Revenue Recognition for service provided during contract awaited renewal

One government entity is having a contract with the other state government entity for electric power transmission under a contract. The contract is expired and not renewed on account of rate revision, however the seller continued to provide electricity and keep on recognizing revenue as per rates of expired contract. Representative of both the companies at each billing date measure the units of electricity transmitted and accordingly the seller raise the invoice as per expired contract rates. Both the companies are working on renewal of contract. Whether the Ind AS allows the seller for recognition of revenue in case contract is expired and seller continue to provide service and the buyer accepts the same.

Nothing wrong here, just because the contract is expired and there is a gap doesn’t mean any problems. Both are going concerns, in view of that, there is no threat of substitute product to the seller for any immediate danger. And also, they are renewing the contract lately and any risks and rewards are between them. This is government to government entities. IndAS is applicable.

Other forms of arrangement is often described as a ‘build- operate-transfer’, a ‘rehabilitate-operate-transfer’ or a ‘public-to-private’ service concession arrangement.
3 A feature of these service arrangements is the public service nature of the obligation undertaken by the operator. Public policy is for the services related to the infrastructure to be provided to the public, irrespective of the identity of the party that operates the services. The service arrangement contractually obliges the operator to provide the services to the public on behalf of the public sector entity.

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.