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Comments from ACCA
24 April 2008

ACCA is pleased to have this opportunity to comment on the draft interpretation D24, which relates to the above subject. The draft interpretation was considered by ACCA's Financial Reporting Committee.

General comments

We agree that the draft interpretation addresses an area where additional guidance would be useful and are generally supportive of the proposals in D24. We do however believe that the clarity of the interpretation could be improved through a re-drafting which includes additional examples along with clearer explanations of the varying types of customer contributions.

ACCA responses to questions raised by IASB

Q1 How should an entity determine whether it should recognise an asset as a result of receiving a customer contribution?

The IFRIC proposes that when an entity receives a customer contribution of an asset, the entity shall recognise the asset only if it meets the definition of an asset, as well as the recognition criteria set out in the Framework.

Whilst we understand the need for the contributed assets to meet the definition of an asset, including in particular the notion of control, we would question why there is reference to the Framework and not to IAS16 in determining whether an asset should be recognised. IAS16 does offer a brief definition of property, plant and equipment as being tangible items that

1. are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
2. are expected to be used during more than one period.

We believe that in the majority of cases, where there is a non-cash contribution, the contributed assets will be property, plant and equipment, and as such the guidance in IAS16 would be useful.

Q2 If an entity recognises an asset as a result of receiving a customer contribution, at what amount should the contributed property, plant and equipment be initially recognised?

We agree with the conclusions of IFRIC as set out in paragraphs BC8 to BC10, that if the property, plant and equipment meets the definition of an asset, then it would be appropriate for the receiving entity to measure the asset at its fair value on initial recognition. As it would be an acquisition in exchange for a non-monetary asset it should be accounted for in accordance with IAS16.

Q3 If a customer contribution is recorded at fair value on initial recognition, how should the resulting credit be accounted for?

We agree with IFRIC that because there is an obligation to provide access through the use of the contributed assets, the obligation is reduced, and revenue is recognised as the access is provided. The obligation cannot continue beyond the useful life of those assets.

Q4 How should an entity account for the receipt of a cash contributions?

We believe that the economic effect of a cash contribution is the same as that of a contribution of PPE and that the accounting treatment should be consistent.

Thus, if the asset that must be acquired or constructed (from the cash received) fulfils the criteria for an asset (as discussed in question 1), then that asset should also be recognised and measured in accordance with IAS16.

The accounting treatment for the obligation and the recognition of revenue should therefore, also be the same as for a customer contribution.

We also concur that if it is determined that the cash contribution does not meet the definition of an asset, then the contribution should be accounted for as proceeds for providing the asset to the customer under IAS11 or IAS18.

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