cfas-notes-upto-pfrs-15-bsa-11c (1)

lOMoAR cPSD| 12066218 CFAS Notes Upto PFRS 15 - BSA 11C Financial Accounting and Reporting (Silliman University) StuDocu is not sponsored or endorsed by any college or university Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS NOTES by: Jose Noel P. Palomo OVERVIEW OF ACCOUNTING Accounting Definition Accounting is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information Three most important 1. Identifying activities included in 2. Measuring thedefinitionof 3. Communicating accounting Identifying analysing whether or not they will be recognised T ypes of events or 1. External Events transactions 2. Internal Events Types of External Events 1. Exchange (Reciprocal Transfer) 2. Non-reciprocal Transfer 3. External Event Other Than Transfer Exchange (Reciprocal Transfer) Giving and receiving Non-reciprocal Transfer “one way” External event other Involves changes in the economic resources or obligations caused by than transfer an external party or external source, but does not involve transfer Types of Internal 1. Production Events 2. Casualty Production Resources transformed into finished goods Casualty Unanticipated loss from disasters Measuring Most commonly used is historical cost, to be prepared using a mixture of costs and values Valued by Opinion Affected by estimates Valued by Facts To be valued by facts Types of Information provided by accounting Q u a n t i t a t i v e Information Qualitative Information 1. Quantitative Information 2. Qualitative Information 3. Financial Information Numbers Words 1 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Financial Information General Purpose; Special Purpose Money Types of Accounting Information Classifies as to Users’ Needs General Purpose Designed to meet the common needs of most statement users Special Purpose Designed to meet the specific needs of particular statement users Body of Knowledge Accounting as a social science Cr eativ e Skills and Judgement Accounting as a practical art I n f o r m a t i o n t o Financial Reports and Accounting as an Information System Communicates Fundamental to c o m m u n i c a t i o n o f Accounting as a language of business financial information Creative Thinking Most important in identifying alternative solution Critical Thinking Most important in evaluating alternative solution 1. Double-entry System 2. Going Concern Assumption 3. Separate Entity 4. 5. 6. 7. 8. Accounting Concepts Stable Monetary Unit Time Period Materiality Concept Cost-benefit Accrual Basis of Accounting 9. Historical Cost Concept 10. Concept of Articulation 11. Full Disclosure Principle 12. Consistency Concept 13. Matching 14. Entity Theory 15. Proprietary Theory 16. Residual Equity Theory 17. Fund Theory 18. Realization 19. Prudence 20.Matching Concept 21. Systematic and Rational Allocation 22.Immediate Recognition 2 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. 2. 3. 4. 5. Common Branches of Accounting Financial Accounting Management Accounting Cost Accounting Auditing Tax Accounting 6. Government Accounting 7. Fiduciary Accounting 8. Estate Accounting 9. Social Accounting 10. Institutional Accounting 11. Accounting Systems 12. Accounting Research 1. Practice of Public Accountancy Sectors in Practice of Accountancy 2. Practice in Commerce and Industry 3. Practice in Education/Academe 4. Practice in the Government Need for r e p o r t i n g standards Financial statements would not be comparable, the risk of fraudulent reporting is heightened 1. Financial Reporting Standards Council (FRSC) 2. Philippine Interpretations Committee (PIC) Accounting Standard 3. Board of Accountancy (BOA) S ett in g B o d i es and 4. Securities and Exchange Commission (SEC) Other Relevant 5. Bureau of Internal Revenue (BIR) Organisation 6. Bangko Sentral ng Pilipinas (BSP) 7. Cooperative Development Authority (CDA) 1. International Financial Reporting Interpretations Committee Other Relevant (IFRIC) I n t e r n a t i o n a l 2. IFRS Advisory Council 3. International Federation of Accountants (IFAC) Organisations 4. International Organisation of Securities Commissions (IOSCO) CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING Purpose of Conceptual 1. Assist the International Accounting Standards Board (IASB) Framework for General 2. Assist preparers in developing consistent accounting policies Purpose Financial 3. Assist all parties in understanding and interpreting Reporting Conceptual Framework 1. Promote transparency provides foundation for 2. Strengthen accountability the d e v el op m e nt of 3. Contribute to economic efficiency standards Status of Conceptual Framework Conceptual Framework is not a Standard. If a conflict arises, standard will always prevail 3 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 General Purpose Financial Reporting Objective of Financial Reporting Scope of the Conceptual Framework Useful to existing and potential investors, lenders and other creditors Liquidity Pay short-term Solvency Pay long-term Qualitative Characteristics Identify the types of information that are likely to be most useful. F u n d a m e n t a l 1. Relevance Q u a l i t a t i v e 2. Faithful Representation Characteristics 1. Comparability Characteristics 2. Verifiability 3. Timeliness 4. Understandability R e l e v a n c e Characteristics 1. Predictive Value 2. Confirmatory Value Enhancing Qualitative Matter of judgement; has four steps Materiality Faithful Representation Characteristics Cost Constraint Elements of Financial Statements 1. 2. 3. 4. Identify Assess Organise Review 1. Completeness 2. Neutrality 3. Free From Error Pervasive constraint to provide useful financial information 1. 2. 3. 4. Assets Liabilities Equity Income 5. Expenses M e a s u r e m e n t Must be measured to be recognised; use of reasonable estimates is an Uncertainty essential part of financial reporting Unit of account Group of rights; group of obligations; group of rights and obligation 4 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Measurement Bases 1. Historical Cost 2. Current Value A. Fair Value B. Value in Use and Fulfillment Value C. Current Cost C a s h - fl o w - b a s e d 1. Statistical Mean M e a s u r e m e n t 2. Statistical Median Techniques 3. Statistical Mode P r e s e n t a t i o n a n d 1. Presentation and disclosure objectives and principles D i s c l o s u r e 2. Classifying Requirements 3. Aggregating Presentation and Disclosure Objectives and Principles 1. Flexibility to provide relevant faithfully represented information 2. Intra-comparability and Inter-comparability Offsetting Assets and liabilities with separate units of account are combined Aggregation Adding together of assets, liabilities, equity, income or expenses Concepts of Capital and Capital Maintenance 1. Financial Concept of Capital - invested money or invested purchasing power 2. Physical Concept of Capital - entity’s productive capacity PAS 1: PRESENTATION OF FINANCIAL STATEMENTS Purpose of PAS 1 PAS 1 prescribes the basis for presentation of general purpose financial statements; to ensure comparability Types of Comparability 1. Intra-comparability 2. Inter-comparability Primary Objective of Financial Statements Provide financial position, financial performance and cash flows Secondary Objective of Show results of management’s stewardship Financial Statements 1. Fair Presentation and Compliance with PFRS 2. Going Concern 3. Accrual Basis of Accounting General Features of Financial Statements 4. 5. 6. 7. 8. Materiality and Aggregation Offsetting Frequency of Reporting Comparative Information Consistency of Presentation 5 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Structure and Content of Financial Statements 1. 2. 3. 4. 5. 1. M a n a g e m e n t ’ s 2. R e s p o n s i b i l i t y over 3. Financial Statements 4. 5. Statement of Financial Position Name of entity Individual or group entity Date of end/ Period covered Currency used Rounding used Preparation and fair presentation Internal control Going concern Oversight Review and approval PAS 1 does not prescribe the order or format Types of Presentation of 1. Classified Statement of Financial 2. Unclassified Position Working Capital Formula Current Assets - Current Liabilities Refinancing Agreement Replacement of an existing debt with a new one but with different terms Loan facility Credit line Statement of Profit or L o s s a n d O t h e r 1. Single Statement Comprehensive Income 2. Two Statements Presentation This method of computing for profit or loss is called the “transaction approach” Profit or Loss Presentation Expenses PAS 1 prohibits the presentation of extraordinary items in the statement of profit or loss and other comprehensive income or in the notes of 1. Nature of Expense 2. Function of Expense If the function of expense method is used, additional disclosures on the nature of expenses shall be provided Other Comprehensive Income Comprises of items of income and expense that are not recognised in profit or loss as required or permitted by other PFRSs Amounts recognised in OCI are usually accumulated as separate components of equity 6 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous period Reclassification adjustments arise on disposal of foreign operation, Reclassification derecognition of debt instruments measure at FVOCI, or when a cash Adjustments flow hedge becomes ineffective or affects profit or loss On derecognition the cumulative gains and losses that were accumulated in equity on these items are reclassified from OCI to profit or loss called reclassification adjustment Total Comprehensive Income Sum of profit or loss and other comprehensive income Comprises all ‘non-owner’ changes in equity Statement of Changes in PAS 1 allows the disclosure of dividends, and the related amount per Equity share, either in the statement of changes in equity or in notes St at e m e nt o f C ash Flows PAS 1 refers the discussion and presentation of statement of cash flows to PAS 7 Notes provides information addition to those presented in the other financial statements Notes PAS 1 requires an entity to present the notes in a systematic manner Notes are prepared in a necessarily detailed manner PAS 2: INVENTORIES Purpose of PAS 2 Accounting treatment for inventories Measurement Measured at the lower of cost and net realisable value Types of Costs 1. Purchase Cost 2. Conversion Costs 3. Other Costs Excluded from cost of inventories 1. 2. 3. 4. Abnormal amounts water Storage costs Administrative overheads Selling costs 7 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Computation of cost of inventories that are charged as expense 1. Specific Identification - not ordinarily interchangeable; not appropriate for inventories of large number of items 2. First-In, First-Out (FIFO) - inventories that were purchased or produced first are sold first Cost Formulas 3. Weighted Average (WA) - weighted average cost of beginning inventory and all inventories purchased Cost formulas refer to “cost flow assumption” PAS 2 does not permit the use of Last-in, first out (LIFO) Net Realizable Value (NRV) Estimated selling price in the ordinary course of business less estimated cost of completion and the estimated costs necessary to make the sale Write-downs of inventories are usually carried out on an item by item basis REMARKS Please refer to the book for computations PAS 7: STATEMENT OF CASH FLOWS Purpose of PAS 7 PAS 7 prescribes the requirements in the requirements in the presentation of statement of cash flows Cash Cash on hand and cash in bank Cash Equivalents Short-term, highly liquid investments Cash Flows Inflows and outflows Classification of Cash Flows 1. Operating Activities 2. Investing Activities 3. Financing Activities Operating Activities Revenue-producing activities Investing Activities Acquisition and disposal of noncurrent assets and other investments Financing Activities Affect the entity’s equity capital Ge n e ral C o nc e pt in P r e p a r a t i o n o f Only transactions that affected cash and cash equivalents are S t a t e m e n t o f C a s h reported Flows 8 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. Direct Method 2. Indirect Method Presentation PAS 7 does not require ant particular method, however, PAS 7 encourages the direct method Direct and indirect method of presentation is applicable only for operating activities Changes in Ownership Loos or obtaining of control are classified as investing activities. Interests i n Those that do not result to loss or obtaining of control are classified as Subsidiaries financing activities PAS 8: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS Purpose of PAS 8 PAS 8 prescribes the criteria for selecting, applying, and changing accounting policies and the accounting and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements Accounting Policies The management uses its judgement in developing and applying an accounting policy that results in information that is relevant and reliable PAS 8 requires the consistent selection and application of accounting policies Changes in Accounting Policies PAS 8 permits a change in accounting policy only is the change: 1. Required by PFRS 2. Reliable and more relevant information 1. Transitional Provision Accounting for Changes 2. Retrospective Application in Accounting Policies 3. Prospective Application R e t r o s p e c t i v e Adjusting the opening balance of each affected component of equity Application Adjustment of the carrying amount of an asset or a liability Change in Accounting Estimate Changes in accounting estimates result from new information or new developments and accordingly, are corrections of errors. 9 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Change in Accounting Policy - change in measurement basis Change in Accounting Policy Vs. Change in Change in Accounting Estimate - changes on how the expected inflows Accounting Estimate or outflows of economic benefits Accounting for Changes Changes in accounting estimates are accounted for by prospective i n A c c o u n t i n g application Estimates Financial statements do not comply with the PFRSs if they contain Errors either material errors or immaterial errors made intentionally Material Errors Misstated Intentional Errors Fraud Error of Commission Doing something wrong Error of Omission Doing something what should have been done Current Period Errors Discovered either during the current period or after, corrected simply by correcting entries Prior Period Errors Discovered either during the current period or after, corrected by retrospective restatement R e t r os p e ct i ve Restatement 1. Restating the comparative amount for the prior periods 2. Earliest prior period presented, restating the opening balances of assets, liabilities an equity Retrospective Restatement - correcting a prior period error, as if it R e t r o s p e c t i v e never occurred Restatement Vs. R e t r o s p e c t i v e Retrospective Application - applying new accounting policy, as if Application always applied PAS 10: EVENTS AFTER THE REPORTING PERIOD Purpose of PAS 10 PAS 10 prescribes the accounting for, and disclosures of, events after the reporting period Events After Reporting Events after the reporting period, favourable and unfavourable Period Date of authorisation of the financial statements Two Types of Events After of the Financial Statements Date when management authorises the financial statements for issue 1. Adjusting Events After The Reporting Period 2. Non-adjusting Events After The Reporting Adjusting Events After Provide evidence of conditions that existed at the end Reporting Period 10 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Non-adjusting Events of Indicative of conditions that arose after The Reporting Period Adjustments of amounts in the financial statements 1. Settlement of a court case that confirms a present obligation at the end of reporting period 2. Receipt of information after the reporting period that an asset was impaired Adjusting Events After 3. Determination of cost of asset, proceeds from asset sold, before the The Reporting Period end of the reporting period 4. Determination after the reporting period of profit-sharing or bonus payments 5. Discovery of fraud or errors 1. Changes in fair values 2. Casualty losses 3. Litigation 4. Significant commitments or continent liabilities Non-adjusting Events 5. Major ordinary share and potential ordinary share After the Reporting 6. Major business combination Period 7. Announcing, or commencing, major restructuring 8. Announcing a plan to discontinue an operation 9. Change in tax rate 10. Declaration of dividends after the reporting period Going Concern PAS 10 prohibits the preparation of financial statements on a going concern basis PAS 12: INCOME TAXES PAS 12 prescribes the accounting for income taxes Income tax expense reported in the statement of comprehensive income may be different from the amount of income tax required to be paid to the Bureau of Internal Revenue Purpose of PAS 12 Income tax expense is computed using PFRSs while current tax expense is computed using Philippine tax laws PAS 12 addresses the accounting presentation and reconciliation of these differences Accounting Profit Before deducting tax expense Taxable Profit Income taxes are payable Accounting Profit or Accounting Profit - computed using PFRSs Loss Vs. Taxable Profit Taxable Profit - computed using tax laws 11 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Tax Expense or Income Total amount included in the determination of profit or loss for the Tax Expense period Current Tax or Current Tax Expense Amount of income taxes payable Deferred tax expense Sum of net changes in deferred tax assets and deferred tax liabilities Temporary Difference Formula Taxable Profit - Accounting Profit Deferred Tax Expense Current Tax Expense - Income Tax Expense Income Tax Expense Current Tax Expense + Deferred Tax Expense or - Deferred Tax Formula Benefit When income and expenses enter in the computation of either accounting profit or taxable profit but not both Permanent Differences Temporary Differences Permanent differences usually arise from non-taxable and nondeductible expenses and those that have already been subjected to final taxes Differences between the carrying amount of an asset or liability in the statement of financial position and its tax base 1. Taxable Temporary Differences 2. Deductible Temporary Differences Temporary Differences have future tax consequences Ta x a b l e T e m p o r a ry Differences Deductible Temporary Differences Result to future taxable amounts Give rise to deferred tax liabilities Result to future deductible amounts Give rise to deferred tax assets Timing Differences When income and expenses are recognised for financial reporting purposes in one period but are recognised for taxation purposes in another period Ta x a b l e T e m p o r a ry Differences arise when: 1. Financial income is greater than Taxable income 2. Carrying amount of an asset is greater than the tax base 3. Carrying amount of a liability is less than the tax base Deferred Tax Liability Formula Taxable Temporary Difference X Tax Rate 12 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Deductible Temporary Differences arise when: 1. Financial income is less than taxable income 2. Carrying amount of an asset is less than the tax base 3. Carrying amount of a liability is greater than the tax base Deferred Tax Asset Formula Deductible Temporary Difference X Tax Rate Deferred Tax Liability Results to higher amount of tax to be paid to the BIR Deferred Tax Asset Results to lower amount of tax to be paid to the BIR PAS 12 requires the use of the asset-liability method in accounting for Accounting for Deferred deferred taxes Taxes Tax base of an asset or liability for tax purposes Recognition 1. Deferred tax liability is recognised for all taxable temporary differences 2. Deferred tax asset is recognised for all deductible temporary differences, including unused tax losses and unused tax credits A deferred tax asset reduces the tax payment when it reverses in a future period, only if it earns sufficient taxable profit against which the reduction can be applied Limitation on the PAS 12 permits an entity to recognise deferred tax assets only when Recognition of Deferred it is probable Tax Asset When it is not probable, it is: 1. Not recognised 2. Reduced to its realisable value Measurement PAS 12 prohibits the discounting of deferred tax assets and liabilities Deferred tax assets and deferred tax liabilities are presented separately Presentation in the Statement of Financial PAS 12 permits offsetting, only if: Position 1. Legally enforceable right 2. Relate to income taxes levied by the same taxation authority PAS 12 permits offsetting of current tax assets and current tax Accounting for Current liabilities only if the entity has: Taxes 1. Legally enforceable right to offset 2. Intention on a net basis Presentation in Tax consequences are accounted for in the same way as the related Statement of transactions or events Comprehensive Income 13 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PAS 16: PROPERTY, PLANT AND EQUIPMENT Purpose of PAS 16 PAS 16 prescribes the accounting treatment for property, plant and equipment (PPE) 1. Tangible Assets Qualities of PPE 2. Used in business 3. Long-term in nature An item of PPE is initially measured at cost. Initial Measurement 1. Purchase price 2. Direct costs of bringing the asset to the location 3. Initial estimate of dismantlement, removal and site restoration costs Incidental Operations Before or during the construction of a PPE are not necessary in bringing the PPE to the location and condition necessary for it be capable of operating in the manner intended by management Self-constructed Assets Determined using the same principles as for acquired asset Bearer Plants Accounted for similar to self-constructed assets Measurement of Cost Cost is measured at the cash price equivalent at the acquisition date. Cost of a PPE acquired through an exchange of non-monetary assets 1. Fair value of the asset given up 2. Fair value of the asset received 3. Carrying amount of the asset given up S u b s e q u e n t Capitalisation of costs ceases when the PPE is in the location and E x p e n d i t u r e s o n condition necessary for it to be capable of operating in the manner Recognised PPE intended by management Replacement Costs Cost of replacing a part of an item of PPE is capitalised if the recognition criteria are met Major Inspections Accounted for similar to replacement costs Subsequent Measurement After initial recognition, application of policy to an entire class of PPE 1. Cost Model 2. Revaluation Model Cost Model PPE is carried at its cost less any accumulated depreciation 14 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. 