ASLB 32 Service Concession

Accounting Standard for Local Bodies (ASLB) 32
Service Concession Arrangements: Grantor
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2–7
DEFINITIONS 8
RECOGNITION AND MEASUREMENT OF A SERVICE
CONCESSION ASSET 9 – 13
RECOGNITION AND MEASUREMENT OF LIABILITIES 14 – 28
Financial Liability Model 18 – 23
Grant of a Right to the Operator Model 24 – 26
Dividing the Arrangement 27 – 28
OTHER LIABILITIES, COMMITMENTS, CONTINGENT
LIABILITIES, AND CONTINGENT ASSETS 29
OTHER REVENUES 30
PRESENTATION AND DISCLOSURE 31 – 33
APPENDIX A: APPLICATION GUIDANCE
IMPLEMENTATION GUIDANCE
ILLUSTRATIVE EXAMPLES
APPENDIX 1 COMPARISON WITH IPSAS 32, ‘SERVICE CONCESSION
ARRANGEMENTS: GRANTOR’
Compendium of Accounting Standards for Local Bodies (ASLBs)

Accounting Standard for Local Bodies (ASLB) 32
Service Concession Arrangements: Grantor
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1)
The Accounting Standard for Local Bodies (ASLB) 32, ‘Service Concession
Arrangements: Grantor’, issued by the Council of the Institute of Chartered
Accountants of India, will be recommendatory in nature in the initial years for
use by the local bodies. This Standard will be mandatory for Local Bodies in
a State from the date specified in this regard by the State Government
concerned2.
The following is the text of the Accounting Standard for Local Bodies:

Objective
1. The objective of this Standard is to prescribe the accounting for
service concession arrangements by the grantor, a Local Body.

Scope (see paragraphs AG1-AG2)
2. An entity3 that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for service concession arrangements.
3. This Standard applies to all entities that are described as the
Local Bodies in the Preface to Accounting Standards for Local
Bodies4.

1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting

Standards for Local Bodies’, according to which Accounting Standards are intended
to apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference

may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’.
3 An entity for the purposes of this Standard is referred to as the grantor.
4 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies’.

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4. [Deleted]
5. Arrangements within the scope of this Standard involve the operator
providing public services related to the service concession asset on
behalf of the grantor.
6. Arrangements outside the scope of this Standard are those that do
not involve the delivery of public services and arrangements that
involve service and management components where the asset is not
controlled by the grantor (e.g., outsourcing service contracts, or
privatisation).
7. This Standard does not specify the accounting by operators.

Definitions (see paragraphs AG3-AG4)
8. The following terms are used in this Standard with the meanings
specified:
A binding arrangement, for the purposes of this Standard,
describes contracts and other arrangements that confer similar
rights and obligations on the parties to it as if they were in the
form of a contract.
A grantor, for the purposes of this Standard, is the entity that
grants the right to use the service concession asset to the
operator.
An operator, for the purposes of this Standard, is the entity that
uses the service concession asset to provide public services
subject to the grantor's control of the asset.
A service concession arrangement is a binding arrangement
between a grantor and an operator in which:
(a) The operator uses the service concession asset to
provide a public service on behalf of the grantor for a
specified period of time; and
(b) The operator is compensated for its services over the
period of the service concession arrangement.
A service concession asset is an asset used to provide public
services in a service concession arrangement that:

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(a) Is provided by the operator which:
(i) The operator constructs, develops, or acquires
from a third party; or
(ii) Is an existing asset of the operator; or
(b) Is provided by the grantor which:
(i) Is an existing asset of the grantor; or
(ii) Is an upgrade to an existing asset of the grantor.
Fair value is the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an
arm’s length transaction.
Terms defined in other ASLBs are used in this Standard with the
same meaning as in those other Standards.
Recognition and Measurement of a Service Concession Asset
(see paragraphs AG5-AG35)
9. The grantor should recognise an asset provided by the operator
and an upgrade to an existing asset of the grantor as a service
concession asset if:
(a) The grantor controls or regulates what services the
operator must provide with the asset, to whom it must
provide them, and at what price; and
(b) The grantor controls-through ownership, beneficial
entitlement or otherwise-any significant residual interest
in the asset at the end of the term of the arrangement.
10. This Standard also applies to an asset used in a service
concession arrangement for its entire useful life (a "whole-of-
life" asset) if the conditions in paragraph 9(a) are met.
11. The grantor should initially measure the service concession
asset recognised in accordance with paragraph 9 (or paragraph
10 for a whole-of-life asset) at its fair value, except as noted in
paragraph 12.
12. Where an existing asset of the grantor meets the conditions
specified in paragraph 9(a) and 9(b) (or paragraph 10 for a whole-

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of-life asset), the grantor should reclassify the existing asset as
a service concession asset. The reclassified service concession
asset should be accounted for in accordance with ASLB 17,
‘Property, Plant and Equipment’ or ASLB 31, ‘Intangible Assets’,
as appropriate.
13. After initial recognition or reclassification, service concession
assets should be accounted for in accordance with ASLB 17 or
ASLB 31, as appropriate.

Recognition and Measurement of Liabilities (see
paragraphs AG36-AG50)
14. Where the grantor recognises a service concession asset in
accordance with paragraph 9 (or paragraph 10 for a whole-of-life
asset), the grantor should also recognise liability. The grantor
should not recognise a liability when an existing asset of the
grantor is reclassified as a service concession asset in
accordance with paragraph 12, except in circumstances where
additional consideration is provided by the operator, as noted in
paragraph 15.
15. The liability recognised in accordance with paragraph 14 should
be initially measured at the same amount as the service
concession asset measured in accordance with paragraph 11,
adjusted by the amount of any other consideration (e.g., cash)
from the grantor to the operator, or from the operator to the
grantor.
16. The nature of the liability recognised is based on the nature of the
consideration exchanged between the grantor and the operator. The
nature of the consideration given by the grantor to the operator is
determined by reference to the terms of the binding arrangement and,
when relevant, contract law.
17. In exchange for the service concession asset the grantor may
compensate the operator for the service concession asset by any
combination of:
(a) Making payments to the operator (the “financial liability"
model); e.g., A municipality has entered into a concession

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arrangement with private party to construct municipal solid
waste processing facility (e.g., compost plant). The operator
will design, construct, finance, operate, maintain, manage and
transfer the project after 10 years. The grantor compensates
the operator by making payment of specified monthly amount
in accordance with the terms of the concession arrangement.
(b) Compensating the operator by other means (the “grant of a
right to the operator" model) such as:
(i) Granting the operator the right to earn revenue from
third party users of the service concession asset; or
e.g., the municipal corporation has entered into an
arrangement with a private entity to strengthen a
highway whereby the operator is required to design,
construct, operate and maintain the project highway
for a period of 20 years. The operator will earn from
the toll collection and the rate of the toll will be
regulated by the municipality.
(ii) Granting the operator access to another revenue-
generating asset for the operator's use (e.g., a private
wing of a hospital where the remainder of the hospital
is used by the grantor to treat public patients or a
private parking facility adjacent to a public facility).
Financial Liability Model (see paragraphs AG37-AG46)
18. Where the grantor has an unconditional obligation to pay cash or
another financial asset 5 to the operator for the construction,
development, acquisition, or upgrade of a service concession
asset, the grantor should account for the liability recognised in

5 A financial asset is any asset that is:

(a) cash;
(b) an equity instrument of another entity;
(c) a contractual right:
(i) to receive cash or another financial asset from another entity;
(ii) to exchange financial assets or financial liabilities with another entity
under conditions that are potentially favourable to the entity.

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accordance with paragraph 14 as a financial liability6.
19. The grantor has an unconditional obligation to pay cash if it has
guaranteed to pay the operator:
(a) Specified or determinable amounts; or
(b) The shortfall, if any, between amounts received by the
operator from users of the public service and any specified or
determinable amounts referred to in paragraph 19(a), even if
the payment is contingent on the operator ensuring that the
service concession asset meets specified quality or efficiency
requirements.
20. [Refer to Appendix 1]
21. The grantor should allocate the payments to the operator and
account for them according to their substance as a reduction in
the liability recognised in accordance with paragraph 14, a
finance charge, and charges for services provided by the
operator.
22. The finance charge and charges for services provided by the
operator in a service concession arrangement determined in
accordance with paragraph 21 should be accounted for as
expenses.
23. Where the asset and service components of a service
concession arrangement are separately identifiable, the service
components of payments from the grantor to the operator
should be allocated by reference to the relative fair values of the
service concession asset and the services. Where the asset and
service components are not separately identifiable, the service
component of payments from the grantor to the operator is
determined using estimation techniques.

6 Financial Liability is any liability that is a contractual obligation to deliver cash or

another financial asset to another entity or to exchange financial assets or financial
liabilities with another entity under conditions that are potentially unfavourable to the
entity.

