Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p75
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 233991–236777

to charge users) and the income approach would not be appropriate.

     BC59            The Board noted some may view the grant of a right to the operator to earn revenue from third-party users of the asset as a restriction that a market participant would recognise when using the income approach (see also paragraph BC50). Under this view, the asset should be measured only in relation to the service potential of the asset after the service concession period has expired, ie at the fair value of the residual interest in the asset (see also paragraphs BC52–BC53). This is on the basis that the market participant buyer will not have the right to all the cash flows that could be generated by the asset as the right to the cash flows for the service concession period has been granted to the operator (effectively the service concession period component of the asset would be derecognised). Under this view, the service concession asset's fair value relates only to the cash flows that can be directly generated for the grantor by the asset. Consequently, the fair value of the asset would be measured at the asset's residual value.

     BC60            However, the Board noted a public sector entity uses a service concession asset's capacity or service potential to provide goods or services to achieve public service objectives, replacing the asset irrespective of whether the replacement cost will be recovered by the expected cash flows that the asset may generate. The Board also noted the view that the service potential of a service concession asset (such as a road) under a service concession arrangement involving the financial liability model and the service potential of an identical asset (such as a toll road) under a service concession arrangement involving the GORTO model is the same from the grantor's perspective as both assets will provide the same utility to the public. Under this view, the fair value of these assets should therefore be measured consistently. The Board concluded that the fair value of the asset would be understated if it was measured at the fair value of the residual interest in the asset.

     BC61            The Board also noted its decision to recognise, under the GORTO model, a contract liability that is initially recognised and then reduced as revenue is recognised (see paragraphs B71–B72 and BC80). The Board considered whether the amortisation profile of the contract liability should be determined so that the net balance of the service concession asset and the contract liability approximates the fair value of the residual interest in the asset. Whilst this would effectively mean a more consistent outcome with the financial liability model, the Board considered this approach would be practically difficult, with the costs