FRSC Adopts Guidance on Transfers of Assets from Customers
The Financial Reporting Standards Council (FRSC) approved the adoption of IFRIC Interpretation 18, Transfers of Assets from Customers, as Philippine Interpretation IFRIC–18, Transfers of Assets from Customers. The Interpretation, which was issued by the International Financial Reporting Interpretations Committee (IFRIC), the interpretative arm of the International Accounting Standards Board (IASB), provides additional guidance on the accounting for transfers of assets from customers.
The Interpretation is particularly relevant for the utility sector. It clarifies the requirements of International Financial Reporting Standards (IFRSs) for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer which must be used only to acquire or construct the item of property, plant and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both).
IFRSs, in particular the principles in IAS 18, Revenue, have been interpreted differently and the IFRIC was asked to provide additional guidance on the accounting for those transfers of assets from customers. The interpretation clarifies:
the circumstances in which the definition of an asset is met;
• the recognition of the asset and the measurement of its cost on initial recognition;
• the identification of the separately identifiable services (one or more services in exchange for the transferred asset),
• the recognition of revenue;
• the accounting for transfers of cash from customers.
In response to the comments received on the draft Interpretation published in January 2008 (exposed for comment by the FRSC in February 2008), the IFRIC simplified the guidance on the recognition of an asset by referring to the IASB’s Framework and added additional guidance on the recognition of revenue.
The Interpretation requires entities to apply the Interpretation prospectively to transfers of assets from customers received on or after 1 July 2009. Earlier application is permitted provided the valuations and other information needed to apply to the Interpretation to past transfers were obtained at the time those transfers were made.