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Grant of a Right to the Operator Model (see paragraphs
AG47-AG49)
24. Where the grantor does not have an unconditional obligation to
pay cash or another financial asset to the operator for the
construction, development, acquisition, or upgrade of a service
concession asset, and grants the operator the right to earn
revenue from third-party users or another revenue-generating
asset, the grantor should account for the liability recognised in
accordance with paragraph 14 as the unearned portion of the
revenue arising from the exchange of assets between the
grantor and the operator.
25. The grantor should recognise revenue and reduce the liability
recognised in accordance with paragraph 24 according to the
economic substance of the service concession arrangement.
26. Where the grantor compensates the operator for the service
concession asset and the provision of services by granting the
operator the right to earn revenue from third-party users of the
service concession asset or another revenue-generating asset, the
exchange is regarded as a transaction that generates revenue. As
the right granted to the operator is effective for the period of the
service concession arrangement, the grantor does not recognise
revenue from the exchange immediately. Instead, a liability is
recognised for any portion of the revenue that is not yet earned. The
revenue is recognised according to the economic substance of the
service concession arrangement, and the liability is reduced as
revenue is recognised.

Dividing the Arrangement (see paragraph AG50)
27. If the grantor pays for the construction, development,
acquisition, or upgrade of a service concession asset partly by
incurring a financial liability and partly by the grant of a right to
the operator, it is necessary to account separately for each part
of the total liability recognised in accordance with paragraph 14.
The amount initially recognised for the total liability should be
the same amount as that specified in paragraph 15.

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28 The grantor should account for each part of the liability referred
to in paragraph 27 in accordance with paragraphs 18-26.

Other Liabilities, Commitments, Contingent
Liabilities and Contingent Assets (see paragraphs
AG51-AG54)
29. The grantor should account for other liabilities, commitments,
contingent liabilities, and contingent assets arising from a
service concession arrangement in accordance with ASLB 19,
‘Provisions, Contingent Liabilities and Contingent Assets’.

Other Revenues (see paragraphs AG55-AG64)
30. The grantor should account for revenues from a service
concession arrangement, other than those specified in
paragraphs 24-26, in accordance with ASLB 9, ‘Revenue from
Exchange Transactions’.

Presentation and Disclosure (see paragraphs
AG65-AG67)
31. The grantor should present information in accordance with
ASLB 1.
32. All aspects of a service concession arrangement should be
considered in determining the appropriate disclosures in the
notes. A grantor should disclose the following information in
respect of service concession arrangements in each reporting
period:
(a) A description of the arrangement;
(b) Significant terms of the arrangement that may affect the
amount, timing, and certainty of future cash flows (e.g.,
the period of the concession, re-pricing dates, and the
basis upon which re-pricing or re-negotiation is
determined);
(c) The nature and extent (e.g., quantity, time period, or
amount, as appropriate) of:
(i) Rights to use specified assets;

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(ii) Rights to expect the operator to provide specified
services in relation to the service concession
arrangement;
(iii) The carrying amount of service concession assets
recognised at the end of the reporting period,
including existing assets of the grantor
reclassified as service concession assets;
(iv) Rights to receive specified assets at the end of the
service concession arrangement;
(v) Renewal and termination options;
(vi) Other rights and obligations (e.g., major overhaul
of service concession assets); and
(vii) Obligations to provide the operator with access to
service concession assets or other revenue-
generating assets; and
(d) Changes in the arrangement occurring during the
reporting period.
33. The disclosures required in accordance with paragraph 32 are
provided individually for each material service concession
arrangement or in aggregate for service concession arrangements
involving services of a similar nature (e.g., toll collections or water
treatment services). This disclosure is in addition to the disclosures
required in ASLB 17 and/or ASLB 31 by class of assets. Service
concession assets within service concession arrangements of a
similar nature that are reported in aggregate may form a subset of a
class of assets disclosed in accordance with ASLB 17 and/or ASLB
31 or may be included in more than one class of assets disclosed in
accordance with ASLB 17 and/or ASLB 31. For example, for the
purposes of ASLB 17 a toll bridge may be included in the same class
as other bridges. For the purposes of this paragraph, the toll bridge
may be included with service concession arrangements reported in
aggregate as toll roads.
34. [Refer to Appendix 1]
35. [Deleted]
35A-37. [Refer to Appendix 1]

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Appendix A
Application Guidance
This Appendix is an integral part of ASLB 32.
Scope (see paragraphs 2-7)
AG1. [Refer to Appendix 1]
AG2 Paragraph 9 of this Standard specifies the conditions under which an
asset, other than a whole-of-life asset, is within the scope of the
Standard. Paragraph 10 of the Standard specifies the condition under
which whole-of-life assets are within the scope of the Standard.
Definitions (see paragraph 8)
AG3. Paragraph 8 defines a service concession arrangement. Common
features of a service concession arrangement are:
(a) The grantor is a Local Body;
(b) The operator is responsible for at least some of the
management of the service concession asset and related
services and does not merely act as an agent on behalf of the
grantor;
(c) The arrangement sets the initial prices to be levied by the
operator and regulates price revisions over the period of the
service concession arrangement;
(d) The operator is obliged to hand over the service concession
asset to the grantor in a specified condition at the end of the
period of the arrangement, for little or no incremental
consideration, irrespective of which party initially financed it;
and
(e) The arrangement is governed by a binding arrangement that
sets out performance standards, mechanisms for adjusting
prices, and arrangements for arbitrating disputes.
AG4. Paragraph 8 defines a service concession asset. Examples of service
concession assets are: roads, bridges, tunnels, hospitals, water
distribution facilities and other non-current tangible or intangible
assets used for administrative purposes in delivering public services.

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AG4A. Service concessions are different from leases because in service
concessions the grantor retains control over the use of the
infrastructure, by controlling or regulating what services the operator
must provide, to whom it must provide them, and at what price
whereas, in leases the lessor transfers the right to use an underlying
asset. A lessor does not necessary retain significant residual interest
throughout the period of the arrangement. In service concession
arrangement, operator provides public services related to the service
concession asset on behalf of the grantor, whereas, in a lease the
lessee does not act on behalf of the lessor. In a lease, an obligation
to permit the lessee access to the underlying asset is not a liability
because there would appear to be no expected outflow of future
economic benefits from the lessor, which is an essential component
of the definition of a liability, whereas in a service concession
arrangement, a liability is also recognised by the grantor in respect of
the service concession asset as per the Standard.
AG4B. Where an arrangement does not meet the conditions for recognition
of a service concession asset in accordance with ASLB 32 and the
arrangement contains an identifiable operating lease or finance lease
as defined in ASLB 13, „Leases‟ then the provisions of ASLB 13 are
applied in accounting for the lease component of the arrangement.
AG4C. Local Bodies may also enter a variety of agreements for the provision
of goods and/or services, which necessarily involve the use of
dedicated assets. In some of these agreements, it may not be clear
whether a service concession arrangement as defined in ASLB 32 or
a lease, has arisen. In these cases, professional judgment is
exercised, and if a service concession arrangement has arisen this
Standard is applied; if a service concession arrangement has not
arisen, entities account for those agreements by applying provisions
of other relevant ASLBs.
Recognition and Initial Measurement of a Service Concession Asset
(see paragraphs 9-13)
Recognition of a Service Concession Asset
AG5. The assessment of whether a service concession asset should be
recognised in accordance with paragraph 9 (or paragraph 10 for
whole-of-life asset) is made on the basis of all of the facts and
circumstances of the arrangement.

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AG6. The control or regulation referred to in paragraph 9(a) could be by a
binding arrangement, or otherwise (such as through a third party
regulator that regulates other entities that operate in the same
industry or sector as the grantor), and includes circumstances in
which the grantor buys all of the output as well as those in which
some or all of the output is bought by other users. The ability to
exclude or regulate the access of others to the benefits of an asset is
an essential element of control that distinguishes an entity's assets
from those public goods that all entities have access to and benefit
from. The binding arrangement sets the initial prices to be levied by
the operator and regulates price revisions over the period of the
service concession arrangement. When the binding arrangement
conveys the right to control the use of the service concession asset to
the grantor, the asset meets the condition specified in paragraph 9(a)
regarding control in relation to those to whom the operator must
provide services.
AG7. For the purpose of paragraph 9(a) the grantor does not need to have
complete control of the price: it is sufficient for the price to be
regulated by the grantor, binding arrangement, or a third party
regulator that regulates other entities that operate in the same
industry, or sector (e.g., hospitals, schools, or universities) as the
grantor (e.g., by a capping mechanism). However, the condition is
applied to the substance of the agreement. Non-substantive features,
such as a cap that will apply only in remote circumstances, are
ignored. Conversely, if, for example, an arrangement purports to give
the operator freedom to set prices, but any excess profit is returned
to the grantor, the operator's return is capped and the price element
of the control test is met.
AG8. Many local-self governments have the power to regulate the
behaviour of entities operating in certain sectors of the economy,
either directly, or through specifically created agencies. For the
purpose of paragraph 9(a), the broad regulatory powers described
above do not constitute control. In this Standard, the term „regulate‟ is
intended to be applied only in the context of the specific terms and
conditions of the service concession arrangement. However, in both
cases, the control of the service concession asset is derived from
either the contract, or similar binding arrangement, or from the

