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Basic knowledge for group accounting Major workings W1 group structure Subsidiary –IAS 27 Acquisition method “control” Associate –IAS 28 Equity method “significant influence” Joint Venture –IAS 31 Proportion or Equity method “joint control” W 2 FV of net assets of the subsidiary DOA OSC Reserves Fair adjustments Additional depreciation URP (S to H) Policy Adjustments Total × × value ×* DOC × × ×** (×) (×) a b Movement acquisition) × (post
(×) (×) c
*sometimes the question will state this figure in which case the fair value adjustment will become the balancing figure **only relevant to include this here if the asset subject to the fair value adjustment remains at the reporting date i.e. it will not be relevant if it relates to inventory. W3 goodwill calculation There are two methods in which goodwill may be calculated following the update to IFRS 3 (1) Partial goodwill (old method) Cost of investment Less: S% FV of NA at DOA (S%×aW2) Goodwill on DOA Less: impairment to date Goodwill on DOC (2) Full goodwill (new method) × (×) × (×) ×
Cost of investment Fair value of NCI at DOA FV of NA at DOA W2 Goodwill on DOA Less: impairment to date Goodwill on DOC Or, this can be presented by: Cost of investment Less: S% FV of NA at DOA Goodwill on DOA (P’s share) Fair value of NCI at DOA NCI share of FV of NA at DOA Goodwill on DOA (NCI share) Total goodwill
× × (a) × (×) ×
× (×) × × (×) × ×
IFRS 3 requires that goodwill be subject to an impairment review. The subsidiary is regarded as the cash –generating unit. Net assets of the subsidiary at the balance sheet date Plus the unimpaired goodwill (gross up) Carrying value Recoverable amount Impairment loss (total) Cost of investment • • • • • Cash Deferred cash –PV and finance cost Share for share –MV Financial instruments –MV Contingent consideration –FV at the DOA with adjustment for subsequent changes. a) If the change is due to additional information obtained after the acquisition date that affects the facts or circumstances as they existed at DOA, this is treated as a ‘measurement period adjustment’ and the cost of investment and goodwill are remeasured. b) If changes due to events after the acquisition date Contingent consideration classified as equity shall not be remeasured, and its subsequent settlement shall be accounted for within equity. × × × × ×
URP where the parent is the ×/(×) 2 3 seller or transactions the parent company has not yet recorded Less cumulative goodwill impairment losses (P share) (×) Plus the group share of the (adjusted) post acquisition profits of the × subsidiary and associate Total × . • • Issue cost should be deducted from proceeds of issue. or other IFRSs as appropriate. or in other comprehensive income.e. Contingent Liabilities and Contingent Assets.Contingent consideration classified as an asset or a liability that : Is a financial instrument and is within the scope of IAS 39 shall be measured at fair value. (i. share premium) not included in the cost of the acquisition. Is not within the scope of IAS 39 shall be accounted for in accordance with IAS 37. with any resulting gain or loss recognized either in profit or loss. Professional fees and similar incremental costs –expense in the I/S W 4 Non-controlling interest (1) Old method NCI % of FV of NA at DOC NCI%×b W2 (2) New method FV of net assets of S at DOC (1 –S %) ×b NCI share of goodwill NCI share of impairment loss Total non-controlling interest NCI in income statement NCI% × (PAT –URP –DEPR) W 5 consolidated reserves (RE + other) calculation The group reserves comprises as follows: 1 Parent company × × × (×) × × Adjustment.g. corrections (if any) e. Provisions.
of assets dedicated to the joint venture. IAS 31 requires that the venture should recognise in its financial statements the assets that it controls.Brief recap on accounting for associates Significant influence • • 20% -50% Board representation Associates are equity accounted for in the group accounts. and its share of the income from the sale of goods or services by the joint venture. IAS 31 Interest in joint ventures Joint venture: a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. and often the joint ownership. Jointly controlled assets • • Jointly controlled assets involve the joint control. the liabilities that it incurs. Jointly controlled operations • • Each venture uses its own assets. URP is eliminated to the extent of group share. incurs its own expenses and liabilities. Each venture may take a share of the output from the assets and each bears a share of the expenses incurred. transactions between the associate and the group companies are not eliminated. . Group balance sheet –extract Investment in associate A% of net assets (as adjusted for any depreciation and URP) Plus the goodwill not yet written off × × × Group income statement –extract Income from associate undertakings A% of the profit after tax (as adjusted for any depreciation and URP) Less goodwill impairment loss × (×) × Balances. and raises its own finance. the expenses that it incurs.
