Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p68
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 215428–218215

implications beyond service concession arrangements.

     BC35            This Standard requires the residual interest in the asset to be measured as the estimated fair value (current replacement cost) of the asset as if it were already of the age and in the condition expected at the end of the service concession arrangement. The Board considered whether guidance should be provided in determining 'fair value' and its relationship to the asset's residual interest, and concluded it was not necessary to provide additional guidance (see paragraph BC69).

     BC36            The Board also considered the relationship between 'significant residual interest' and a 'whole-of-life' asset in determining whether the grantor has control of an asset. The Board decided that if the term of the service concession arrangement:

          (a) is not the economic life of the asset, then paragraph 5 of the Standard applies; or

          (b) is the economic life of the asset, then paragraph 6 of the Standard applies.

      The Board noted this is consistent with the general observation that the amount of residual interest at the end of an arrangement is inversely related to the term of the service concession arrangement relative to the economic life of the asset. That is, the residual interest at the end of the arrangement is likely to be significant if the term of the arrangement is not at least the majority portion of the economic life of the asset. Consequently, such an arrangement would be subject to paragraphs 5(a) and (b). Alternatively, where the residual interest is insignificant, the arrangement would be subject either to paragraph 5(a) or, for a whole-of-life asset, paragraph 6.
     BC37            Paragraph 6 of this Standard requires the grantor to recognise an asset that will be used in a service concession arrangement for its economic life (a whole-of-life asset) if the conditions in paragraph 5(a) are met. The Board decided to use the term 'economic life' instead of 'useful life' as proposed in ED 261 (paragraph 9). The economic life of an asset is the period over which future economic benefits are expected from all possible users of the asset, and may be the entire physical life of the asset. Consequently, an asset used in a service concession arrangement for its economic life will not have a significant residual interest at the end of the arrangement, and the condition in paragraph 5(b) will not be relevant. This contrasts with the term 'useful life', which is defined in AASB 116 Property, Plant and Equipment as the period over which an asset is expected to be available for use by an entity. An asset used in a service concession arrangement for its useful life (to the grantor) could have a significant residual interest at the end of the