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specific regulation and not from the fact that the grantor is a local
body that is related to the regulator.
AG9. For the purpose of paragraph 9(a), the grantor's control over any
significant residual interest should both restrict the operator's
practical ability to sell or pledge the asset and give the grantor a
continuing right of use throughout the period of the service
concession arrangement. The residual interest in the asset is the
estimated current value of the asset as if it were already of the age
and in the condition expected at the end of the period of the service
concession arrangement.
AG10. Control should be distinguished from management. If the grantor
retains both the degree of control described in paragraph 9(a) and
any significant residual interest in the asset, the operator is only
managing the asset on the grantor's behalf-even though, in many
cases, it may have wide managerial discretion.
AG11. The conditions in paragraphs 9(a) and 9(b) together identify when the
asset, including any replacements required, is controlled by the
grantor for the whole of its economic life. For example, if the operator
has to replace part of an asset during the period of the arrangement
(e.g., the top layer of a road or the roof of a building), the asset is
considered as a whole. Thus the condition in paragraph 9(a) is met
for the whole of the asset, including the part that is replaced, if the
grantor controls any significant residual interest in the final
replacement of that part.
AG12. Sometimes the use of a service concession asset is partly regulated
in the manner described in paragraph 9(a) and partly unregulated.
However, these arrangements take a variety of forms:
(a) Any asset that is physically separable and capable of being operated
independently and meets the definition of a cash-generating unit as
defined in ASLB 26, „Impairment of Cash-Generating Assets’ is
analysed separately to determine whether the condition set out in
paragraph 9(a) is met if it is used wholly for unregulated purposes
(e.g., this might apply to a private wing of a hospital, where the
remainder of the hospital is used by the grantor to treat public
patients); and
(b) When purely ancillary activities (such as a hospital‟s medical
test labs) are unregulated, the control tests are applied as if

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those services did not exist, because in cases in which the
grantor controls the services in the manner described in
paragraph 9(a), the existence of ancillary activities does not
detract from the grantor's control of the service concession
asset.
AG13. The operator may have a right to use the separable asset described
in paragraph AG12(a), or the facilities used to provide ancillary
unregulated services described in paragraph AG12(b). In either case,
there may in substance be a lease from the grantor to the operator; if
so, it is accounted for in accordance with ASLB 13.
Existing Asset of the Grantor
AG14. The arrangement may involve an existing asset of the grantor:
(a) To which the grantor gives the operator access for the
purpose of the service concession arrangement; or
(b) To which the grantor gives the operator access for the
purpose of generating revenues as compensation for the
service concession asset.
AG15. The requirement in paragraph 11 is to measure assets recognised in
accordance with paragraph 9 (or paragraph 10 for a whole-of-life
asset) initially at fair value. Existing assets of the grantor used in the
service concession arrangement are reclassified from its existing
classification of asset rather than newly recognised under this
Standard. Only an upgrade to an existing asset of the grantor (e.g.,
that increases its capacity) is recognised as a service concession
asset in accordance with paragraph 9, or paragraph 10 for a whole-
of-life asset).
AG16. In applying the impairment tests in ASLB 17 or ASLB 31, as
appropriate, the grantor does not necessarily consider the granting of
the service concession to the operator as a circumstance that causes
impairment, unless there has been a change in use of the asset that
affects its future economic benefits or service potential. The grantor
refers to ASLB 21, „Impairment of Non-Cash-Generating Assets’ or
ASLB 26, as appropriate, to determine whether any of the indicators
of impairment have been triggered under such circumstances.

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AG17. If the asset no longer meets the conditions for recognition in
paragraph 9 (or paragraph 10 for a whole-of-life asset), the grantor
follows the derecognition principles in ASLB 17 or ASLB 31, as
appropriate. For example, if the asset is transferred to the operator
on a permanent basis, it is derecognised. If the asset is transferred
on a temporary basis, the grantor considers the substance of this
term of the service concession arrangement in determining whether
the asset should be derecognised. In such cases, the grantor also
considers whether the arrangement is a lease transaction or a sale
and leaseback transaction that should be accounted for in
accordance with ASLB 13.
AGl8. When the service concession arrangement involves upgrading an
existing asset of the grantor such that the future economic benefits or
service potential the asset will provide are increased, the upgrade is
assessed to determine whether it meets the conditions for recognition
in paragraph 9 (or paragraph 10 for a whole-of-life asset). If those
conditions are met, the upgrade is recognised and measured in
accordance with this Standard.
Existing Asset of the Operator
AG19. The operator may provide an asset for use in the service concession
arrangement that it has not constructed, developed, or acquired. If
the arrangement involves an existing asset of the operator which the
operator uses for the purpose of the service concession arrangement,
the grantor determines whether the asset meets the conditions in
paragraph 9 (or paragraph 10 for a whole-of-life asset). If the
conditions for recognition are met, the grantor recognises the asset
as a service concession asset and accounts for it in accordance with
this Standard.
Constructed or Developed Asset
AG20. Where a constructed or developed asset meets the conditions in
paragraph 9 (or paragraph 10 for a whole-of-life asset) the grantor
recognises and measures the asset in accordance with this Standard.
ASLB 17 or ASLB 31, as appropriate, set out the criteria for when a
service concession asset should be recognised. Both ASLB 17 and
ASLB 31 require that an asset should be recognised if, and only if:
(a) It is probable that future economic benefits or service
potential associated with the item will flow to the entity; and

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(b) The cost or fair value of the item can be measured reliably 7.
AG21. Those criteria, together with the specific terms and conditions of the
binding arrangement, need to be considered in determining whether
to recognise the service concession asset during the period in which
the asset is constructed or developed. For both property, plant, and
equipment and intangible assets, the recognition criteria may be met
during the construction or development period, and, if so, the grantor
will normally recognise the service concession asset during that
period.
AG22. The first recognition criterion requires the flow of economic benefits
or service potential to the grantor. From the grantor's point of view,
the primary purpose of a service concession asset is to provide
service potential on behalf of the local body grantor. Similar to an
asset the grantor constructs or develops for its own use, the grantor
would assess, at the time the costs of construction or development
are incurred, the terms of the binding arrangement to determine
whether the service potential of the service concession asset would
flow to the grantor at that time.
AG23. The second recognition criterion requires that the initial cost or fair
value of the asset can be measured reliably. Accordingly, to meet the
recognition criteria in ASLB 17 or ASLB 31, as appropriate, the
grantor must have reliable information about the cost or fair value of
the asset during its construction or development. For example, if the
service concession arrangement requires the operator to provide the
grantor with progress reports during the asset's construction or
development, the costs incurred may be measurable, and would
therefore meet the recognition principle in ASLB 17 for constructed
assets or in ASLB 31 for developed assets. Also, where the grantor
has little ability to avoid accepting an asset constructed or developed
to meet the specifications of the contract or a similar binding
arrangement, the costs are recognised as progress is made towards
completion of the asset. Thus, the grantor recognises a service
concession asset and an associated liability.

7 Information that is reliable is free from material error and bias, and can be
depended on by users to faithfully represent that which it purports to represent or
could reasonably be expected to represent.

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Measurement of Service Concession Assets
AG24. Paragraph 11 requires service concession assets recognised in
accordance with paragraph 9 (or paragraph 10 for a whole-of-life
asset) to be measured initially at fair value. In particular, fair value is
used to determine the cost of a constructed or developed service
concession asset or the cost of any upgrades to existing assets, on
initial recognition. The requirement in paragraph 11 does not apply to
existing assets of the grantor that are reclassified as service
concession assets in accordance with paragraph 12 of this Standard.
The use of fair value on initial recognition does not constitute a
revaluation under ASLB 17 or ASLB 31.
AG25. The type of compensation exchanged between the grantor and the
operator affects how the fair value of the service concession asset is
determined on initial recognition. The paragraphs that follow outline
how to determine the fair value of the asset on initial recognition
based on the type of compensation exchanged:
(a) Where payments are made by the grantor to the operator, the
fair value on initial recognition of the asset represents the
portion of the payments paid to the operator for the asset.
(b) Where the grantor does not make payments to the operator
for the asset, the asset is accounted for in the same way as
an exchange of non-monetary assets in ASLB 17 and ASLB
31.
Types of Compensation
AG26. Service concession arrangements are rarely if ever the same;
technical requirements vary from local body to local body.
Furthermore, the terms of the arrangement may also depend on the
contract laws, where they exist, may contain terms that do not have
to be repeated in individual contracts.
AG27. Depending on the terms of the service concession arrangement, the
grantor may compensate the operator for the service concession
asset and service provision by any combination of the following:
(a) Making payments (e.g., cash) to the operator,
(b) Compensating the operator by other means, such as:
(i) Granting the operator the right to earn revenue from third-
party users of the service concession asset; or

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 Service Concession Arrangements: Grantor

(ii) Granting the operator access to another revenue-generating
asset for its use.
AG28. Where the grantor compensates the operator for the service
concession asset by making payments to the operator, the asset and
service components of the payments may be separable (e.g., the
binding arrangement specifies the amount of the predetermined
series of payments to be allocated to the service concession asset) or
inseparable.
Separable Payments
AG29. A service concession arrangement may be separable in a variety of
circumstances, including, but not limited to, the following:
(a) Part of a payment stream that varies according to the
availability of the service concession assets itself and another
part that varies according to usage or performance of certain
services are identified;
(b) Different components of the service concession arrangement
run for different periods or can be terminated separately. For
example, an individual service component can be terminated
without affecting the continuation of the rest of the
arrangement; or
(c) Different components of the service concession arrangement
can be renegotiated separately. For example, a service
component is market tested and some or all of the cost
increases or reductions are passed on to the grantor in such a
way that the part of the payment by the grantor that relates
specifically to that service can be identified.
AG30. ASLB 17 and ASLB 31 require initial measurement of an asset
acquired in an exchange transaction at cost, which is the cash price
equivalent of the asset. For exchange transactions, the transaction
price is considered to be fair value, unless indicated otherwise. When
the asset and service components of payments are separable, the
cash price equivalent of the service concession asset is the present
value of the service concession asset component of the payments.
However, if the present value of the asset portion of the payments is
greater than fair value, the service concession asset is initially
measured at its fair value.

