-
Part I
ACCOUNTING STANDARDS
IAS12
Income
Taxes
1.
Tax base
of an asset is the amount that will be deductible
for tax purpose against any
taxable
economic benefit that will flow to the entity when
it recovers the carrying value
of the
asset. Where those economic benefits are not
taxable, the tax base of the asset
is
the same as its carrying amount.
TB
P123
In the case of a liability, the
tax base will be its carrying amount, less any
amount that
will be deductible for tax
purpose in relation to the liability in future
period.
TB P124
2.
IAS12
Income
Taxes
is
based
on
the
idea
that
all
changes
in
assets
and
liabilities
have
unavoidable
tax
consequences.
Where
the
recognition
criteria
in
IFRS
are
different
from
those
in
tax
law
,
the
carrying
amount
of
an
asset
or
liability
in
the
financial
statements
is
different
from
its
tax
base.
These
differences
are
known
as
temporary differences. The practical
effect of these differences is that a transaction
or
event occurs in a different
accounting period from its tax consequences.
IAS12
requires
a
company
to
make
full
provision
for
the
tax
effects
of
temporary
differences.
PK P12-B7a-P101/ PK P13-B8a-P104
3.
A
deferred
tax
liability
should
be
recognised
for
all
taxable
temporary
differences,
except to the extent that the deferred
tax liability arises from:
(a)
the initial recognition of
goodwill
; or
(b)
the
initial recognition
of an asset or liability in a
transaction which:
(i)
is
not a business combination; and
(ii)
at
the
time
of
the
transaction, affects
neither
accounting
profit
nor
taxable
profit (tax loss).
An
entity
will
not
recognise
deferred
tax
liabilities
arising
from
the
initial
recognition of
goodwill
. Goodwill will be increased by
the amount of the deferred tax
liabilities of the subsidiary.
TB P126/ TB P140/ TB P455-8-P481
4.
In
some
countries
different
tax
rates
apply
to
different
levels
of
taxable
income.
In
such
cases, deferred tax assets and liabilities should
be measured using the
average
rates
that are expected to
apply to the taxable profit (loss) of the periods
in which the
temporary differences are
expected to reverse.
TB P132/ TB P140
5.
Unrealised
profits
resulting
from
intra-group
transactions
are
eliminated
on
consolidation
.
The
tax
charge
in
the
group
statement
of
comprehensive
income
includes the tax on the profit, for
which
the group will not become liable
to tax until
the following
period
.
From
the
perspective
of
the group,
there
is
a
temporary
difference
.
6.
Deferred tax should be recognised on
the unremitted earnings of
subsidiaries
unless the parent is able to
control the timing of dividend
payments
or it is
unlikely
1
that dividends
will be paid for the foreseeable
future
.
7.
A
temporary difference arises
where non-monetary assets are
revalued
upwards
and the
tax treatment of the surplus is
different from the accounting
treatment
.
8.
Unused
tax
losses
give
rise
to
a
deferred
tax
asset.
However,
IAS12
states
that
deferred
tax
assets
should
only
be
recognised
to
the
extent
that
they
are
regarded as
recoverable
. If the future taxable
profit
will not be sufficient to
realise
all the unused tax loss, the
deferred tax asset is reduced to the amount that
is
expected to be recovered
.
9.
IAS12 states that
deferred tax assets and liabilities should
not be discounted
.
2
IAS16
Property
Plant and Equipment
1.
Property
, plant and
equipment
are
tangible
assets
with the following properties:
-
Held by an entity for use
in the production or supply of goods or services,
for rental
to others, or for
administrative purpose.
-
Expected to be used during
more than one period
.
TB P60/ PK P5-B1-P90
2.
Once recognised as an asset, items
should
initially be measured at
cost
.
-
-
-
Purchase price
,
less trade discount/rebate
Directly
attributable
costs
of
bringing
the
assets
to
working
condition
for
intended use
Initial
estimate
for
the
costs
of
dismantling
and
removing
the
item
and
restoring the site
on which
it is located.
TB P60/ PK P5-B1-P90
3.
When an item of property,
plant and equipment is revalued, the whole class
of assets
to which it belongs should be
revalued.
The
revaluations
need
to
be
kept
up
to
date
so
that
the
carrying
amount
is
not
materially
different
to
the
asset
?
s
fair
value
at
the
end
of
reporting
period.
IAS
16
suggests
that every 3 to 5 years may be sufficient if
prices are not too volatile.
TB
P452-4a-P475
4.
IAS 16
requires the increase in value to be credited to a
revaluation surplus, unless
the
increase is reversing a previous decrease which
was
recognised as an expense;
Any decrease in value should be
recognised as an expense, except where it offsets
a
previous increase taken as a
revaluation surplus in
owners
?
equity.
TB P63/ TB P452-4a-P475
5.
The leasehold improvement should be
capitalised and depreciated over the term of
lease.
EP DEC07-1(a)
3
IAS17
Lease
1.
IAS17 Lease differentiates between
operating and finance leases:
A
finance
lease
:
a
lease
that
transfers
substantially
all
the
risk
and
rewards
incidental to ownership of an
asset.
(1)
Should
be capitalised in the accounts at the fair value
of the leased asset or, if
lower, the
present value of minimum lease payments over the
lease term. Any
residual payments
guaranteed by the lessee should also be included.