2. 3. 4. 5. Depreciation Depreciable Amount Residual Value Useful Life Carrying Amount Each significant part of an item of PPE is depreciated separately Depreciation Depreciations starts when the asset is available for use, in the manner intended by the management Depreciation does not cease when the asset becomes idle or is retired from active use Some Types of Depreciation Method 1. Straight-line Method 2. Diminishing Balance Method 3. Units of Production Method PAS 16 does not prescribe any specific any specific method Depreciation Method PAS 16 requires management to choose the method that best reflects the expected pattern of consumption of the future economic benefits embodied in the asset PAS 16, however, prohibits the use of depreciation method that is based on revenue PAS 16 requires an annual review of the depreciation method and the estimates of useful life and residual value at each year-end Most commonly used depreciation method is the straight-line method PPE is carried at its fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses Revaluation Model Revaluations are applied to an entire class of PPE Accounting Revaluations Depreciation for Increase or decrease in the carrying amount of a PPE resulting from revaluation is recognised in other comprehensive income and accumulated equity under the “Revaluation surplus” After revaluation, a revalued asset is depreciated based on its fair value 15 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 If revalued asset is non-depreciable, transferred directly to retained earnings Subsequent Accounting If revalued asset is depreciable, portion of the revaluation surplus for Revaluation Surplus may be transferred directly to retained earnings Transfers from revaluation surplus to retained earnings are not made through profit or loss Derecognition Difference between the carrying amount of the derecognised PPE and the net disposal proceeds, if any, is recognised as gain or loss in profit or loss REMARKS Please refer to the book for computations PAS 19: EMPLOYEE BENEFITS Purpose of PAS 19 PAS 19 prescribes the accounting for employee benefits by employers Employee Benefits Exchange for service rendered by employees or for termination of Recognition Employee benefits are recognised as expense Fo ur C a t e g o r i e s o f Employee Benefits 1. Short-term Employee Benefits 2. Post-Employment Benefits 3. Other Long-term Employee Benefits employment 4. Termination Benefits Short-term Employee Benefits Short-termPaid Absences To be settled within 12 months Includes vacation, holiday, maternity, paternity and sick leaves. Entitlement may be either 1. Accumulating: Carried forward and used in future periods a. Vesting: Paid in cash b. Non-vesting: Not monetised 2. Non-accumulating: Expire if not used in the current period, and are not paid in cash Accumulating and Vesting All unused entitlements are accrued; monetised in future period A c c u m u l a t i n g No nvesting Only the unused entitlements that are expected to be utilised are accrued Non-accumulating Unused entitlement are not accrued 16 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Payable after the completion of employment Post-employment Can be Benefits 1. Contributory or Non-contributory 2. Funder or Unfunded Cotributory Both contribute to the retirement benefit Non-contributory Only the employer contributes retirement benefits Funded Retirement fund is transferred to a trustee Unfunded Employer fund and pays directly T y p e s o f P o s t 1. Defined Contribution Plans e m p l o y m e n t Benefit 2. Defined Benefit Plans Plans Defined Contribution Plans Defined Benefit Plans Employer commits to make fixed contributions The employer commits to pay a definite amount of retirement benefits, determined using a plan formula Defined Contribution Plans 1. Employer commits fixed contributions; dependent on the fund balance Defined Contribution 2. Risk that the fund may be insufficient rests with the employee Plans Vs. Defined Benefit Plans Defined Benefit Plans 1. Employer commits a definite amount; independent on the fund balance 2. Risk that the fund may be insufficient rests with the employer Employer’s obligation under a defined benefit plan is to provide agreed benefits Accounting for defined benefit plans is complex because actuarial assumptions are necessary to measure the obligation on a discounted Accounting for Defined basis Benefit Plans Involves the following steps: 1. Determine the Deficit or Surplus 2. Determine the Net Benefit Liability (Asset) 3. Determine the Defined Benefit Cost PV of DBO Present Value of the Defined Benefit Obligation; Obligation, projected unit credit method FVPA Fair Value of Plan Assets; fund 17 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PV of DBO Vs. FVPA 1. If FVPA < PV of DBO, deficit 2. If FVPA > PV of DBO, surplus 1. Current Service Cost: Increase of PV of DBO in the current period Service Cost 2. Past Service Cost: Change in PV of DBO to prior periods from a plan amendment or curtailment 3. Gain or Loss on Settlement: Employer’s obligation to provide benefits is eliminated 1. Actuarial Gains and Losses: Changes in PV of DBO; Iinclude demographic assumptions and financial assumptions; Discount rate is based on high quality corporate bonds Remeasurements of the Net De fi n e d B e n e fit PAS 19 encourages, but does not require, involving a qualified actuary Liability (Asset) in measuring defined benefit obligations 2. Return on Plan Assets: Investment income earned by the plan assets Multi-employer Plans State Plans Insured Benefits Unrelated to employers contribute to a common fund; Classified as either a defined contribution plan or a defined benefit plan Established by law and operated by the government; Classified as either a defined contribution plan or defined benefit plan Employer may pay insurance premiums to fund a post-employment benefit plan Due to be settled beyond 12 months Other Long-term Employee Benefits Similar to defined benefit plans except that all the components of the defined benefit cost is recognised in profit or loss Termination Benefits REMARKS 1. Entity’s decision to terminate 2. Employee’s decision for termination Please refer to the book for computations PAS 20: ACCOUNTING FOR GOVERNMENT GRANTS, AND DISCLOSURE OF GOVERNMENT ASSISTANCE Purpose of PAS 20 PAS 20 prescribes the accounting and disclosure of government grants and the disclosure of other forms of government assistance Assistance received from the government in the form of transfers of G o v er n m en t Grants resources (Subsidies, Subventions Government grants exclude government assistance whose value or Premiums) cannot be reasonably measured or cannot be distinguished 18 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Recognition Government grants are recognised if: 1. Attached conditions will be complied 2. Grants will be received Types of Government Grants According to Attached Condition 1. Grants Related to Assets: Should acquire or construct long-term assets 2. Grants Related to Income: Other than assets Monetary Grants 1. Amount of cash received 2. Fair Value Measurement Non-monetary Grants 1. Fair Value 2. Nominal Amount Government Grants in a 1. Forgivable Loan: Waives repayment subject to certain conditions Form of Loan 2. Loan at below-market rate of interest or zero-interest Forgivable Loan Carrying Amount of the loan forgiven Loan at Below-market Difference between the initial carrying amount of the loan Rate of Interest or Zerodetermined interest A p p r o a c h e s to t h e 1. Capital Approach: Recognised outside profit or loss or in equity Accounting f o r 2. Income Approach: Recognised in profit or loss over one or more Government Grants periods Recognised in profit or loss on a systematic basis Accounting f o r Government grants uses a matching concept Government Grants Recognising government grants in profit or loss on a receipt basis is prohibited Grants Related to Assets Grants Related to Income May be presented either by: 1. Gross Presentation 2. Net Presentation May be presented either by: 1. Gross Presentation 2. Net Presentation 19 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Change in accounting estimate and accounted for prospectively Repayment of Grants Repayment of grant related to income is deducted from the related deferred income balance Repayment of grant related to asset is treated as a reduction in the deferred income balance or an increase in the carrying amount of the asset Disclosure 1. Accounting Policy and Method of Presentation 2. Nature and Extent Entity has Directly Benefited 3. Unfulfilled Conditions and Contingencies REMARKS Please refer to the book for computations PAS 21: EFFECTS IN CHANGES IN FOREIGN EXCHANGE RATES Purpose of PAS 21 PAS 21 prescribes the accounting for foreign activities and the translation of financial statements into a presentation currency Two Ways of Conducting 1. Foreign Currency Transactions Foreign Activities 2. Foreign Operations Two Main Accounting Issues 1. Exchange Rate to Use 2. How To Report PAS 21 requires an entity to determine and disclose its functional currency Functional Currency Currency which the entity’s cash inflows and outflows are normally denominated into All currencies other than the entity’s functional currency are considered foreign currencies Denominated or requires settlement in a foreign currency Foreign Currency Transaction Initially recognised by translating the foreign currency amount into the functional currency using spot exchange rate Spot Exchange Rate Current exchange rate on a given date Date of a Transaction Date on which the transaction first qualifies Closing Rate Spot exchange rate at the reporting date Monetary Items Vs. Non-Monetary Items 1. Monetary Items: Received or paid in a fixed determinable amount of money 2. Non-monetary Items: Do not give rise to the receipt or payment 20 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Exchange Difference Difference resulting from translating a given number of units of one currency into another currency Subsidiary, associate, joint venture or branch that is based in a foreign country and is using a foreign currency Foreign Operations When a foreign operation is disposed, recognised in other comprehensive income, reclassified to profit or loss as a reclassification adjustment Disclosure 1. Exchange differences recognised 2. Fact and reason for using a different presentation currency 3. Fact and reason for a change in functional currency REMARKS Please refer to the book for computations PAS 23: BORROWING COSTS Directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as cost of that asset Borrowing Costs Borrowing costs do not include actual or imputed cost of equity or capital Qualifying Asset Asset that necessarily takes a substantial period of time to get ready for its intended use or sale Borrowing costs are capitalised if they are avoidable Capitalisation is suspended during extended periods in which active development is interrupted Capitalisation of Borrowing Costs Capitalisation, however, is not suspended if substantial technical and administrative work is being performed or a temporary delay is necessary part of the development process Capitalisation of borrowing costs ceases when the qualifying asset is substantially complete Specific Borrowing Funds borrowed specifically for the purpose of obtaining a qualifying asset S p e c i fi c B o r ro w i ng Formula Capitalisable BC = Actual Borrowing Costs - Investment Income General Borrowing Obtained for more than one purpose G e n e r a l B o r r o w i ng Formula Capitalisable BC = Average Expenditure X Capitalisation Rate Borrowing cost to be capitalised is the lower of the amount 21 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 C a p i t a l i s a t i o n R ate Formula Total Interest Expense on Genreal Borrowings / Total General Borrowings 1. Borrowing costs capitalised Disclosure 2. Capitalisation Rate REMARKS Please refer to the book for computations PAS 24: RELATED PARTY DISCLOSURE Purpose of PAS 24 PAS 24 prescribes the guidelines in identifying related party relationships, transactions, outstanding balances and commitments, and the necessary disclosures for these items Related Disclosures Necessary to indicate the possibility that an entity’s financial position and performance might have been affected by the existence of such relationship Party Related Parties Parties are related if one party has the ability to affect the financial and operating decisions of the other party through control, significant influence or joint control Disclosures 1. 2. 3. 4. Relationship Between Parents and Subsidiaries Key Management Personnel Compensation Related Party Transactions Government-Related Entities PAS 26: ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS Purpose of PAS 26 PAS 26 applies to the preparation of financial statements of retirement benefit plans PAS 19: Applied by an employer PAS 26: Applied by a trustee, PAS 26 complements PAS 19 PAS 19 Vs. PAS 26 PAS 26 applies to all retirement benefit plans PAS 26 does not apply to government social security type arrangements and employee benefits other than retirement benefits Hybrid Plans Funding Defined Contribution Plans Characteristics of both a defined contribution plan and a defined benefit plan Transfer of assets to an entity separate from the employer’s entity To address the foregoing needs of the financial statements of a defined contribution plan shall contain the following: 1. Statement of net assets available for benefits 2. Statement of changes in net assets available for benefits 3. Accompanying notes 22 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Net Assets Available for Assets of plan less liabilities other than the actuarial present value of Benefits promised retirement benefits Reference to the plan formula Defined Benefit Plans Financial statements of a defined benefit plan requires the reporting of the actuarial present value of promised retirement benefits Present value of the expected payments by a retirement benefit plan to existing and past employees, attributable to the service already Actuarial Present Value rendered of Promised Retirement Actuarial valuations are frequently prepared every three years Benefits The valuation date is disclosed Measured at fair value or market value Valuation of Plan Assets If an estimate of fair value is not possible, the reason for this is disclosed 1. 2. 3. 4. Disclosure Summary of significant accounting policies Description of the plan and the effect of any changes Details of any single investment exceeding 5% Investment in the employer 5. Contributions of employer and employee 6. Analysis of benefits paid or payable according to 7. Funding policies and investment policies 8. Investment income on the plan assets 9. Administrative, tax, and other expenses 10. Transfers from or to other plans 11. Actuarial present value of promised retirement benefits PAS 27: SEPARATE FINANCIAL STATEMENTS PAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, associates and joint ventures Purpose of PAS 27 PAS 27 does not mandate which entities should produce separate financial statements PAS 27 is applied when an entity chooses, or is required by law, to present separate financial statements that comply with PFRSs 23 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Separate F inancial Statements Addition to: 1. Consolidated Financial Statements 2. Financial statements of an entity with an investment in associate or joint venture in accordance with PAS 28 Entities exempted from preparing consolidated financial statements present separate financial statements as their only financial statements Consolidated Financial Statements Preparation of Separate Financial Statements Assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity In accordance with all applicable PFRSs, accounted for either 1. Cost 2. Accordance with PFRS 9 3. Using the equity method under PAS 26 Investments classified for as held for sale are accounted for in accordance with PFRS 5 From a subsidiary, associate or joint venture are recognised in profit or loss Dividends PAS 28: INVESTMENTS IN ASSOCIATES AND JOINT VENTURES Purpose of PAS 28 PAS 28 prescribes the accounting for investments in associates and the application of the equity method to investments in associates and joint ventures Investors apply PAS 28 when they have significant influence or joint control over an investee Associate Entity over which the investor has significant influence Power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies Significant Influence Presumed to exist if the investor holds, directly or indirectly, 20% or more voting power Accounted for using the equity method A c c o u n t i n g f o r Investment in associate is an asset I n v e s t m e n t s i n The share in profit is placed on the debit side Associates Dividends from investments accounted for using the equity method 24 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Equity Method Investment is initially recognised at cost and subsequently adjusted for the investor’s share in the investee’s changes in equity Investor starts using the equity method as from the date when it obtains significant influence or joint control over an investee Application of Equity Method 1. If cost is greater than the fair value of the interest acquired, excess is goodwill 2. If cost is less than the fair value of the interest acquired, deficiency is included as income Any resulting goodwill is included in the carrying amount of the investment and is not accounted for separately When the reporting periods of the investee and the investor do not Investee’ s Financial coincide, the invested shall prepare financial statements that coincide Statements and with the investor’s reporting period for purposes of applying the Accounting Policies equity method Cumulative Preference Shares Share in Losses Outstanding cumulative preference shares held by parties other than the investor and classified equity, investor computes its share of profits or losses after deducting one-year dividends Only up to the amount of its interest in the associate or joint venture I n t e r e s t i n t h e 1. Carrying Amount of the Investment A s so ci a t e o r Jo i nt 2. Investment in Preference Shares Venture 3. Unsecured, long-term receivables or loans Exemptionsfrom Investor is exempt from applying the equity method if it is exempted Applying the Equity from preparing consolidated financial statements Method Discontinuance of Equity Method An entity stops using the equity method as from the date when it loses significant influence or joint control over the investee Investment in Joint Venture Investor uses PFRS 11 whether its interest in a joint arrangement is an investment in joint venture, using the equity method similar to an investment in associate PAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES 25 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PAS 29 prescribes the restatement procedures for the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy Financial statements therefor must be restated otherwise they are Purpose of PAS 29 useless PAS 29 does not prescribe an absolute rate at which hyperinflation is deemed to arise General increase in prices and decrease in the purchasing power of Inflation money PAS 29 prohibits the presentation of the required information as supplement to understated financial statements. Core Principle PAS 29 discourages the separate presentation of the financial statement before restatement R e s t a t e m e n t o f Gain or loss on the net monetary position resulting from the Financial Statements restatements is recognised in profit or loss Historical Cost X (Current Price Index / Historical Price Index) Restatement Formula When impracticable, use average price index instead Consolidated Financial Statements If a foreign operation reports in a hyperinflationary economy, its financial statements are also restated first under PAS 29 before they are translated in accordance with PAS 21 1. Fact that the financial statements have been restated Disclosures 2. Financial statements are based on historical cost or current cost 3. Identity and level of price index at the end of the reporting period PAS 32: FINANCIAL INSTRUMENTS: PRESENTATION PAS 32 prescribes the principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities Purpose of PAS 32 PAS 32 complements PFRS 9 and PFRS 7 PAS 32 applies to instruments designated to be measured at fair value through profit or loss and contracts for the future purchase or delivery of a commodity or other non financial items that can be settled net Financial Instruments Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity 26 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Equity Instrument Any contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities 1. Cash and Cash Equivalents Examples of Financial Assets 2. Receivables 3. Investments in Equity or Debt Instrument 4. Sinking Fund Examples of Financial Liabilities 1. 2. 3. 4. 