or other entity in which two or more venturers have an interest. • IAS 31 allows two treatments of accounting for an investment in jointly controlled entities –except as noted below: Method 1: proportionate consolidation Under proportionate consolidation. • Each venture usually contributes cash or other resources to the jointly controlled entity. . the balance sheet of the venture includes its share of the assets and its share of the liabilities. Jointly controlled entities • A jointly controlled entity is a corporation. under a contractual arrangement that establishes joint control over the entity. Those contributions are included in the accounting records of the venture and recognised in the venturer’s financial statements as an investment in the jointly controlled entity. Transactions between a venture and a joint venture Balances. The income statement of the venture includes its share of the income and expenses of the jointly controlled entity. transactions between the JV and the group companies are not eliminated. any liabilities incurred. partnership.• IAS 31 requires that the venture should recognise in its financial statements it share of the joint assets. income and expenses in the joint venture. Complex group structures A vertical group A 60% B 70% C In this illustration: • A controls B and B controls C. 2. URP is eliminated to the extent of group share. Method 2: equity method of accounting Procedures for applying the equity method are the same as those described in IAS 28 investments in associates.
• • The key is to identify control relationships The parent controls its subsidiaries’ holdings in other companies but does not control associate holdings. Consolidation is performed in a single stage using the consolidation percentages. use the group structure to determine the status of investments.• • As A controls B. The group structure is vital –always identify this first and determine the status of investment. thus 60% is controlled. B and C are subsidiaries of A as they are controlled by A. The date of acquisition by A is the date on which A gains control. Also look carefully at dates to identify when the parent obtained control. In a vertical group. Hence. If B already held C. For example H 60% S 30% T is a subsidiary of H controls 30% directly and 30% indirectly via its interest in S. treat B and C as being acquired on the same day. it also controls B’s holdings in other companies. S group share Minority share T group share Direct 30% 60% 40% 30% T . Company C is often called a sub-subsidiary. Effective group interest Using the earlier group structure: • • • A owns 60% if B and B owns 70% of C So A has an effective group interest in C of 60%*70% = 42% NCI own 58% of C Mixed group The group is structure in manner where both the ultimate parent and a subsidiary have an interest on another entity.
transactions between parent and non-controlling interests Once control has been achieved.Indirect 60%of 30% 18% Minority share Step acquisition 48% 52% a. are accounted for as equity transactions (i. control is achieved through two or more transactions The principles to be applied are: • • • A business combination occurs only in respect of the transaction that gives one entity control of anther The identifiable net assets of the acquire are remeasured to their fair value on the date of acquisition Non-controlling interests are measured on the date of acquisition under one of the two options permitted by IFRS 3 Goodwill is measured as: Consideration transferred to obtain control Plus Amount of non-controlling interest (using either option) Plus Fair value of previously-held equity interest Less Fair value of the identifiable net assets of the acquire b. Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent and. transactions with owners in their capacity as owners) it follows that: • • The carrying amount of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary.e. or disposes of equity interests but without losing control. further transactions whereby the parent entity acquires further equity interests from non-controlling interests. .
the entire amount. Recognise any distribution of shares to owners. liabilities and noncontrolling interests. not a proportion) relating to the subsidiary’s assets and liabilities previously recognised in other comprehensive income as if the assets and liabilities had been disposed of directly.e. loss of control IAS 27 details the adjustments made when a parent losses control of a subsidiary. Disposal a. Reclassify to profit or loss any amounts (i. 3. and • Recognise any resulting difference as a gain or loss in profit or loss attributable to the parent b. and no gain or loss is recognised in profit or loss. Full disposal Calculate gain or loss by comparing FV of consideration received. Recognise the fair value of any residual interest.• There is no consequential adjustment to the carrying amount of goodwill. and FV of NA at date of disposal plus unimpaired goodwill 4. Foreign currency Individual company stage Functional and presentational currencies • The functional currency is the currency of the primary economic environment where the entity operates. based on the date when control is lost: • • • • • Derecognise the carrying amount of assets (including goodwill). Recognise the fair value of consideration received. Transactions between parent and NCI Same principle as step acquisition (equity transaction) c. An entity should consider the following factors in determining its functional currency: • The currency than mainly influences sales prices for goods and services . in many cases this will be the local currency.