(2)
The
capitalised
asset
is
depreciated
over
the
shorter
of
the
lease
term
or
its
useful life.
(3)
Interest
and
principal
components
of
each
payment
must
be
identified
and
allocated to accounting periods, thus
reducing the lease liability.
(4)
Finance
charges
are
calculated
as
the
difference
between
the
total
of
the
minimum
lease payments and value of the liability to the
lessor.
An
operating
lease
:
is
any
lease
which
is
not
finance
lease.
Lease
rentals
are
charged
to
profit
or
loss
on
a
systematic
basis
which
represents
the
pattern
of the
benefits derived by the users from the
leased asset.
TB P217/ TB P458-14-P487
2.
Sale and lease back
In a sale and lease back transaction
which resulting in a
finance
lease
, any apparent
profit
or loss (that is, the difference between the sale
price and the previous carrying
value)
should
be
deferred
and
amortised
over
the
lease
term.
It
should
not
be
recognised as income
immediately.
Where a lessee
enters a sale and lease back transaction resulting
in an
operating
lease
, then the original
asset should be treated as sold.
(1)
If
the
transaction
is at
fair value
then
immediate
recognition
of
the
profit/loss
should occur.
(2)
Where
the
sale
price
is
below
fair
value
,
any
profit
or
loss
should
be
recognised immediately except that if
the apparent loss is compensated by future
lease payments at below
market
price
it
should
to
that
extent
be
deferred and
amortised over the period for which the
asset is expected to be used.
(3)
If
the
sale
price
is
above
fair
value
,
the
excess
over
fair
value
should
be
deferred and amortised
over the period over which the asset is expected
to be
used.
TB P222/ PK
P458-14-P488
4
IAS19
Employee
Benefit
1.
Defined contribution plans and defined
benefit plans
Defined contribution
plans
: the employer (and possibly
current employees too) pay
regular
contributions
into
the
plan
of
a
given
or
?
defined
?
amount
each
year.
The
contributions
are
invested,
and
the
size
of
the
post-employment
benefits
paid
to
former employees depends on how well or
how badly the plan
?
s
investments perform.
If the investments
perform well, the plan will be able to afford
higher benefits than if
the investments
performed less well.
Defined
benefit plans
:
the
size
of
the
post-employment
benefits
is
determined
in
advance, ie the benefits are
?
defined
?
. The
employer (and possibly current employees
too) pay contributions into the plan,
and the contributions are invested. The size of
the
contribution is set at an amount
that is expected to earn enough investment returns
to
meet the obligation to pay the post-
employment benefits.
The
main difference
between the
two types of plans lies in
who bears
the risk
: if the
employer
bears the risk, the plan is a
defined
benefit plan
.
TB P101/ PK
P8-B4-P95
2.
Accounting
treatment
for
defined
contribution plan
(a)
Contributions to a defined contribution
plan should be recognised as an
expense
.
(b)
Any
liability
for
unpaid
contributions
that
are due
as
at
the end
of
the
period
should be recognised
as a
liability
(accrued
expense).
(c)
Any
excess
contributions
paid
should
be
recognised
as
an
asset
(prepaid
expenses).
TB 103/ PK
P8-B4-P96
3.
Accounting
treatment
for
defined
benefits plan
?
The
expense
that
should
be
recognised
in
the
statement
of
comprehensive
income
for post-employment
benefits in a defined benefit plan is the total of
the
following:
(a)
The
current service
cost
(b)
Interest
: % x FV of
obligation
(c)
The
expected return on any plan
assets
: % x FV of plan assets
(d)
Recognised
actuarial gains or losses
under
“
Corridor
”
approach: actuarial net
gains and losses are recognised as income or
expenditure if cumulative,
unrecognised, actuarial gains and losses at the
end of
the beginning of the current
financial year exceed the greater of:
-
10% of the present value of the defined benefit
obligation at the beginning of the
year
and
- 10% of the fair value of the plan
assets at the same date.
The excess is
then divided by the expected average remaining
working lives of the
employees.
The
excess
should
be
divided
by
the
expected
average
remaining
working
lives
of
participating employees and this gives the portion
of
actuarial gains and
losses to be recognised.
(e)
Past service cost to the extent that it
is recognised
(f)
The effect
of any curtailment or settlements
5
?
In
the
statement
of
financial
position
,
the
amount
recognised
as
a
defined
benefit liability should be the total
of the following:
(a)
The
present value of the defined
obligation
at the
balance
sheet date
, plus
(b)
Unrecognised actuarial gains or minus
any actuarial losses
minus
(c)
Unrecognised
past service cost
(if any),
minus
(d)
The
fair value
of
the
assets of
the
plan
as
at
the
balance
sheet date
out
of
which the future
obligation to current and past employees will be
directly settled
?