5. Payables Lease Liabilities Held for Trading Liabilities and Derivative Liabilities Redeemable Preference Shares Security Deposits and Other Returnable Deposits Financial Liability: Contractual obligation to pay Equity Instrument: No obligation to pay A contract is not an equity instrument merely because it is to be settles in the entity’s own equity instruments Essential feature of an equity instrument is the absence of a contractual obligation to pay cash or another financial asset Presentation Legal form is also irrelevant when determining if a financial instrument is a financial liability or an equity instrument IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments addresses the classification of members’ shares in cooperatives. Members’ Shares in Co-operative Entities and Similar Instruments are equity if: 1. Entity has an unconditional right to refuse 2. Redemption is unconditionally prohibited Redeemable Preference Shares C a l l a b l e P re fe ren c e Shares Holder has the right to redeem at a set date Classified as financial liability Issuer has the right to call at a set date Classified as equity instrument Gives the holder the right to return the instrument to the issuer Puttable Instrument Contractual obligation for the issuer to redeem or repurchase the instrument 27 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Compound Financial Instrument Financial instrument that, from the issuer’s perspective, contains both a liability and an equity component. Classified and accounted for separately Entity’s own shares that were previously issued but were subsequently reacquired but not retired Treasury Shares Presented separately as deduction from equity No gain or loss arises from the purchase, sale, issue or cancellation of the entity’s own equity instruments Financial Liability: Profit or Loss Equity Instrument: Directly in Equity Dividends on preference shares are recognised as expense in profit or loss Dividends on callable preference shares and other equity instruments are recognised directly in equity Premium or discount on financial liabilities is included in the carrying amount of the financial liability and subsequently amortised to profit or loss Interest, Dividends, Losses and Gains Premium or discount on equity instruments are recognised directly in equity Gains and Losses on redemptions or refinancing of financial liabilities are recognised in profit or loss Redemptions or refinancing of equity instruments are recognised as changes in equity Changes in the fair value of a financial liability are generally not recognised unless the financial liability is measured at fair value through profit or loss Changes in the fair value of an equity instrument are not recognised 28 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Transaction Cost Issuing equity instruments to the extent that they are avoidable costs, are accounted for as deduction from equity while transaction costs on issuing financial liabilities are included in the carrying amount of the financial liability and subsequently amortised to profit or loss The cost of an abandoned equity transaction are recognised as expense Both: 1. Legal right to setoff 2. Intention to settle on a net basis PAS 32 requires presenting financial assets and financial liabilities on Offsetting a Financial a net basis when doing so reflects an entity’s expected future cash Asset and a Financial flows from settling two or more separate financial instruments Liability Offsetting is inappropriate for (a) financial or other assets that are pledged as collateral for non-recourse financial liabilities and (b) sinking fund and the related financial liability for which the fund was established REMARKS Please refer to the book for computations PAS 33: EARNINGS PER SHARE PAS 33 prescribes the principles in computing and presenting earnings per share (EPS) to promote inter- and intra- comparability of performance of entities Purpose of PAS 33 PAS 33 requires publicly listed entities, including those in the process of enlisting, to present EPS information. A publicly listed entity is one whose ordinary shares or potential ordinary shares are traded in a public market Non-publicly listed entities are not required to present EPS information If both consolidated and separate financial statements are prepared, EPS is required only for the consolidated financial statements Computation made for ordinary shares Earnings per Share Normally, no EPS is computed for preference shares because they have a fixed return, as represented by their dividend rates 29 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Ordinary Share Equity instrument that is subordinate to all other classes of equity instruments Preference Share Preference over other classes of shares 1. Basic Earnings per Share Types of Earnings per Share 2. Diluted Earnings per Share If the entity does not have dilutive potential ordinary shares, it presents basic earnings per share only Basic Ear n in gs per Share Formula Earnings Profit (Loss) less Preferred Dividends / Weighted Average Number of Outstanding Ordinary Shares 1. Profit (Loss) is net of income tax expense 2. If preference shares are cumulative, one year dividend is deducted; If preference shares are non-cumulative, only the. Dividend declared during the period is deducted Dividends in arrears are ignored in the computation of EPS Shares 3. Denominator is weighted average number of shares outstanding. Computed by applying a time-weighting factor to the number of ordinary shares at the beginning of the period and to all issuances and reacquisitions during the period Outstanding Shares That are entitled to participate in dividends Contingently Issuable Ordinary Shares Ordinary shares issuable for little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement Ordinary shares are issued without a corresponding change in R e t r o s p e c t i v e resources, the basic and diluted EPS and the weighted average number of ordinary shares outstanding during the period and for all Adjustments periods presented are adjusted retrospectively Stock rights are issued to shareholders in conformance with their preemptive right Rights Issue Price is normally less than the fair value of the shares Basic and Diluted computation, number of shares outstanding for all periods before the rights issue is multiplied by the following factor below: A dj u s t m e n t F a c to r Formula Fair Value of Stocks Immediately Before the Exercise of Rights / Theoretical Ex-rights Fair Value per Share 30 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Theoretical Ex-rights Fair Value per Share Calculated by adding the aggregate market value of the shares immediately before the exercise of the rights to the proceeds from the exercise of the rights, and dividing by the number of shares outstanding after the exercise of rights Fair Value of Shares Selling Right-on - Value of 1 Right Theoretical Ex-rights Fair Value per Share where: Value of 1 right = (Fair Value Right-on - Subscription Price) / No. Of Formula Rights Needed to Purchase One Share + 1 Dilutive Potential Ordinary Shares Presents diluted EPS in addition to basic EPS Po t e n t i al O rd i n a r y Share Financial instrument or other contract that may entitle its holder to ordinary shares Examples of Potential Ordinary Share 1. Convertible Preference Shares 2. Convertible Bonds 3. Options, Warrants and their Equivalents Potential ordinary shares are dilutive. if, when exercised, they decrease basic earnings per share or increase basic loss per share Antidilutive potential ordinary shares are ignored Convertible bonds and convertible preference shares are dilutive if Diluted Earnings per their conversion decreases Share Options, warrants and their equivalents are dilutive if their exercise price is less than the market value The conversion or exercise is assumed to have taken place on the date the potential ordinary shares first became outstanding, regardless of the date of actual conversion or exercise Diluted EPS Formula Convertible Preference Shares (Profit (Loss) + After Tax Interest Expense on Convertible Bonds) / (Weighted Average Number of Outstanding Ordinary Shares + Incremental Shares Arising from The Assumed Conversion or Exercise of Dilutive Potential Ordinary Shares) When computing for diluted EPS, convertible preference shares are assumed to have already been converted into additional ordinary shares Incremental shares arising from the assumed conversion of the convertible preference shares are added in the denominator of the diluted EPS formula 31 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 When computing for diluted EPS, convertible bonds are assumed to have been converted into additional ordinary shares Convertible Bonds Incremental shares arising from the assumed conversion of the convertible bonds are added in the denominator of the diluted EPS formula Options, Warrants and their Equivalents Considered in computing for diluted EPS only when they are dilutive, such as when their exercise is less than the average market price of the ordinary shares When computing for the diluted EPS, the “treasury share method” is used in computing for the incremental shares 1. Options, warrants are exercised Treasury Share Method 2. Proceeds received from the exercise are used to purchase treasury shares at the average market price 3. Difference between the treasury shares assumed to have been purchased and the option shares represents the incremental shares When there are two or more potential ordinary shares, they need to be ranked according to their dilutive effect on the basic EPS Multiple Potential Ordinary Shares The most dilutive potential ordinary share is the one with the least incremental EPS When testing potential ordinary shares for dilution, the profit figure used as the “control number” is profit from continuing operations The two EPS (Basic and Diluted) are presented with equal prominence on the face of the statement of profit or loss and other comprehensive income Presentation EPS is presented every time a statement of profit or loss and other comprehensive income is presented, including comparatives. If dulled EPS is presented for at least one period, it will be presented for all periods, even if it equals basic EPS Basic and diluted EPS are presented even if the amounts are negative REMARKS Please refer to the book for computations PAS 34: INTERIM FINANCIAL REPORTING 32 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PAS 34 prescribes the minimum content of an interim financial report and the recognition and measurement principles in complete or condensed financial statements for an interim period Purpose of PAS 34 PAS 34 does not mandate which entities should produce interim financial report PAS 34, however, encourages publicly listed entities to provide at least a semi-annual financial report for the first half of the year to be issued not later than 60 days after the end of the interim period Interim Financial Report Financial report prepared for an interim period, contains either: 1. Complete set of financial statements described in PAS 1 2. Set of condensed financial statements described in PAS Entity is not prohibited or discouraged from preparing a complete set of financial statements for its interim financial reporting Interim Period Financial reporting period shorter than a full financial year Condensed Entity need only provide the minimum information required under PAS 34 Interim reports are intended to provide an update on the latest Significant Events and Transactions complete set of annual financial statements. They focus on providing information on significant events and transactions that have occurred since the latest annual period Other Disclosures 1. Entity presents basic and diluted earnings per share if the entity is within the scope of PAS 33 2. Entity discloses its compliance with PFRSs if it has complied with PAS 34 and all the requirements of other PFRSs Periods for which 1. Semi-annual Interim Financial Reporting Interim Financial 2. Quarterly Interim Financial Reporting Statements Comparability If an entity’s business is highly seasonal, PAS 34 encourages disclosure of financial information for the latest 12 months and comparative information for the prior 12-month period in addition to the interim period financial statements Materiality PAS 34 recognises that interim measurements may rely on estimates to a greater extent than measurements of annual financial data Same Accounting Policies as Annual The same accounting policies are used in interim reports as those used in annual reports 33 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. Integral View Two Views on Interim 2. Discrete View Reporting PAS 34 adopts a combination of the two views Proponents of the Integral View Estimation and allocation procedures for interim expenses are necessary to avoid fluctuations in period-to-period results. Use of integral view increases the predictive value of interim reports by showing interim performance Proponents of Discrete View Smoothing interim results for purposes of forecasting annual performance may have undesirable effects Measurements Measurements in the interim period are made on a year-to-date basis R evenues R eceived Not anticipated or deferred in the interim period if anticipation or Seasonally, Cyclically, deferral is also not appropriate at the end of the annual period or Occasionally C o s t s I n c u r r e d Anticipated or deferred in the interim period only if it is also Unevenly During the appropriate to anticipate or defer them at the end of the financial Financial Year year PAS 36: IMPAIRMENT OF ASSETS Purpose of PAS 36 Core Principle PAS 36 prescribes the procedures necessary to ensure that assets are not carried in excess of their recoverable amount Carrying amount of an asset shall not exceed its recoverable amount. If the carrying amount of an asset exceeds its recoverable amount, the asset is impaired. The excess shall be written-off as impairment loss Carrying Amount Asset is recognised after deducting any accumulated depreciation Recoverable Amount Expected to be recovered from the sale or use of an asset Fair Value Would be received to sell an asset Costs of Disposal Incremental Costs Value in Use Present Value 1. Indications o f 2. Impairment (External) 3. 4. Significant decline Significant changes Increase in market interest rates Net assets exceed its market capitalisation 1. Obsolescence o f 2. Significant Changes Impairment (Internal) 3. Indications economic performance of an asset is worse than expected Indications 34 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Required Testing for Impairment 1. Intangible asset with indefinite useful life 2. Intangible asset not yet available for use 3. Goodwill acquired Recoverable amount is the higher of an asset’s FVLCD and VIU PAS 36 provides the following guidance when measuring an asset’s recoverable amount: Measuring Recoverable 1. If one of them exceeds the asset’s carrying amount, asset is not Amount impaired 2. If it is not possible to determine the FVLCD, the VIU is used as recoverable amount 3. If there is no reason to believe that the VIU exceeds the FVLCD, the FVLCD is used as the recoverable amount Entity uses PFRS 13 Fair Value Measurement when measuring an asset’s fair value Fair Value Less Costs of Termination benefits and costs associated with reducing or Disposal (FVLCD) reorganising a business following the disposal of an asset are not regarded as costs of disposal Value in Use (VIU) Estimates of Future Cash Flows Discount Rate Present value of the future net cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life 1. Estimate 2. Discount Rate 1. 2. 3. 4. Management’s best estimates Most recent financial budget/forecasts Asset’s current condition Cash flow projections cover a maximum period of 5 years. Projections beyond 5-year period are extrapolated Pre-tax rate that reflects current assessments of the time value of money and risks for which the future cash flow estimates have not been adjusted VIU computation takes into account the effect of inflation If the carrying amount of an asset exceeds its recoverable amount, the carrying amount is reduced to the recoverable amount. The reduction is impairment loss Recognising and Measuring an Impairment loss is recognised immediately in profit or loss Impairment Loss After impairment, the subsequent depreciation for the asset is based on the asset’s recoverable amount 35 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Recoverable amount is normally determined for an individual asset, except when the asset belongs to a cash-generating unit (CGU) Assets are generally tested for impairment individually Cash Generating Units and Good Will Asset tested for impairment, not on its own, but together with the other assets in the CGU as a whole Exception, an asset for which management is committed in dispose is tested for impairment separately even if it belongs to a CGU Cash Generating Unit (CGU) Smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets Recoverable amount of a CGU is the higher of the CGU’s FVLCD and Recoverable Amount VIU and Carrying Amount of CGU’s carrying amount is determined in a manner that is consistent a CGU with how the CGU’s recoverable amount is determined Goodwill For purposes of impairment testing, goodwill recognised in a business combination is allocated to each of the acquirer’s CGU in the year of business combination Impairment of a CGU A CGU is tested for impairment by comparing the CGU’s carrying amount, including any allocated goodwill, with the CGU’s recoverable amount Assets that contribute to the future cash flows of several departments or divisions within an entity Corporate Assets Corporate assets do not independently generate their own cash inflows The accounting procedures applied to the impairment testing of a corporate asset are similar to those applied to goodwill 36 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 If the recoverable amount of the previously impaired asset exceeds its carrying amount, the carrying amount is increased to equal the recoverable amount. The increase is the reversal of impairment loss The reversal of impairment loss is recognised in profit or loss, unless Reversal of Impairment Loss the asset is carried at revalued amount After reversal of impairment, the subsequent depreciation (amortisation) for the asset is based on the asset’s revised carrying amount For a CGU, the reversal of impairment loss is allocated as increases in the carrying amounts of the assets in the CGU, except goodwill REMARKS Please refer to the book for computations PAS 37: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS Purpose of PAS 37 PAS 37 prescribes the accounting and disclosure requirements for provisions, contingent liabilities, and contingent assets to help users understand their nature, timing and amount Except those arising from executory contracts, unless they are onerous, and those that are covered by other PFRSs Executory Contract Contracts that are not yet fully executed Onerous Burdensome Liability of uncertain timing or amount Provision Uncertainty in the timing of their settlement or the amount needed to settle them Provisions must necessarily be estimated Provision is recognised when all of the following conditions are met: Recognition 1. Entity has present obligation resulting from past event 2. Probable that an outflow of resources embodying economic benefits will be required 3. Obligation can be reliably estimated Present Obligation Entity deems a past event to give rise to a present obligation if available evidence shows that it is more likely than not that a present obligation exists at the end of the reporting period Obligating Event Past event that creates a present obligation 37 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Obligating event is one of whereby the entity does not have any other recourse but to settle an obligation Past Event 1. Obligation is legally enforceable 2. Entity’s action have created valid expectations on others that the entity will discharge the obligation Probable More likely not Pr o b a ble O utflo w of Greater chance that the present obligation will cause settlement than Resources Embodying not Economic Benefits Reliable Estimate of the Provisions necessarily need to be estimated. If a reliable estimate Obligation cannot be made, no provision is recognised All provisions are contingent because they are of uncertain timing or amount Contingent Liabilities PAS 37 uses the term “contingent” to refer those liabilities and assets that are not recognised because they do not meet all of the recognition criteria Contingent liabilities are disclosed only, except when the possibility of an outflow of resources embodying economic benefits is remote Ot recognised because they do not meet all of the asset recognition criteria Contingent Assets Include possible inflows of economic benefits from unplanned or unexpected events, such as claims that an entity is seeking through legal process where the outcome is uncertain Contingent assets are disclosed only, if the inflow of economic benefits is probable Expected Value Computed by weighting all the possible outcomes by their associated probabilities 38 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Provisions are measured at the best estimate If the provision being measured involved a large population of items, the obligation is measured at its “expected value” If there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the mid-point of the range is used Estimates take into account risks and uncertainties. Estimates may be increased by a risk adjustment factor to provide an allowance for imprecision inherent in estimates Measurement If the effect of time value money is material, the estimate of a provision is discounted to its present value using a pre-tax discount rate Future events may affect the amount needed to settle an obligation Gains from the expected disposal of assets are not taken into account when measuring a provision If another party is expected to reimburse the settlement amount of a provision, a reimbursement asset is recognised if it is virtually certain that the reimbursement will be received Recording the Provision Changes in Provision Provisions are normally recognised as a debit to expense (or loss) and a credit to an estimated liability account Changes in provisions are accounted for prospectively by accruing and additional amount or by reversing a previously recognised amount Use of Provisions Provision is used only for the expenditure it was originally intended for A p p l i c a t i o n o f t h e 1. Future Operating Losses R e c o g n i t i o n a n d 2. Onerous Contracts Measurement Rules 3. Restructuring Future Operating Losses No provision is recognised for future operating losses because they do not meet the definition of a liability Onerous Contracts Provisions recognised from an onerous contract reflects the least net cost of exiting from the contract, lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it 39 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Program that is planned and controlled by management, and materially changes either: Restructuring 1. Scope of business undertaken by an entity 2. Manner in which that business is conducted 1. Sale or termination of a line business Examples Restructuing 2. Closure of business locations in a country or region or the relocation of business activities from one country or region to of another 3. Changes in management structure 4. Fundamental Reorganisations that have material effect on the nature and focus of the entity’s operation Legal obligation exists only if, at the end of the reporting period, a binding sale agreement is obtained Sale of Operation Closure Reorganisation or Measurement of Restructuring Provision Constructive obligation exists only if at the reporting date, the entity has created valid expectations from others that it will discharge certain responsibilities Direct costs that are necessarily entailed with the restructuring 1. Reconcillation Disclosure 2. Comparative Information is not Required 3. Each Class of Provision 1. Beginning Balance Reconcillation Each Class of Provision 2. Additions 3. Deductions 4. Ending Balance 1. 