investments. loans) must be translated using the closing rate. Individual transactions in a foreign currency At transaction date: • • At the spot exchange rate on the date the transaction occurred.• • The currency of the country whose competitive forces and regulations mainly determine the sales price of goods and services The currency that mainly influences labour. particularly if the entity in question is a foreign owned subsidiary. material and other costs of providing goods and services. Even though that is different from their every day trading currency. or Using an average rate over a period of time providing the exchange rate has not fluctuated significantly. stock) are not retranslated Exchange differences are recognized in income. The income statement items are translated at the average rate for the period. At subsequent balance sheet dates: • • • Foreign currency monetary items (debtors. Closing rate method • • The balance sheet of the overseas entity is translated using the closing rate. cash. Exchange differences in the group accounts With the closing rate method the group percentage of the exchange difference is dealt with in reserves. creditors. . It may have to present its financial statements in the currency of the parent company. The presentation currency is the currency in which the entity presents its financial statements and this can be different from the functional currency. Group stage Where there is an overseas subsidiary that has a functional currency which is a local currency. Foreign currency non-monetary items (fixed assets. prior to consolidation it will need to be translated into using the closing rate method.
probable –disclose . assess likelihood of liability. remote –ignore. assess likelihood of asset. probable –disclose/provide Contingent asset: potential asset. then adjust.6. probable transfer of economic benefit resulting from a past event. IAS 10 events after the balance sheet date Post balance sheet events: an event which occurs after the year end but before the FS are approved. Cash Flow statement Details see book Part two summary of IAS and IFRS 1. then adjusting PBSE –apply relevant accounting treatment. If it does not impact the going concern. If it gives new evidence on condition which did not exist at the year end. but impacts going concern assumption. can be reliably measured Contingent liability: potential liability. possible – disclose. contingent liabilities and contingent assets Provisions: only provide if obligation legal or constructive. If it gives the new evidence on condition which existed at the year end. 2. remote –ignore. then disclose in nature and estimate of financial effect. possible –ignore. IAS 37 provisions.
closing facilities. then only if a detailed formal plan is adopted 3 months after acquisition. and eliminating product lines only if announced at acquisition and. settlement of a lawsuit) are measured at the most likely amount Provisions for large populations of events (warranties. Both measurements are at discounted present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. environmental clean-up. Remeasurement • • They should be reviewed at each balance sheet date and adjusted to reflect the current best estimate If it is no longer probable that an outflow of resources will be required to settle the obligation.Provision: A liability of uncertain timing or amount Measurement of provisions Best estimate –this means: • • Provisions for one-off events (restructuring. even in a restructuring Restructuring provision on acquisition (merger): accrue provision for terminating employees. Restructurings Restructuring provisions should be accrued as follows: • • • • Sale of operation: accrue provision only after a binding sale agreement Closure or reorganisation: accrue only after a detailed formal plan is adopted and announced publicly. Onerous contracts . Future operating losses: provisions should not be recognised for future operating losses. Restructuring provisions should include only direct expenditures caused by the restructuring. A board decision is not enough. customer refunds) are measured at a probability-weighted expected value. not costs that associated with the ongoing activities of the enterprise. the provision should be reversed.
Sometimes the provision may form part of the cost of the asset. unless the possibility of an outflow of economic resources is remote.The least net cost should be recognised as a provision. Contingent liabilities It requires that enterprises should not recognise contigent liabilities – but should disclose them. Measurement subsequent to initial recognition IAS 16 permits two accounting models: • Cost model . Examples: obligation for environmental cleanup when a new mine is opened or an offshore oil rig is installed. plant and equipment Recognition • • Meet definition of asset Owner occupied asset with physical existence Major inspection or overhaul costs They can be treated as a separate component of the asset. Contingent assets Contingent assets should not be recognised –but should be disclosed where an inflow of economic benefits is probable. IAS 16 Property. Cost includes all costs necessary to bring the asset to working condition for its intended use. Debit entry When a provision (liability) is recognised. the debit entry for a provision is not always an expense. Non-current assets 3. they will be depreciated over the period up until the next overhaul date Initial measurement They should be initially recorded at cost. The least net cost is lower of the cost of fulfilling the contract or of terminating it and suffering any penalty payments.