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Inseparable Payments
AG31. Where the asset and service component of payments by the grantor
to the operator are not separable, the fair value in paragraph 11 is
determined using estimation techniques.
AG32. For the purpose of applying the requirements of this Standard,
payments and other consideration required by the arrangement are
allocated at the inception of the arrangement or upon a reassessment
of the arrangement into those for the service concession asset and
those for other components of the service concession arrangement
(e.g., maintenance and operation services) on the basis of their
relative fair values. The fair value of the service concession asset
includes only amounts related to the asset and excludes amounts for
other components of the service concession arrangement. In some
cases, allocating the payments for the asset from payments for other
components of the service concession arrangement will require the
grantor to use an estimation technique. For example, a grantor may
estimate the payments related to the asset by reference to the fair
value of a comparable asset in an agreement that contains no other
components, or by estimating the payments for the other components
in the service concession arrangement by reference to comparable
arrangements and then deducting these payments from the total
payments under the arrangement.
Operator Receives Other Forms of Compensation
AG33. The types of transactions referred to in paragraph 17(b) are non-
monetary exchange transactions. Paragraph 38 of ASLB 17 and
paragraph 44 of ASLB 31, as appropriate, provide guidance on these
circumstances.
AG34. When the operator is granted the right to earn revenue from third-
party users of the service concession asset, or another revenue -
generating asset, or receives non-cash compensation from the
grantor, the grantor does not incur a cost directly for acquiring the
service concession asset. These forms of compensation to the
operator are intended to compensate the operator both for the cost of
the service concession asset and for operating it during the term of
the service concession arrangement. The grantor therefore needs to
initially measure the asset component in a manner consistent with
paragraph 11.

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Subsequent Measurement
AG35. After initial recognition, a grantor applies ASLB 17 and ASLB 31 to
the subsequent measurement and derecognition of a service
concession asset. ASLB 21 and ASLB 26 are also applied in
considering whether there is any indication that a service concession
asset is impaired. These requirements in these Standards are applied
to all assets recognised or classified as service concession assets in
accordance with this Standard.
Recognition and Measurement of Liabilities (see paragraphs 14-28)
AG36. The grantor recognises a liability in accordance with paragraph 14
only when a service concession asset is recognised in accordance
with paragraph 9 (or paragraph 10 for a whole-of-life asset). The
nature of the liability recognised in accordance with paragraph 14
differs in each of the circumstances described in paragraph AG 25
according to its substance.
The Financial Liability Model (see paragraphs 18-23)
AG37. When the grantor has an unconditional obligation to make a
predetermined series of payments to the operator, the liability is a
financial liability. The grantor has an unconditional obligation if it has
little, if any, discretion to avoid the obligation usually because of the
binding arrangement with the operator being enforceable by law.
AG38. When the grantor provides compensation to the operator for the cost
of the service concession asset and service provision in the form of a
predetermined series of payments, an amount reflecting the portion of
the predetermined series of payments that pertains to the asset is
recognised as a liability in accordance with paragraph 14. This
liability does not include the finance charge and service components
of the payments specified in paragraph 2l.
AG39. Where the grantor makes any payments to the operator in advance of
the service concession asset being recognised, the grantor accounts
for those payments as prepayments.
AG40. The finance charge specified in paragraph 21 are calculated using
the effective interest method8. The finance Charge is determined

8 The effective interest method is a method of calculating the amortised cost of a

financial asset or a financial liability (or group of financial assets or financial

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based on the operator's cost of capital specific to the service
concession asset, if this is practicable to determine.
AG41. If the operator's cost of capital specific to the service concession
asset is not practicable to determine, the rate implicit in the
arrangement specific to the service concession asset, the grantor's
incremental borrowing rate, or another rate appropriate to the terms
and conditions of the arrangement, is used.
AG42. Where sufficient information is not available, the rate used to
determine the finance charge may be estimated by reference to the
rate that would be expected on acquiring a similar asset (e.g., a lease
of a similar asset, in a similar location and for a similar term). The
estimate of the rate should be reviewed together with:
(a) The present value of the payments;
(b) The assumed fair value of the asset; and
(c) The assumed residual value, to ensure all figures are
reasonable and mutually consistent.
AG43. In cases when the grantor takes part in the financing (e.g., by lending
the operator the funds to construct develop, acquire, or upgrade a
service concession asset, or through guarantees), it may be
appropriate to use the grantor's incremental borrowing rate to
determine the finance charge.
AG44. The interest rate used to determine the finance charge may not be
subsequently changed unless the asset component or the whole of
the arrangement is renegotiated.
AG45. The finance charge related to the liability in a service concession
arrangement is presented consistently with other finance charges.
AG46. The service component of payments determined in accordance with
paragraph 21 is ordinarily recognised evenly over the term of the
service concession arrangement because this pattern of recognition
best corresponds to the service provision. In cases when specific
expenses are required to be separately compensated, and their
timing is known, such expenses are recognised as incurred.

liabilities) and of allocating the interest revenue or interest expense over the relevant
period. When calculating the effective interest rate, an entity should estimate cash
flows considering all contractual terms.

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 Service Concession Arrangements: Grantor

Grant of a Right to the Operator Model (see paragraphs 24-26)
AG47. When the grantor compensates the operator for the service
concession asset and service provision by granting the operator the
right to earn revenue from third-party users of the service concession
asset, the operator is granted the right to earn revenue over the
period of the service concession arrangement. Likewise, the grantor
earns the benefit associated with the assets received in the service
concession arrangement in exchange for the right granted to the
operator over the period of the arrangement. Accordingly, the
revenue is not recognised immediately. Instead, a liability is
recognised for any portion of the revenue that is not yet earned.
Revenue is recognised and the liability reduced in accordance with
paragraph 25 based on the economic substance of the service
concession arrangement, usually as access to the service concession
asset is provided to the operator over the term of the service
concession arrangement. As described in paragraph AG27, the
grantor may compensate the operator by a combination of payments
and granting a right to earn revenue directly from third-party users. In
such cases, if the operator's right to earn such third-party revenues
significantly reduces or eliminates the grantor's predetermined series
of payments to the operator, another basis may be more appropriate
for reducing the liability (e.g., the term over which the grantor's future
predetermined series of payments are reduced or eliminated).
AG48. When the grantor compensates the operator for the service
concession asset and service by the provision of a revenue-
generating asset, other than the service concession asset, revenue is
recognised and the liability recognised in accordance with paragraph
24 is reduced in a manner similar to that described in paragraph
AG47. In such cases, the grantor also considers the derecognition
requirements in ASLB 17 or ASLB 31, as appropriate.
AG49. In some cases under the grant of a right to the operator model, there
may be a "shadow toll”. Some shadow tolls are paid for the
construction, development, acquisition, or upgrade of the service
concession asset, and its operation by the operator. In cases where
the grantor pays the operator solely for the usage of the service
concession asset by third-party users, such payment is compensation
in exchange for the usage and not the acquisition of the service

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Compendium of Accounting Standards for Local Bodies (ASLBs)

concession asset. Accordingly, such payments do not relate to the
liability specified in paragraph AG 48. The grantor compensates the
operator only to the extent of the usage of the service concession
asset, and accounts for such payments as expenses in accordance
with ASLB 1.
Dividing the Arrangement (see paragraphs 27-28)
AG50. If the operator is compensated for the service concession asset partly
by a predetermined series of payments and partly by receiving the
right to earn revenue from third-party use of either the service
concession asset or another revenue-generating asset, it is
necessary to account separately for each portion of the liability
related to the grantor's consideration. In these circumstances, the
consideration to the operator is divided into a financial liability portion
for the predetermined series of payments and a liability portion for the
right granted to the operator to earn revenue from third-party use of
the service concession asset or another revenue-generating asset.
Each portion of the liability is recognised initially at the fair value of
the consideration paid or payable.
Other Liabilities, Commitments, Contingent Liabilities and Contingent
Assets (see paragraph 29)
AG51. Service concession arrangements may include various forms of
financial guarantees (e.g., a guarantee, security, or indemnity related
to the debt incurred by the operator to finance construction,
development, acquisition, or upgrade of a service concession asset),
or performance guarantees (e.g., guarantee of minimum revenue
streams, including compensation for shortfalls).
AG52. Certain guarantees made by a grantor may meet the definition of a
financial guarantee contract. The grantor determines whether
guarantees made by the grantor as part of a service concession
arrangement are financial guarantee contract. The accounting for the
guarantee has not been dealt in this Standard.
AG53. [Refer to Appendix 1]
AG54. Contingent assets or liabilities may arise from disputes over the terms
of the service concession arrangement. Such contingencies are
accounted for in accordance with ASLB 19.