2. 3. 4. 5. Nature Timing Uncertainties Assumptions Reimbursement PAS 38: INTANGIBLE ASSETS Purpose of PAS 38 PAS 38 applies to all intangible assets except those that are specifically dealt with under other Standards Identifiable non-monetary asset without physical substance Intangible Asset Intangible resources such as scientific or technical knowledge, design and implementation, of new processes or systems, licenses, intellectual property, market knowledge and trademarks` 40 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Essential Elements of an Intangible Asset Identifiability 1. Identifiability 2. Control 3. Future Economic Benefits 1. Separable 2. Arises form contractual or other legal rights An intangible asset must be identifiable to distinguish it from goodwill Entity has the ability to benefit from the intangible asset or prevent others from benefitting from it Arises from legal rights that are enforceable in a court of law Market and technical knowledge meet the control criterion if the knowledge is protected by legal rights Control Employees’ skills developed from training provided by the entity are not recognised as intangible assets because the entity does not control the future actions of its employees Specific managerial or technical talent is not recognised as intangible asset, unless it is protected by legal rights and it also meets the other elements of the definition Customer relationships and loyalty are usually not recognised as intangible asset unless they are protected by legal rights or other ways of control and they also meet the other elements of definition Future Economic Benefits Revenue producing A s s e t s w i t h b o t h If the intangible component is integral part of the asset as whole, the Intangible and Tangible intangible element is treated as PPE. Otherwise, it is treated as a Elements separate intangible asset Intangible assets accounted for under PAS 38 are presented separately from goodwill Financial Statement Presentation Recognition Aggregated and presented as one line item under the heading “Intangible Assets” or “Other Intangible Assets” in the statement of financial position Intangible asset is recognised when it meets the definition of an intangible asset as well as the asset recognition criteria of “probable future economic benefits” and “reliable measurement of cost” 41 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Intangible assets are initially measured at cost. Which is acquired though: Initial Measurement 1. Separate Acquisition 2. Acquisition as Part 3. Acquisition by Government Grant 4. Exchanges of Assets 5. Internal Generation Cost of separately acquired intangible assets comprises: 1. Purchase Price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates 2. Direct Attributable Cost or preparing the asset for its intended use Separate Acquisition If the payment is deferred, the cost is the cash price equivalent. The difference between this amount and the total payments is recognised as interest expense over the credit period, unless it qualifies for capitalisation under PAS 23 Acquisition as part of a Cost of an intangible asset acquired in a business combination is its Business Combination fair value at the acquisition date Intangible assets acquired by way of government grant may be Acquisition by Way of a initially measured either: Government Grant 1. Fair Value 2. Alternatively, Nominal Amount + Direct Costs incurred Exchange of Assets With Commercial Substance Intangible asset may be acquired in exchange for another nonmonetary asset. Measurement of the intangible asset acquired depends on whether the exchange transaction has: 1. With Commercial Substance 2. Lacks Commercial Substance Entity’s subsequent cash flows are expected to change as a result of the exchange. Measured using the following order of priority: 1. Fair Value of the Asset Given Up 2. Fair Value of the Asset Received 3. Carrying Value of the Asset Given Up No gain or loss arises if the asset received is measured at the carrying amount of the asset given up Lacks Commercial Substance Internally Generated Intangible Assets Measured at the Carrying Amount of the asset given up Internally generated intangible asset meets the recognition criteria, its generation is classified into: 1. Research phase 2. Development phase 42 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Research Original planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding Research Phase Costs incurred during the research phase are expensed Development Application of research findings or other knowledge to plan or design for the production of new or substantially improved materials, devised, products, processes, systems or services before the start of commercial production or use Costs incurred during the development phase are capitalised if the entity can demonstrate all of the following: 1. Technical feasibility 2. Intention to complete 3. Ability to use or sell 4. Probable future economic benefits 5. Availability 6. Reliable measurement If it is not clear whether an expenditure is a research or a Development Phase development cost, it is treated as a research cost Internally generated brands, mastheads, publishing titles, customer lists and similar items similar are not recognised as intangible assets. Similarly, internally generated goodwill is not recognised as an asset. Cost to develop theses items, including subsequent expenditures on them are expensed Research costs and development costs that d not qualify for capitalisation are expensed and disclosed as “Research and Development Expense” Cost of an internally generated intangible asset includes all directly attributable costs necessary to create, produce, and prepare the asset Cost of an Internally for its intended purpose Generated Intangible PAS 38 prohibits the reinstatement of costs, meaning, if a cost had Asset been expensed, it cannot anymore be capitalised as an intangible asset at a later date Organisational Costs Costs incurred in establishing a new business. Theses are expensed when incurred 43 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Capitalisation costs ceases when the intangible asset is in the condition necessary for it to be capable of operating in the manner intended by management Subsequent Expenditures Subsequent expenditures on intangible assets are expensed, unless it is very clear that the subsequent expenditures meet the definition of an intangible asset and the recognition criteria Following subsequent expenditures are expensed when incurred: 1. Costs of using or redeploying 2. Costs incurred while an asset capable of operating 3. Initial operating losses 4. Costs of relocating 5. Advertising and promotional costs 6. Litigation costs After initial recognition, an entity chooses either the cost model or the revaluation model as its accounting policy Subsequent Measurement Revaluation model is used only if there is an active market for the intangible asset Intangible assets with no active market are measured under the cost model Cost Model Intangible asset is carried at its cost less any accumulated amortisation and any accumulated impairment losses Revaluation Model Intangible asset is carried at its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses Entity shall asses whether the intangible asset has: 1. Finite Useful Life 2. Indefinite Useful Life Useful Life Only intangible assets with finite useful life are amortised. Intangible assets with indefinite useful life are not amortised but tested for impairment at least annually using PAS 36 44 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Systematic allocation of the depreciable amount of an intangible asset over its useful life The depreciable amount of an intangible asset with a finite useful life is amortised over the shorter of its useful life and legal life Amortisation starts when the asset is available for use, in the manner intended by management Amortisation Amortisation stops when the asset is derecognised, classified as held for sale under PFRS 5, or becomes fully depreciated Amortisation does not cease when the asset is no longer used, unless one of the conditions above are met Amortisation is recognised as expense unless it is included in the cost of producing another asset PAS 38 mentions three examples: 1. Straight-line Method 2. Diminishing Balance Method 3. Units of Production Method Amortisation Method PAS 38 required management to choose the method that best reflects the expected pattern of consumption of the future economic benefits embodied in the asset. If that pattern cannot be determined reliably, the entity shall use the straight-line method PAS 38 prohibits the use of an amortisation method that is based on revenue PAS 38 requires an annual review of the amortisation method and the assessments and estimated of useful life and residual value at each year-end. Any change is accounted for as change in accounting estimate Impairment Intangible assets are tested for impairment using PAS 36 Derecognition Intangible asset is derecognised when it is disposed of or when no future economic benefits are expected from it 45 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Following are disclosed for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets: 1. Useful lives are indefinite or finite 2. Amortisation Methods 3. Gross Carrying Amount and any Accumulated Amortisation at the beginning and end of the period Disclosure 4. Line items of the statement of comprehensive income 5. Reconciliation of the carrying amount at the beginning and end of the period 6. Changes in accounting estimate 7. Intangible assets assessed as having indefinite useful lives and reasons supporting the assessments 8. Acquired by way of a government grant and initially recognised at fair value 9. Restriction on title to intangible assets 10. Contractual commitments 11. Revaluation surplus 12. Aggregate amount of research and development expenditure Encouraged but not required: 13. Description of any fully amortised intangible asset in use 14. Brief description of significant intangible assets controlled by the entity C l as s of I n t a n g i b l e Assets Grouping of assets of similar nature and use in an entity’s operations 1. 2. 3. Examples of Separate 4. Classes of Intangible 5. Assets Brand Names Mastheads and Publishing Titles Computer Software Licenses and Franchises Copyrights, Patents and other Industrial Property Rights, Service and Operating Rights 6. Recipes, Formulae, Models, Designs and Prototypes 7. Intangible Assets under Development REMARKS Please refer to the book for computations PAS 40: INVESTMENT PROPERTY Purpose of PAS 40 PAS 40 prescribes the accounting and disclosure requirements for investment property 46 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Land and/or building held to earn or for capital appreciation or both Investment property includes only land and building Investment Property Investment property is held to earn rentals or for capital appreciation or both. Meaning it is not: 1. Owner-occupied property 2. Held for sale in the ordinary course of business 3. Classifies as “held for sale” under PFRS 5 If the portions could be sold separately, they are accounted for separately. Portion being rented out under operating lease is classifies P a r t l y I n v e s t m e n t as investment property while the owner-occupied portion is classified Property and Partly as PPE Owner-occupied If the portion could not be sold separately, the entire property is classified as investment property Ancillary Services to Occupants When ancillary services are provided to the occupants of a property held, the property is classified as investment property if the services are insignificant to the arrangement as a whole If the services provided are significant, the entire property is classifies as PPE A property that is leased by a member of a group to another member does not qualify as investment property in the consolidated financial Investment Property in statements Consolidated Financial Statements Property is classified as investment property in the lessor/owner’s individual financial statements Recognition Investment property is recognised when it meets the definition of an investment property as well as the asset recognition criteria of “probable future economic benefits” and “reliable measurement of cost” Initial Measurement Investment in property is initially measured at cost Cost of a purchased investment property comprises the purchase price and any directly attributable costs incurred in bringing the Acquisition by Purchase asset to its intended condition If the payment is deferred, the cost is the cash price equivalent 47 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. With Commercial Substance 2. Lacks Commercial Substance Exchanges of Assets No gain or loss arises if the asset received is measured at the carrying amount of the asset given up` The entity’s subsequent cash flows are expected to change as a result of the exchange. The asset received is measured using the following Exchange of Assets with order of priority Commercial Substance 1. Fair Value of the Asset Given Up 2. Fair Value of the Asset Received 3. Carrying Amount of the Asset Given Up Exchange of Assets Lacks Commercial Substance Asset received is measured at the Carrying Amount of the Asset Given Up Entity chooses either the cost model or the fair value model, applies that policy to all of its investment property Only one model shall be used PAS 40 required an entity to determine the fair value of its investment property, regardless, of the accounting policy used Subsequent Measurement PAS 40 encourages, but does not require, the use of an independent valuer in determining the fair value of an investment property An entity may subsequently change its model to the fair value model, subject However, PAS 40 states that it is highly value model to the cost model will presentation accounting policy from cost to the provisions of PAS 8. unlikely that a change in fair result in a more relevant An entity that chooses the cost model shall measure the investment property using the cost model under PAS 16 Cost Model The entity uses PFRS 5 Non-current Assets Held for Sale and Discontinued Operations if it classifies an investment property is a right-of-use asset resulting from a lease 48 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Subsequently measured at its fair value at. The end of each reporting period Gains or losses arising from changes in fair value are recognised in profit or loss Fair Value Model Assets measured under the fair value model are not depreciated An entity uses the principles in PFRS 13 Fair Value Measurement when determining the fair value of an investment property. To avoid double-counting, assets and liabilities that are integral parts of the investment property are not recognised separately Transfers to or from investment property are made only when there is a change in use In the absence of a change in use, no transfer is made to or from investment property Similarly, an investment property that is redeveloped for continued use as investment property remains s investment property Transfers If the entity uses the cost model, transfers between investment property, PPE and inventories are accounted for at the carrying amount of the asset transferred. No gain or loss arises because the asset’s measurement remains the same before and after the transfer If the entity uses the fair value model, transfers between investment property, PPE and inventories are accounted for at the asset’s fair value 1. For transfer from investment property to PPE or inventories, the entity applies PAS 40 until the date of transfers 2. For a transfer from PPE to investment property, the entity applies PAS 16 until the date of transfer 3. For a transfer from inventories to investment property, the difference between the fair value on the date of transfer and the previous carrying amount is recognised in profit or loss Investment property is derecognised when it is disposed of or when no future economic benefits are expected from it Derecognition The difference between the carrying amount and the net disposal proceeds, if any, is recognised as gain or loss in profit or loss S e l f - C o n s t r u c t e d Self-constructed Investment Property is accounted for in much the Investment Property same way as purchased in investment property 49 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Subsequent Expenditures on recognised investment property are generally expensed, unless they clearly meet the recognition criteria Subsequent Expenditures PAS 40 states an instance where a subsequent expenditure is capitalised, which is the replacement of parts of an investment property Impairment An investment property that is subsequently measured under the cost model is tested for impairment using PAS 36 General Disclosures: 1. Fair value model or the cost model used 2. Criteria used to distinguish investment property 3. Fair value of investment property is based on valuation by an independent valuer 4. Amounts recognised in profit or loss 5. Existence and amounts of restrictions 6. Contractual obligations Disclosure Additional Disclosures under the Fair Value Model: 1. Reconciliation 2. Reconciliation between the valuation obtained and the adjusted valuation 3. Investment property whose fair value on initial recognition cannot be reliably measured Additional Disclosures under the Cost Model: 1. Depreciation methods used 2. Reconciliation REMARKS Please refer to the book for computations PAS 41: AGRICULTURE Purpose of PAS 41 PAS 41 prescribes the accounting and disclosure for agricultural and related activity Agriculture Farming or the process of producing crops and raising livestock PAS 41 applies to the following: 1. Biological Assets, except bearer plants 2. Agricultural produce at the point of harvest 3. Unconditional government grants related to a biological asset PAS 41 Application measured at its fair value less costs to sell PAS 41 applies to agricultural produce only at the point of harvest. After harvest, PAS 2 Inventories or other applicable standard is applied 50 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Biological Asset Living animal or plant Bio Life 1. Consumable Biological Assets 2. Bearer Biological Assets T ypes of B i ol og ic al Asset Living animal, whether consumable or bearer, are classified as biological assets if they relate to agricultural activity. However, living plants are classified as biological assets only if they are consumable. Bearer plants are classified as PPE Consumable Biological Assets To be harvested as agricultural produce or sold as biological assets Bearer Biological Assets To bear produce A living plant that is: 1. Used in production 2. Expected to bear produce 3. Remote likelihood of being sold Plants that are to be harvested as agricultural produce are not bearer Bearer Plant plants Bearer plants that may be sold as scrap when no longer used are not necessarily precluded from being classified as bearer plants Annual crops and similar plants that die once their produce has been harvested are considered consumable plants, and therefore classified as biological asset Harvested product of the entity’s biological assets Agricultural Produce Harvest Agricultural produce refers to those that are in their natural state and are not yet processed Detachment of produce from a biological asset or the cessation of a biological asset’s life process Biological Assets and Agricultural Produce are accounted for under PAS 41 only when they relate to agricultural activity Agricultural Activity Management by an entity of the biological transformation and harvest of biological assets for sale or conversion into agricultural produce or into additional biological assets 51 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Common Features of Agricultural Activities 1. Capability to Change 2. Management of Change 3. Measurement of Change B i o l o g i c a l Transformation 1. Growth 2. Procreation 3. Degeneration Recognition Biological asset or agricultural produce is recognised when it meets the asset recognition criteria, including the reliable measurement of its fair value or cost Biological assets are initially and subsequently measured at fait value less costs to sell Biological assets whose fair value cannot be reliably determined on initial recognition are initially measured are cost and subsequently measured at cost less accumulated depreciation and accumulated impairment losses. Once fair value becomes reliably measurable, the biological asset is measured at its fair value less costs to sell Measurement Agricultural produce is, in all cases, initially measured at fair value less costs to sell at the point of harvest. The gain or loss arising from the initial measurement is recognised in profit or loss Entity uses PFRS 13 Fair Value Measurement when measuring the fair value of biological assets and agricultural produce Contract prices are not necessarily relevant when measure fair value Biological assets attached to lang may not have a separate market but an active market may exist for the combined assets as a package Government grants that are related to biological assets measure at fair value less costs to sell are accounted for under PAS 41 Government Grants Under PAS 41, if the government grant is 1. Unconditional 2. Conditional 3. Conditional but the terms of the grant allow part of it to be retained according to the time that has elapsed G o ve r n m e n t G r a n t (Unconditional) G o ve r n m e n t G r a n t (Conditional) Profit or loss when it becomes a receivable Profit or loss when the attached conditions are met 52 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 General Disclosures: 1. Aggregate gain or loss arising on initial recognition from change in fair value less cost to sell 2. Description of each group 3. Description of the nature of activities involving each group 4. Restrictions on titles 5. Commitments for the development 6. Financial