Document ID: chunk:federal_register_of_legislation:F2023C00188:reg:7:p24
Version: federal_register_of_legislation:F2023C00188
Segment Type: reg
Provision Reference: reg 7 (pt 24/91)
Character Range: 72242–75249

a customer in accordance with AASB 15, because the lease liability arises from a lease contract within the scope of AASB 16 and there are no other sufficiently specific performance obligations requiring transfers of goods or services to the local government or others associated with the lease contracts.  Use of the facility to provide services to the homeless is not sufficiently specific to identify when the services have been provided.  Accordingly, AASB 15 does not apply;

                    a provision within the scope of AASB 137, as the agreement provides legal obligations and there are no other constructive obligations that are sufficiently specific to consider; and

                    a financial instrument, because lease contracts within the scope of AASB 16 are scoped out of AASB 9.

    Accounting treatment

    In accordance with AASB 16, Charity A recognises a right-of-use asset of $360,000 and a lease liability of $1,537, being the present value of the future lease payments discounted at Charity A's incremental borrowing rate of 5% per annum (as the interest rate implicit in the lease is not readily determinable).  Charity A also recognises the difference of $358,463 between the fair value of leased asset and the lease liability as income at inception of the lease in accordance with paragraph 10 of AASB 1058.

    The journal entry on initial recognition is:

      Debit Credit

     Right-of-use asset 360,000

      Lease liability  1,537

     Income  358,463

Contract with a customer – revenue and income

IE5                 Examples 6–8 illustrate the requirements in AASB 1058 regarding recognition of revenue and a contract liability in accordance with AASB 15.  To be in the scope of AASB 15, the contract must:

(a)                    be enforceable;

(b)                   contain performance obligations to transfers goods or services to another party that are sufficiently specific to enable determination of when the obligation has been satisfied; and

(c)                    not result in the goods or services specified being retained by the entity, ie the goods or services will be transferred to the customer or to other parties on behalf of the customer.

    Example 6—Enforceable agreement, performance obligations and restrictions on timing of expenditure

    Charity B receives a government grant of $2.4 million on 31 May 20X6, which is refundable if the money is not spent in the period 1 July 20X6 to 30 June 20X7.

    Scope and asset recognition

    Charity B determines:

                    the $2.4 million grant is an asset the charity acquired to further the objectives of the charity; and

                    it controls a financial asset ($2.4 million cash) within the scope of AASB 9.

    The above fact pattern and analysis applies to Examples 6A and 6B, described below.

    Example 6A – Enforceable agreement, no specific performance obligations but restrictions on timing of expenditure

    This example contains the