IFRIC 18
Withdrawn
Transfers of Assets from Customers
Addresses accounting for an entity receiving an item of property, plant and equipment from a customer which the entity must use to connect the customer to a network or provide ongoing access to goods/services.
Withdrawn Standard
IFRIC 18 addressed accounting for an entity receiving an item of property, plant and equipment from a customer which the entity must use to connect the customer to a network or provide ongoing access. This guidance was withdrawn and replaced by IFRS 15's general model.
This poster is retained for historical and comparative reference. Entities must now apply IFRS 15's performance obligation and non-cash consideration framework to customer asset transfer arrangements.
Current Standard
IFRS 15 Revenue from Contracts with Customers 1
Conceptual Framework Linkage (Historical)
Why the transferred asset is not a simple gift
IFRIC 18 recognised that a customer transferring an item of PPE to an entity is NOT simply making a donation – the customer receives something of value in return: CONNECTION to a network, or ONGOING ACCESS to goods/services. The transferred asset therefore has economic substance as part of a BARTER TRANSACTION, requiring recognition as revenue (or a related cost reduction) rather than being ignored or treated as a government grant.
THE CORE ECONOMIC SUBSTANCE
The customer provides the asset in exchange for a FUTURE service from the entity The entity gains control of the asset and must recognise it under IAS 16 The customer's contribution is NOT a donation – it is part of a reciprocal arrangement
Revenue recognition when the customer "pays" with assets
IFRIC 18 applies the same economic substance principle that underlies all revenue standards: the entity must recognise revenue when (or as) it satisfies a PERFORMANCE OBLIGATION to the customer. When the customer pays with an asset rather than cash, the revenue recognition logic is unchanged – only the form of consideration differs. The transferred asset becomes the entity's cost base for delivering the promised future service.
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Scope & Definitions (Historical)
What IFRIC 18 covered
IFRIC 18 addressed accounting for an entity RECEIVING an item of property, plant and equipment from a customer, which the entity must use to CONNECT THE CUSTOMER to a network or PROVIDE ONGOING ACCESS to goods/services. The interpretation applies to ANY such arrangement – not just utilities – and covers both items of PPE that become part of the entity's network infrastructure and items that the entity operates on the customer's behalf.
TYPICAL FACT PATTERNS
Utilities customers transferring land or infrastructure to connect to the electricity/gas/water network Telecommunications customers contributing equipment to connect to broadband services Airport customers transferring taxiways or access roads to the airport operator Rail customers providing track connections to the national rail network
Key definitions (historical)
Item of property, plant and equipment
A physical asset transferred by the customer to the entity, which meets the definition of PPE under IAS 16 – land, buildings, infrastructure, or equipment that the entity controls and uses.
Ongoing access
The right of the customer to receive goods or services on an ongoing basis from the network or infrastructure to which the customer has connected – the performance obligation the entity satisfies in exchange for the transferred asset.
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Does the Transferred Item Meet the Definition of an Asset? (Historical)
The first step – recognising the transferred PPE
Before any revenue accounting can occur, the entity must determine whether the transferred item MEETS THE DEFINITION OF PPE under IAS 16. If it does, the entity RECOGNISES IT as PPE at its cost – which, under IFRIC 18, is its FAIR VALUE at the date of acquisition. The fair value of the asset becomes the starting point for the revenue recognition analysis.
WHETHER THE ITEM MEETS THE DEFINITION OF PPE
The entity must CONTROL the item (not merely have temporary custody) The item must be held for use in production, supply of goods/services, or administrative purposes The item must be expected to be used for more than one period If the item does NOT meet the PPE definition, it is recognised as an expense immediately
⚠️ The fair value of the transferred asset becomes the "cost" at which the entity recognises PPE – this is a departure from the normal cost-based measurement under IAS 16, justified by the fact that the entity's "cost" is the fair value of what it received from the customer.
