Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p85
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 261000–263894

Board concluded that the grantor does not have a financial liability under GORTO arrangements. That is, the grantor does not have a contractual obligation to deliver cash or another financial asset to the operator nor exchange financial assets or financial liabilities with the operator under potentially unfavourable conditions.
     BC87            The Board considered whether the more appropriate approach under the GORTO model is to recognise only the cash flows that the service concession asset can generate directly (the residual cash flows to the grantor). The implication is that the fair value of the asset could be measured at the asset's residual value (which could be zero), excluding the cash flows generated by the asset that have been granted to the operator. However, the Board concluded that the fair value of the asset should be measured using the current replacement cost under the cost approach irrespective of whether the cost of replacing the asset will be recovered by the expected cash flows that the asset may generate (see paragraphs BC63–BC66). In addition, the grantor would recognise a GORTO contract liability (see paragraphs BC79–BC80).

     BC88            The Board also considered the application of AASB 140 by analogy to address the implication of measuring the asset's fair value based on only the cash flows that are directly generated by the service concession asset for the grantor. Although this approach might be appropriate under AASB 13, the resulting fair value of the service concession asset would be understated in relation to the service concession arrangement. The application of AASB 140 by analogy attempts to overcome this.

     BC89            Under AASB 140, the fair value of investment property reflects expected future cash flows, including any future rental receipts. AASB 140 (paragraph 50) makes clear that in determining the carrying amount of investment property under the fair value model, it is necessary to avoid double-counting assets or liabilities that are recognised separately, such as prepaid or accrued rental income and lease incentives. In such cases, the fair value (carrying amount) of the investment property is adjusted so that in total the combination of all related amounts gives the fair value of the investment property.

     BC90            The Board considered that to apply the AASB 140 approach to the GORTO model, the fair value of the service concession asset would first be determined on a gross basis (ie current replacement cost for the full service potential of the asset). Then a GORTO contract liability would be recognised, so that in total the combination of the service concession asset and the liability would give on a net basis the appropriate measure of the service concession asset, reflecting the cash flows expected to be generated for the grantor. This approach would avoid measuring