economy. An asset is impaired when its carrying amount exceeds its recoverable amount. or laws Increases in market interest rates Company stock price is below book value Internal sources • • • Obsolescence or physical damage Asset is part of a restructuring or held for disposal Worse economic performance than expected . 4. IAS 36 impairment of assets Impairment. markets. Asset are tested for impairment annually • • • An intangible asset with an indefinite useful life An intangible asset not yet available for use Goodwill acquired in a business combination Indications of impairment External sources • • • • Market value declines Negative changes in technology. The higher of an asset’s fair value less costs to sell (sometimes called net selling price) and its value in use. The discounted present value of estimated future cash flows expected to arise from the use of the asset.• Revaluation model The revaluation model • • • • Upwards –revaluation reserves unless reverses previous decrease Downwards –income statements unless reverses previous increase May transfer differences between new and old depreciation from RR to RE On disposal. Value in use. The transfer to retained earnings should not be made through the income statement. transfer remaining balance of RR to RE. Recoverable amount.
IAS 40 investment property Investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. Zero Reversal of an impairment loss • • • • The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had never been recorded.Recognition of an impairment loss • • The impairment loss is an expense in the income statement (unless it relates to a revalued asset where the value changes are recognised directly in equity). . Reversal of an impairment loss is recognised as income in the income statement. including transaction costs. Adjust depreciation for future periods Cash-generating units The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: • • • Specifically impaired assets Goodwill Reduce the carrying amounts of the other assets of the unit (group of units) pro rata on the basis The carrying amount of an asset should not be reduced below the highest of: • • • Its fair value less costs to sell (if determinable). Initial measurement Investment property is initially measured at cost. Its value in use (if determinable). Adjust depreciation for future periods Reversal of an impairment loss for goodwill is prohibited 5.
IFRS 5 non-current assets held for sale and discontinued operation Held-for-sale classification. Non-current assets or disposal groups that are classified as held for sale shall not be depreciated. Measurement Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-depreciation. In general.Measurement subsequent to initial recognition IAS 40 permits enterprises to choose between: • • A fair value model A cost model IAS 40 notes that this highly unlikely for a change from a fair value model to a cost model. the following conditions must be net for an asset (disposal group) to be classified as held for sale: • • • • • • Management is committed to a plan to sell The asset is available for immediate sale An active program to locate a buyer is initiated The sale is highly probable. 6. Assts should be presented as a current asset in the balance sheet. within 12 months of classification as held for sale (subject to limited expectations) The asset is being actively marketed for sale at a sales price reasonable in relation to its fair value Actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn A decision made after the year-end but before the accounts are approved that a non-current asset or disposal group is held for sale is a non-adjusting event. . Fair value model Investment property is remeasured at fair value at each year end with gains or losses are taken to I/S.
and: • • • Represents a separate major line of business or geographical area of operations.Key provisions of IFRS 5 relating to discontinued operations: Classification as discontinuing. or Is a subsidiary acquired exclusively with a view to resale Income statement presentation • • • The sum of the post-tax profit or loss of the discontinued operation and The post-tax gain or loss on the disposal of the assets (or disposal group) Detailed disclosure of revenue. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations. pre-tax profit or loss. IAS 38 intangible assets Recognition –meet definition Purchased separately • • • License Quota Franchise Should be measured at cost Purchased as part of business combination Goodwill=consolidation –fair value of net assets at date of acquisition other identifiable assets and liabilities –separately account for (see group account) . when the discontinued criteria are met after the balance sheet date. No retroactive classification. IFRS 5 prohibits the retroactive classification as a discontinued operation. expenses. 7. and related income taxed is required either in the notes or on the face of the income statement in a section distinct from continuing operations.
Classification is subjective and is made at the inception of the lease. mastheads. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form. Research and development Research –income statements as an expense Development should be recognised if. an enterprise can demonstrate all of the following: • • • • • • The technical feasibility Its intention to complete and use or sell it Its ability to use or sell the intangible asset The intangible asset will generate probable future economic benefits. The availability of adequate technical. All other leases are classified as operating leases. but tested for impairment annually 8.Internally generated intangibles • • Internally generated goodwill –no recognition Development of brands. leases Classification of leases A leases is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. financial and other resources to complete the development and to use or sell the intangible asset Measured reliably Amortisation • • Finite useful life –amortise over that life. Normally the straight-line method should be used with a zero residual value Indefinite useful life –not be amortised. and only if. Indicators may be: • The lease transfers ownership of the asset to the lessee by the end of the lease term . publishing titles and customer lists –costs incurred on these items should be written off.