risk management strategies 7. Reconciliation Encouraged Disclosures: 1. Consumable and bearer biological assets Disclosure 2. Mature and immature biological assets 3. Change in fair value less costs to sell during the period due to price change and due to physical change Disclosures for Biological Assets Measured at Cost 1. Description 2. Explanation of why fair value cannot be reliably measure 3. Range within which fair value is highly likely to lie 4. Depreciation method 5. Reconciliation Disclosures for Government Grants 1. Nature and extent 2. Unfulfilled conditions 3. Significant decreases expected Mature Biological Have attained harvestable specifications (for consumable biological Assets assets) or are able to regular harvests (for bearer biological assets) PFRS 1: FIRST TIME ADOPTION OF PHILIPPINE FINANCIAL REPORTING STANDARDS Objective To ensure that an entity’s First PFRS financial statements, including interim financial reports covered thereon, contain high quality information that is transparent to users, comparable, makes way for accounting in accordance with PFRSs, and can be prepared with cost efficiency 53 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The first annual financial statements in which an entity adopts PFRSs, by an explicit and unreserved statement of compliance with PFRSs First PFRS financial statements 1. Were prepared in accordance with other reporting standards not First PFRS Financial Statements consistent with the PFRS or 2. Did not contain an explicit and unreserved statement of compliance with PFRS or 3. Contained an explicit and unreserved statement of compliance with some, but not all, PFRSs or 4. Were prepared using some, but not all, applicable PFRS or 5. Prepared in accordance with PFRSs but were used for internal reporting purposes only or 6. Did not contain a complete set of financial statements as required under PAS 1 7. They entity did not present financial statements in previous periods PFRS 1 is applied only once, that is, when the entity first adopts PFRSs An entity presenting its first PFRS financial statements is called a “first-time adopter” PFRS 1 requires an entity to prepare and present an opening PFRS statement of financial position at the date of transition to PFRSs Recognition and Measurement Date to transition PFRSs is the beginning of the earliest period for which an entity presents full comparative information under PFRSs in its first PFRS financial statements The entity selects its accounting policies based on the latest versions of PFRSs as at the current reporting date Accounting Policies The selected policies are then applied to all financial statements presented together with the first PFRS financial statements PFRS 1 prohibits the application of non-uniform accounting policies or earlier versions of PFRSs to the comparative periods as these undermine comparability 54 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 1 requires retrospective application of the accounting policies selected by the first-time adopter Retrospective application means as if PFRSs have been used all along PFRS 1 requires an entity to do the following in its opening PFRS statements of financial position: 1. Recognise all assets and liabilities whose recognition is required by PFRS R e t r o s p e c t i v e 2. Not recognise items as assets or liabilities if PFRSs do not permit Application such recognition 3. Reclassify items recognised under previous GAAP that have different classifications under PFRSs and 4. Apply PFRS in measuring all recognised assets and liabilities PFRS 1 clarifies that the transitional provisions in other PFRSs apply only to entities that already use PFRSs First-time adopters shall apply the transitional provisions of PFRS 1 PFRS 1 grants certain exemptions from compliance with the “retrospective application” requirement when the cost of compliance exceeds the expected benefits Exceptions to the Requirements of PFRS PFRS 1 prohibits retrospective application in cases where 1 retrospective application requires management judgements about past conditions after the outcome of a particular transaction is already known PFRS 1 provides numerous other exemptions from retrospective Other Exceptions application 1. Derecognition of financial instruments 2. Hedge accounting 3. Business combinations 4. Fair value or Revaluation amount as deemed cost 5. Cumulative translation differences 6. Compound financial instruments Derecognition of May not recognise financial instruments that it has already Financial Instruments derecognised under its previous GAAP prior to the date of transition Hedge Accounting Required to do the following at the date of transition to PFRS: 1. Measure all derivatives at fair value and 2. Eliminate all deferred losses and gains on derivatives that were reported under its previous GAAP 55 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Business Combinations Exempted from applying PFRS 3 Business Combinations retrospectively to business combinations that occurred prior to the date of transition to PFRSs Entity adopting the cost model for its 1. Property, plant and equipment F a i r V a l u e o r 2. Investment property Revaluation Amount as 3. Intangible assets Is permitted to measure those assets at the date of transition to Deemed Cost PFRSs at fair value and use that fair value as their deemed cost at that date Cumulative Translation Permitted to zero-out any cumulative translation differences Differences recognised in equity under the previous GAAP Compound Financial Instruments Need not separate the two components of a compound financial instrument if the liability component is no longer outstanding at the date of transition to PFRSs 1. First PFRS financial statements shall include at least one-year Presentation and Disclosure comparative information 2. IF the entity presents non-PFRS comparative information and historical summaries for periods before the date of transition, it need not restate those summaries to PFRS. It shall label them as being prepared in accordance with the previous GAAP and shall disclose the nature of the main adjustments that would make those summaries comply with PFRSs 3. Entity shall explain how the transition from previous GAAP to PFRSs its financial position, financial performance and cash flows. This includes a. Reconciliations of Equity b. Reconciliation of Total Comprehensive Income c. Disclosure of Impairment Losses and Reversals of Impairment Losses d. Disclosures of Errors e. Material Adjustments f. Appropriate explanation if the entity has elected to apply any of the exemptions permitted under PFRS 1 Reconciliation of Equity Reported under previous GAAP to equity under PFRSs both 1. At the date of transition to PFRS and 2. The end of the last annual period reported under the previous GAAP Reconciliation of Total For the last annual period reported under the previous GAAP to total Comprehensive Income comprehensive income under PFRSs for the same period 56 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Disclosure of Impairment Losses and Recognised when the opening statement of financial position was Reversals o f prepared Impairment Losss Disclosures of Errors Discovered in the course of transition to PFRSs Material Adjustments Made to restate the financial statements to PFRSs PFRS 2: SHARE-BASED PAYMENT Transaction in which the entity acquires goods or services and pays for them by using its own equity instruments or cash based on the value of its own equity instruments Share-based Payment transaction can be: 1. Equity-settled Share-Based Payment Transaction Share-based Payment Transaction 2. Cash-settles Share-Based Payment Transaction 3. Choice between Equity-settled and Cash-Settled PFRS 2 applies to all entities, including subsidiaries using their parent’s or fellow subsidiary’s equity instruments as consideration for goods or services, and to all share-based payment arrangements except the following: 1. Transactions with owners acting in their capacity as owners 2. Business combinations 3. Issuance of shares as settlement of forward contracts, future and other derivative instruments Equity-settled ShareEntity receives goods or service and pays for them by issuing its B a s e d P a y m e n t shares of stocks or share options Transaction Cash - s ett l ed Share- Entity received goods or services and incurs an obligation to pay cash B a s e d P a y m e n t at an amount that is based on the fair value of its own equity Transaction instruments Choice between Equitysettled and Cash-settled Entity receives goods or services and either the entity or the counterpart is given a choice of settlement in the form of equity instruments or cash based on the fair value of equity instruments 57 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Goods or services acquired in share-based payment transactions are recognised. Goods or services received that do not qualify as assets are recognised as expense Recognition Entity recognises: 1. Increase in equity if the goods or services are received in an equity-settled share-based payment transaction 2. Liability if the goods or services are acquired in a cash-settled share-based payment transaction Goods or services received from equity-settled share-based payment transactions with non-employees are measured at the fair value of the goods or services received, or if this is not determinable, at the fair value of the equity instruments granted Equity-settled ShareB a s e d P a y m e n t For employees and others providing similar services, fair value of the Transaction services received is often not possible to estimate reliably PFRS 2 requires those services to be measured at the fair value of the equity instruments granted, or if this is not determinable, at the intrinsic value of the entity’s shares of stocks Equity-settled ShareB a s e d P a y m e n t Transaction with: None m p l o y e e s V s . Employees and Others Providing Similar Services Non-employees (Order or priority) 1. Fair value of goods or services received 2. Fair value of equity instruments granted Employees and Others Providing Similar Services (Order of priority) 1. Fair value of the equity instruments granted 2. Intrinsic value Individuals who render personal services to the entity and either 1. Regarded as employees fir legal or tax purposes Employees and Others 2. Work for the entity under its direction in the same way as Providing Similar individuals who are regarded as employees for legal or tax Services purposes 3. Services rendered are similar to those rendered by employees E qu i t y I n s t r u m e n t Right to an equity instrument of the entity conferred by the entity on Granted another party under a share-based payment arrangement For non-employees Measurement date is the date when the entity receives the goods or Fair Value is Measured services at the Measurement Date For employees and others providing similar services Measurement date is the grant date 58 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Grant Date Date at which the entity and other counterparty agree to, and have shared understanding of the terms and conditions of, a share-based payment arrangement If the agreement is subject to further approval, grant date is the date when that approval is obtained Intrinsic Value Difference between the fair value of the shares which the counterparty has the right ti subscribe or receive and the subscription price that the counterparty is required to pay Arrangement whereby, in exchange for services, an employees is compensated in the form of the entity’s equity instrument Examples 1. Employee share options S h a r e - b a s e d 2. Employees share appreciation rights Compensation Plans 3. Compensation plans with a choice of settlement between the two mentioned above Share-based compensations are given to key employees as bonuses or additional compensation Contract that gives the holder the right, but not the obligation, to Employee Share Option subscribe to the entity’s share at a fixed or determinable price for a Plans specified period of time. Employee share option plans are equity-settled share-based payment transactions with employees. It is measure using the following order of priority 1. Fair value of equity instruments granted at grant date 2. Intrinsic value Measurementof Compensation If the share options granted vest immediately, salaries expense is recognised in full, with a corresponding increase in equity, at grant date If the the share option granted do not vest until the employee completed a specified period of service, the entity recognises salaries expense as the employee renders service over the vesting period In the absence of evidence to the contrary, it is presumed that share options vest immediately 59 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 C h an g es in S ervi c e Condition To be entitled to receive or subspace to the shares embodied in the share options, the employee needs to remain in the entity’s employ for a specified period of time Adjustments for employees leaving the entity’s employ before the share options vest are accounted for prospectively Measured at the fair value of the liability Cash - s ett l ed Share- Changes in fair value are recognised in profit or loss Based Payment Transaction Most common form of a cash-settled shared-based payment transaction is share appreciation rights (SARs) granted to an employee Form of compensation given to an employee whereby the employee is entitled to future cash payment EmployeeShare Appreciation Rights Another form is when an employee is granted a right to receive future (SARs) cash payment by a grant to a right to shares that are redeemable, either mandatorily or at the employee’s option Liability for the future cash payment on share appreciation rights is measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights Changes in fair value are recognised in profit or loss Measurementof Compensation The compensation expense on the SARs is recognised similar to employee share options, that is, if the SARs vest immediately, salaries expense is recognised in full, with a corresponding increase in liability, at grant date; if the SARs do not vest immediately, salaries expense is recognised over the vesting period as the employee renders service Share-based payment transaction that can be settled either through equity instrument or cash is accounted for depending on which party Choice between Equityis given the right choice of settlement: settled and Cash-settled 1. Counterparty has the right of choice of settlement or 2. Entity has the right of choice of settlement Counterparty has the If the counterpart has the right to choose settlement between cash or Right of Choice equity instruments, the entity has granted a compound instrument Compound instrument Includes both a debt component and an equity component 60 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The equity component is computed as the difference bet ween the fair Transactions with Nonvalue of goods or services received and the fair value of the debt Employees component at the date the goods or services are received Transaction with Employees The entity measure the fair value of the compound instrument and its components as follows: 1. If the fair value of one settlement alternative is the same as the other, the fair value of the equity component is zero, and hence the fair value of the compound financial instrument is the same as the fair value of the debt instrument 2. If the fair value of the settlement alternatives differ, the fair value of the equity component will be greater than zero, in which case, the fair value of the compound financial instrument will be greater than the fair value of the debt component Each component of the compound instrument is accounted for separately, similar to purely equity-settled of a purely cash-settled share-based payment transaction 1. Value assigned to equity alternative on grant date is recognised as salaries expense and an increase in equity over the vesting period 2. Value assigned to the cash alternative is recognised as salaries expense, and a liability, that is remeasured at each year-end and on settlement, as the services are received Settlement date, the liability component is remeasured to fair value Settlement 1. Equity Instruments - liability component is transferred directly to equity as consideration for the issuance of shares 2. Cash - Cash payment is applied as settlement of the liability Entity has the right to choose settlement between cash or equity instruments, the entity has not granted a compound instrument Entity has the right of The entity accounts for the transaction as either equity-settled or choice cash-settled share-based payment transaction, depending on whether the entity has a present obligation to pay cash 61 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 1. If the entity elects to settle in cash, the cash payment is accounted for as a repurchase of an equity interest 2. If the entity elects to settle by issuing equity instruments, no further accounting is required other than a transfer from one component of equity to another Settlement REMARKS 3. If the entity elects the settlement alternative with the higher fair value as at the date of settlement, the entity recognises an additional expense for the: a. Excess cash paid over the fair value of equity instruments that would otherwise have been issued or b. Excess of fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable Please refer to the book for computations PFRS 3: BUSINESS COMBINATIONS Business combination occurs when one company acquires another or when two or more companies merge into one PFRS 3 applies to business combinations Objective Its objective is to enhance the relevance, reliability and comparability of an acquirer’s financial reporting by establishing the recognition and measurement principles and disclosure requirements for a business combination Parent or Acquirer Company that obtains control over the other Subsidiary or Acquired Other company that is controlled Transaction or other event in which an acquirer obtains control of one or more businesses Business Combinations Transactions referred to as ‘true mergers’ or ‘mergers of equals’ are also business combination under PFRS 3 Essential Elements Control 1. Control 2. Business Investor controls an investee when the investor has the power to direct the investee’s relevant activities thereby affecting the variability of the investor’s investment returns from the investee Control normally presumed to exist when the acquirer holds more than 50% interest in the acquires voting rights 62 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Business T h r e e E l e me n t s o f Business Input An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income or generating other income from ordinary activities 1. Input 2. Process 3. Output Any economic resource that results to an output when one or more processes are applied to it Process Any system, standard, protocol, convention or rule the when applied to an input, creates an output Output The result of input and process that provides goods or services to customers, investment income or other income from ordinary activities Identifying a Business Combination If the assets acquired (and related liabilities assumed) do not constitute a business, the entity accounts for the transaction as a regular asset acquisition and not a business combination The entity applies other applicable Standards Accounting for Business Combination Determining the Acquisition Date Goodwill Formula Business combinations are accounted for using the acquisition method, which requires the following: 1. Identifying the acquirer 2. Determining the acquisition date 3. Recognising and measuring goodwill This requires recognising and measuring the following: a. Considerations transferred b. non-controlling interest in the acquiree c. Previously held equity interest in the acquiree d. Identifiable assets acquired and liabilities assumed on the business combination The date on which the acquirer obtains control of the acquiree Normally the closing date Consideration Transferred Non-controlling Interest (NCI) in the acquiree Previously Held Equity Interest in the Acquiree Total Less: FV of Net Identifiable Assets Acquired Goodwill/ (Gain on a Bargain Purchase) 63 Downloaded by Premsofc Xx (rieve@ruru.be) XX XX XX XX (XX) XX lOMoAR cPSD| 12066218 Measured at fair value, which is the sum of the acquisition-date fair C o n s i d e r a t i o n values of the assets transferred by the acquirer, the liabilities Transferred incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer Costs that the acquirer incurs to effect a business combination A c q u i s i t i o n- r e l a t e d Costs Acquisition-related costs are recognised as expenses when they are incurred Equity in a subsidiary not attributable, directly or indirectly, to a parent Is also called “Minority Interest” Non-controlling Interest (NCI) For each business combination, the acquirer measures any noncontrolling interest in the acquiree either at: 1. Fair value or 2. The NCI’s proportionate share of the acquires identifiable net assets Previously Held Equity Interest in the Acquiree Pertains to any interest held by the acquirer before the business combination This affects the computation of goodwill in business combinations achieved in stages On acquisition date, the acquirer recognises the identifiable assets Net Identifiable Assets acquired, the liabilities assumed and any NCI in the acquiree Required: Recognition separately from goodwill Principle Unidentifiable assets are not recognised 1. To qualify for recognition, identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities provided under the Conceptual Framework at the acquisition date Net Identifiable Assets 2. The identifiable assets acquired and liabilities assumed must be part of what the acquirer and the acquiree exchanged in the Required: Recognition business combination transaction rather than the result of Conditions separate transactions 3. Applying the recognition principle may result to the acquirer recognising assets and liabilities that the acquiree had not previously recognised in its financial statements 64 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Net Identifiable Assets Required: Classifying Identifiable assets acquired and liabilities assumed are classified at I d e n t i f a b l e A s s e t s the acquisition date in accordance with other PFRSs that are to be Acquired and Liabilities applied subsequently