Defined Benefit Scheme Pro-forma
INCOME STATEMENT NOTE
Defined benefit expense recognised in
profit or loss
Current service cost
X
Interest cost
X
Expected return on plan
assets
(X)
Net actuarial
(gains)/loss recognised (working)
(X)/X
Past service cost
–
vested benefits
X
Past service cost
–
non-vested benefits
X
X
STATEMENT OF
FINANCIAL POSITION NOTES
Net pension
liability recognised in the statement of financial
position
Present value of pension
obligation
X
Fair value of
plan assets (
minus
unpaid
contributions)
(X)
X
Unrecognised
actuarial gains/(loss) (working)
X/(X)
Unrecognised past service costs
X
X
Changes in the present value of the
defined benefit obligation
Opening
defined benefit obligation
X
Current service cost
X
Interest cost
X
Benefit paid
(X)
Past service
cost
X
Actuarial (gain)/loss (balancing
figure)
(X)/X
Closing defined benefit obligation
X
Changes in the fair value
of plan assets
Opening fair value of
plan assets
X
Expected return on plan
assets
X
Contributions
X
Benefits paid
(X)
Actuarial gain/(loss) (balancing
figure)
X/(X)
Closing fair value of plan assets
X
Working
Corridor limits, greater of:
6
10% of pension obligation
b/d
X
10% of plan assets b/d
X
→
Corridor limit
X
Unrecognised gains b/d
X
Gain recognised in profit or loss
(excess/average years)
(X)
Gain/(loss)
on obligation in the year
X/(X)
Gain/(loss) on assets in the year
X/(X)
Unrecognised gains c/d
X
TB
P104/ TB P454-7-P479/ PK P7-B3-P93/ PK P8-B4-P95/
PK P10-B5-P98
4.
Past
service cost
A
past
service
cost
arises
when
an
entity
introduces
a
defined
benefits
plan
or
improves
the
benefits
payable
under
an
existing
plan.
Past
service
cost
vested
should be recognised
in full immediately as part of the defined benefit
plan and as an
expense.
Any
non-vested past
service
cost
should
be
amortised
over
the
average
period until the
minimum employment period completed.
TB
P108/ TB P112/ EP JUN08-1(2)
IAS24
Related Party Disclosure
1.
In the absence of other
information, users of the financial statements
assume that a
company
pursue
its interests
independently
and undertakes
transactions
on
an
arm
’
s length
basis
on terms that could have been
obtained in a transaction with a
third
party. Knowledge of related party relationships
and transactions affects the way
in
which users assess a company's operations and the
risks and opportunities that it
faces.
Therefore
details
of
an
entity
’
s
controlling party
and
transactions
with
related
parties
should
be
disclosed
.
Even
if
the
company's
transactions
and
operations have not been affected by a
related party relationship,
disclosure
puts
users on notice that they may be
affected in future
.
2.
IAS24
Related Party
Disclosure
states that a party is
related to another if:
(1)
-
the party
controls
, is
controlled
by, or is under
common control with the entity
- has an
interest in the entity that gives it
significant influence
over
the entity
- has
joint
control
over the entity
(2)
the party is an associate of the entity
or a joint venture
(3)
the
party
is
a
member
of
the
key
management
personnel
of
the
entity
or
its
parent
(4)
the
party is a close family member of anyone referred
to in (1) or (3) above
(5)
the party is controlled, jointly
controlled or significant influenced by any
individual
in (3) or (4) above
TB P206/ PK P22-B18-P126
7
IAS32
Financial
Instruments: Presentation
IAS39
Financial Instruments:
Recognition and Measurement
IFRS7
Financial Instruments:
Disclosures
1.
Basic Knowledge
(1)
Financial asset: Any asset that is:
(a)
Cash
(b)
An equity instrument of another entity
(c)
a
contractual
right
to
receive
cash or
another
financial
asset
from
another
entity; or to exchange financial
instruments with another entity conditions that
are potentially favourable to the
entity, or
(d)
a contract
that will or may be settled in the
entity
?
s own entity
instruments and
is:
(i)
a non-derivative for which the entity
is or may be obligated to receive a
variable number of the
entity
?
s own equity
instruments; or
(ii)
a
derivative that will or may be settled
other than by the exchange of a
fixed amount of cash or another
financial asset for a fixed number of the
entity
?
s own
equity instruments.
Examples: Trade
receivables; Options; Shares (when used as an
investment)
(2)
Derivative:
A financial instrument or other contract with all
three of the following
characteristics:
(a)
Its
value
changes
in
response
to
the
change
in
a
specified
interest
rate,
financial instrument
price, commodity price, foreign exchange rate,
index of
prices
or
rates,
credit
rating
or
credit
index,
or
other
variable
(sometimes
called the
?
under
lying
?)
;
(b)
It requires no initial net investment
or an initial net investment is smaller than
would be required for other types of
contracts that would be expected to have
a similar response to changes in market
factors; and
(c)
It is
settled at a future date.
Examples:
Forward contracts; Future contracts; Options;
Swaps.
TB P146
2.
Liabilities and equity
Financial instruments must be
classified as
either liabilities or
equity
. IAS32 states
that
liabilities and equity must be classified
according to their substance, not just
their legal form
.
The
critical
feature
of
a
liability
is
an
obligation
to
transfer
economic
benefit.
Therefore
a
financial
instrument
is
a
financial
liability
if
there
is
a
contractual
obligation
on the issuer
either to deliver cash or another financial asset
to the holder
or
to
exchange
another
financial
instrument
with
the
holder
under
potentially
unfavourable conditions to the issuer.
Examples:
Trade
payables;
Debenture
loans
payable;
Redeemable
preference
(non-equity) shares; Forward contracts
standing at a loss.
Where
the above critical feature is not met, then the
financial instrument is an
equity
instrument
.
