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Thread: 07 Accounting Standard 7 - Construction Contract - AS 7

  1. #41
    Accounting Standards
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    Default Recognition and measurement of arrangement consideration of Accounting Standard 7 - Construction Contract - AS 7

    Recognition and measurement of arrangement consideration of Accounting Standard 7 - Construction Contract - AS 7


    12 Under the terms of contractual arrangements within the scope of this Appendix, the operator acts as a service provider. The operator constructs or upgrades infrastructure (construction or upgrade services) used to provide a public service and operates and maintains that infrastructure (operation services) for a specified period of time.


    13 The operator shall recognise and measure revenue in accordance with AS 7 (Revised 20XX) and AS 9 (Revised 20XX) for the services it performs. If the operator performs more than one service (ie construction or upgrade services and operation services) under a single contract or arrangement, consideration received or receivable shall be allocated by reference to the relative fair values of the
    services delivered, when the amounts are separately identifiable. The nature of the consideration determines its subsequent accounting treatment. The subsequent accounting for consideration received as a financial asset and as an intangible asset is detailed in paragraphs 23–26 below.

  2. #42
    Accounting Standards
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    Default Construction or upgrade services of Accounting Standard 7 - Construction Contract - AS 7

    Construction or upgrade services of Accounting Standard 7 - Construction Contract - AS 7


    14 The operator shall account for revenue and costs relating to construction or upgrade services in accordance with AS 7 (Revised 20XX).

    Consideration given by the grantor to the operator

    15 If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognised at its fair value. The consideration may be rights to:
    (a) a financial asset, or
    (b) an intangible asset.


    16 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.


    17 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.

    18 If the operator is paid for the construction services partly by a financial asset and partly by an intangible asset it is necessary to account separately for each component of the operator’s consideration. The consideration received or receivable for both components shall be recognised initially at the fair value of the consideration received or receivable.


    19 The nature of the consideration given by the grantor to the operator shall be determined by reference to the contract terms and, when it exists, relevant contract law.

  3. #43
    Accounting Standards
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    Default Operation services of Accounting Standard 7 - Construction Contract - AS 7

    Operation services of Accounting Standard 7 - Construction Contract - AS 7


    20 The operator shall account for revenue and costs relating to operation services in accordance withAS 9 (Revised 20XX).


    Contractual obligations to restore the infrastructure to a specified level of serviceability


    21 The operator may have contractual obligations it must fulfil as a condition of its licence

    (a) to maintain the infrastructure to a specified level of serviceability or

    (b) to restore the infrastructure to a specified condition before it is handed over to the grantor at the end of the service arrangement. These contractual obligations to maintain or restore infrastructure, except for any upgrade element (see paragraph 14 of this Appendix), shall be recognised and measured in accordance with AS 29 (Revised 20XX), ie at the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period.

  4. #44
    Accounting Standards
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    Default Borrowing costs incurred by the operator of Accounting Standard 7 - Construction Contract - AS 7

    Borrowing costs incurred by the operator of Accounting Standard 7 - Construction Contract - AS 7


    22 In accordance with AS 16 (Revised 20XX), borrowing costs attributable to the arrangement shall be recognised as an expense in the period in which they are incurred unless the operator has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case borrowing costs attributable to the arrangement shall be capitalised during the construction phase of the arrangement in accordance with that Standard.

  5. #45
    Accounting Standards
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    Default Financial asset of Accounting Standard 7 - Construction Contract - AS 7

    Financial asset of Accounting Standard 7 - Construction Contract - AS 7


    23 AS 30 (Revised 20XX), AS 31 (Revised 20XX) and AS 32 (Revised 20XX) apply to the financial asset recognised under paragraphs 16 and 18 of this Appendix.


    24 The amount due from or at the direction of the grantor is accounted for in accordance with AS 30 (Revised 20XX) as:


    (a) a loan or receivable;
    (b) an available-for-sale financial asset; or
    (c) if so designated upon initial recognition, a financial asset at fair value through profit or loss, if the conditions for that classification are met.


    25 If the amount due from the grantor is accounted for either as a loan or receivable or as an available-for-sale financial asset, AS 30 (Revised 20XX) requires interest calculated using the effective interest method to be recognised in profit or loss.

  6. #46
    Accounting Standards
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    Default Intangible asset of Accounting Standard 7 - Construction Contract - AS 7

    Intangible asset


    26 AS 26 (Revised 20XX) applies to the intangible asset recognised in accordance with paragraphs 17 and 18 of this Appendix . Paragraphs 45–47 of AS 26 (Revised 20XX) provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets.

