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Editorial Board on Accounts and Audit

    by R.S.SARAVANAN on Monday, April 22, 2019 at 07:18 PM

    Assessee entered into contract with GOVT to construct road under hybrid annuity model. 50% of consideration will be received during construction period in instalments. Balance 50% will be received after COD as annuity payments half yearly. No right for toll. Assessee had to maintain the road for 10 years and return to govt with recondition. What is the treatment in accounting. Whether the maintenance right to be treated as asset?. Whether Income tax to be paid under % of completion method?

    Replied byEditorial Board Friday, May 03, 2019 at 08:00 PM

    Ind AS 115, Revenue from Contracts with Customers govern recognition of revenue. Appendix D of Ind AS 115 provides guidance on revenue recognition by contractor/operator of an infrastructure facility under a service concession arrangement. Under such type arrangement, the government or a government body enters into an agreement with private sector party (known as contractor/operator) to construct and operate infrastructure or operate an already constructed infrastructure facility for a specified period of time. The operator charges for its construction and operation service.

    The standard provides that revenue from construction and/or operation of an infrastructure facility under a service concession arrangement shall be recognised as per accounting principles specified in Ind AS 115. Therefore, in the case, revenue from construction and operation of road shall be recognised as per Ind AS 115, i.e., by following five step model of revenue recognition.

    As far as recognition of infrastructure facility as fixed asset in the books of operator is concerned, Ind AS 115 restricts the same as the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator.

    The maintenance right, therefore, can’t be recognised as an asset in the books of assessee.

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