29 May 2009

EFRAG recommends adoption of IFRIC 18 - Transfers of Assets from Customers

EFRAG has completed its due process regarding the IFRIC 18 - Transfers of Assets from Customers to Owners' and has submitted its Endorsement Advice Letter and Effects Study Report to the European Commission.

IFRIC 18 provides guidance on the accounting for transfers of items of property, plant and equipment (PPE) from customers (or cash to acquire or construct an item PPE) and addresses three issues: how to account for the transferred item, what the other side of the entry (the credit entry) is when the transferred item is recognised as an asset, and how to account for a transfer of cash that is used to construct or acquire an item PPE in a transfer transaction.

Specifically, it states that:

(a) an entity shall recognise a transferred item as an asset if the item meets the definition of an asset under the IASB’s Framework and the recognition criteria for PPE are also met. The asset shall be measured at its fair value;

(b) an amount equal to the fair value of the asset received shall be credited to the statement of comprehensive income as revenue in accordance with IAS 18 Revenue; and

(c) when that revenue is recognised will depend on the exact obligation accepted and when that obligation is fulfilled.

IFRIC 18 becomes effective on or after 1 July 2009, with earlier application permitted.

Endorsement Advice on IFRIC 18

© EFRAG - European Financial Reporting Advisory Group