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Identifying the Separate Deliverables (Historical)
The two distinct performance obligations
IFRIC 18 identifies that the arrangement typically contains TWO SEPARATE PERFORMANCE OBLIGATIONS: (1) the ONE-OFF obligation to CONSTRUCT and ACTIVATE the connection, and (2) the ONGOING obligation to provide ACCESS to the network or supply goods/services. These are separately identifiable because the customer can benefit from the connection service independently of the ongoing access, or the entity's promise to connect is separately identifiable from the ongoing supply.
Performance obligationRevenue timing
Connection service (one-off)Recognised at the point in time when the connection is complete and the customer can use it
Ongoing access (continuous)Recognised over time as the entity provides access – typically straight-line over the contract period
IFRIC 18's two-performance-obligation model was a direct forerunner to the performance obligation identification logic in IFRS 15. The distinction between one-off and ongoing deliverables is a key IFRS 15 concept.
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Recognising Revenue for Connection Services (Historical)
The connection revenue
Revenue for the CONNECTION SERVICE is recognised at the POINT IN TIME when the connection is COMPLETE and the customer can BEGIN TO USE the network or service. The amount of revenue recognised equals the FAIR VALUE of the transferred PPE asset – because the customer effectively "paid" for the connection by transferring the asset. If the fair value of the PPE cannot be measured reliably, the entity uses the CONSTRUCTED COST of the connection as a proxy.
CONNECTION REVENUE CALCULATION
Connection revenue = Fair value of transferred PPE (or construction cost if fair value unreliable)
Worked example – connection service revenue
Example: Utility network connection
A customer transfers land with fair value £500,000 to a utility company to connect a new factory to the gas network. The utility constructs the connecting pipeline at a cost of £300,000.
Step 1 – Recognise PPE: Land recognised at fair value £500,000.
Step 2 – Connection revenue: £500,000 (fair value of transferred land).
Step 3 – Connection cost: £300,000 recognised as cost of sales.
Step 4 – Gross margin: £500,000 - £300,000 = £200,000 on the connection service.
Step 5 – Ongoing access: Revenue for ongoing gas supply recognised over the 20-year contract period.
Step 2 – Connection revenue: £500,000 (fair value of transferred land).
Step 3 – Connection cost: £300,000 recognised as cost of sales.
Step 4 – Gross margin: £500,000 - £300,000 = £200,000 on the connection service.
Step 5 – Ongoing access: Revenue for ongoing gas supply recognised over the 20-year contract period.
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Recognising Revenue for Ongoing Access (Historical)
The ongoing access revenue
Revenue for the ONGOING ACCESS service is recognised OVER TIME – typically straight-line over the period of access. The amount recognised in each period represents the portion of the TRANSACTION PRICE relating to the ongoing supply of goods/services, which may include: (a) explicit charges for goods/services consumed, (b) standing charges for network access, or (c) implicit consideration embedded in the overall arrangement.
MEASURING THE ONGOING ACCESS PRICE
If the arrangement specifies a price for ongoing access, that price is used directly If no separate price is specified, the entity estimates the stand-alone selling price of the ongoing access The allocation between connection and ongoing access uses relative fair values
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How This Guidance Became Part of IFRS 15
A seamless transition to IFRS 15's performance obligation model
IFRS 15 absorbed IFRIC 18's two-performance-obligation framework directly into its own five-step model. Customer asset transfers became a specific instance of non-cash consideration under IFRS 15 Step 3, and the connection/ongoing access distinction became simply an application of IFRS 15's performance obligation identification and allocation. The Conceptual Framework and core principles are identical – IFRIC 18's guidance is now fully embedded in IFRS 15's general model.
IFRS 15's Revenue Implementation Guidance specifically addresses non-cash consideration and customer contributions, confirming that IFRIC 18's approach was conceptually correct and merely needed to be generalised to cover all customer contributions, not just PPE.