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 Service Concession Arrangements: Grantor

Other Revenues (see paragraph 30)
AG55. The operator may compensate the grantor for access to the service
concession asset by providing the grantor with a series of
predetermined inflows of resources, including the following:
(a) An upfront payment or a stream of payments,
(b) Revenue-sharing provisions;
(c) A reduction in a predetermined series of payments the grantor
is required to make to the operator, and
(d) Rent payments for providing the operator access to a
revenue-generating asset.
AG56. When the operator provides an upfront payment, a stream of
payments, or other consideration to the grantor for the right to use
the service concession asset over the term of the service concession
arrangement, the grantor accounts for these payments in accordance
with ASLB 9. The timing of the revenue recognition is determined by
the terms and conditions of the service concession arrangement that
specify the grantor‟s obligation to provide the operator with access to
the service concession asset.
AG57. Where the operator provides an upfront payment, a stream of
payments, or other consideration to the grantor in addition to the
service concession asset, for the right to earn the revenue from third-
party use of the service concession asset or another revenue-
generating asset, any portion of the payments received from the
operator not earned in the accounting period is recognised as a
liability until the conditions for revenue recognition are met.
AG58. When the conditions for revenue recognition are met, the liability is
reduced as the revenue is recognised in accordance with paragraph
30.
AG59. However, given the varying nature of the types of assets that may be
used in service concession arrangements, and the number of years
over which the arrangements operate, there may be more appropriate
alternative methods for recognising revenue associated with the
inflows specified in the binding arrangement that better reflect the
operator's economic consumption of their access to the service
concession asset and/or the time value of money. For example, an

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Compendium of Accounting Standards for Local Bodies (ASLBs)

annuity method that applies a compounding interest factor that more
evenly recognises revenue on a discounted basis, as opposed to on a
nominal basis, may be more appropriate for a service concession
arrangement with a term extending over several decades.
AG60. When an upfront payment is received from the operator, the revenue
is recognised in a way that best reflects the operator's economic
consumption of its access to the service concession asset and/or the
time value of money. For example, when the operator is required to
pay annual installments over the term of the service concession
arrangement or predetermined sums for specific years, the revenue is
recognised over the specified term.
AG61. For service concession arrangements under which the operator is
granted the right to earn revenue from third-party users of the service
concession asset, revenue relates to the inflow of economic benefits
received as the services are provided and is therefore recognised on
the same basis as the liability is reduced. In these cases, the grantor
will often negotiate to include a revenue-sharing provision in the
arrangement with the operator. Revenue-sharing as part of a service
concession arrangement may be based on all revenue earned by the
operator, or on revenue above a certain threshold, or on revenue
more than the operator needs to achieve a specified rate of return.
AG62. The grantor recognises revenue generated from revenue-sharing
provisions in service concession arrangements as it is earned, in
accordance with the substance of the relevant agreement, after any
contingent event (e.g., the achievement of a revenue threshold) is
deemed to have occurred. The grantor applies ASLB 19 to determine
when the contingent event has occurred.
AG63. A reduction in the future predetermined series of payments the
grantor would otherwise be required to make to the operator provides
the grantor with upfront non-cash consideration. Such revenue is
recognised as the liability is reduced.
AG64. When the operator pays a nominal rent for access to a revenue-
generating asset the rental revenue is recognised in accordance with
ASLB 23, „Revenue from Non-Exchange Transactions (Taxes and
Transfers)’.

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 Service Concession Arrangements: Grantor

Presentation and Disclosure (see paragraphs 31-33)
AG65. Disclosures relating to various aspects of service concession
arrangements may be addressed in existing Standards. This
Standard addresses only the additional disclosures relating to service
concession arrangements. Where the accounting for a particular
aspect of a service concession arrangement is addressed in another
Standard, the grantor follows the disclosure requirements of that
Standard in addition to those set out in paragraph 32.
AG66. ASLB 1 requires finance costs to be presented separately in the
income and expenditure statement. The finance charge determined in
accordance with paragraph 21 is included in this item.
AG67. In addition to the disclosures outlined in paragraphs 31-33, the
grantor also applies the relevant presentation and disclosure
requirements in other ASLBs as they pertain to assets, liabilities,
revenues, and expenses recognised under this Standard.
AG68-73. [Deleted]

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Implementation Guidance
This guidance accompanies, but is not part of, ASLB 32.
IG1. The purpose of this Implementation Guidance is to illustrate certain
aspects of the requirements of ASLB 32.
Accounting Framework for Service Concession Arrangements
IG2. The diagram below summarises the accounting for service concession
arrangements established by ASLB 32.

Does the grantor control or regulate what services the
No
operator must provide with the service concession asset,
to whom it must provide them, and at what price? OUTSIDE THE
SCOPE OF THE
Yes STANDARD

Does the grantor control, through ownership, beneficial
entitlement or otherwise, any significant residual interest
No
in the service concession asset at the end of the service
concession arrangement? Or is the service concession No
asset used in the arrangement for its entire useful life?
Is the service
Yes
concession asset an
Is the service concession asset constructed, existing asset of the
developed, or acquired by the operator from a third grantor to which the
No
party for the purpose of the service concession operator is given access
arrangement, or is the asset an existing asset of the for the purpose of the
operator which becomes the service concession asset service concession
as part of the service concession arrangement? arrangement?

Yes Yes

WITHIN THE SCOPE OF THE STANDARD
 Grantor recognises a service concession asset, or the grantor reclassifies an
item of property, plant and equipment, an intangible asset, or a leased asset
as a service concession asset
 Grantor accounts for the service concession asset as property, plant and
equipment or an intangible asset in accordance with ASLB 17 or ASLB 31, as
appropriate
 Grantor follows impairment testing as set out in ASLB 21 and ASLB 26
 Grantor recognises related liability equal to the value of the SCA asset
 Grantor recognises revenues and expenses related to the SCA

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 Service Concession Arrangements: Grantor

References to ASLBs that Apply to Typical Types of
Arrangements Involving an Asset Combined with Provision of a
Service
IG3. The table sets out the typical types of arrangements for private sector
participation in the provision of local body services and provides
references to ASLBs that apply to those arrangements. The list of
arrangements types is not exhaustive. The purpose of the table is to
highlight the continuum of arrangements.
IG4. Shaded text shows arrangements within the scope of ASLB 32.

Category Lessee Service provider Owner
Typical Lease Service and/or Rehab Build- Build- 100%
arrangemen (e.g., maintenance ilitate- operate own- Divest
t types operator contract operat - operate ment/
leases (specific tasks e- transfer Privati
asset from e.g., debt transf sation/
grantor) collection, er Corpor
facility ation
management)
Asset Grantor Operator
ownership
Capital Grantor Operator
investment
Demand Shared Grantor Grantor and/ or Operator
risk Operator
Typical 8-20 1-5 25-30 years Indefinite (or may be limited
duration years years by binding arrangement or
license)
Residual Grantor Operator
interest
Relevant ASLB ASLB This ASLB/ ASLB ASLB 17/ ASLB
ASLBs 13 1 17/ ASLB 31 31(derecognition) ASLB 9
(revenue recognition)

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Compendium of Accounting Standards for Local Bodies (ASLBs)

Illustrative Examples
These examples accompany, but are not part of, ASLB 32.
IE1. These examples deal with only three of many possible types of
service concession arrangements. Their purpose is to illustrate the
accounting treatment for some features that are commonly found in
practice. To make the illustrations as clear as possible, it has been
assumed that the term of the service concession arrangement is only
ten years and that the operator's annual receipts are constant over
that period. In practice, terms may be much longer and annual
revenues may increase with time.
Arrangement Terms (Common to All Three Examples)
IE2. In these examples, monetary amounts are denominated in "Rupees"
(Rs.).
IE3. These terms are common to the three examples that follow:
IE4. The terms of the arrangement require an operator to construct a
road-completing construction within two years - and maintain and
operate the road to a specified standard for eight years (i.e., years 3-
10). The arrangement is within the scope of this Standard and the
road meets the conditions for recognition of a service concession
asset in paragraph 9 (or paragraph 10 for a whole-of-life asset).
IE5. The terms of the arrangement also require the operator to resurface
the road when the original surface has deteriorated below a specified
condition. The operator estimates that it will have to undertake the
resurfacing at the end of year 8 at a fair value of Rs. 110. The
compensation to the operator for this service is included in the
predetermined series of payments and/or the revenue the operator
has the right to earn from the service concession asset or another
revenue-generating asset granted to the operator by the grantor.
IE6. It is assumed that the original road surface is a separate component
of the service concession asset and meets the criteria for recognition
specified in ASLB 17 when the service concession asset is initially
recognised. It is further assumed that there is sufficient certainty
regarding the timing and amount of the resurfacing work for it to be

