Accounting Treatment of Concession Agreement in the Aeronautical Industry Under the AS Framework

A concession agreement is a contract that gives a company the right to operate a specific business within a government’s jurisdiction or on another firm’s property, subject to particular terms.

In this story, we have discussed the Expert Advisory Committee (EAC) Opinion on the accounting treatment of concession agreements under the AS framework.

The following are the key elements of the Concession Agreement(CA):

• The Concessionaire shall pay to the Corporation, the following amounts to the corporation:

1. 1. Upfront payment towards the estimated depreciated value of investments made by the Corporation as on 31.03.20X0 aeronautical and non-aeronautical assets.
   2. Upfront payment relating to the value of capital work in progress as on the Commercial Operation Date.
   3. To pay monthly Concession Fee to the Corporation calculated in respect of Domestic and International passenger throughput at the airport at the rates stipulated in the executed agreements.

The EAC has opined on the recognition/derecognition of aeronautics assets and the classification of leases and their accounting treatment in the books of corporations.

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