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Common Application Sectors
Industries where customer asset transfers are most prevalent
SectorTypical transfer structureIFRIC 18 relevance
UtilitiesCustomers transfer land/pipelines for electricity/gas/water connection; ongoing supply contractsCore example – IFRIC 18 specifically references utility network connections
TelecommunicationsCustomers transfer cable/fibre infrastructure for broadband connection; ongoing service feesSignificant PPE balances from customer-contributed infrastructure
Transport infrastructureCustomers provide access roads, taxiways, or rail connections; ongoing use rightsAirport and rail operators commonly receive customer-contributed infrastructure
Waste managementCustomers provide site access or transfer land for waste processing facilities; ongoing service contractsLess common but same economic substance applies
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Disclosure (Historical)
Historical disclosure requirements under IFRIC 18
Nature and amount of PPE received from customers during the period Revenue recognised for connection services and ongoing access services separately Method used to measure the fair value of transferred PPE when no active market exists Carrying amount of PPE recognised from customer transfers at the reporting date
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Judgments & Estimates (Historical)
Where judgement historically mattered most
SIGNIFICANT JUDGEMENTS
Whether the transferred item meets the definition of PPE under IAS 16 Whether the connection and ongoing access are separate performance obligations Whether the fair value of transferred PPE can be reliably measured
SIGNIFICANT ESTIMATES
Fair value of transferred PPE when no active market exists Allocation of transaction price between connection and ongoing access when no explicit prices are specified Useful life of transferred PPE for depreciation purposes
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IFRIC 18 vs the Current IFRS 15 Approach
What changed and what did not
FeatureIFRIC 18 (historical)IFRS 15 (current)
Transferred PPE recognitionRecognised at fair value under IAS 16Same treatment – non-cash consideration measured at fair value
Revenue allocationTwo separate performance obligations: connection and ongoing accessSame two-obligation model embedded in IFRS 15's five-step framework
Connection revenue timingAt point in time when connection is completeSame point-in-time recognition
Ongoing access revenueOver time as access is providedSame over-time recognition
ScopeSpecific to customer-contributed PPE for network connectionsGeneralised to all customer contributions and non-cash consideration
WithdrawnYes – 2016N/A
IFRS 15 generalised IFRIC 18's specific customer-contributed PPE guidance to cover ALL forms of customer contributions and non-cash consideration – not just PPE for network connections. Entities now apply the same logic to a broader range of arrangements.
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Statement Mapping (Historical)
Where IFRIC 18 items historically appeared
ItemStatement(s) affectedNotes
Transferred PPE recognised at fair valueBalance SheetIAS 16 PPE at fair value
Connection service revenueP&LRecognised at point in time when connection is complete
Ongoing access revenueP&LRecognised over time as access is provided
Connection cost (pipeline/infrastructure)P&LRecognised as cost of sales when revenue is recognised
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Related Standards
Cross-reference map
StandardConnection
IFRS 15The current successor standard generalising IFRIC 18's multi-element and non-cash consideration logic
IAS 16Governs recognition of the transferred asset itself at fair value
IAS 20A related but distinct government/customer contribution concept for grants rather than customer transfers
Quick-reference glossary
Non-cash consideration
Consideration from a customer that is NOT in the form of cash – under IFRS 15, measured at fair value, generalising IFRIC 18's transferred PPE approach.
Customer contribution
An asset transferred from a customer to an entity in connection with a contract for goods or services – the broader category that includes IFRIC 18's PPE transfers.
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Glossary
Customer-contributed PPE
An item of property, plant and equipment transferred by a customer to an entity, which the entity must use to connect the customer or provide ongoing access – the core subject of IFRIC 18.
Non-cash consideration
Consideration from a customer that is not in the form of cash – measured at fair value under IFRS 15, generalising IFRIC 18's approach.
Connection service
The one-off performance obligation to construct and activate a network connection for the customer – recognised at a point in time when complete.
Ongoing access
The continuous performance obligation to provide the customer with access to goods or services from the network – recognised over time.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows