Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p70
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 220664–223668

all assets and liabilities acquired are recognised, including those not previously recognised by the acquiree. This approach means that intangible assets encompassed by a service concession arrangement should be recognised by the grantor as intangible service concession assets (when the conditions in paragraph 5 or 6 are met), regardless of whether the assets were already recognised by the grantor as intangible assets.

     BC41            The Board considered whether the recognition of previously unrecognised intangible assets as service concession assets should result in revenue for the grantor. The Board decided that the recognition of revenue would not be appropriate since the grantor is not obtaining control of such assets for the first time, but continues to control such assets. Instead, the Board concluded that the recognition is like a remeasurement of the assets, with a corresponding adjustment to revaluation surplus. This aligns with the grantor recognising a liability in respect of service concession assets provided by the operator, since the grantor obtains control of those assets only through the service concession arrangement. Those liabilities are reduced as revenue is recognised in accordance with the substance of the arrangement.

     BC42            The Board noted that a service concession arrangement might encompass a business of the grantor, as defined in AASB 3. This raised the issue of whether the grantor should recognise internally generated goodwill as an asset of the business. The Board considered whether to follow the approach in AASB 3 and require goodwill to be recognised by the grantor. Under this approach, the grantor would measure the business at fair value (current replacement cost) and allocate this amount to the identifiable assets (such as property, plant and equipment and identifiable intangible assets) in the business, measured at their fair value (current replacement cost), with the remaining amount allocated to internally generated goodwill after recognising any liabilities of the business.

     BC43            The Board acknowledged the conceptual merit in applying the AASB 3 approach to identify the assets for recognition in a service concession arrangement, in that the grantor has provided the operator with the right to access the whole business (including any goodwill) for the purpose of providing public services. However, the Board noted that this approach would give rise to difficulties in subsequently assessing goodwill annually for impairment under AASB 136 Impairment of Assets, since the revenue to be recognised by the grantor under the service concession arrangement would be limited to the related liabilities recognised, rather than reflecting cash flows of the service concession assets. The Board concluded that the approach in AASB 3 would be difficult to apply in practice, with the costs likely to outweigh the benefits. Consequently, the Board decided not to apply the approach in AASB 3. Instead,