The building element is classified as an operating or finance lease by applying the classification criteria in IAS 17. Accounting by lessees The following principles should be applied in the financial statements of lessees: Finance lease Step 1 Capitalise using lower of PVMLP and fair value Dr Non current assets Cr Finance lease obligation Step 2 Depreciate over shorter of lease term and useful economic life Step 3 Calculate interest charges and outstanding liability Rentals in advance Period Yr 1 Yr 2 I/S depr b/f 1000 900 * 100 Interest 10% 100 90 rent (200) (200) c/f 900 790 Finance charge . land and buildings elements would normally be separately.• • • • • The lessee has the option to purchase the asset at nominal value The lease term is for the major part of the economic life of the asset At the inception of the lease. The land element is normally classified as an operating lease unless title passes to the lessee at the end of the lease term. PVMLP/FV > 90% The lease assets are of a specialised nature such that only the lessee can use them without major modifications being made The lessee has the ability to continue to lease for a secondary period at a rent that is substantially lower than market rent In classifying a lease of land and buildings.
Initial direct costs Initial direct costs are costs that are directly attributable to negotiating and arranging a lease. legal fees and premiums. Incentives for the agreement of a new or renewed operating lease should be recognised by the lessee as a reduction of the rental expense over the lease term. there is a sale should be recognised Operating lease • Should be presented in the balance sheet of the lessor according to the nature of the asset. Both lessees and lessors may incur these costs. the lease payments should be recognised as an expense in the income statement over the lease term on a straight-line basis. at an amount equal to the net investment in the lease. or the timing of payments. commissions. irrespective of the incentive’s nature or form. normally no sale is recognised The lessor should recognised finance income and If the lessor is a manufacturer or dealer. for example. or the timing of payments. Accounting by lessors The following principles should be applied in the financial statements of lessors: Finance lease • • • The lessor should record a finance lease in the balance sheet as a receivable. unless another systematic basis is more representative of the time pattern of the user’s benefit.B/S NCA * 110 NCL –finance lease obligation 790 CL –finance lease obligation Operating lease. Lease income should be recognised over the lease term on a straight-line basis Incentives for the agreement of a new or renewed operating lease should be recognised by the lessor as a reduction of the rental income over the lease term. . irrespective of the incentive’s nature or form.
under IAS 17. So : • • Continue to recognise the original asset at its original cost (less depreciation) Credit the proceeds of the sale to a finance lease liability account. >FV 1700 Otherwise. it is treated as a secured loan under framework. For a transaction that results in an operating lease treat as a sale NBV= 1000 Selling =FV <FV price <FV FV = 1500 Recognise gain of 500 Recognise gain of 200 Loss of 100 is amortised over lease term to increase future lease expense if the rent is lower than market price. expense over straight line basis lease term on same basis as lease income Operating lease Sale and leaseback transactions For a sale and leaseback transaction that result in a finance lease.Finance lease Costs incurred by lessee Costs incurred by lessor Add to amount recognised as Include in initial measurement an asset. Add to carrying amount of expense over lease term on leased asset. depreciate over of receivable. the asset is recognised as a non-current asset before and after the sale. so no sale can have taken place. and then a finance lease. reduce income asset’s useful life receivable over lease term Treat as part of lease rentals. 1500 1200 900 . this can be recognised as a sale with gain deferred over lease term and loss recognised in I/S. recognise 100 loss immediately in IS Recognise 500 gain in IS immediately excess above FV of 200 is amortised over lease term to decrease future lease expense If the fair value at the time of the transaction is less than the carrying amount –a loss equal to the difference should be recognised immediately. However.
