after the service concession arrangement has ended, and would then recognise