TB
P150/ PK P16-B12-PP112
8
3.
Compound financial
instruments
Compound
instruments
are
split
into
equity
and
liability
components
and
presented accordingly in the statement
of financial position. One of the most common
types of compound instrument is
convertible debt
.
Recommended method to calculate the
split:
(a)
Calculate the
value for the liability component.
(b)
Deduct this from the instrument as a
whole to leave a residual value for the equity
component.
4.
Measurement of financial instruments
IAS39 states that all financial assets
and liabilities should be
measured at
fair value
when
they
are
first
recognised
.
This
is
normally
their
cost.
Fair
value
includes
transaction
costs
(capitalised) unless the
instrument is
classified as
‘
at fair value
through
profit or
loss
’
,
in
which
case
transaction
costs
are recognised
in
profit or
loss for the year.
The
way
in
which
an
instrument
is
measured
subsequently
depends
on
its
classification
. There are
four categories
:
?
Financial
assets and liabilities at fair value through
profit or loss
?
Held to maturity investments
?
?
Loans and receivables
Available-for-sale financial assets
Financial
assets
and
liabilities
at
fair value through profit
or
loss
includes
all
items
held
for
trading
and
all
derivative
financial
instruments
.
Upon
initial
recognition it is
designated by the entity as at fair value through
profit or loss. An entity
may only use
this designation in severely restricted
circumstances:
(i)
It
eliminates
or
significantly
reduces
a
measurement
or
recognition
inconsistency
that would otherwise arise.
(ii)
A
group
of
financial
assets/liabilities
is
managed
and
its
performance
is
evaluated
on a
fair value basis
.
Held-to-maturity
investments
are
non-derivative
financial
assets
with
fixed
or
determinable
payments
and
fixed
maturity
.
Loans and receivables
have
fixed or determinable
payments
and are
not quoted
in an active market
.
A
vailable
for
sale
financial
assets
are
all
items
that
do not fall
into
the
other
categories
.
Most
financial
assets
are measured at
fair
value
. Exceptions are
held
to maturity
investments
and
loans
and
receivables
, which are measured at
amortised
cost
,
using the
effective interest
rate method
. For
short-term
trade receivables
with
no
stated
interest
rate
,
IAS39
allows
it
to
be
measured
at
the
original
invoiced
9
amount
.
Financial
liabilities at
fair value through profit or loss
are
measured at
fair value
.
Other financial liabilities
are measured at
amortised
cost
.
The way in
which
gains and losses on
remeasurement
are treated also depends
upon the classification of the
instruments. Gains and losses relating to
instruments
at
fair value
through profit or loss
are
recognised in profit or
loss
, even if they are
unrealised. Gains and losses relating
to changes in the fair value of
available for sale
financial
assets
are
recognised in
equity
and
reclassified from
equity to profit or
loss
as
a
reclassification
adjustment
when
the
asset
is
sold.
Changes
in
amortised cost
are
recognised in
profit or
loss
.
TB P156/ PK
P15-B10-P106
5.
Impairment
of financial assets
IAS39 sates that
at each reporting date
, an
entity should
assess
whether
there is
any
objective
evidence
that
a
financial
asset
or
group
of
assets
is
impaired
.
Indications
of impairment
include
significant
financial
difficulty
of the issuer;
the
probability
that
the
borrower
will
enter
bankruptcy
,
etc.
Where
there
is
objective
evidence of impairment, the entity
should
determine the amount
of any impairment
loss.
For financial assets
carried
at amortised cost
the impairment loss
is the
difference
between the
asset
?
s
carrying
amount
and its
recoverable
amount
. The impairment
loss
should be
recognised in profit or
loss
.
For
financial
assets
carried
at
cost
because
their
fair
value
cannot
be
reliably
measured,
the
impairment
loss
is
the
difference
between
the
asset
?
s
carrying
amount
and
the
present
value
of
estimated
future
cash
flows
,
discount
at
the
current market rate of return for a
similar financial instrument
. Such
impairment
loss cannot be reversed.
For
available
for sale
financial assets, the
impairment loss is the
difference
between
the
acquisition
cost
and
current fair
value
(for equity instruments) or
recoverable
amount
(for debt
instruments). Any impairment loss on an available
for sale financial
instrument should be
removed form equity and recognised in net profit
or loss for the
period.
Assets at
fair value through
profit or loss
are
not
subject to impairment testing
,
because
changes
in
fair
value
are
automatically
recognised
immediately
in
profit or
loss.
TB P163/ PK
P15-B10-P106
练习题型
: Compound
instruments/ amortised cost/ impairment/ hedging
10
IAS36
Impairment of Assets
1.
IAS36
suggests
how
indications
of
a
possible
impairment
of
assets
might
be
recognised.
External factors
- A
significant
decrease
in
the
market
value
of
an
asset
in
excess
of
normal
passage of time
- Adverse
changes
to
the
technological,
economic
or
legal
environment
of
the
business
-
Increase
in
market
interest
rate
likely
to
affect
the
discount
rate
used
in
calculating value in use
-
The carrying amount of the
entity
?
s net asset exceeding
its market capitalisation.
Internal
factors
- Evidence of obsolescence or
physical damage, adverse changes in the use to
which the asset is put, or the
asset
?
s economic performance
TB P68/ PK P6-B2-P92
2.