IAS 12 income taxes Temporary difference. Recognition of deferred tax • The general principle in IAS 12 is that deferred tax liabilities should be recognised for all taxable temporary differences unless the deferred tax liability arises from goodwill for which amortizations not tax deductible • • • • • • A deferred tax asset should be recognised for all deductible temporary differences unless exceptions above also apply The carrying amount of deferred tax assets/liabilities should be reviewed at each balance sheet date with difference to FS Deferred tax should be provided for on revaluation in equity because revaluation is accounted in equity Temporary differences may arise on a business combination because carrying value will be increased/decreased to fair value and tax base remains same Full provision rather than nil or partial provision is made for deferred tax Deferred tax assets and liabilities should not be discounted . ( carrying value > tax base) Deductible temporary difference. Expense in the income statements are not allowable expenditure for tax purposes. ( carrying value < tax base) Permanent difference. so the increase in tax charge has to be accepted.9. entertainment to customers. Taxable temporary difference. A temporary difference that result in amounts that are tax deductible in the future when the carrying amount of the asset if recovered or the liability is settled. Such as fines and penalty. The tax base is the amount attributed to an asset or liability for tax purpose. A temporary difference that will result in amounts that are tax deductible in the future when the carrying amount of the asset is recovered or the liability is settled. A difference between the carrying amount of an asset or liability and its tax base.
Deferred tax calculation General Asset liability Carrying value (NBV) × (×) Tax base ×/nil (×)/nil Temporary difference ×/(×) ×/(×) Deferred tax liability: CV> tax base with taxable temporary differences Deferred tax asset: CV< tax base with deductible temporary differences Closing deferred tax = temporary difference * tax rate ( go to B/S) Change in deferred tax = closing deferred tax –opening deferred tax (go to I/S) Relates to equity if the related items are recognised in the equity For asset –tax base is the future tax relief For liability –tax base is CV less future tax relief 10. Right issue bonus Time apportion the number of Restated shares. of shares of shares before after bonus/no. Share before the rights also Last year’s EPS* TERP/CRP at required for number of shares .• IAS 12 allows a deferred tax asset to be recognised for the carry forward of unused tax losses to the extent that it is probable that there will be sufficient future taxable profits to enable the loss relief to be used. IAS 33 earning per share EPS = profit after tax and preference dividend/ weighted average number of shares Basic EPS Fresh issue/issue market price Bonus issue Current year Previous year full Time apportion the number of No restatement required shares No time apportionment Restate: Last year’s EPS *no.
The extra number of shares= number of options * FV. this will have to be calculated) Fully diluted EPS This calculation takes into account all the potential shares that will arise in the future. • • Most dilutive basis No comparative figure adjustment Convertible bonds/loan notes The fully diluted EPS will be affected by: • • Earnings –this will increase due to the post tax savings in interes WANS –this will increase due to the conversion factor Share options The fully diluted EPS will be affected by the increase in the number of shares.OP/FV FV = fair value of the share price OP= option price/exercise price of the shares Retrospective adjustments • If a bonus share issues after year end but before date of approval of financial statements.e. IAS 19 Employee benefits .multiply by: *CRP/TERP (CRP is the cum rights price which will be given in the question. • Basic and diluted EPS are also adjusted for the effects of errors and adjustments resulting from changes in accounting policies. (as well as bonus factor of rights issue) i. This calculation is done to warn the shareholders of the impact on the EPS due to these shares. 11. TERP is the theoretical ex-rights price. accounted for retrospectively. EPS should be based on the new number of shares issues. EPS is restated for current and previous year.
Defined contribution plans • • • • Company pays fixed contributions into the fund Company has no legal or constructive obligation to make further payment if the fund suffers under-performance Investment risk is borne by employees No further risk for employer Accounting treatment for DCS • • Recognise contribution payable in IS as incurred Normally base on employees’ compensation level Defined benefit plans • • • Company creates a constructive obligation to provide the agreed amount of benefits to current and retired employees at retirement Ultimate benefits/pension are defined and contribution payable is variable (link to final salary) Investment risk is borne by employer and no risk for employees Accounting for defined benefit scheme • • Scheme assets –FV with investment returen Scheme liabilities –PV with interest cost Actuarial assumptions • • • • Wages inflation (final salary) Average working life Investment return Interest cost Recognition of actuarial gains and losses • Arises on the revaluation of the pension fund’s assets and liabilities (effects of changes in actuarial assumption) .
introduction of. or improvement retirement benefits the market value of adjacent to interest .• • • Recognise in OCI Recognise in IS Corridor approach –if accumulated unrecognised actuarial G/L B/F exceeds greater of 10%: -FV of scheme assets –b/f -PV of scheme liabilities – b/f The excess will be spread over the expected average remaining working life to I/S explanation Current service cost Accounting Double entry Dr IS Cr liability treatment The increase in the Operating cost actuarial expected from liability to arise employee service in the current Interest cost period The increase in the Financial actuarial arising unwinding from of the the item Dr asset Cr IS Dr IS Cr liability item Dr IS Cr liability liability adjacent to interest discount Expected return on Expected increase in Financial assets the scheme’s assets Past service costs (if The increases in the Operating cost any) actuarial liability related to employees service in the prior period but arising in the current period as a result of the to.