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 Service Concession Arrangements: Grantor

recognised as a separate component when the resurfacing occurs. 9 It
is assumed that the expected cost of the resurfacing can be used to
estimate the initial cost of the surface layers recognised as a
separate component of the service concession asset. The road
surface is therefore recognised as a separate component of the initial
fair value of the service concession asset and measured at the
estimated fair value of the resurfacing and depreciated over years 3-
8. This depreciation period is shorter than that for the road base, and
takes into account that resurfacing would ordinarily occur over six
years, rather than 25 years. During the construction phase, it is
assumed that only the road base is constructed in year 1, and that
the road only becomes ready to use at the end of year 2.
IE7. Recognition of the replacement component of the road surface as a
separate component of the service concession asset in year 8 also
results in an increase in the liability recognised by the grantor. Where
the liability relates to the grant of a right to the operator model,
additional revenue in respect of this increase is recognised evenly
over the term of the arrangement. However, if the expenditure
represented an improvement in service potential such as a new traffic
lane rather than restoration to original service capability then it would
be appropriate to instead recognise revenue relevant to that
improvement only once it has occurred.
IE8. At the beginning of year 3, the total fair value of the road is Rs. 1,050,
comprised of Rs. 940 related to the construction of the base layers
and Rs. 110 related to construction of the surface layers. The fair
value of the surface layers is used to estimate the fair value of the
resurfacing (which is treated as a replacement component in
accordance with ASLB 17). The estimated life of surface layers (i.e.,
six years) is also used to estimate the depreciation of the
replacement component in years 9 and 10. The total initial fair value
of the road is lower than the present value of the series of
predetermined payments pertaining to the asset, where applicable.
IE9. The road base has an economic life of 25 years. Annual depreciation
is taken by the grantor on a straight-line basis. It is therefore Rs. 38
(940/25) for the base layers. The surface layers are depreciated over

9 If this was not the case (e.g., where the operator might resurface in future, or might

incur additional maintenance over the period of the service concession
arrangement), it might not be appropriate to recognise a component.

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Compendium of Accounting Standards for Local Bodies (ASLBs)

6 years (years 3-8 for the original component, and starting in year 9
for the replacement component). Annual depreciation related to the
surface layers is Rs. 18 (Rs.110/6 = 18 approx.). There is no
impairment in the value of the road over the term of the service
concession arrangement.
IE10. The operator's cost of capital is not practicable to determine. The rate
implicit in the service concession arrangement specific to the asset is
6.18%.
IE11. It is assumed that all cash flows take place at the end of the year.
IE12. It is assumed that the time value of money is not significant.
Paragraph AG59 provides guidance on methods that may be
appropriate where the time value of money is significant.
IE13. At the end of year 10, the arrangement will end. At the end of the
arrangement, the operator will transfer the operation of the road to
the grantor.
IE14. The total compensation to the operator under each of the three
examples is inclusive of each of the components of the service
concession arrangement and reflects the fair values for each of the
services, which are set out in Exhibit 1.
IE15. The grantor's accounting policy for property, plant, and equipment is
to recognise such assets using the cost model specified in ASLB 17.
Exhibit 1: Fair Values of the Components of the Arrangement (Rupees)

Contact Component Fair Value
Road –base layers 940
Road -original surface layers 110
Total FV of road 1,050
Annual service component 12
Effective interest rate 6.18%

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 Service Concession Arrangements: Grantor

Example 1: The Grantor makes a Predetermined Series of Payments to
the Operator
Additional Terms
IEl6. The terms of the arrangement require the grantor to pay the operator
Rs. 200 per year in years 3-10 for making the road available to the
public. The total consideration (payment of Rs. 200 in each of years
3-10) reflects the fair values for each of the services indicated in
Exhibit 1. These payments are intended to cover the cost of
constructing the road, annual operating costs of Rs. 12 and
reimbursement to the operator for the cost of resurfacing the road in
year 8 of Rs. 110.
Financial Statement Impact
IE17. The grantor initially recognises the service concession asset as
property, plant, and equipment at its fair value (total Rs. 1,050,
comprised of Rs. 940 related to construction of the base layers and
Rs. 110 related to construction of the original surface layers). The
asset is recognised as it is constructed (Rs. 525 in year 1 and Rs.
525 in year 2). Depreciation is taken annually (Rs. 56, comprised of
Rs. 38 for the base layers and Rs. 18 for the surface layers), starting
from year 3.
IE18. The grantor initially recognises a financial liability at fair value equal
to the fair value of the asset under construction at the end of year 1
(Rs. 525). The liability is increased at the end of year 2 to reflect both
the fair value of the additional construction (Rs. 525) and the finance
charge on the outstanding financial liability. Because the amount of
the predetermined payment related to the service component of the
service concession arrangement is known, the grantor is able to
determine the amount of the payment that reduces the liability. A
finance charge at the implicit rate of 6.18% is recognised annually.
The liability is subsequently measured at amortised cost, i.e., the
amount initially recognised plus the finance charge on that amount
calculated using the effective interest method minus repayments.
IE19. The compensation for the road resurfacing is included in the
predetermined series of payments. There is no direct cash flow
impact related to the road resurfacing; however, the grantor
recognises the resurfacing as an asset when the work is undertaken

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 Compendium of Accounting Standards for Local Bodies (ASLBs)

and recognises depreciation expense of Rs. 110/6 = Rs. 18,
beginning in year 9.
IE20. The compensation for maintenance and operating the road (Rs. 12) is
included in the predetermined series of payments. There is no cash
flow impact related to this service expense; however, the grantor
recognises an expense annually.
IE21. The costs of services are accounted for in accordance with ASLB 1.
Overview of Cash Flows, Income and Expenditure Statement, and Balance
Sheet
IE22. The grantor's cash flows, income and expenditure statement, and
balance sheet over the duration of the arrangement will be as
illustrated in Tables 1.1 to 1.3. In addition, Table 1.4 shows the
changes in the financial liability.
Table 1.1 Cash Flows (Rupees)
Year 1 2 3 4 5 6 7 8 9 10 Total
Predetermine - - (200) (200) (200) (200) (200) (200) (200) (200) (1,600)
d series of
payments
Net inflow/ - - (200) (200) (200) (200) (200) (200) (200) (200) (1,600)
(outflow)

Table 1.2 Income and Expenditure Statement (Rupees)
Year 1 2 3 4 5 6 7 8 9 10 Total
Service - - (12) (12) (12) (12) (12) (12) (12) (12) (96)
expense
Finance - (32) (67) (59) (51) (43) (34) (25) (22) (11) (344)
charge
Depreciation - - (38) (38) (38) (38) (38) (38) (38) (38) (304)
– base layers
Depreciation - - (18) (19) (18) (18) (19) (18) - - (110)
– original
surface
layers
Depreciation - - - - - - - - (18) (19) (37)
–
replacement

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 Service Concession Arrangements: Grantor

surface
layers
Total - - (56) (57) (56) (56) (57) (56) (56) (57) (451)
depreciation
Annual - (32) (135) (128) (119) (111) (103) (93) (90) (80) (891)
surplus/
(deficit)
NOTES:
1. Depreciation in years 3-8 reflects the depreciation on the initially-
constructed road surface. It is fully depreciated over that period.
Depreciation in years 9 – 10 reflects the depreciation on the new service
concession asset component (surface) recognised in year 8.
2. Although these Illustrative Examples use a straight-line depreciation
method, it is not intended that this method be used in all cases. Paragraph
76 of ASLB 17 requires that, “The depreciation method should reflect the
pattern in which the asset‟s future economic benefits or service potential is
expected to be consumed by the entity.” Likewise, for intangible assets,
paragraph 96 of ASLB 31 requires that, “The depreciable amount of an
intangible asset with a finite useful life should be allocated on a systematic
basis over its useful life.”

Table 1.3 Balance Sheet (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Service 525 940 902 864 826 788 750 712 674 636
concessio
n asset –
base
layers
Service - 110 92 73 55 37 18 - - -
concessio
n asset –
original
surface
layers
Service - - - - - - - 110 92 73
concessio
n asset –
replacem
ent
surface
layers

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 Compendium of Accounting Standards for Local Bodies (ASLBs)

Total 525 1,05 994 937 881 825 768 822 766 709
Service 0
concessio
n asset
Cash - - (20 (40 (60 (80 (1,00 (1,20 (1,40 (1,60
0) 0) 0) 0) 0) 0) 0) 0)
Financial (52 (1,08 (96 (83 (69 (55 (396) (343) (177) -
liability 5) 2) 1) 2) 5) 0)
Cumulativ - 32 167 295 414 525 628 721 811 891
e
surplus/d
eficit
NOTES:
1. In this example, the resurfacing occurs as expected in year 8, when the
initially-constructed road surface is fully depreciated. If the resurfacing
occurred earlier, the initially-constructed road surface would not be fully
depreciated, and would need to be derecognised in accordance with ASLB 17
before the new component of the service concession asset related to the
resurfacing is recognised.
2. The new component of the service concession asset related to the resurfacing
is recognised in year 8. Years 9-10 reflect deprecation on this additional
component (Table 1.2).
3. The financial liability is increased in year 8 for the recognition of the new
component of the service concession asset.