To determine whether impairment of a
non-current asset has occurred, it is necessary
to
compare
the
carrying
amount
of
the
asset
with
its
recoverable
amount
.
The
recoverable amount is the
higher of fair value less costs to sell
and value in use
.
Generally,
recoverable amount is taken to be
value
in use
. This is because fair value
less
costs
to
sell
may
be
difficult
to
determine,
and
may
in
any
case be
very
low
,
because
the asset
is
only
of
use
in
the
business rather
than
of
value
in
the
open
market.
It is not always
easy to estimate value in use. In particular, it
is not always practicable
to identify
cash flows arising from an individual non-current
asset. If this is the case,
value in
use should be calculated at the level of
cash generating units
.
A
cash
generating
unit
is
the
smallest
identifiable
group
of
assets
for
which
independent cash flows
can be identified and measured.
TB 70/
TB P453-5a&c-P476
3.
If
the
recoverable
amount
is
less
than
the
carrying
amount,
then
the
resulting
impairment
loss
should
be
charged
as
an
expense
.
When
an
impairment
loss
occurs
for
a
revalued
asset
,
the
impairment
loss
should
be
charged
to
the
revaluation surplus
, any
excess
is then charged to
profit or loss
.
4.
Impairment loss must be
allocated:
?
to
any
assets
which have
suffered
obvious impairment
where applicable.
?
to
goodwill
in
the cash-generating unit.
?
to
other assets
in the cash-generating unit on a pro rata basis.
TB P74/ P453-5d-P477
IAS37
Provisions, Contingent Liabilities and
Contingent Assets
11
1.
IAS37
provision,
contingent
liabilities
and
contingent
assets
was
issued
to
prevent
entities
from
using
provisions
for
creating
accounting.
Companies
wanting
to
show
their
results in the most favourable light used to make
large
?
one
off
?
provision in years
where
a
high
level
of
underlying
profits
was
generated
(sometimes
known
as
?
big
bath
?
). They were
then available to shield expenditure in future
years
when perhaps
the
underlying profits were not as good.
TB
P193/ TB P457-12a-P485
2.
IAS 37 states that a provision should
not be
recognised
unless:
?
An
entity has
a
present
obligation
(
legal or
constructive
)
to
transfer
economic
benefits as a result of a past
transaction or event; and
?
The payment is
probable
; and
?
The amount can
be estimated reliably.
?
If a company
can avoid
expenditure by its future action
,
no provision
should
be recognised.
An obligation
can be legal or constructive. An entity has a
constructive obligation if:
?
It has
indicated to other parties that it will accept
certain responsibilities and
?
As a result, it
has created a valid expectation on the part of
those other parties that
it will
discharge those responsibilities.
If an entity has an
onerous
contract
, the
present
obligation
should be
recognised
and
measured
.
No
provision for future operating losses should be
recognised.
PK P20-B16a-P122
3.
IAS37 states that the
amount of provision recognised should be the
best estimate of
the
expenditure
required
to
settle
the
obligation
at
the
end
of
the
reporting
period
.
The estimate should
take the various
possible outcomes into account
and
should be the
amount that an
entity would rationally pay
the settle
the obligation or
to
transfer
it
to
a
third
party.
Where
the
provision
being
measured
involves
a
large
population of items, the obligation is
estimated by weighting all possible outcomes by
their expected value.
The
amount of the provision should be
discounted to present value
if the time value
of
money
is
material
using
a
risk
adjusted
rate
.
The
discount
rate
should
not
reflect
risks
which
have
been
included
by
adjusting
future
cash
flows
.
The
unwinding of the
discount recognised in profit or loss.
If
some
or
all
of
the
expenditure
is
expected
to be reimbursed
by
a
third
party, the
reimbursement
should be
recognised as a separate
asset
, but only if it is virtually
certain that the reimbursement will be
received.
The provision should be
capitalised as an
asset
if
the expenditure provide access to
future
economic
benefits
;
otherwise
it
should
be
immediately
charged
to
the
income
statement
.
TB P194/ TB
P457-12a-P485/ PK P5-B1-P90/ PK P8-B4b-P96/ PK
P20-B16a-P122
IAS38
Intangible
Assets
12
1.
Internally generated
goodwill (brand) should not be recognised as
intangible assets.
This
is
because
expenditure
on
internally
generated
goodwill
(brands)
cannot
be
distinguished from the
cost of developing the business as a whole.
However,
IFRS3 requires
intangible assets
of an acquiree to be
recognised if they
meet the
identifiability criteria
in IAS38
Intangible Assets
and their
fair value can be
measured
reliably
. For an intangible asset to be
identifiable the asset must separate
or
it must arise from contractual or other legal
rights. The asset will be then
separately
recognised in the
consolidated statement of financial
position
.
TB P83/ TB
P452-4b-P476/ PK P5-B1-P91
2.
Research and development costs
Research costs should be recognised as
an expense when it occurs.
Development
costs
may
qualify
for
recognition
as
intangible
assets
provided
that
some
strict
criteria
are
met.
The
cost
of
the
development
should
comprise
all
directly attributable costs
necessary to create the asset and to make it
capable of
operating in the
manner intended by management
. Directly
attributable costs
do
not
included selling or administrative
costs
,
training costs
or
market
research
.
TB P83/ PK
P5-B1-P91
3.
