CA Varun Sethi - IFRS trainings - IFRIC 12 - Accounting for service concession arrangements - 2015
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Presentation by CA Varun Sethi The Presentation discusses the accounting framework for accounting by Grantors and Operators. Covered in detail is the IFRIC 12 - Accounting by Operators/ Concessionaires for Service concession arrangements (SCA). The presentation also helps the reader understand the technical differences between leases- IAS 17/IFRIC 4/ SCA etc and suggests the appropriate accounting in case of BOT, BOO, ROT, Lease, 100% Divestment cases. Industries Impacted 1. Non Utility generators - Solar and Wind companies/ Gencos 2. Infrastructure Companies - Toll Road, Seaport, Airport operators. 3. EPC (Engineering, procurement and Construction) companies. 4. Turnkey projects installation cos
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CA Varun Sethi - IFRS trainings - IFRIC 12 - Accounting for service concession arrangements - 2015
- 1. Accounting framework for Service Concession Arrangements 2015 Presentation by : CA Varun Sethi Contact no: +91 9899766487 Email: varunsethi81@gmail.com 2015
- 2. Presentation by : CA Varun Sethi Accounting by Grantor GAAP Reporting entity No standard ASLB still to release a draft of a similar standard. Indian GAAP IPSAS 32 Service Concession Arrangements: Grantor IFRS GAS 60 : Service concession arrangements: Grantor US GAAP Global Accounting framework for ‘Service concession arrangements’ Accounting by Operator 1. Guidance note on Accounting for SCA 2. Appendix C to IndAS 115 (Applicability still to be notified) IFRIC 12: Service concession arrangements ASC 853: ‘Service concession arrangements’
- 3. Presentation by : CA Varun Sethi Example Private Businesses Sectors and Industries impacted • Non Utility generators - Solar Power companies – BHEL, Suzlon • Infrastructure Cos - • Larsen and Toubro, GMR, Reliance Infrastructure Infrastructure • Shapoorji Pallonji • Larsen and toubro • Infrastructure Cos - • Larsen and Toubro, GMR • Fluor Daniels Limited, KBR Inc. EPC (Engineering, procurement, Construction) Turnkey projects businesses Global Accounting framework for ‘Service concession arrangements’ Example : Government / Public sector companies 1. Fluor Daniels Limited 2. KBR Inc. 3. NHAI CPWD State Highways authority NOIDA/ DDA
- 4. 4 Presentation by : CA Varun Sethi Accounting framework for ‘Service concession arrangements’ IFRIC 12 - Service concession arrangements Accounting for Revenue and costs relating to SCA 1. Construction services 2. Upgrade services IAS 11 - 'Construction contracts' Accounting for revenue and costs relating to SCA 1. Operator services IAS 18 – Revenue 1. Accounting for contractual obligation for replacement and maintenance expenditure 2. Maintain or restore infrastructure (Asset retirement obligations) IAS 37 : Provisions, contingent liab. & assets IFRS 15 – Revenue from contracts with customers IAS 17/IFRIC 4 Accounting for Leases – Operating and finance leases – Right to control the use of the asset. IAS 39/IFRS 9: Financial Instruments Accounting for Receivable to the extent that it has an unconditional contractual right to receive cash irrespective of the usage of the infrastructure. IAS 38: Intangible Asset Accounting for Receivable to the extent that it receives a right (a license) to charge users of the public service IAS 23: Borrowing costs Accounting for financing costs in each case – 1. financial asset and 2. Intangible Asset IAS 36 : Impairment of assets Impairment of assets – i.e. recoverable value is equal to or higher than the gross carrying amount of the asset 2015
- 5. ‘IFRIC 12 – Service Concession Arrangements’ Key Concepts 2015
- 6. 6 Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this IFRIC if the conditions in ‘I’ above are met. IFRIC 12 - Service concession arrangements Application scope I. 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 II. 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. This IFRIC applies to public-to-private service concession arrangements if: Presentation by : CA Varun Sethi 2015
