Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p47
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 142580–145644

service concession arrangement and reflects the fair values (current replacement cost) for each of the assets and services, which are set out in Table 6.

     IE15              The grantor's accounting policies include:

          (a)                    service concession assets (property, plant, and equipment) – measured initially at fair value (current replacement cost) and subsequently in accordance with the cost model. Impairment is recognised when the carrying amount exceeds the current replacement cost;

          (b)                   financial liabilities – subsequently measured at amortised cost using the effective interest method; and

          (c)                    borrowing costs – expensed in the period incurred regardless of how the borrowings are applied.

     Table 6 Fair values of the components of the arrangement (currency units)
Contract component              Fair value
Road – base layers              972
Road – original surface layers  110
Total fair value of road        1,082
Annual service component        12
Effective interest rate         6.18%

Example 6:  The grantor makes a predetermined series of payments to the operator (paragraphs 15–20)

Additional arrangement terms
     IE16              The terms of the arrangement require the grantor to pay the operator CU200 per year in years 3–10 for making the road available to the public. The total consideration (payment of CU200 in each of years 3–10) reflects the fair values (current replacement cost) for each of the assets and services indicated in Table 6. These payments are intended to cover the cost of constructing the road, annual operating costs of CU12 and reimbursement to the operator for the cost of resurfacing the road in year 8 of CU110.

Financial statement impact
     IE17              The grantor initially recognises the service concession asset as property, plant, and equipment at its fair value, measured at current replacement cost (total CU1,082, determined as CU940 related to construction of the base layers, CU110 related to construction of the original surface layers and CU32 for funding costs related to the costs incurred in year 1 for base layers). The asset is recognised as it is constructed (CU525 in year 1 and CU557 in year 2). Depreciation is recognised annually (CU57, comprised of CU39 (CU972/25) for the base layers and CU18 (CU110/6) for the surface layers), starting from year 3.

     IE18              The grantor initially recognises a financial liability equal to the fair value (current replacement cost) of the service concession asset under construction at the end of year 1 (CU525). The liability is increased at the end of year 2 to reflect both the fair value of the additional construction (CU525) and the finance charge (CU32) on the outstanding financial liability. Because the amount of the predetermined payment related to the service component of the service concession arrangement is known, the grantor is able to determine the amount of the annual payment that reduces the liability each period.