An
entity
should
assess
the useful
life
of
its
intangible
assets,
which
may
finite
or
infinite. Assets with a
finite useful life are amortised over that useful
life. An intangible
asset has an
infinite useful life when there is
no
foreseeable limit
to the period over
which the asset is expected to generate
net cash inflows for the entity. An intangible
asset
with
an
infinite
life
is
not
amortised.
It
should
be
reviewed
each
year
to
determine
whether it is still appropriate to assess its
useful life as infinite.
TB P86/ TB
P454-6b(i)-P478
IFRS2
Share-
based Payment
13
1.
Basic Knowledge
(1)
Share-based
payment
transaction:
A
transaction
in
which
the
entity
receives
goods or services
as consideration for equity instruments of the
entity (including
shares or share
options), or acquires goods or services by
incurring liabilities to
the supplier
of those goods or services for amounts that are
based on the price of
the
entity
?
s shares or other
equity instruments of the entity.
(2)
Equity
instrument
granted:
The
right (conditional
or
unconditional)
to
an
entity
instrument
of
the
entity
conferred
by
the
entity
on
another
party,
under
a
share-
based payment arrangement.
(3)
Grand
date:
The
date
at
which
the
entity
and
another
party
agree
to
a
share-based payment
arrangement,
being
when
the
entity
and
the
other
party
have a shared
understanding of the terms and conditions of the
arrangement.
If
that
agreement is subject to an approval process, grant
date is the date when
that approval is
obtained.
(4)
Intrinsic
value: The difference between the fair value of
the shares to which the
counterparty
has the (conditional or unconditional) right to
subscribe or which it
has
the
right
to
receive,
and
the
price
(if
any)
the
other
party
is
(or
will
be)
required to pay for
those shares.
(5)
Measurement
date:
The
date
at
which
the
fair
value
of
the
equity
instruments
granted
is
measured.
For
transactions
with
employees
and
others
providing
similar
services,
the
measurement
date
is
grant
date.
For
transactions
with
parties
other
than
employees,
the
measurement
date
is
the
date
the
entity
obtains the goods or the counterparty
renders services.
(6)
Vest:
To become an entitlement.
(7)
Vesting period: The period during which
all the specified vesting conditions of a
share-based payment arrangement are to
be satisfied.
TB P181
2.
The General principle
Goods
or services received or acquired in a share-based
payment transaction should
be
recognised
as
expenses
unless
they
qualify
for
recognition
as
assets
.
For
example, services are normally
recognised as expenses, while goods are recognised
as assets.
If the goods or
services were received or acquired in an
equity-settled
share-based
payment
transaction
the
entity
should
recognise
a
corresponding
increase
in
equity
.
If
the
goods
or
services
were
received
or
acquired
in
a
cash-settled
share-based payment transaction the
entity should recognise a
liability
.
The
general
principle
in
IFRS2
is
that
when
an
entity
recognises
the
goods
or
services
received and the corresponding increase in equity,
it should measure these
at the fair
value of the goods or services received.
If the fair value of the goods or
services received cannot be measured reliably, the
entity
should
measure
their
value
by
reference
to
the
fair
value
of
the
equity
instruments granted.
Where
the
transaction
is
with
a
party
other
than
an
employee fair
value
should
be
14
measured
at
the
date
the
entity
obtains
the
goods
or
the
counterparty
renders
service.
Where shares, share
options or other equity instruments are granted to
employ
ees
as part of their remuneration package,
it is not normally possible to
measure
directly
the
services
received.
The
entity
should
measure
the
fair
value
of
the
employee
services received
by reference to the
fair value of the
equity instruments granted
.
The fair value of those equity
instruments should be measured at
granted date
and
fair value is taken to be the
market price
.
If the equity instruments
granted
vest immediately
,
the entity should
recognise the
services received in full
,
with a corresponding increase in equity,
on the granted
date
.
If
the
equity
instruments
granted
do
not
vest
until
the
counterparty
completes
a
specified period of
service, the entity should recognise an amount for
the goods or
services received during
the vesting period based on the
best
available estimate
of
the
number of equity instruments expected
to vest
. It should
revise
that estimate
if subsequent information indicates
that the number of equity instruments expected to
vest
differs
from
previous
estimate.
On
vesting date
,
the
entity
should
revise
the
estimate to
equal the number
of equity instruments that actually
vest
.
For
cash-settled
share-based
payment transactions, the entity should measure
the
goods or services acquired and the
liability incurred at the
fair value of
the liability
.
The entity
should
remeasure
the fair
value of the liability
at each
reporting date
until
the
liability
is
settled
and
at
the date of
settlement.
Any
changes
in
fair
value
are
recognised in
profit or loss
for the
period. The entity should recognise the services
received and the related liability
over the specified period
of
service if applicable.
The
share-based
payment
which
offers
a
choice
of
cash
or
share
settlement
is
treated as the issue of a
compound instrument
. IFRS2
requires the determination
of the
liability element and the equity element. The fair
value of the equity element is
the fair
value of the goods or services less the fair value
of the debt element of the
instrument
(assuming cash-settled).
TB P182-185/
PK P17-B13-P115/ PK P19-B14-P117
3.