IFRS 2 share-based payment Definition of share-based payment A share-based payment is a transaction in which the entity receives or acquires goods or services either as • Consideration for its equity instruments or × (×) × × ×/(×) Scheme assets × ×/(×) × × Scheme liability × ×/(×) × × × × × × ×/(×) × × ×/(×) × IS (×) × × × ×/(×) × × .× b/f Recognised in I/S (×) Occurred in the year × Unrecognised actuarial G/Lc/f Net pension Cash flow statement Reconciliation of operating profit to cash generated from operating activities Add back: net pension cost Less: pension cash contribution 12.Format of employment benefits calculation Opening balance Prior yr adjustment Restated balance Expected return Interest cost Current service cost Past service cost Contribution Benefit paid Actuarial G/L Closing balance Presentation in SFP Scheme assets –c/f Scheme liabilities –c/f Net assets/liabilities Unrecognised actuarial G/L.
Derivatives instruments that the a quoted price. cash. that is. 13. effective hedges There are two categories of financial liabilities At fair value through the profit and loss Measured at amortised cost before These are held for trading and derivatives This category is the default category and unless they are effective hedges. by the issuance of equity. Transaction costs when buying assets are capitalised (except for financial assets at fair value with through the profit and loss) . the fair value of the consideration given or received for it. Financial instruments There are four categories of financial assets Financial fair value assets at Held to maturity Loans and receivables Available assets for sale through investments profit or loss These are held for These are quoted These are loans that This category is the company has default category trading or elected to company investments the be classified in this in redeemable debt made and do not have category. equity or cash.• • By incurring liabilities for amounts based on the price of the entity’s shares or other equity instruments of the entity. includes trade creditors. are always classified company will not be as held for trading selling unless they are maturity. The accounting requirements for the share-based payment depend on how the transaction will be settled. debt instruments issued and deposits from customers Initial measurement A financial asset or liability should initially be recognised at cost.
For loans. 14. but through recycled income disposal to profit loss account. Since any decline in value for such assets is recognised immediately in profit and loss. The only category of financial asset that is not subject to testing for impairment is financial assets at fair value through profit and loss. receivables. discounted using the original effective interest rate of the financial asset. and held-to-maturity investments. on loss account Impairment The impairment requirements apply to the following financial assets: • • • • Loans and receivables Held-to-maturity investments Available-for-sale financial assets Investments in unquoted equity instruments whose fair value cannot be reliable measured. impaired assets are measured at the present value of estimated future cash flows. IAS 18 revenue recognition Recognition of revenue when selling goods .How are financial assets subsequently measured on the balance sheet? Assets Financial Held to Loans Liabilities and Available for At fair value Measured at sale assets through profit Amortised cost On loss the On the amortised and cost the Amortised assets at fair maturity value through investments profit or loss On the Amortised balance sheet cost at fair value with and gains losses receivables balance sheet balance sheet cost at fair value at fair value with and being gains with losses and gains losses immediately recognised through profit the and immediately the and recognised in recognised reserves.
or to be incurred. in respect of the transaction can be measured reliably Recognition of revenue for interest. Recognition of revenue when rendering of service • • • • The amount of revenue can be measured reliably It is probable that the economic benefits will flow to the seller The stage of completion at the balance sheet date can be measured reliably The costs incurred. royalties. and dividends • • • Interest on a time proportion basis Royalties on an accruals basis with the substance of the relevant agreement Dividends when the shareholder’s right to receive payment is established.• • • • • The seller has transferred to the buyer the significant risks and rewards of ownership The seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold The amount of revenue can be measured reliably It is probable that the economic benefits associated with the transaction will flow to the seller The costs incurred or to be incurred in respect of the transaction can be measured reliably. .