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IAS 38 – Clarification on the application of amortisation method (new)

Date recorded:

The Committee received a request to clarify the meaning of the phrase from paragraph 98 of IAS 38 Intangible Assets 'consumption of the expected future economic benefits embodied in the asset' when determining the appropriate amortisation method for intangible assets of service concession arrangements under IFRIC 12 Service Concession Arrangements.

The staff presented the Committee with three potential views on the issue:

  • View 1 is that a revenue-based amortisation method reflects the economic reality of the underlying contractual terms of the service concession arrangement
  • View 2 is that a time-based amortisation method reflects the duration of the service concession arrangement as the entity has received a license to operate the infrastructure
  • View 3 is that a unit of production method reflects the pattern of consumption based on the asset's usage, activity or parts produced.

The staff suggested that the Committee should recommend that the Board clarify the meaning of 'consumption of the expected future economic benefits' by adding application guidance to IAS 38. Additionally, the staff suggested the Committee add a clarification below paragraph 26 in IFRIC 12 that methods based on the 'generation of expected future benefits' are not appropriate.

One Committee member stated that she was strongly opposed to making any amendments to either IFRIC 12 or IAS 38 on this issue and in her view the Committee was being asked to correct for misjudgements by constituents. Another Committee member mentioned her agreement that pure revenue-based methods were not appropriate but that sometimes a pattern of revenue would reflect the life cycle of the asset. Another Committee member questioned if the intangible asset in question is a right to charge what would be used as a pattern of amortisation other than revenues.

In attempting to summarise the Committee's view, the Chairman asked if the Committee would object to prohibiting an amortisation method based strictly on revenue amounts to which a majority agreed.

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