Accounting treatment
End of
Year 1:
DEBIT Income statement (Staff
costs)
W1
CREDIT Equity reserve
W1
W1:
Cumulative
expenses in year 1=
No of employees
x
No of rights
x
Fair value of
x Cumulative
proportion
estimated at the
each
each right at
of vesting period
year end to be entitled
year end
elapsed
eg: (800-95)x200x$$4x1/3
W1 =
Cumulative expense year 1
15
End of year 2:
DEBIT
Income
statement (Staff costs)
W2
CREDIT Equity
reserve
W2
W2:
Cumulative
expenses in year 2=
No of employees
x
No of rights
x
Fair value of
x Cumulative
proportion
estimated at the
each
each right at
of vesting period
year end to be entitled
year end
elapsed
eg: (800-70)x200x$$4x2/3
W2=Cumulative expense year 2
–
Cumulative expense year 1
End of year 3:
DEBIT
Income
statement (Staff costs)
W3
CREDIT Equity
reserve
W3
W3:
Cumulative expenses in
year 3=
No of employees
x
No
of rights
x Fair value of
x Cumulative proportion
actually
at the
each
each right at
of
vesting period
year end to be entitled
year end
elapsed
eg: (800-40-20)x200x$$4x3/3
W3=Cumulative expense year 3
–
Cumulative expense year 2
Issue of shares
DEBIT
Cash
No.
of employees
x
No. of rights
x
exercise price
entitled at end of year 3
each
DEBIT
Equity reserve
W3
CREDIT
Share
capital
No. of employees
x
No. of rights
x
share price
entitled at end of year 3
each
CREDIT
Share
premium
Balancing figure
TB P185/ TB P457-11-P484
4.
Deferred tax implications
The company will
recognise
an expense
for the consumption of
employee services
given
in
consideration
for
share
options
granted,
but
will
not
receive
a
tax
deduction until the
share options are actually exercised
.
Therefore a
temporary
difference arises
and IAS12
Income taxes
requires the
recognition of deferred tax.
A
deferred
tax
asset
results
from
the
difference
between
the
tax
base
of
the
services
received
and
the
carrying
value
of
zero
.
IAS12
requires
the
measurement
of
the
deductible
temporary difference
to be
based
on the
intrinsic
value of the
options at the y
ear end
.
This is the
difference
between the
fair value
of
the share
and the
exercise
price of the option
.
If the amount of the
estimated future tax deduction exceeds
the amount of the
16
related cumulative remuneration
expenses
, the tax deduction relates
also to equity.
If this is the case,
the
excess should be recognised
directly in equity
.
TB P186/
PK P17-B13-P116
IFRS5
Non-current assets held for sale and
discontinued operations
17
1.
IFRS5
requires assets and groups of assets that are
?
held for
sale
?
to be presented
separately
in
the
statement
of
financial
position
and
the
results
of
discontinued
operations to be presented separately
in the statement of comprehensive
income.
TB P292
2.
A
non-current
asset
(or
disposal
group)
should
be
classified as
held
for sale
if
its
carrying
amount
will
be
recovered
principally
through
a
sale
transaction
rather
than
through continuing
use
. A number of detailed criteria must
be met:
(a)
The asset must
be
available for immediate
sale
in it present condition
(b)
Its sale must be
highly probable
For the sale to be highly probable, the
following must apply.
(a)
Management must be
committed
to a plan to sell
the asset
(b)
There must be
an active programme to
locate a
buyer
(c)
The
asset must be marked for sale at a
price that is reasonable
in
relation to its
current fair value
(d)
The
sale
should
be
expected
to
take
place
within
one
year
from
the
date
of
classification.
(e)
It is unlikely that significant changes
to the plan will be made or that the plan will
be withdrawn.
TB
P292
3.
A non-
current asset (or disposal group) that is held for
sale should be measured at
the
lower of its carrying amount
and
fair value less costs to
sell
. Fair value less
costs
to sell is equivalent to net realisable value.
An
impairment
loss
should be recognised where fair
value less costs to sell is lower
than
carrying amount. (Note that this is an exception
to normal rule IAS36)
Non-current
assets
held
for
sale
should
not
be
depreciated
,
even
if
they
are
still
used by
the entity.
4.
A non-current
asset (or disposal group) that is
no
longer classified as held for sale
is measured at the
lower
of
:
(a)
Its
carrying amount
before it
was classified as held for sale, adjusted for any
depreciation that would have been
charged had the asset not been held for sale
(b)
Its
recoverable amount
at the
date of the decision not to sell.
5.
Discontinued operation: a component of
an entity that has either been disposal of, or
is classified as held for sale, and:
(a)
Represents a separate
major line of business or geographical area of
operations
(b)
Is
part
of
a
single
co-ordinated
plan
to
dispose
of
a
separate
major
line
of
business or geographical area of
operations, or
(c)
Is a
subsidiary acquired exclusively with a view to
resale
6.
The
result
of
discontinued
operations
should
be
presented
separately
in
the
statement
of comprehensive income.
7.
Non-current
assets
and
disposal
groups
classified
as
held
for
sale
should
be
presented
separately
form
other
assets
in
the
statement
of
financial
position. The
liabilities of
a disposal group should be presented separately
from other liabilities in
the statement
of financial position.
Part
II
GROUP FINANCIAL
STA
TEMENTS
18
IFRS3
Business
Combinations
1.