Table 1.4 Changes in Financial Liability (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Balance - 525 1,082 961 832 695 550 396 343 177
brought
forward
Liability 525 525 - - - - - - - -
recognised
along with
initial service
concession
asset
Finance - 32 - - - - - - - -
charged
added to
liability prior

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 Service Concession Arrangements: Grantor

to payments
being made
Portion of - - (121) (129) (137) (145) (154) (163) (166) (177)
predetermined
series of
payments that
reduces the
liability
Liability - - - - - - - 110 - -
recognised
along with
replacement
surface layers
Balance 525 1,082 961 832 695 550 396 343 177 -
carried
forward
This amount is calculated as follows: by reducing finance charge (refer table
1.2) and service expense (refer table 1.2) from predetermined series of
payments (refer table 1.1)
Year 3: (200-67-12) = (121),
Year 4: (200-59-12) = (129),
Year 5: (200-51-12) = (137),
Year 6: (200-43-12) = (145),
Year 7: (200-34-12) = (154),
Year 8: (200-25-12) = (163),
Year 9: (200-22-12) = (166), and
Year 10: (200-11-12) = (177).
Example 2: The Grantor Gives the Operator the Right to Charge Users a
Toll for Use of the Road
Additional Arrangement Terms
IE23. The terms of the arrangement allow the operator to collect tolls from
drivers using the road. The operator forecasts that vehicle numbers
will remain constant over the duration of the arrangement and that it
will receive tolls of Rs. 200 in each of years 3-10. The total
consideration (tolls of Rs. 200 in each of years 3-10) reflects the fair
values for each of the services indicated in Exhibit 1, and is intended

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Compendium of Accounting Standards for Local Bodies (ASLBs)

to cover the cost of constructing the road, annual operating costs of
Rs. 12 and reimbursement to the operator for the cost of resurfacing
the road in year 8 of Rs. 110.
Financial Statement Impact
IE24. The grantor initially recognises the service concession asset as
property, plant, and equipment at its fair value (total Rs. 1,050,
comprised of Rs. 940 related to construction of the base layers and
Rs. 110 related to construction of the original surface layers). The
asset is recognised as it is constructed (Rs. 525 in year 1 and Rs.
525 in year 2). Depreciation is taken annually (Rs. 56, comprised of
Rs. 38 for the base layers and Rs. 18 for the surface layers, starting
in year 3).
IE25. As consideration for the service concession asset, the grantor
recognises a liability under the grant of a right to the operator model
for granting the operator the right to collect tolls of Rs. 200 in years 3-
10. The liability is recognised as the asset is recognised.
IE26. The liability is reduced over years 3-10, and the grantor recognises
revenue on that basis because access to the service concession
asset is expected to be provided evenly over the term of the service
concession arrangement from the point at which the asset is capable
of providing economic benefits.
IE27. The compensation for the road resurfacing is included in the tolls the
operator expects to earn over the term of the service concession
arrangement. There is no direct cash flow impact related to the road
resurfacing; however, the grantor recognises the resurfacing as an
asset when the work is undertaken and recognises depreciation
expense of Rs. 110/6 = Rs. 18, beginning in year 9.
IE28. The compensation for maintenance and operating the road (Rs. 12) is
included in the tolls the operator expects to earn over the term of the
service concession arrangement. There is no financial statement
impact related to this service expense. It does not affect cash flow
because the grantor has no cash outflow. It is not recognised as an
operating expense because the fair value of the asset and liability
initially recognised do not include any service costs the operator may
incur.

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Overview of Cash Flows, Income and Expenditure Statement, and Balance
Sheet
IE29. The grantor's cash flows, income and expenditure statement, and
balance sheet over the duration of the arrangement will be as
illustrated in Tables 2.1 to 2.3. In addition Table 2.4 shows the
changes in the liability.
Cash Flows
IE30. Because there are no payments made to the operator, there are no
cash flow impacts for this example.
Table 2.2 Income and Expenditure Statement (Rupees)
Year 1 2 3 4 5 6 7 8 9 10 Total
Revenue - - 145 145 145 145 145 145 145 145 1160
(reduction of
liability)
Depreciation –- - (38) (38) (38) (38) (38) (38) (38) (38) (304)
base layers
Depreciation –- - (18) (19) (18) (18) (19) (18) - - (110)
original surface
layers
Depreciation –- - - - - - - - (18) (19) (37)
replacement
surface layers
Total - - (56) (57) (56) (56) (57) (56) (56) (57) (451)
depreciation
Annual - - 89 88 89 89 88 89 89 88 709
surplus/(deficit)
NOTES:
1. Depreciation in years 3-8 reflects the depreciation on the initially-constructed
road surface. It is fully depreciated over that period.
2. Depreciation in years 9 – 10 reflects the depreciation on the new service
concession asset component (surface) recognised in year 8.
3. The revenue (reduction of the liability) includes revenue from the additional
liability (Table 2.3)
4. All revenue is recognised evenly over the term of the arrangement.

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Table 2.3 Balance Sheet (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Service 525 940 902 864 826 788 750 712 674 636
concession
asset – base
layers
Service - 110 92 73 55 37 18 - - -
concession
asset –
original
surface
layers
Service - - - - - - - 110 92 73
concession
asset –
replacement
surface
layers
Total Service 525 1,050 994 937 881 825 768 822 766 709
concession
asset
Cash - - - - - - - - - -
Liability (525) (1,050) (905) (760) (615) (470) (325) (290) (145) -
Cumulative - - (89) (177) (266) (355) (443) (532) (621) (709)
surplus/deficit
NOTES:
1. In this example, the resurfacing occurs as expected in year 8, when the
initially-constructed road surface is fully depreciated. If the resurfacing occurred
earlier, the initially-constructed road surface would not be fully depreciated, and
would need to be derecognised in accordance with ASLB 17 before the new
component of the service concession asset related to the resurfacing is
recognised.
2. The new component of the service concession asset related to the resurfacing
is recognised in year 8. Years 9-10 reflect deprecation on this additional
component (Table 2.2).
3. The liability is increased in year 8 for the recognition of the new component of
the service concession asset.

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 Service Concession Arrangements: Grantor

Table 2.4 Changes in Liability (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Balance - 525 1,050 905 760 615 470 325 290 145
brought forward
Liability 525 525 - - - - - - - -
recognised
along with
initial service
concession
asset
Revenue - - (145) (145) (145) (145) (145) (145) (145) (145)
(reduction of
liability)
Liability - - - - - - - 110 - -
recognised
along with
replacement
surface layers
Balance carried 525 1,050 905 760 615 470 325 290 145 -
forward

Example 3: The Grantor Makes a Predetermined Series of Payments to
the Operator and Also Grants the Operator the Right to Charge Users a
Toll for Use of the Road
Additional Arrangement Terms
IE31. The terms of the arrangement allow the operator to collect tolls from
drivers using the road. The operator forecasts that vehicle numbers
will remain constant over the duration of the arrangement and that it
will receive tolls of Rs. 100 in each of years 3-10. The arrangement
also requires the grantor to make a predetermined series of payments
to the operator of Rs. 100 annually. The fair value of the right to
collect tolls and the predetermined series of payments are considered
to compensate the operator equally (i.e., 50% from each form of
compensation to the operator).
Financial Statement Impact
IE24. The grantor initially recognises the service concession asset as
property, plant, and equipment at its fair value (total Rs. 1,050,
comprised of Rs. 940 related to construction of the base layers and
Rs. 110 related to construction of the original surface layers). The

