9.2.3  Initial recognition and subsequent measurement of the property and the corresponding liability

Where a grantor pays the operator, the above assessment may result in a grantor applying the following possible accounting policies in respect of the property and the liability underlying the PPP arrangement:

•  The property is recognised as an asset under AASB 116 with a corresponding financial liability under AASB 139.

•  The property is recognised under AASB 117 as a finance lease asset with a corresponding finance lease liability.

•  The property is not recognised until a grantor starts operating the property, but the residual interest in the property is recognised (under AASB 116 or AASB 138) with a corresponding liability or unearned revenue.  The residual interest asset is recognised either at inception or over the operation period or at the end of the operation period.

•  The grantor might conclude that it has no assets or liabilities to recognise before payments that it incurs to the operator.  Payments incurred would be recognised by the grantor as expenses for the services obtained through the arrangement.

In respect of the PPP arrangements, where a grantor provides an operator with a licence to charge the users the assessment in Section 9.2.2 above, may result in the following possible accounting policies of a grantor:

•  The property is recognised under AASB 116 with a corresponding financial liability under AASB 139 and various revenue or unearned revenue approaches could be applied.

•  The property is not recognised until a grantor starts operating the property, but the residual interest in the property is recognised (under AASB 116 or AASB 138) with a corresponding liability or unearned revenue.  The residual interest asset is recognised either at inception or over the operation period or at the end of the operation period.

•  The grantor might conclude that it has no assets or liabilities to recognise.  If a grantor does not pay for the services provided by the operator using the property, there may be no accounting recognition of the arrangement, but disclosures in the notes to the accounts.

Measurement of the underlying assets and liabilities is prescribed by the standards applied for their initial recognition. For example:

•  An asset recognised under AASB 116 may be measured after initial recognition using either the cost or the revaluation model.  If a not-for-profit grantor recognises the asset under AASB 116, it is required to measure it at fair value if it is acquired at no cost or nominal consideration.

•  The subsequent measurement of a financial liability at amortised cost using the effective interest method under AASB 139 may result in the recognition of interest expense.  Fixed payments made by a grantor may be divided into repayment of the liability and interest.

•  The value of the residual interest may be measured by reference to the fair value of the interest.

•  The credit side of the residual interest asset varies according to the grantor's policy.  If a liability was recognised, then it will be reduced by future related payments.  If unearned revenue was recognised, then it will be recognised as revenue over the period of the arrangement with the related payments being expensed.