11 Acctg For BOT

ACCOUNTING FOR SPECIAL
TRANSACTIONS
(Advanced Accounting 1)
LECTURE AID
2018
ZEUS VERNON B. MILLAN

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Chapter 13
Accounting for Build-operate-transfer (BOT)
Learning Competencies
• Define a “build-operate-transfer” (BOT)

arrangement that is within the scope of IFRIC
Interpretation 12 and SIC Interpretation 29.
• Differentiate the accounting procedures for a BOT
arrangement depending on the type of
consideration received by the “operator.”
• Account for BOT arrangements.
“Build-Operate-Transfer” (BOT) arrangements
• Under a BOT arrangement, the construction of a new infrastructure

or the development or maintenance of an existing infrastructure is
outsourced by the government (‘grantor’) from private companies
(called the ‘operators’) through competitive bidding or direct
negotiation.
• The ‘operator’ awarded with the BOT contract is allowed to finance
the construction, development or maintenance of the
infrastructure and commercially operate it for a fixed period of
time sufficient for him to earn back the capital he invested as well as
collect profit. After which, the ‘operator’ transfers the
infrastructure to the government without further compensation.

Other terms
Other terms for BOT arrangements are:

• “service concession arrangement,”
• “rehabilitate-operate-transfer,”
• “public-to-private service concession” and
• “private-public partnership (PPP).

Features of BOT arrangements
a. The service to be provided by the operator under the BOT arrangement is
of public service nature and shall be provided to the public on behalf of
the public sector entity or government.
b. The grantor of the BOT contract is a public sector entity (i.e., government).
c. The operator is responsible for at least some of the management of the
infrastructure and related services and does not merely act as an agent on
behalf of the grantor.
d. The contract sets the initial prices to be levied by the operator and
regulates price revisions over the period of the service arrangement.
e. The operator is obliged to hand over the infrastructure 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. ACCOUNTING FOR SPECIAL
IFRIC 12 Service Concession Arrangements
• IFRIC 12 applies to Build-Operate-Transfer (BOT) contracts if:

a. The grantor (i.e., government) controls or regulates
i. what services the operator must provide with the
infrastructure,
ii. to whom it must provide them, and
iii. at what price; and
b. The grantor controls, through ownership, beneficial
entitlement or otherwise, any significant residual
interest in the infrastructure at the end of the term of the
arrangement.

IFRIC 12 (continuation)
• The outsourcing of the operation of a

governmental unit’s internal services (e.g.,
employee cafeteria, building maintenance, and
accounting or information technology functions)
is not a service concession arrangement within
the scope of IFRIC 12 or SIC 29.

Accounting issues
• IFRIC 12 deals with the accounting for the following:

1. Treatment of the operator’s rights over the infrastructure;
2. Recognition and measurement of arrangement consideration;
3. Construction or upgrade services;
4. Operation services;
5. Borrowing costs;
6. Subsequent accounting treatment of a financial asset and an
intangible asset; and
7. Items provided to the operator by the grantor.

Treatment of the operator’s rights over the infrastructure
• The infrastructure referred to in a BOT contract

accounted for under IFRIC 12 shall not be recognized as
property, plant and equipment of the operator.

Recognition and measurement of arrangement consideration
• Under a BOT arrangement that is within the scope of

IFRIC 12, the operator acts as a service provider.

• Such services may be:
1. Construction or upgrade services – the operator
constructs or upgrades infrastructure used to provide
a public service; and
2. Operation services – the operator operates and
maintains that infrastructure for a specified period of
time.
• The operator shall recognize and measure revenue in

accordance with PFRS 15 Revenue from Contracts with
Customers for the services it performs.
Construction or upgrade services
• The consideration from construction or upgrade services may be rights to:
1. Financial asset,
2. Intangible asset, or
3. Partly financial asset and partly intangible asset
• The operator shall account for construction or upgrade services in

accordance with PFRS 15.
• After completion of the construction services, the asset recognized
from the contract is accounted for under PFRS 9 (for a financial
asset) or PAS 38 (for an intangible asset) or both (if the
consideration is partly a financial asset and partly an intangible
asset.

Financial asset
• A financial asset shall be recognized if the operator has an

unconditional contractual right to receive cash or another
financial asset from the grantor, such as when the grantor
contractually guarantees to pay the operator
1. Specified or determinable amounts or
2. The shortfall, if any, between amounts received from users of
the public service and specified or determinable amounts, even
if payment is contingent on the operator ensuring that the
infrastructure meets specified quality or efficiency
requirements.
Financial asset (Continuation)
• The amount due from or at the direction of the grantor is

accounted for in accordance with PFRS 9 Financial
Instruments as measured at:
1. Amortized cost; or
2. Fair value through other comprehensive income (FVOCI);
or
3. Fair value through profit or loss (FVPL).

Intangible asset
• An intangible asset shall be recognized if the operator

receives a right (a license) to charge users of the
public service.
• The operator shall account for the intangible asset
(license) it has received from the grantor using PAS 38
Intangible Assets.

Partly by a financial asset and an intangible asset
• If the consideration received or receivable is partly a

financial asset and partly an intangible asset, each
component shall be accounted for separately and both
components be recognized initially in accordance with
PFRS 15.

Operation services
• The operator shall account for operation services in

accordance with PFRS 15.

Borrowing costs incurred by the operator
• The operator is allowed to capitalize borrowing costs, subject

to the provisions of PAS 23 Borrowing Costs, if the
consideration in a service concession arrangement is in the
form of an intangible asset.

APPLICATION OF CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION
ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

MILLAN)
END
MILLAN)

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ACCOUNTING FOR SPECIAL

ZEUS VERNON B. MILLAN

• Define a “build-operate-transfer” (BOT)

• Under a BOT arrangement, the construction of a new infrastructure

ACCOUNTING FOR SPECIAL

Other terms for BOT arrangements are:

ACCOUNTING FOR SPECIAL

• IFRIC 12 applies to Build-Operate-Transfer (BOT) contracts if:

ACCOUNTING FOR SPECIAL

• The outsourcing of the operation of a

ACCOUNTING FOR SPECIAL

• IFRIC 12 deals with the accounting for the following:

ACCOUNTING FOR SPECIAL

• The infrastructure referred to in a BOT contract

ACCOUNTING FOR SPECIAL

• Under a BOT arrangement that is within the scope of

• The operator shall recognize and measure revenue in

• The operator shall account for construction or upgrade services in

ACCOUNTING FOR SPECIAL

• A financial asset shall be recognized if the operator has an

• The amount due from or at the direction of the grantor is

ACCOUNTING FOR SPECIAL

• An intangible asset shall be recognized if the operator

ACCOUNTING FOR SPECIAL

• If the consideration received or receivable is partly a

ACCOUNTING FOR SPECIAL

• The operator shall account for operation services in

ACCOUNTING FOR SPECIAL

• The operator is allowed to capitalize borrowing costs, subject

ACCOUNTING FOR SPECIAL

PROBLEM 2: FOR CLASSROOM DISCUSSION

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

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