- 7. Lessee Asset ownership Service/ O&M contracts ROT BOO 100% divestment/ Privatization Capital Investment Demand Risk Typical duration Primary IFRS applicable to Operator Residual interest Grantor Grantor Shared Grantor 8-20 yrs 1-5 years Grantor IAS 17 IAS 18 Service Provider Owner Category Operator leases assets from grantor BOT 25-30 yrs Grantor Operator Grantor OperatorOperator Grantor and /or Operator Operator 25-30 yrs Indefinite/ License period Grantor Operator IFRIC 12 IAS 16 Presentation by : CA Varun Sethi ‘Operator’ Accounting under IFRS 2015
- 8. 8 IFRIC 12 - Service concession arrangements Grantor ‘controls or regulates’ Presentation by : CA Varun Sethi Private
- 9. 9 IFRIC 12 - Service concession arrangements ‘Significant residual interest’ Presentation by : CA Varun Sethi Private
- 10. ‘IFRIC 12 – Service Concession Arrangements’ Practical example I – Financial Asset 2015
- 11. Receipts/Collection 0 250 250 2502500 250 250 250250 Y1 Y3 Y7 Y9Y5Y2 Y4 Y8 Y10Y6 2000 Total (-)Contract costs 500 20 20 2020500 20 220 2020 1180 (-) Borrowing costs 0 69 34 195334 61 23 743 343 Net Cash Flow -500 121 156 171137-524 129 67 183147 77 IFRIC 12 - Service concession arrangements Financial Asset Cash Flow Statement of Sample Toll Road Limited In accordance with IAS 23, borrowing costs attributable to the arrangement shall be recognized as an expense in the period in which they are incurred Presentation by : CA Varun Sethi 2015
- 12. Y1 Y3 Y7 Y9Y5Y2 Y4 Y8 Y10Y6 Total IFRIC 12 - Service concession arrangements Financial Asset Income Statement of Sample Toll Road Limited In accordance with IAS 23, borrowing costs attributable to the arrangement shall be recognized as an expense in the period in which they are incurred Presentation by : CA Varun Sethi 2015 Private
- 13. Y1 Y3 Y7 Y9Y5Y2 Y4 Y8 Y10Y6 Total IFRIC 12 - Service concession arrangements Financial Asset Debt Cash flows of Sample Toll Road Limited Presentation by : CA Varun Sethi 2015 Private
- 14. Opening Balance Y1 Y3 Y7 Y9Y5Y2 Y4 Y8 Y10Y6 Total Amounts due in Y 1256 (-) Repayments 2000 IFRIC 12 - Service concession arrangements Financial Asset Grantor balance – Amounts due Closing Balance Amount due before interest Interest due/income 344 Presentation by : CA Varun Sethi 2015 Private
- 15. ‘IFRIC 12 – Service Concession Arrangements’ Practical example II – Intangible Asset 2015
- 16. IFRIC 12 - Service concession arrangements Intangible Asset Cash flow Statement– Sample Toll Road Limited Presentation by : CA Varun Sethi Cash Flow Statement Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Receipts 250 250 250 250 250 250 250 250 Contract Costs -500 -500 -20 -20 -20 -20 -20 -20 -20 -20 Borrowing costs -34 -69 -61 -53 -43 -34 -23 -19 -7 Net cash flow - used for debt repayment -500 -534 121 129 137 147 156 67 171 183 2015
- 17. IFRIC 12 - Service concession arrangements Intangible Asset Income Statement– Sample Toll Road Limited Presentation by : CA Varun Sethi Income Statement Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Revenue 600 600 250 250 250 250 250 250 250 250 Amortization of intangible asset -185 -185 -185 -185 -185 -185 -185 -185 Resurface expense 0 0 -12 -14 -15 -17 -20 -22 0 0 Contract costs -500 -500 -20 -20 -20 -20 -20 -20 -20 -20 Borrowing costs 0 0 -69 -61 -53 -43 -34 -23 -19 -7 Net Income 100 100 2015
- 18. IFRIC 12 - Service concession arrangements Intangible Asset Intangible Asset – Sample Toll Road Limited Presentation by : CA Varun Sethi Intangible Asset Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Opening balance Cost = FV of consideration Borrowing costs capitalized Less: Amortization Closing Balance Debt cash flows Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Debt Interest/ Borrowing costs Closing balance Less: Repaid Net debt Outstanding 2015 Private
- 19. 19 IFRIC 12 - Service concession arrangements Separable and Ancillary unregulated services: Presentation by : CA Varun Sethi 2015 Private
- 20. 20 IFRIC 12 - Service concession arrangements I. infrastructure that the operator constructs or acquires from a third party for the purpose of the service arrangement; and II. existing infrastructure to which the grantor gives the operator access for the purpose of the service arrangement. This Appendix applies to both: Presentation by : CA Varun Sethi 2015