  7. #47
    Accounting Standards
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    Default Items provided to the operator by the grantor of Accounting Standard 7 - Construction Contract - AS 7

    Items provided to the operator by the grantor of Accounting Standard 7 - Construction Contract - AS 7


    27 In accordance with paragraph 11 of this Appendix, infrastructure items to which the operator is given access by the grantor for the purposes of the service arrangement are not recognised as property, plant and equipment of the operator. The grantor may also provide other items to the operator that the operator can keep or deal with as it wishes. If such assets form part of the consideration payable by the grantor for the services, they are not government grants as defined
    in AS 12 (Revised 20XX). They are recognised as assets of the operator, measured at fair value on initial recognition. The operator shall recognise a liability in respect of unfulfilled obligations it has assumed in exchange for the assets.

  8. #48
    Accounting Standards
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    Default This Application Guidance is an integral part of Appendix A of Accounting Standard 7 - Construction Contract - AS 7

    Application Guidance on Appendix A

    This Application Guidance is an integral part of Appendix A

    Scope (paragraph 5 of Appendix of A)

    AG1 Paragraph 5 of Appendix A specifies that infrastructure is within the scope of theAppendix when the following conditions apply:

    (a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and

    (b) the grantor controls—through ownership, beneficial entitlement or otherwise—any significant residual interest in the infrastructure at the end of the term of the arrangement.


    AG2 The control or regulation referred to in condition (a) could be by contract or otherwise (such as through a regulator), and includes circumstances in which the grantor buys all of the output as well as those in which some or all of the output is bought by other users. In applying this condition, the grantor and any related parties shall be considered together. If the grantor is a public sector entity, the public sector as a whole, together with any regulators acting in the public interest, shall be regarded as related to the grantor for the purposes of this Appendix A.


    AG3 For the purpose of condition (a), the grantor does not need to have complete control of the price: it is sufficient for the price to be regulated by the grantor, contract or regulator, for example by a capping mechanism. However, the condition shall be applied to the substance of the agreement. Non-substantive features, such as a cap that will apply only in remote circumstances, shall be ignored. Conversely, if for example, a contract purports to give the operator freedom to set prices, but any excess profit is returned to the grantor, the operator’s return is capped and the price element of the control test is met.

    AG4 For the purpose of condition (b), the grantor’s control over any significant residual interest should both restrict the operator’s practical ability to sell or pledge the infrastructure and give the grantor a continuing right of use throughout the period of the arrangement. The residual interest in the infrastructure is the estimated current value of the infrastructure as if it were already of the age and in the condition expected at the end of the period of the arrangement.


    AG5 Control should be distinguished from management. If the grantor retains both the degree of control described in paragraph 5(a) of Appendix A and any significant residual interest in the infrastructure, the operator is only managing the infrastructure on the grantor’s behalf—even though, in many cases, it may have wide managerial discretion.


    AG6 Conditions (a) and (b) together identify when the infrastructure, including any replacements required (see paragraph 21 of Appendix A), is controlled by the grantor for the whole of its economic life. For example, if the operator has to replace part of an item of infrastructure during the period of the arrangement (eg the top layer of a road or the roof of a building), the item of infrastructure shall be considered as a whole. Thus condition (b) is met for the whole of the infrastructure, including the part that is replaced, if the grantor controls any significant residual interest in the final replacement of that part.

    AG7 Sometimes the use of infrastructure is partly regulated in the manner described in paragraph 5(a) of Appendix A and partly unregulated. However, these arrangements take a variety of forms:
    (a) any infrastructure that is physically separable and capable of being operated independently and meets the definition of a cash-generating unit as defined in AS 28 (Revised 20XX) shall be analysed separately if it is used wholly for unregulated purposes. For example, this might apply to a
    private wing of a hospital, where the remainder of the hospital is used by the grantor to treat public patients.

    (b) when purely ancillary activities (such as a hospital shop) are unregulated, the control tests shall be applied as if those services did not exist, because in cases in which the grantor controls the services in the manner described in paragraph 5 of Appendix A, the existence of ancillary activities does not detract from the grantor’s control of the infrastructure.


    AG8 The operator may have a right to use the separable infrastructure described in paragraph AG7 (a), or the facilities used to provide ancillary unregulated services described in paragraph AG7 (b). In either case, there may in substance be a lease from the grantor to the operator; if so, it shall be accounted for in accordance with AS 19 (Revised 20XX).

  9. #49
    Accounting Standards
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    Default Appendix of Accounting Standard 7 - Construction Contract - AS 7

    Appendix of Accounting Standard 7 - Construction Contract - AS 7


    Click here for Appendix

    http://www.knowledgebible.com/forum/...tion-Contracts

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