Assumed Identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair values Net Identifiable Assets Required: Measurement Separate valuations allowances are not recognised at the acquisition Prnciple date because the effects of uncertainty about future cash flows are included in the fair value measurement REMARKS Please refer to the book for computations PFRS 5: NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Assets classified as concurrent in accordance with PAS 1 are classified as current assets only if they meet the criteria to be classified as held for sale under PFRS 5 Purpose of PFRS 5 PFRS 5 prescribes the accounting for assets held for sale, including disposal groups, and the presentation and disclosure of discontinued operations Disposal Group Group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will transferred in the transaction Classification as Held for Sale Noncurrent asset or disposal group is classified as held for sale or held for distribution to owners if its carrying amount will be recovered principally through a sale transaction rather than through continuing use Noncurrent asset or disposal group is classified as held for sale if the both of the following conditions are met: 1. Noncurrent asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary and C o n d i t i o n s f o r Classification as Held for Sale 2. Sale is highly probable, as evidenced by the existence of all of the following: a. Committed on selling the asset b. Actively locating a buyer c. Sale price is reasonable d. Sale is expected to be completed within one year e. Unlikely that the plan to sell will be withdrawn Sale includes exchanges that have commercial substance 65 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Asset that is not sold within one year from the date of its classification as held for sale is reclassified back to its previous classification Exception to the Oneyear Requirement E xc l u s i v e V i e w o f Subsequent Disposal The asset is continued to b classified as held for sale if the following conditions are met: 1. Delay is cause by events beyond entity’s control and 2. Sufficient evidence that the entity remains committed on selling the asset Noncurrent asset that is acquired exclusively with a view to its subsequent disposal is classified as held for sale at the acquisition date if the “sale within one-year” requirement is met and it is highly probable that the other requirements will be met within a short period of time after the acquisition Event After the Reporting Period Noncurrent assets or disposal group that meets the criteria for classification as held for sale only after the reporting period is not classified as held for sale in the current period’s financial statements Property Dividends Noncurrent assets declared as property dividends are classified as held for distribution to owners when they are available for immediate distribution in their present condition and the distribution is highly probable Non-current Assets that are to be Abandoned Noncurrent asset or disposal group that is to be abandoned is not classified as held for sale because its carrying amount will be recovered through continuing use rather than principally through sale Held fro sale assets are initially and subsequently measured at the lower of carrying rampant and fair value less cost to sell Cost to sell are discounted to their present value if the sale is expected to occur beyond one year Measurement Assets classified as held for distribution to owners are measure at the lower of carrying amount and fair value less costs to distribute Held for sale assets that are acquired as part of the business combination are measured at fair value less costs to sell, not at fair value as required by PFRS 3 66 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Subsequent changes in fair value less costs to sell are recognised in profit or loss as impairment losses or gains on reversals of Changes in Fair Value impairment Less Costs to Sell A gain on reversal of impairment is recognised only to the extent of cumulative impairment losses that have previously been recognised Depreciation and Amortisation Held for sale assets are not depreciated or amortised while they are classified as held for sale Changes to a Plan of Sale An asset that ceases to be classified as held for sale is measured at the lower of asset’s 1. Carrying amount and 2. Recoverable amount Component of an entity that either has been disposed of or is classifies as held for sale and 1. Represents a major line of business or geographical area of D i s c o n t i n u e d operations Operations 2. Part of a single coordinated plan to dispose of a separate major line of business 3. Subsidiary acquired exclusively with a view to resale Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity A component of an entity can be a cash-generating unit (CGU) Discontinued operations occurs when two things happen: Component of an Entity 1. Company eliminated the results of operations and cash flows of a component of an entity from its ongoing operations 2. No significant continuing involvement in that component after its disposal Discontinued operations occur at the earlier date of the date the component is actually disposed of and the date the criteria for classification as held for sale are met Cash Generating Unit (CGU) Smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets 67 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Results of discontinued operations are presented in the statement of profit or loss and other comprehensive income as single amount P r e s e n t a t i o n o f comprising the total of the following: D i s c o n t i n u e d 1. Post-tax profit or loss of discontinued operations and 2. Post-tax gain or loss recognised on the measurement to fair value Operations less costs to sell or on the disposal of the assets constituting the discontinued operation If the actual disposal of a discontinued operation occurs in the same period that the component is classified as “held for sale” the gain or loss on disposal of discontinued operations is the actual gain or loss on the disposal If the actual disposal of a discontinued operation occurs in a Gains or Losses on subsequent period after the component is classified as “held for sale” Disposal o f the entity recognises estimated loss on disposal D i s c o n t i n u e d Gains or losses on disposal of discontinued operations, including Operations estimated losses, are presented as part of the single amount representing the post-tax results of discontinued operations Gains or losses on held for sale assets that do not meet the criteria for presentation as discontinued operations are presented as part of continuing operations Held for sale assets are presented in the statement of financial Presentation in the position as current assets Statement of Financial Position Offsetting is prohibited REMARKS Please refer to the book for computations PFRS 6: EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES PFRS 6 addresses the accounting for expenditures on exploration for and revaluation of mineral resources Purpose of PFRS 6 PFRS 6 applies to expenditures incurred after the entity has obtained legal rights to explore in a specific area but before the existence of mineral reserves is in fact established and the technical feasibility and commercial viability of extracting mineral resources are demonstrable PFRS 6 permits entities to develop their own accounting policy for exploration and evaluation assets that results in relevant and reliable information based entirely on management’s judgement and without the need to consider the hierarchy of standards in PAS 8 68 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The search for mineral resources, including minerals, oil, natural gas Exploration for and and similar non-regenerative resources after the entity has obtained evaluation of mineral legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the resources mineral resource Expenditures incurred by an entity in connection with the Exploration and exploration for and evaluation of mineral resources before the e v a l u a t i o n technical feasibility and commercial viability of extracting a mineral expenditures resource are demonstrable Expenditures incurred after the technical feasibility and commercial viability are demonstrable Development Costs Exploration and evaluation assets are initially measured at cost Initial Measurement Expenditures related to the development of mineral resources are not recognised as exploration and evaluation assets Explorationand Exploration and evaluation expenditures recognised as assets in evaluation assets accordance with the entity’s accounting policy Subsequent Measurement Exploration and evaluation assts are subsequently measured using either the cost model or the revaluation model Changes in accounting Entity may change its accounting policy if the changes results in more relevant and no less reliable, or more reliable and no less relevant policies The entity judges relevance and reliability using the criteria in PAS 8 Classification of exploration and evaluation assets Exploration and evaluation assets are treated as separate class of assets classifies as tangible and intangible Reclassification of exploration and evaluation assets Technical feasibility and commercial viability of extracting mineral resource are demonstrable, the exploration and evaluation assets are reclassified Impairment Loss The entity applies PAS 36 when making the assessment, except for the allocation of impairment loss on assets within cash-generating units wherein the entry is allowed to determine its own accounting policy for the allocation PFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES 69 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 7 prescribes the disclosure requirements for financial instruments Disclosures are classified into two categories 1. Significance of financial instruments to the entity’s financial Purpose of PFRS 7 position and performance and 2. The nature and extent of risks arising from financial instruments to which the entity is exposed, and how the entity manages those risks PFRS 7 complements the presentation principles in PAS 32 and the recognition measurement principles in PFRS 9 PFRS 7 applied to financial instruments that are within the scope of PFRS 9 Carrying amounts of financial assets and financial liabilities 1. Financial assets measured at fair value through profit or loss separately those designated and mandatorily measured at FVPL 2. Financial assets measured at amortised cost Significance of Financial 3. Financial assets measured at fair value through other Instruments: Statement comprehensive income (FVOCI) separately those mandatorily of financial position classified and elected to be classified 4. Financial liability at amortised cost 5. Financial liabilities at fair value through profit or loss (FVPL) separately designated and meet the definition of held for trading Shall disclose the financial asset’s exposure to credit risk and the change in fair value attributable to changes in credit risk Significance of Financial If entity designates a financial liability to be measured at FVPL, shall Instruments: Financial disclose change in fair value that is attributable to changes in credit assets and financial risk, the difference between the carrying amount and maturity value liabilities measured at FVPL If the entity is required to present the effects of changes in the liability’s credit risk in OCI, any cumulative gain or loss that were transferred within equity or were realised Significance of Financial If an entity elected to measure investments in equity securities at Instruments: Financial FVOCI, shall disclose investments, the reason for election, any assets m eas ured at dividends recognised during the period, and any transfers of FVOCI cumulative gain or loss within equity Significance of Financial If an entity has reclassified financial assets, it shall disclose the date I n s t r u m e n t s : of reclassification, an explanation of the change in business model, Reclassification and the amount reclassified between categories 70 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Significance of Financial Instruments: Offsetting financial assets and financial liabilities Significance of Financial Instruments: Collateral If an entity has offset financial assets and financial liabilities, it shall disclose the gross amounts of those assets and liabilities, the amounts that were set-off, the net amounts presented in the statement of financial position and a description of the related legal right of set-off An entity shall disclose the carrying amounts of financial assets pledged as collateral for liabilities, including the terms and conditions of the pledge Significance of Financial The carrying amount of a financial asset that is mandatorily Instruments: Allowance measured at FVOCI is not reduced by a loss allowance. However, the account for credit losses loss allowance is disclosed in the notes The entity shall disclose any defaults and breaches relating to loans payable, including the carrying amount of those loans payable, the Significance of Financial principal, interest, sinking fund, or redemption terms, and whether Instruments: Defaults the default was remedied, or the terms of the loans payable were and breaches renegotiated, before the financial statements were authorised for issue Significance of Financial Instruments: Fair Value Shall disclose the fair value of each class of financial assets and financial liabilities in a way that the fair value can be compared with the carrying amount Fair value disclosure is not required when the carrying amount approximates fair value Second category disclosure of nature and extent of risks arising from financial instruments to which the entity is exposed, and how the Nature and extent of entity manages those risks ri sk s a ri si ng f ro m 1. Credit risk financial instruments 2. Liquidity risk 3. Market risk The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation Credit risk Disclosure of concentration of credit risk is required of most financial instruments Liquidity risk The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset Credit risk and liquidity risk are opposites 71 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The risk that the fair value for future cash flows of a financial instrument will fluctuate because of changes in market prices 1. Currency risk 2. Interest rate risk 3. Other price risk Market risk Entity shall provide both qualitative and quantitative disclosures for each type of foregoing risks Disclosure of market risk is normally required of financial instruments measured at fair value Currency risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates Disclosure of currency risk is required of financial instruments measured in foreign currency The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates Interest rate risk Disclosure of interest rate risk is normally required of debt instruments with variable interest rates Other price risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market PFRS 8: OPERATING SEGMENTS Diversification of operations, either by engaging in different business activities or doing business in different geographical areas, creates operating segments within an entity PFRS 8 prescribes the required disclosures for operating segments Purpose of PFRS 8 PFRS 8 requires an entity to disclose information needed in evaluating the nature and financial effects of the business activities in which it engages and the economic environments in which it operates Help users of the financial statements 1. Better understand performance 2. Better assess future net cash flows 3. Make more informed judgements 72 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Scope PFRS 8 applies to the separate or individual financial statements of an entity, and to the consolidated financial statements of a group with a parent, that is publicly listed or in the process of enlisting Component of an entity 1. Engages in business activities 2. Operating results are regularly reviewed by the entity’s chief operating decision maker 3. Discrete financial information is available Operating Segments To qualify as an operating segment, one must be a profit centre used internally by management for decision making, and on which separate financial information is available Start-up operation can be an operating segment even if it has yet to earn revenues Component of an Entity Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity Chief operating decision Function rather than a manager within a specific title maker Operating segment is reportable if it Reportable segments 1. Is used by management in internal reporting or results from aggregating two or more segments 2. Qualifies under the quantitative thresholds PFRS 8 adopts a management approach to identifying reportable segments Management Approach The decision on whether an operating segment is reportable or not is based on management’s judgement Aggregation Criteria Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of PFRS 8 Quantitative Threshold Operating segment is reportable if it meets any 1. Revenues, including both external and intersegment sales, is 10% or more of the total revenue 2. Profit or loss is 10% or more of the greater 3. Assets are 10% or more of the total assets of all operating segments Reporting of nonreportable segments Z 73 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Limit on external revenue Reporting of revenue and expense If the total external revenues of the identified reportable segment are less than 75% of the entity’s total external revenue, additional operating segments are included as reportable, even if they do not meet the quantitative threshold, until at least 75% of the entity’s external revenue is included in reportable segments Interest revenue and interest expense are reported separately for interest each reportable segment unless the segment’s revenue is primarily interest from interest and internal decision-making is based on net interest revenue Information about major customers Entity discloses the extent of its reliance on its major customers Major customer Single external customer who has provided 10% or more of the entity’s revenues REMARKS Please refer to the book for computations PFRS 9: FINANCIAL INSTRUMENTS Purpose of PFRS 9 PFRS 9 establishes financial reporting principles for financial assets and financial liabilities, particularly their classification and measurement Initial recognition Recognised only when the entity becomes a party Classificationof Financial Assets Subsequently measured at: 1. Amortised cost, 2. Fair value through other comprehensive income (FVOCI) or 3. Fair value through profit or loss (FVPL) Classified on the basis of both Basis of classification 1. Business model for managing the financial assets 2. Contractual cash flow characteristics of the financial asset Financial asset is measured at amortised cost if both conditions are Classification at Amortised cost met 1. Objective is to hold financial assets in order to collect contractual cash flows 2. Solely payments of principal and interest on the principal amount outstanding (SPPI) Financial asset is measured at fair value through other Classification at Fair comprehensive income (FVOCI) if both conditions are met value through Other 1. Objective is achieved by both collecting contractual cash flows and Comprehensive Income selling financial assets 2. Principal and interest on the principal amount outstanding (SPPI) 74 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Classification at Fair Financial asset that does not meet the conditions for measurement at value through Profit or amortised cost or FVOCI is measured at fair value through profit or Loss loss (FVPL) Exceptions 1. Investment in equity instruments at FVOCI 2. Option to Designate a financial asset at FVPL Investment in equity instrument at FVOCI Option to Designate a financial asset at FVPL Entity may make an irrevocable election at initial recognition Entity may irrevocably designate a financial asset How an entity manages its financial assets in order to generate cash flows whether 1. Hold to collect 2. Hold to collect and sell Business Model Business model is a matter of fact that is observable through the entity’s activities rather than merely an assertion The assessment of a business model is forward-looking Financial assets are managed to realise cash flows by collection payments over the life of the instrument, consider the following factors when determining whether cash flows will be generated through collections Hold to collect business 1. Frequency, value an timing of sales in prior periods 2. Reasons for those sales model 3. Expectations about future sales Hold to collect business model is appropriate even when some sales occur or are expected to occur in the future Both collecting and contractual cash flows and selling financial assets are integral to achieving the entity’s objective of holding financial assets This business model will typically involve greater frequency and Hold to collect and sell value of sales business model This model may be appropriate when the entity’s objective is 1. Manage everyday liquidity needs, 2. Maintain a particular interest yield profile, to 3. Match the duration of the financial assets to the duration of the liabilities that those assets are funding 75 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Other business models Measured at fair value through profit or loss (FVPL), case for 1. Debt instrument neither hold to collect nor hold to collect and sell 2. Equity instrument that the entity does not elect to classify as FVOCI 3. Equity or debt instrument of a held for trading security Held for trading security Financial asset that is 1. Purpose of selling it in the near term 2. There is evidence of a recent actual pattern of short-term profittaking 3. Derivative Financial guarantee Contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or contract modified terms of a debt instrument Financial assets classified either amortised cost or FVOCI if their contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outspending (SPPI) Contractual cash flow characteristic Financial assets that do not qualify under this SPPI test are classified as FVPL PFRS 9 provides the following definitions for purposes of applying the SPPI test 1. Principal 2. Interest Principal Interest Fair value of