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

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