The
cost
of
a
business
combination
is
the
aggregate
of
the
fair
value
of
the
consideration
given plus any
directly attributable costs
.
Fair value is measured at
the date of
exchange. Where any of the consideration is
deferred
, the amount should
be
discount to its present
value
. Where there may be an adjustment
to the final cost
of
the
combination
contingent on
one or
more future events
,
the
amount
of the
adjustment is included in the cost of
the combination at the acquisition date
only if the
payment is
probable
and the amount
can
be measured reliably
.
PK
P5-B1-P90
2.
IFRS3
states
that
goodwill
resulting
from
a
business
combination
should
be
recognised in the balance
sheet and measured at cost.
Goodwill is
not
amortised
.
Instead,
it
should
be
reviewed
for
impairment
annually
and
written
down
to
its
recoverable
amount
where
necessary
.
Where
goodwill
is
acquired
in
a
business
combination
during
the
current
annual
period,
it
should
be
tested
for
impairment
before the end of
the current annual period.
Goodwill
impairment:
Initial goodwill cannot be
allocated to individual units, so the impairment
r
eview must
be carried out
in two stages:
?
Stage 1: Review individual units for
impairment
?
Stage 2: Compare the adjusted carrying
value of the net asset including goodwill,
with the value in use of the whole
business.
TB P92/ TB P453-5b&5e-P477
3.
Where
the
purchase
price
is
paid
in
installments,
the
cost
of
the
investment
is
calculated on a discounted cash basis
and the fair value is based on present values.
TB P452-6a-P478
4.
IFRS3 requires intangible
assets
of an acquiree to be
recognised if they meet the
identifiability
criteria
in
IAS38
Intangible
Assets
and
their
fair
value
can
be
measured
reliably
. For an intangible asset to be
identifiable the asset must separate
or
it must arise from contractual or other legal
rights. The asset will be then
separately
recognised in the
consolidated statement of financial
position
.
PK P5-B1-P91
5.
Main Changes
?
New
restrictions on the expenses that can form part of
the acquisition costs
Transaction costs
no longer
form a part of the
acquisition price; they are
expensed
as
incurred.
The standard
requires entities to disclose the amount of
transaction costs that have
been
incurred.
?
Revisions of the treatment of
contingent consideration
It requires
the acquirer to
recognise the
acquisition-date fair value of contingent
consideration
as
part
of
the
consideration
for
the
acquiree even
if
payment
is not
deemed to be probable.
Changes in the fair value of any
contingent consideration
after the
acquisition date
:
?
If
the
change
is
due
to
additional
information
obtained,
this
is
treated
as
a
?
measurement period
adjustment
?
and the
liability (and goodwill) are remeasured.
19
?
If the change is due to events after
the acquisition date:
Contingent
consideration
classified
as
equity
shall
not
be
remeasured,
and
its
subsequent
settlement
shall
be
accounted
for
within
equity
(eg
Cr
share
capital/share premium Dr retained
earnings)
Contingent
consideration
classified
as an
asset or
liability
shall
be
measured
at
fair value, with any resulting gain or
loss
recognised in profit or
loss
.
PK P20-B15-P120
?
Measurement of
non-controlling interest (NCI-the new name for
minority interest) and
the knock-on
effect that this has on consolidated
goodwill
。
The
standard
now
allows
the
acquirer
(parent)
to
measure
any
non
-controlling
interest (NCI) in one of two ways:
?
at
fair value
(the
?
new
?
method)
?
at the
NCI
’
s
proportionate
share of the
acquiree
?
s
(subsidiary
?
s) identifiable
net
assets (the
?
old
?
method)
?
The
accounting for the acquisition and disposal of
shares in a subsidiary
?
The IASB has provided additional
clarity that may well result in more intangible
assets
being recognised. Acquirers are
required to recognise brands, licences and
customer
relationships, and other
intangible assets.
?
Purchase consideration: any previous
stake is seen as being
?
given
up
?
to acquire the
entity and a gain or loss is recorded
on its disposal.
If the acquirer
already held an
interest
in
the
acquired
entity
before acquisition,
the
standard
requires
the
existing
stake to be re-
measured to fair value at the date of
acquisition, taking into account
any movement to the income statement
together with any gains previously recoded in
entity that relate to the existing
holding.
IAS27
Consolidated and Separate Financial
Statements
1.
Subsidiary
: An entity that
is controlled by another entity (known as parent).
(>50%)
2.
IAS 27
requires a parent to present
consolidated
financial statements, in
which
the
accounts
of
the
parent
and
subsidiary(s)
are
combined
and
presented as a
single
entity
.
3.
In
simple
term
a
set
of
consolidated
accounts
is
prepared
by
adding
together
the
assets
and
liabilities
of
the
parent
company
and
each
subsidiary
.
The
whole
of
the
assets
and
liabilities
of
each
company
are
included, even though some subsidiaries
may be only partly owned.
4.
The
?
capital and
reserves
?
side of the
balance sheet will indicate how much
of
the
net assets are
attributable
to
the group and how much to outside
investors (NCI) in partly owned
subsidiaries.
5.
Non-
controlling
interest
(NCI)
should
be
presented
in
the
consolidated
balance sheet
within equity,
separately
from the parent shareholder’
s
equity
.
6.
Basic techniques:
Goodwill
Consideration Transferred:
20