the financial asset at initial recognition Consideration for the time value of the money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin Financial assets measured at fair value plus transaction costs, except M e a s u r e m e n t o f FVPL Financial Assets: Initial Financial assets classified as FVPL, initially measured at fair value; Measurement transaction costs are expensed immediately Transaction price Fair value of an asset on initial recognition 76 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability Transaction Costs An incremental Ost is one that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument Measurement of Financial Assets: S u b s e q u e n t Measurement Financial assets measured at 1. Amortised cost 2. Fair value through other comprehensive income (FVOCI) 3. Fair value through profit or loss (FVPL) Measurementof Financial Assets: Gains Financial assets measured at FVPL are recognised in profit or loss and Losses on FVPL Measurementof Financial assets that are mandatorily measure at FVOCI recognised in Financial Assets: Gains other comprehensive income until the financial asset is recognised or and Losses on FVOCIreclassified Mandatory M e a s u r e m e n t o f Investments in equity securities irrevocably elected to be measured Financial Assets: Gains at FVOCI, recognised in other comprehensive income and Losses on FVOCIDividends received are recognised in profit or loss Election Measurementof Measured at amortised cost Financial Assets: Gains and Loses on Amortised Fair value changes are not recognised Cost Amortised Cost Amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets adjusted for any loss allowance Financial assets reclassified only when the entity changes its business model Reclassification Reclassification of financial assets are applied prospectively from the reclassification date 77 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The first day of the reporting period following the change in business model that results in an entity reclassifying financial assets Only debt instruments can be reclassified Reclassification Date Financial assets that are reclassified are remeasured to the fair value on reclassification date PFRS 9 uses an expected credit loss model for recognising impairment losses on debt-type financial assets that are measured at amortised cost or FVOIC (Mandatory) Impairment Entity recognises a loss allowance for expected credit losses 1. Loss allowance 2. Expected credit losses 3. Credit losses General Approach Loss allowance Allowance for expected credit losses on financial assets that are within the scope of the impairment requirements of PFRS 9 Expected credit losses Weighted average of credit losses with the respective risks of a default occurring as the weights Credit Loss Difference between all contractual cash flows that are due to an entity in accordance with the contract and all the cash flows that the entity expects to received, discounted at the original effective interest rate 12 - m o n t h e x p e c t e d credit losses Credit risk Portion of lifetime expected credit losses that represent the expected credit losses that result from defaults events on a financial instrument that are possible within the 12 months after the reporting date Risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation Lifetime expected credit Expected credit losses that result from all possible default events losses over the expected life of a financial instrument Derecognition Financial assets are derecognised when 1. Contractual rights to the cash flows from the financial asset expire 2. Financial assets are transferred and qualifies for derecognition Expiration contractual rights cash flows of Financial asset expire when the cash flows are collected, cancelled to become uncollectible 78 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Financial asset is transferred 1. Transfers the contractual rights to receive the cash flows of the financial asset 2. Retains the contractual rights to receive the cash flows of the financial asset, but assumes an obligation to remit the collections to a recipient in an arrangement that meets all of the condition a. Entity is not obligated to pay the recipient b. Entity is prohibited from selling or pledging the original asset c. Entity is obligated to remit collections to the eventual recipients without material delay, the entity is prohibited from reinvesting Transfers the collections If the entity transfers substantially all the risks and rewards of ownership of the the financial asset, entity derecognises the financial asset and recognises separately as assets or liabilities any rights and obligations created or retained in transfer Evaluations Transfers of If the entity retains substantially, entity continues to recognise the financial asset Entity determines whether it has retained control of the financial asset: 1. Entity has not retained control, it derecognises the financial asset 2. Entity has retained control, it continues to recognise the financial asset Classificationof Financial Liabilities Financial liabilities subsequently measured at amortised cost except 1. Financial liabilities at fair value through profit or loss (FVPL) and derivative liabilities 2. Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition 3. Financial guarantee contracts and Commitments to provide a loan at below-market interest rate 4. Contigent consideration consideration recognised by an acquirer in a business combination Reclassification of financial liabilities after initial recognition is prohibited Measurementof Financial Liabilities: Financial liabilities measured at fair value minus transaction costs Initial Measurement 79 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Financial liabilities classified amortised cost are subsequently measured at amortised cost M e a s u r e m e n t o f Financial liabilities held for trading subsequently measured at fair Financial Liabilities: value with changes in fair values recognised in profit or loss S u b s e q u e n t Financial liabilities designated at FVPL subsequently measured fair Measurement value with changes in fair values recognised as follows 1. Amount of change in the fair value of the financial liability 2. Remaining amount of change in the fair value of liability PFRS 10: CONSOLIDATED FINANCIAL STATEMENTS PFRS 10 prescribes the principles for the preparation and presentation of consolidated financial statements All parent entities are required to prepare consolidated financial statements except 1. Parent is exempt from presenting consolidated financial Purpose of PFRS 10 statements if: a. Subsidiary of another entity b. Its debt or equity instruments are not traded in a public market c. Ultimate or any intermediate parent produces consolidated financial statements 2. Post-employment benefit plans or other longterm employee benefit plans which PAS 19 applies Consolidated Financial Statements Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity Group Parent and its subsidiaries Parent Entity that controls one or more entities Subsidiary Entity that is controlled by another entity Control is the basis for consolidation Control Exists 1. Power 2. Variable returns 3. Ability to the affect returns Control of an investee Investor controls an investee when the investor is exposed, or has no rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee 80 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 When the investor has existing rights that give it the current ability to direct the investor’s relevant activities Power Power arises from rights and it may be obtained directly from the voting rights conferred by shareholdings Relevant activities Administrative rights Unilateral rights Activities of the investee that significantly affect the investor’s returns Voting rights relate to administrative tasks only and contractual arrangements determine the direction of the relevant activities Two or more investors have the ability to direct different relevant activities, investor that has the current ability to direct the activities most significantly affect the returns of the investee has power over the investees An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities Protective rights Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate Substantive rights Assessing whether it has a power, an investor considers only substantive rights Voting rights Investor’s ability to direct the relevant activities of an anivestee is normally obtained through voting similar rights Holding more than half of the voting rights results to power when Voting rights: Power 1. Relevant activities are directed through majority vote with a majority of the 2. Majority of the members of the governing body that directs the voting rights relevant activities are appointed through majority vote Investor does not have power over an investee, even if he holds more Voting rights: Majority than half of the voting rights if of the voting rights but 1. Right to direct the investor’s relevant activities is conferred to a third party no power 2. Investor’s voting rights are not substantive Voting rights: Power Investor can have power even if he holds less than a majority of the without a majority of voting rights of an investee the voting rights 81 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Contractual arrangement between an investor and other vote holders Voting rights: can give the investor power if the contractual arrangement gives the C o n t r a c t u a l investor arrangement with other 1. Right to exercise vote holders 2. Right to direct Investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised Potential voting rights A parent shall consider potential voting rights that are currently exercisable During consolidation, non-controlling interests are determined on the basis of present ownership interests and do not reflect the effect of potential voting rights Substantive removal Substantive removal and other rights held by other parties may affect and other rights held by the decision maker’s ability to direct the relevant activities of an other parties investee Removal rights Rights to deprive the decision maker of its decision-making authority Exposure Investor is exposed, or has a right, to variable returns if its returns from its involvement with the investee Investor’s ability to use its power to affect its returns from its Ability to use power to involvement with the investee provides the link between power and affect investor’s returns variable returns Reporting dates and Financial statements of the parent and its subsidiaries used in Uni form a c c o u nti ng preparing consolidated financial statements shall have the same policies reporting dates Consolidation period Consolidation begins from the date the investor obtains control of the investee and ceases when the investor loses control of the investee Measurement: Income and expenses Income and expenses of the subsidiary based on the amounts of the assets and liabilities recognised in consolidated financial statements at the acquisition date Investments in subsidiaries are accounted for in the parent’s separate M e a s u r e m e n t : financial statements either I n v e s t m e n t i n 1. At cost subsidiary 2. Accordance with PFRS 9 3. Using the equity method Investment in subsidiary is initially measured equal to the value M e a s u r e m e n t : assigned to the consideration transferred at the acquisition date Measurement at cost Subsequently measured at that amount 82 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Investment in subsidiary is initially measured equal to the value M e a s u r e m e n t : assigned Measurementin accordance with PFRS 9 Subsequently measured at fair value Investment in subsidiary is initially measured equal to the value M e a s u r e m e n t : assigned Measurement using the Subsequently increased or decreased for the investor’s share in the equity method changes in the investee’s equity Non-controlling Interest Equity in a subsidiary not attributable, directly or indirectly, to a (NCI) parent NCI in the net assets of subsidiary NCI in profit or loss and comprehensive income NCI in the net assets is presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent NCI in the net assets of the subsidiary consists of 1. Amount at the acquisition date using PFRS 3 2. NCI’s share of changes in equity Attributed to the following 1. Owners of the parent 2. Non-controlling interests P r e p a r i n g t h e Combining financial statements of the parent and its subsidiaries line Consolidated financial by line by adding together similar statements Only the statements of financial position of the combining constituents are consolidated Consolidation at date of acquisition Involved following steps 1. Eliminate the “Investment in subsidiary” account 2. Add, line by line, similar items of assets and liabilities of the combining constituents C o n s o l i d a t i o n Consolidation procedures subsequent to the acquisition date involve subsequent to date of the same procedures, but changes in the subsidiary’s net assets since acquisition the acquisition date are considered REMARKS Please refer to the book for computations PFRS 11: JOINT ARRANGEMENTS Purpose of PFRS 11 PFRS 11 prescribes for financial reporting by parties to a joint arrangement Joint arrangement Arrangement of which two or more parties have joint control 83 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Essential Elements C o n t r a c t u a l arrangement 1. Contractual arrangement 2. Joint control Existence of contractual arrangement for sharing of joint control over an investee distinguishes interest in joint arrangements from other investments Contractual arrangement is usually in writing and deals with such matters as: 1. Activity, duration, and reporting obligations of the joint arrangement 2. The appointment of the board of directors or equivalent governing Evidence of contractual body of the joint arrangement and the voting rights of the parties arrangement 3. Capital contributions by the parties 4. The sharing by the parties of the output, income, expenses or results of the joint arrangement Contractual arrangement establishes joint control over the joint arrangement Contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control Joint control exists when all the parties sharing joint control over the arrangement act collectively in directing the activities that significantly affect the returns of the arrangement Joint control Considered a joint arrangement even if not all of the parties to the arrangement have joint control PFRS 11 distinguishes 1. Parties that have joint control of a joint arrangement 2. Parties that participate in, but do not have joint control Party to a joint arrangement Types of arrangement Joint operation Entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement j o i n t 1. Joint operation 2. Joint venture Parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities Parties are called joint operators 84 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Joint venture Parties that have joint control of the arrangement have rights to the net assets of the arrangement Parties are called joint venturers 1. Parties that have joint control rights to the assets and obligations Rights and obligations for the liabilities of the joint arrangement arising from the 2. Parties that have joint control rights to the net assets of the joint arrangement arrangement Assessment of rights and obligations 1. Joint arrangement that is not structured through a separate vehicle is a joint operation 2. Joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle and can be either a joint venture or a joint operation Separate vehicle Separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality Joint operations A joint operation recognises its own assets, liabilities, income and expenses plus its share in the joint operation’s assets, liabilities, income and expenses It shall account for its share as a business combination Accordingly, it shall apply the following principles of business combination: 1. Identifiable assets and liabilities at fair value 2. Acquisition-related costs as expenses when they are incurred 3. Deferred tax assets and deferred tax liabilities that arise from the initial recognition 4. Goodwill as the excess of the consideration transferred over the net of the acquisition-date Interest in Joint 5. Test for impairment a cash-generating unit to which goodwill has Operations whose been allocated at least annually activity constitutes a business Foregoing applies: 1. Acquisition of both the initial interest and additional interests in a joint operating whose activity constitutes a business 2. Formation of a joint operation if an existing business is contributed to the joint operating on its formation However, foregoing does not apply: 1. Group of assets that do not constitute a business 2. Acquisition of interest under the common control of the same ultimate controlling party or parties 85 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividend, lower costs or other economic benefits directly to investors or other owners, members or participants Business Entity first applies PFRS 11 to determine the type of arrangement in which it is involved Joint ventures Investment and account for it using the equity method under PAS 28 Investment is initially recognised as cost and subsequently adjusted for the investor’s share in the changes in the equity of the investee Presentation in the statement of financial position Investments accounted for under the equity method are presented as non-current assets un the statement of financial position Party that participates in, but does not have a joint control of a joint operation shall account for its interest in the arrangement Participant to a joint 1. Similarly with the procedures applicable to a joint operator if that arrangement with no party has rights joint control 2. In accordance with the PFRSs applicable to that interest if that party has no rights REMARKS Please refer to the book for computations PFRS 12: DISCLOSURE OF INTERESTS IN OTHER ENTITIES Purpose of PFRS 12 Objective of PFRS 12 is to prescribe the minimum disclosure requirements for an entity’s interests in other entities, particularly 1. Nature of, and risks associated with, those interests 2. Effects of those interests on the entity’s financial statements PFRS 12 does not apply to an interest in another entity that is accounted for in accordance with PFRS 9 Interest in another Involvement that exposes an entity to variability of returns from the entity performance of another entity Summary of minimum Requires disclosure an entity has made in determining the following: disclosures under PFRS 1. Existence of control 12: Significant 2. Type of joint arrangement when the arrangement has been judgementsand structured through a separate vehicle assumption 86 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Investment entity An entity that: 1. Obtains funds from one or more in investors 2. Commits to its investor that its business purpose is to invest funds solely for returns from capital appreciation 3. Measures and evaluates the performance of substantially all of its investments on fair value basis Summary of minimum disclosures under PFRS 12: Investment entity status Requires the following disclosures: 1. Significant judgements 2. Changes in the entity’s status 3. Total fair value and total gain or loss Requires the following disclosures: 1. Composition of the group: a. Name of subsidiary b. Interests or voting rights by non-controlling interest (NCI) Summary of minimum c. Profit or loss allocated to NCI disclosures under PFRS d. NCI is net assets as of the end of the period 1 2 : I n t e r e s t i n e. Dividends to NCI Subsidiaries f. Summary of subsidiary’s asset, liabilities, profit or loss and cash flows 2. Nature and extent 3. Effects of changes in ownership interest 4. If a subsidiary uses a different reporting period 87 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Requires the following disclosures: 1. Name of the joint arrangement or associate 2. Nature of the entity’s relationship 3. Ownership interest 4. Measurement of the investment 5. If the equity method is used, fair value of the investment 6. Dividends received 7. Summarised financial information a. Current and noncurrent assets b. Current and concurrent liabilities c. Revenue d. Profit or loss from continuing operations e. Post-tax profit or loss from discontinued operations f. Other comprehensive income g. Total comprehensive income 8. For a material joint venture a. Cash and cash equivalents Summary of minimum disclosures under PFRS 12: Interests in Joint Arrangements and Associates b. Current and concurrent financial liabilities (excluding trade and other payables and provisions) c. Depreciation and amortisation d. Interest income and interest expense e. Income tax expense or benefit 9. Discloses the following in aggregate and separately for all investments in joint ventures and associates that are not individually material a. Carrying amount of all individually immaterial investment in joint ventures or associates that are accounted for using the equity method b. Profit or loss from discontinued operations c. Other comprehensive income d. Total comprehensive income 10. Nature and extent of any significant restrictions on the ability of joint ventures or associates 11. If the entity uses a different reporting period, fact and the reason thereof 12. Unrecognised share of losses 13. Commitments relating to joint ventures 14. Contingent liabilities relating to joint ventures and associates, unless the probability of loss is remote 88 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Requires the following disclosures: 1. Qualitative and quantitative information about the interest in an unconsolidated structured entity 2. Summary fo the following in a tabular format: a. Carrying amounts of the assets and liabilities recognised in the Summary of minimum disclosures under PFRS 12: Interests in unconsolidated structured entities Structured entity entity’s financial statements b. Line items c. Best estimate of the entity’s maximum exposure to loss from its interests in unconsolidated structures entities d. Comparison of the carrying amounts of the assets and liabilities of the entity 3. If during the reporting period, without having a contractual obligation to do so, provided financial or other support to an unconsolidated structured entity: a. Type and amount