Annual Report 2010 - AdP

If the difference is negative (tariff practiced > necessary tariff) a positive tariff deficit is generated, which must be debited from income.
This recognition also leads to recognition of a deferred tax liability related to the correction of the tax associated with income credit.
The net effect corresponds to the correction of net income for full recovery of costs and guaranteed annual shareholder remuneration.
2.5.3 Cost accruals for contractual investments and amortization policy
EIn accordance with the terms of the concession contracts and management of partnerships and the regulations and whenever
applicable, the annual share of estimated costs is recorded to cover the contractual expenses related to investments that have not
yet been realized (regulated) or investments to expand (regulated) the concession and the partnership.
For assets (which will result in infrastructure usage rights – IFRIC 12) with useful lives greater than the concession period, initial
investment amortization, that which is subsequently approved or imposed by the Awarding Body and which results in expansion or
modernization of initial obligations must normally be conducted in accordance with the concession time period. However, additional
expansion or modernization investments whose useful life is extended beyond the concession time period and which have a residual
value will result in a compensation equivalent to the not yet amortized value at the date of the end of the concession.
These amortizations are calculated taking into account initial not yet realized investments that are included in the economic and
financial feasibility study, based on the invoiced effluent flows invoiced during that year and the effluents to be invoiced up until the
end of the concession as stipulated in the feasibility study. They are recorded under results as accumulated amortizations and accrued
costs for contractual investments recorded under liabilities.
In practice, these accruals correspond to future reimbursement of the tariff (translating into the amount charged, taking into account
investments not yet undertaken) allowing a stabilizing level, imposed by the Awarding Body, as well as matching, during the validity
period of the concession contracts with the State, of income (tariffs) and costs (paid and payable) as mentioned previously.
These accruals are recognized as costs under amortization of the year and under liabilities (non-current), and transferred to
accumulated amortization when the underlying investment is executed.
2.6 Concessioned activity - IFRIC 12
2.6.1 Framework
IFRIC 12 defines the rules to be followed when recognizing concession contracts in the accounts, taking into account the services
rendered and the controlling power over concession assets. Under this standard the AdP Group companies supply two types of
services: construction, modernization and renovation of infrastructures allocated to the system; and operation and management
(operate and maintain) of the system consisting of the infrastructures necessary for supplying services to the users. As such, the
company recognizes and measures yield (income) from the services that it supplies in accordance with IAS 11 – Construction
contracts and IAS 18 - Yield.
If the company supplies more than one service (i.e. construction or modernization of services and operation) within the scope of
a single concession contract, the amount receivable (prices or tariffs) must be distributed in accordance with its fair values when
they are individually (separately) identifiable. The nature of the price and the tariff determines how they are stated in the accounts.
The company should recognize yield and costs related to construction or modernization of infrastructure in accordance with o IAS
11. The company should recognize yield and costs related to the operation in accordance with IAS 18. In addition, infrastructure
mentioned in IFRIC 12 should not be recognized as the tangible fixed assets of the operator (or concessionaire) because the
concession contract does not grant it the right to control the tangible fixed assets. The operator has access to and operates the
infrastructure in order to provide a public service in the name of the Awarding Authority, in accordance with the terms of the
contract. Under the concession contract, pursuant to this norm, the operator (or concessionaire) acts as a service provider. The
operator (or concessionaire) constructs or modernizes the infrastructure (construction or modernization of services) used to supply
public services and operates and maintains the infrastructure (operation) during a specific period of time. If the operator (or
concessionaire) constructs or modernizes the infrastructures, the value (tariff) received or receivable by the operator must be
recognized at its fair value, which corresponds to a value that materializes in a right that corresponds to: (a) a financial asset or (b)
a tangible asset. The operator (or concessionaire) recognizes a financial asset in so far as it has a contractual right to receive money
or another financial asset from the Awarding Body for the construction services; the Awarding Authority cannot avoid payment
because the contract is enforceable under the law. The operator (or concessionaire) has the unconditional right to receive money
if the Awarding Authority contractually guarantees this payment to the operator, which corresponds to (a) a specific amount or (b)
the difference, if it exists, between the amounts received from the public service users and another specific amount, even if the
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