IAS 18 — Customer contributions

Date recorded:

Cash contributions

In September 2007 the IFRIC agreed to extend the scope of its customer contributions project to include cash contributions. Such contributions arise when a customer contributes cash to a supplier. As a result of receiving the cash, the supplier is required to construct or acquire an item of property, plant and equipment that is then used to supply goods or services to the customer. The property, plant and equipment is an asset of the supplier. However, the ongoing service arrangement may contain a lease of the asset to the customer.

In deciding to include cash contributions in its project on customer contributions, the IFRIC agreed that the contribution of cash has a similar economic effect to the contribution of an item of property, plant and equipment. The two should therefore result in similar accounting consequences.

The IFRIC considered how cash contributions should be accounted for by the entity receiving them. In determining how an entity should account for the receipt of a cash contribution, the IFRIC considered 5 possible approaches:

  • Approach 1: the construction or acquisition of the property, plant and equipment is not a service to the customer.
  • Approach 2: the cash contribution should be allocated between the construction or acquisition of the asset and the ongoing service based on fair value.
  • Approach 3: Recognition of the cash contribution as revenue immediately.
  • Approach 4: The construction or acquisition of an item of property, plant and equipment is a service to the customer but no revenue should be allocated to it.
  • Approach 5: Two transactions take place. The construction or acquisition of an asset in return for a cash contribution and the provision of access to a supply of goods or services in return for contribution of that asset.

A number of IFRIC members expressed concern with the double recognition of revenue in Approach 5 and queried how customer contributions could be conceptually distinguished from the requirements of IFRIC 12 Service Concession Arrangements. One IFRIC member noted that the distinction was that when a customer contribution occurs it is the operator that ends up with the asset.

The IFRIC noted that the treatment of customer contributions ultimately will be dependent on specific facts and circumstances.

The IFRIC tentatively agreed (none objected) to support Approach 1.

Draft Interpretation

In September 2007 the IFRIC asked the staff to develop a draft Interpretation on customer contributions. The staff presented the draft Interpretation to the IFRIC.

The IFRIC considered the following issues as outlined in Agenda Paper 4A:

  • Whether guidance on the accounting for contributions of property, plant, and equipment is appropriate: Tentatively agreed, subject to some redrafting, that the guidance was appropriate.
  • Whether the Draft Interpretation should contain an exclusion from the principle in IAS 8 Accounting Policies, Changes in Estimates and Errors that a change in policy should be applied retrospectively: Tentatively agreed that the draft Interpretation should prescribe prospective application.
  • Whether to develop further guidance on the measurement of fair value in the draft Interpretation: Tentatively agreed no further guidance would be provided.

Finally, the IFRIC considered a letter commenting on the current status of the project which disagreed with some of the tentative decision made to date. The IFRIC tentatively agreed not to make any further changes to the Draft Interpretation as a result of this letter.

The IFRIC directed staff to redraft the Draft Interpretation to reflect the decisions made and other editorial comments and re-circulate to IFRIC prior to release. The Draft Interpretation will not be discussed at another meeting prior to its release.

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