of support provided b. Reasons for providing the support Entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such s when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements PFRS 13: FAIR VALUE MEASUREMENT PFRS 13 applies to the fair value measurement, and related disclosures, of an asset, liability, or equity when other PFRSs requirement measurement at fair value or fair value less costs to sell Purpose of PFRS 13 The disclosure requirements of PFRS 13 do not apply to the related PASs in PAS 19, PAS 26 and PSA 36 PFRS 13 applies to both initial and subsequent measurements at a fair value 89 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Fair Value Underlies the definition: 1. Market-based measurement 2. Requires the use of assumptions that market participants would undertake 3. Entity is a going concern without any intention or need to liquidate Measurement at fair value is also called “market-to-market” accounting Requirements on fair value measurement PFRS 13 requires an entity to determine the following: 1. Particular asset or liability being measured 2. Market 3. Appropriate valuation techniques 4. For non-financial asset, highest and best use of the asset Fair value measurement pertains to a particular asset or liability The asset or liability Unit of account Depending on the unit of account of an asset or liability, fair value measurement may be applied to: 1. Stand alone asset or liability 2. Group of assets or/and liabilities Level at which an asset or a liability is aggregated or disaggregated in a PFRS for recognition purposes Requires assumptions based on current market conditions: 1. Principal market 2. Most advantageous market The market In the absence of a principal market, the price in the most advantageous market is used in measuring the fair value of an asset or liability Principal market Most a d v a n t a g e o u s market Market with the greatest volume and level of activity for the asset or liability Market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs 90 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 The price Market price used in measuring fair value is not adjusted for any transaction costs, but is adjusted for any transport costs Transaction costs do not include transport costs Transaction costs Costs to sell an asset or transfer a liability in the principal market for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet the both of the following criteria: 1. Result 2. Would not have been incurred by the entity had the decision to sell Transport costs Costs that would be incurred to transport an asset from its current location to its principal market Transaction price is the paid to acquire an asset or price received to assume a liability, it is also called the entry price Transaction price vs Fair value is the price that would be received to sell an asset or paid Fair value at initial to transfer a liability, it is also called the exit price recognition In many cases, the transaction price is equal to fair value, if it is not the difference is recognised as gain or loss in profit or loss PFRS 13 requires the use of a valuation technique Valuation technique maximises the use of relevant observable inputs and minimises unobservable inputs Valuation techniques Three widely use valuation techniques are: 1. Market approach 2. Cost approach 3. Income approach In some cases, single valuation technique would suffice; multiple valuation techniques would be more appropriate Market approachh Generated by market transactions Cost approach Currently needed to replace the service capacity Income approach Current market expectations about those future amounts 91 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Asset or liability has a bid price and an ask price, price within the bidask spread that is most representative of fair value Use of bid prices for asset positions and ask prices for liability Inputs based on bid and positions is permitted, but is not required ask prices Entities are not prohibited from using mid-market pricing When current bid and asking prices are unavailable, the price of the most recent transaction provides evidence of fair value Bid price Maximum price at which market participants are willing to buy Ask price Minimum price at which market participants are willing to sell PFRS 13 provides the following fair value hierarchy: Fair value hierarchy 1. Level 1 inputs: Quoted prices for identical assets or liabilities in active markets 2. Level 2 inputs: Inputs other than quoted prices included in Level 1 that are observable 3. Level 3 inputs: Unobservable inputs Level 1 inputs Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date Active market Market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis Level 2 inputs Inputs other than quote prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Unobservable inputs Level 3 inputs Reflect management’s own assumptions regarding an exit price that a market participant holding the asst or owning the liability would make, including assumptions about risk Considers the asset’s highest and best use Fair value Highest and best use of a non-financial asset account the following: measurement of non1. Physical characteristics financial assets 2. Legal restrictions 3. Financial feasibility Highest and best use Use of a non-financial asset by market participants that would maximise the value of the asset or the group of assets a liabilities within which the asset would be used REMARKS Please refer to the book for computations 92 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 14: REGULATORY DEFERRAL ACCOUNTS Purpose of PFRS 14 PFRS 14 specifies the financial reporting requirements for regulatory deferral account balances arising from the sale of goods or services that are subject to rate regulation R e gul a to ry deferral account balance Balance of any expense account that would not be recognised as an asset or liability in accordance with other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in establishing the rates that can be charged to customers Rate regulation Framework for establishing the prices that can be charged to customers for goods or services and that framework is subject to oversight and/or approval by a rate regulator Authorised body that is empowered by statute or regulation to establish the rate or a range of rate that bind an entity Rate regulator The rate regulator may be a third-party body or a related party of the entity, including the entity’s own governing board, if that body is required by statute or regulation to set rates both in the interest of the customers and to ensure the overall financial viability of the entity PFRS 14 is optional standard that is available only to first-time adopters Scope PFRS 14 is intended to provide first-time adopters temporary relief from derecognising rate-regulated assets and liabilities that the firsttime adopter has recognised under its previous GAAP pending IASB’s final decision on rate-regulated activities A first-time adopter is allowed, but is not required, to apply PFRS 14 An entity is allowed to apply PFRS 14 in subsequent periods only if it has applied PFRS 14 in its first PFRS financial statements Summary of principles First-time adopter continues to apply its previous GAAP, except for u n d e r P F R S 1 4 : changes in accounting policies and the presentation of regulatory Continuation of existing deferral accounts accounting policy Summary of principles u n d e r P F R S 1 4 : Entity is prohibited from changing its accounting policy in order to Changes in account start recognising regulatory deferral account balances policy 93 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 14 prescribes specific exception, exemption or additional requirements related to the interaction of PFRS 14 with other PFRSs 1. PAS 10 being applied 2. PAS 12 being applied, presented separately: a. Regulatory deferral account balances b. Separate line items 3. PAS 33 being applied, and additional basic and diluted EPS that excludes the effects of the net movement in regulatory deferral account balances Summary of principles 4. PAS 36 being applied, included in CGUs u n d e r P F R S 1 4 : 5. PFRS 3 being applied Interaction with other 6. PFRS 5 not being applied, the regulatory deferral account Standards balances and movements in the account balances are: a. Measured in accordance with the entity’s previous GAAP b. Presented separately 7. PFRS 10 and PAS 28 require the use of uniform accounting policies when consolidating subsidiaries and when applying the equity method, respectively 8. PFRS 12 Other PFRS shall be applied whenever they are relevant to the accounting for regulatory deferral account balances Statement of Financial Position: Separate line items for the totals of: 1. Regulatory deferral account debit balances 2. Regulatory deferral account credit balances Summary of principles Regulatory deferral account balances are not presented as current or u n d e r P F R S 1 4 : noncurrent Presentation Statement of Profit or Loss and Other Comprehensive Income Separate line items are presented in: 1. Other comprehensive income 2. Profit or loss PFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS 94 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 15 provides the principles in reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers PFRS 15 applies to contracts wherein the counterparty is a customer Purpose of PFRS 15 Counterparty to a contract is not a customer if he agrees to participate in the entity’s activities wherein he shares the related risks and benefits rather than to obtain the output of the entity’s ordinary activities PFRS 15 applies to individual contracts with customers PFRS 15 does not apply to the following: 1. PFRS 16 2. PFRS 17 3. Financial Instruments 4. Non-monetary exchanges between entities in the same line of business to facilitate sales to customers Income Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants Revenue Income arising in the course of an entity’s ordinary activities Agreement between two or more parties that creates enforceable Contract rights and obligations A contract can be written, oral, or implied Customer Party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration Revenue Recognition An entity applies the following steps when recognising revenue: 1. Identify the contract with the customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognise revenue when the entity satisfies a performance obligation 95 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Accounted for only when all of the following criteria are met: 1. Contracting parties approved the contract and are committed to perform 2. Identify each party’s rights 3. Identify the payment terms 4. Contract has commercial substance 5. Contract is probable of collection Any consideration received from such contract is recognised as a Step 1: Identify the liability and recognised as revenue only when either of the following c o n t r a c t w i t h t h e has occurred: 1. Entity has no remaining obligation to transfer goods or services customer 2. Contract has been terminated and the consideration received is non-refundable PFRS 15 is applied over the duration of the contract in which the contracting parties have present enforceable rights and obligations Contract does not exist if each contracting party has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party Combination contracts Two or more contracts entered into at or near the same time with the same customer are combined and accounted for as a single contract if: o f 1. Contracts are negotiated as a package with a single commercial objective 2. Amount of consideration to be paid 3. Some or all of the goods or services are a single performance obligation Contract includes promises to transfer Step 2: Identify the Each promise to transfer the following is a performance obligation to performance obligations be accounted for separately: in the contract 1. Distinct good or service 2. Series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer Promised good or service is distinct If: 1. Customer can benefit from the good or service either on its own or together with other resources 2. Promise to transfer the good or service is separately identifiable 96 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Customer can benefit Customer can benefit from a good or service if the good or service could be used, consumed, sold for an amount that is greater than scrap value otherwise held in a way that generates economic benefits Separately identifiable Promise to transfer a good or service is separately identifiable if the good or service: 1. Is not an input to a combined output 2. Does not significantly midday another good or service 3. Is not highly interrelated with other goods or services Determines the transaction price because this is the amount at which Step 3: Determine the revenue will be measured transaction price Consideration may include fixed amounts, variable amounts, or both Transaction price Amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties Allocated to each performance obligation identified in a contract based on the relative stand-alone prices of the distinct goods or services List price or a contract price may be the stand-alone selling price of a good or service Step 4: Allocate the If the stand-alone selling price is not directly determinable, it shall be transaction price to the estimated performance obligation Following methods may be used to estimate the stand-alone selling price: 1. Adjusted market assessment approach 2. Expected cost plus a margin approach 3. Residual approach Combination of methods may be used if two or more goods or services have highly variable or uncertain stand-alone selling prices St a n d - a l o n e s e l l i n g price Price at which a promised good or service can be sold separately to a customer Adjusted market assessment approach Entity evaluates the market where the goods or services are sold and estimates the price that a customer would be willing to pay for those goods or services Expected cost plus a margin approach Entity forecasts the expect cost of satisfying a performance obligation and then adds an appropriate margin 97 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Residual approach Stand-alone selling price of a good or service is the residual amount after deducting all the stand-alone selling prices of the other promised goods and service in the contract from the total transaction price Step 5: Recognise Recognised when the entity satisfies a performance obligation revenue when the entity satisfies a Measured at the amount of the transaction price allocated performance obligation Performance obligation is satisfied when the control over a promised good or service is transferred to the customer Satisfaction of Entity determines at the contract inception whether a performance performance obligations obligation will be satisfied either: 1. Overtime 2. At a point in time Revenue from a performance obligation that is satisfied over time is recognised over time as the entity progresses towards the complete satisfaction of the obligation Performance obligation is satisfied over time if one of the following criteria is met: 1. Customer simultaneously receives and consumes the benefits provided 2. Entity’s performance creates or enhances an asset that the customer controls 3. Entity’s performance does not crate an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date P e r f o r m a n c e obligations satisfied Alternative use over time 1. Asset doe not have an alternative use to the entity if the entity is restricted contractually from directing the asset for another use during or after the asset’s completion Enforceable right to payment for performance completed to date 2. Entity has an enforceable right to payment for performance completed to date if the entity is entitled to an amount that compensates the entity for any performance completed in the event that the customer or another party terminates the contract for reasons other than entity’s failure to perform as promised 3. Amount referred to in (2) above shall be sufficient for the entity to recover the costs incurred in satisfying the performance obligation plus a reasonable profit margin 98 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Entity recognises revenue for each performance obligation satisfied over time by measuring the progress towards the complete satisfaction of that performance obligation Measuring progress Entity uses a single method of measuring progress for each towards co mplete performance obligation satisfied over time method to remeasure its satisfaction of a progress at the end of each reporting period performance obligation Appropriate methods of measuring progress include: 1. Output methods 2. Input methods Output methods Progress is measured based on direct measurements of the value of the goods or services transferred to date relative to the remaining goods or services promised under the contract Input methods Progress is measured based on the efforts or inputs expended relative to the Toal expected inputs needed to fully satisfy a performance obligation Changes in the measure Measure of progress is updated as circumstances change over time to of progress reflect any changes in the outcome of the performance obligation Revenue for a performance obligation satisfied over time is Reasonable measure of recognised only if the progress towards the complete satisfaction of progress the performance obligation can be reasonably measured Performance obligation that is not satisfied over time is presumed to be satisfied at a point in time Entity considers the following indicators of transfer of control when determining the point in time at which the promised good or service Performance obligation is transferred to the customer: satisfied at a point in 1. Entity has a present right to payment for the asset time 2. Customer has legal title to the asset 3. Entity has transferred physical possession of the asset 4. Customer has the significant risks and rewards of ownership of the asset 5. Customer has accepted the asset Contract costs include: Contract costs 1. Incremental costs of obtaining a contract 2. Costs to fulfil a contract 99 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Costs incurred in obtaining a contract with a customer that the entity would not have incurred has the contract not been obtained These costs are recognised as asset if they are expected to be recovered Incremental costs of obtaining a contract Expensed when incurred if the expected amortisation period of the asset is one year or less Costs that would have been incurred regardless of whether the contract is obtained are expensed, unless they are explicitly chargeable to the customer Costs incurred in fulfilling a contract that are within the scope of other standards are accounted for in accordance with those standards Costs to fulfil a contract Outside the scope of other standards are recognised as asset if all of the following criteria are met: 1. Costs are directly related to a contract 2. Costs generate or enhance resources 3. Costs are expected to be recovered Include any of the following: 1. Direct labor 2. Direct materials 3. Allocations of costs that relate directly to the contract or contract activities 4. Costs that are explicitly chargeable to the customer under the contract Costs ar e directly related to a contract 5. Other costs that are incurred only because an entity entered into the contract Costs are expensed when incurred 1. General and administrative costs 2. Costs of wasted materials, labor or other resources to fulfil the contract that were not reflected in the price of the contract 3. Costs that relate to satisfied or partially satisfied performance obligations in the contract 4. Costs for which an entity cannot distinguish whether the costs relate to unsatisfied performance obligations or to satisfied or partially satisfied performance obligations 100 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 Contract costs that are recognised as asset are amortised on a systematic basis that is consistent with the transfer of the related goods or services to the customer Amortisation is updated for any significant change in the expected timing of transfer of the related goods or services to the customer Amortisation and impairment Impairment loss is recognised in profit or loss as follows: 1. Recognise impairment loss in accordance with another Standard 2. Recognise impairment loss in accordance with PFRS 15 which is the excess of the asset’s carrying amount over a. Remaining amount of consideration that the entity expects to receive; less b. Costs that relate directly to providing those good or services 3. Resulting carrying amount after applying Step 2 is included in the cash-generating unit (CGU) A subsequent reversal of impairment is recognised in profit or loss Contract is presented in the statement of financial position as a contract liability or a contract asset Presentation Unconditional right to consideration is presented separately as a receivable Entity’s obligation to transfer goods or services to a customer for which the entity has received consideration Contract liaiblity Contract asset Contract liability is recognised at the earlier of the date: 1. Entity receives consideration before the good or service is transferred to the customer 2. Entity has an unconditional right to the consideration before the good or service is transferred to the customer Entity’s right to consideration in exchange for goods or service is transferred to the customer before the consideration is received or becomes due Receivable Entity’s right to consideration that is unconditional 101 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 PFRS 15 requires an entity to disclose qualitative and quantitative information about the following about the following: Disclosure 1. Contracts with customers 2. Significant judgments 3. Assets recognised from the costs to obtain or fulfil a contract PFRS requires an entity entity to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each the requirements PFRS 16: LEASES 102 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 103 Downloaded by Premsofc Xx (rieve@ruru.be) lOMoAR cPSD| 12066218 REMARKS Please refer to the book for computations SOURCE Book Conceptual Framework and Accounting Standards (2019 Edition) by: Zeus Vernon B. Millan 104 Downloaded by Premsofc Xx (rieve@ruru.be)

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