Service concessions – Summary

There is no definition in IFRIC 12 but a characteristic included is as follows: a service concession: “typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining it for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes”.

The following summary provides the headlines of items to deal with in service concessions as per IFRS 12:

Treatment of the operator’s rights over the infrastructure

Infrastructure within the scope … Read more

IFRS 9 – Reclassification of financial instruments

The IFRS 9 requirements for reclassification of financial instruments are significantly different from those in IAS 39.

IAS 39

IFRS 9

  • IAS 39 contains numerous reclassification rules for the various categories of financial instruments.
  • For instance, a change in intention or ability causes the initial classification to be inappropriate, a reliable measure of fair value becomes available or is no longer available, etc.

(IAS 39.50-54)

IFRS 9 – Reclassification of financial instruments

(IFRS 9.4.4.1-2)

IFRS 9 – Reclassification of financial instruments

IFRS 9

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Royalty Avoidance Approach

One method to determine the market value of Intellectual Property assets like patents, trademarks, and copyrights is to use the royalty avoidance approach (also known as Relief from royalty or Royalty Relief). This approach determines the value of Intellectual Property assets by estimating what it would cost the business if it had to purchase the Intellectual Property (IP) it uses from an outsider.

This approach requires the valuator to (1) project future sales of the products that use the technology, (2) determine an appropriate reasonable royalty rate, and (3) determine either a present value factor or an appropriate discount rate. The result is the present value of the Intellectual Property to the company. See the following example of Read more

Continuing involvement

This is part of a decision model for the derecognition of financial assets. The derecognition can be a full derecognition, a full continued recognition, a full derecognition with recognition of new assets or liabilities retained or a continued involvement. The model is starting here. Derecognition of financial assets

Under the continuing involvement approach, the entity continues to recognise part of the asset. The amount of the asset that continues to be recognised is the maximum amount of the entity’s exposure to that particular asset or its previous carrying amount, if lower. The presentation of the asset and liability will result in the recognition of the entity’s remaining exposure on the balance sheet on a gross basis … Read more

Full derecognition with recognition of new assets or liabilities retained

This is part of a decision model for the derecognition of financial assets. The derecognition can be a full derecognition, a full continued recognition, a full derecognition with recognition of new assets or liabilities retained or a continued involvement. The model is starting here. Derecognition of financial assets

When an entity has neither transferred nor retained substantially all the risks and rewards but has transferred control, it derecognises the financial asset and recognises separately as assets or liabilities any rights and Measuring progress to completionobligations created or retained in the transfer. For example, if an entity sells an asset that is traded in an active market but retains a call option to buy back that asset at a fixed price, … Read more

Continue to recognise the asset

This is part of a decision model for the derecognition of financial assets. The derecognition can be a full derecognition, a full continued recognition, a full derecognition with recognition of new assets or liabilities retained or a continued involvement. The model is starting here. Derecognition of financial assets

No derecognition (on balance sheet)

If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has relinquished control of the asset or not. If the entity does not control the asset Closure of a divisionthen derecognition is appropriate; however if the entity has retained control of the asset, then the entity continues to recognise the asset to … Read more