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Compendium of Accounting Standards for Local Bodies (ASLBs)

asset is recognised as it is constructed (Rs. 525 in year 1 and Rs.
525 in year 2). Depreciation is taken annually (Rs. 56, comprised of
Rs. 38 for the base layers and Rs. 18 for the surface layers).
IE33. As consideration for the service concession asset, the grantor
recognises both a liability under the grant of a right to the operator
model by granting the operator the right to collect tolls of Rs. 100 in
years 3-10, and a financial liability to make payments of Rs. 100 in
years 3-10. A liability and a financial liability are recognised as the
asset is recognised at the end of year 1 (Rs. 525). The liability and
financial liability are increased at the end of year 2 to reflect both the
fair value of the additional construction (Rs. 525) and the finance
charge on the outstanding financial liability.
IE34. The grantor's obligation related to the right granted to the operator to
charge tolls and the predetermined payments are regarded as two
separate items. Therefore, in this arrangement it is necessary to
divide the grantor's consideration to the operator into two parts – a
liability and a financial liability.
IE35. The liability of Rs. 525 (recognised evenly at the end of year 1 and 2)
is reduced over years 3-10, and the grantor recognises revenue on
the same basis because the tolls are expected to be earned evenly
over the term of the service concession arrangement from the point at
which the asset is capable of providing service benefits.
IE36. The grantor initially recognises a financial liability at fair value equal
to half of the fair value of the asset (Rs. 525), recognised evenly at
the end of years 1 and 2; a liability under the grant of a right to the
operator model is recognised in an amount equal to the other half of
the fair value of the asset. The financial liability is also increased at
the end of year 2 by the finance charge on the outstanding financial
liability. Because the amount of the predetermined payments related
to the service component of the service concession arrangement is
known, the grantor is able to determine the amount of the payments
that reduces the liability. A finance charge at the implicit rate of
6.18% is recognised annually. The liability is subsequently measured
at amortised cost i.e., the amount initially recognised plus the finance
charge on that amount calculated using the effective interest method
minus repayments.
IE37. The operator is compensated for the road resurfacing (Rs. 110)
equally through the tolls the operator expects to earn over the term of

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 Service Concession Arrangements: Grantor

the service concession arrangement and the series of predetermined
payments (i.e., 50% from each). There is no direct cash flow impact
related to the road resurfacing; however, the grantor recognises the
resurfacing as an asset when the work is undertaken and recognises
depreciation expense of Rs. 110/6 = Rs. 18, beginning in year 9.
IE38. The operator is compensated for maintenance and operating the road
(Rs. 12) equally through the tolls the operator expects to earn over
the term of the service concession arrangement and the
predetermined payment (i.e., 50% from each). There is no direct cash
flow impact related to this service expense because the grantor has
no cash outflow. However, the grantor recognises an expense
annually for the portion of the compensation related to the series of
predetermined payments (Rs. 6). There is no financial statement
impact for the remaining Rs. 6 of this service expense. It is not
recognised as an operating expense because the fair value of the
asset and liability initially recognised do not include any service costs
the operator may incur.
IE39. The grantor's cash flows, income and expenditure statement, and
balance sheet over the duration of the arrangement will be as
illustrated in Tables 3.1 to 3.3. In addition, Table 3.4 shows the
changes in the liability and Table 3.5 shows the changes in the
financial liability.
Overview of Cash Flows, Income and Expenditure Statement, and Balance
Sheet
Table 3.1 Cash Flows (Rupees)
Year 1 2 3 4 5 6 7 8 9 10 Total
Predetermined - - (100) (100) (100) (100) (100) (100) (100) (100) (800)
series of
payments
Net - - (100) (100) (100) (100) (100) (100) (100) (100) (800)
inflow/(outflow)

Table 3.2 Income and Expenditure Statement (Rupees)
Year 1 2 3 4 5 6 7 8 9 10 Total
Revenue - - 73 72 73 72 73 72 73 72 580
(reduction of
liability)

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Service expense - - (6) (6) (6) (6) (6) (6) (6) (6) (48)
Finance charge - (16) (33) (30) (26) (22) (17) (12) (11) (5) (172)
Depreciation – - - (38) (38) (38) (38) (38) (38) (38) (38) (304)
base layers
Depreciation – - - (18) (19) (18) (18) (19) (18) - - (110)
original surface
layers
Depreciation – - - - - - - - - (18) (19) (37)
replacement
surface layers
Total - - (56) (57) (56) (56) (57) (56) (56) (57) (451)
depreciation
Annual - (16) (22) (21) (15) (12) (7) (2) - 4 (91)
surplus/(deficit)
NOTES:
1. Depreciation in years 3-8 reflects the depreciation on the initially-constructed
road surface. It is fully depreciated over that period.
2. Depreciation in years 9 – 10 reflects the depreciation on the new service
concession asset component (surface) recognised in year 8.
3. The revenue (reduction of the liability) includes revenue from the additional
liability (Table 3.3)
4. All revenue is recognised evenly over the term of the arrangement.

Table 3.3 Balance Sheet (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Service 525 940 902 864 826 788 750 712 674 636
concession
asset – base
layers
Service - 110 92 73 55 37 18 - - -
concession
asset –
surface layers
Service - - - - - - - 110 92 73
concession
asset –
replacement
surface layers
Total Service 525 1,050 994 937 881 825 768 822 766 709
concession
asset

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 Service Concession Arrangements: Grantor

Cash - - (100) (200) (300) (400) (500) (600) (700) (800)
Liability (262) (525) (452) (380) (307) (235) (162) (145) (72) -
Financial (263) (541) (480) (416) (348) (276) (199) (172) (89) -
liability
Cumulative - 16 38 59 74 86 93 95 95 91
surplus/deficit
NOTES:
1. In this example, the resurfacing occurs as expected in year 8, when the
initially-constructed road surface is fully depreciated. If the resurfacing
occurred earlier, the initially-constructed road surface would not be fully
depreciated, and would need to be derecognised in accordance with ASLB 17
before the new component of the service concession asset related to the
resurfacing is recognised.
2. The new component of the service concession asset related to the resurfacing
is recognised in year 8. Years 9-10 reflect deprecation on this additional
component (Table 3.2).
3. The liability is increased in year 8 for the recognition of 50% of the new
component of the service concession asset.
4. The financial liability is increased in year 8 for the recognition of 50% of the
new component of the service concession asset.

Table 3.4 Changes in Liability (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Balance - 262 525 452 380 307 235 162 145 72
brought forward
Liability 262 263 - - - - - - - -
recognised
along with
initial service
concession
asset
Revenue - - (73) (72) (73) (72) (73) (72) (73) (72)
(reduction of
liability)
Liability - - - - - - - 55 - -
recognised
along with
replacement
surface layers
Balance carried 262 525 452 380 307 235 162 145 72 -
forward

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 Compendium of Accounting Standards for Local Bodies (ASLBs)

Table 3.5 Changes in Financial Liability (Rupees)
Year 1 2 3 4 5 6 7 8 9 10
Balance - 263 541 480 416 348 276 199 172 89
brought forward
Liability 263 262 - - - - - - - -
recognised
along with
initial service
concession
asset
Finance - 16 - - - - - - -
charged added
to liability prior
to payments
being made
Portion of - - (61) (64) (68) (72) (77) (82) (83) (89)
predetermined
series of
payments that
reduces the
liability
Liability - - - - - - - 55 - -
recognised
along with
replacement
surface layers
Balance carried 263 541 480 416 348 276 199 172 89 -
forward
This amount is calculated as follows: by reducing finance charge (refer table
3.2) and service expense (refer table 3.2) from predetermined series of
payments (refer table 3.1)
Year 3: (100-33-6) = (61),
Year 4: (100-30-6) = (64),
Year 5: (100-26-6) = (68),
Year 6: (100-22-6) = (72),
Year 7: (100-17-6) = (77),
Year 8: (100-12-6) = (82),
Year 9: (100-11-6) = (83), and
Year 10: (100-5-6) = (89).

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 Service Concession Arrangements: Grantor

Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 26
and the corresponding International Public Sector Accounting Standard
(IPSAS) 32, „Service Concession Arrangements: Grantor’.
Comparison with IPSAS 32, ‘Service Concession
Arrangements: Grantor’
1. Different terminologies have been used in ASLB 32 as compared to
corresponding IPSAS 32, e.g., the terms „statement of income and
expenditure‟ and „entities‟ have been used in place of „statement of
financial performance‟ and „public sector entities‟.
2. The provision pertaining to applicability of ASLBs has been covered
in the Standard itself in line with other issued ASLBs (refer paragraph
3).
3. The following paragraphs of IPSAS 32 have been deleted or
amended significantly to make the same more relevant in the context
of local bodies in India:
I. The term „fair value‟ has been defined additionally. (paragraph
8)
II. The Standard provides reference of IPSAS on „Financial
Instruments‟ at various places. However, ASLB on „Financial
Instruments‟ is not proposed to be issued in near future.
Accordingly, such reference has been deleted. (paragraph 20
&AG 53 deleted & paragraph 29 modified)
III. Footnotes have been inserted with regard to explanation of
effective interest method and defining financial asset &
financial liability for more clarity (refer paragraph 18& AG 40).
IV. Paragraphs 34 & 35A-B pertaining to transitional provisions
have been deleted as a separate ASLB 33, „First-time
Adoption of ASLBs‟ has been issued that contains all
transitional provisions at one place.
V. Paragraphs 36-37 pertaining to effective date have been

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Compendium of Accounting Standards for Local Bodies (ASLBs)

deleted as ASLB 32 would become mandatory for Local
Bodies in a State from the date specified by the State
Government concerned.
4. Paragraphs AG4A-4C have been inserted in ASLB 32 for more
clarification that how service concession arrangements are different
from leases.
5. The following paragraphs appear as „Deleted‟ in IPSAS 32. In order
to maintain consistency with paragraph numbers of IPSAS 32, the
paragraph numbers are retained in ASLB 32:
I. Paragraph 4, and
II. Paragraph 35.
6. Some examples of IPSAS 32 have been modified in light of Indian
conditions.

476