About IFRIC D24

Customer contributions are transactions in which an entity—the access provider—receives an asset it uses to provide access to an ongoing supply of goods or services to a customer or customers.

In some cases, the access provider receives cash it must use to acquire or construct the asset that will provide access. The asset may be provided by the customer or may be provided by a third party.

Similarly, the entity receiving the contribution may supply the goods or services as well as access to them or they may be supplied by another party.

Example
A property developer may be required to install an electricity substation to service a new housing development and that it must then contribute to the utility that operates the electricity network. The utility must use the asset to provide access to electricity to the future homeowners. The homeowners may choose to purchase their electricity from suppliers other than the utility, but the utility always provides the distribution.

This example illustrates that the entity that provides the contribution may not be the customer that receives the access to a supply of goods or services. It also illustrates that the service provided using the contributed asset is access to the supply of goods or services, rather than the goods or services themselves.

In most cases, the customer will pay normal market rates for the goods or services actually supplied using the asset.

Reason for IFRIC D24

Entities account for customer contributions differently. Some measure them on initial recognition at fair value and some recognise them at cost (which is often nil).

Furthermore, the entities that recognise the assets at fair value recognise the resulting credit differently—some recognise the resulting credit as revenue immediately, others recognise it as a liability to provide service and recognise revenue as services are provided.

Potential impact of IFRIC D24

If adopted, IFRIC D24 will standardise practice among entities applying IFRSs and clarify the accounting for the receipt of customer contributions. Entities that have previously not recognised contributed assets will recognise increased property, plant and equipment and revenue. Entities that have previously recognised revenue immediately on the receipt of a contributed asset may now be required to recognise revenue over a longer period.

Recognising that entities would face difficulties in identifying the fair value of assets that were contributed in the past, the IFRIC proposes that its guidance should be applied prospectively.