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IAS 1 IAS 1 acknowledges that, in extremely rare circumstances, management may

The objective of IAS 1 (2007) is to prescribe the basis for presentation of general conclude that compliance with an IFRS requirement would be so misleading that it
purpose financial statements, to ensure comparability both with the entity's financial would conflict with the objective of financial statements set out in the Framework. In
statements of previous periods and with the financial statements of other entities. such a case, the entity is required to depart from the IFRS requirement, with
IAS 1 sets out the overall requirements for the presentation of financial statements, detailed disclosure of the nature, reasons, and impact of the departure. [IAS 1.19-
guidelines for their structure and minimum requirements for their content. [IAS 1.1] 21]
Standards for recognising, measuring, and disclosing specific transactions are
addressed in other Standards and Interpretations. [IAS 1.3] Going concern
The Conceptual Framework notes that financial statements are normally prepared
Scope assuming the entity is a going concern and will continue in operation for the
IAS 1 applies to all general purpose financial statements that are prepared and foreseeable future. [Conceptual Framework, paragraph 4.1]
presented in accordance with International Financial Reporting Standards (IFRSs). IAS 1 requires management to make an assessment of an entity's ability to
[IAS 1.2] continue as a going concern. If management has significant concerns about the
General purpose financial statements are those intended to serve users who are entity's ability to continue as a going concern, the uncertainties must be disclosed. If
not in a position to require financial reports tailored to their particular information management concludes that the entity is not a going concern, the financial
needs. [IAS 1.7] statements should not be prepared on a going concern basis, in which case IAS 1
requires a series of disclosures. [IAS 1.25]
Objective of financial statements
The objective of general purpose financial statements is to provide information Accrual basis of accounting
about the financial position, financial performance, and cash flows of an entity that IAS 1 requires that an entity prepare its financial statements, except for cash flow
is useful to a wide range of users in making economic decisions. To meet that information, using the accrual basis of accounting. [IAS 1.27]
objective, financial statements provide information about an entity's: [IAS 1.9]
assets Consistency of presentation
The presentation and classification of items in the financial statements shall be
liabilities retained from one period to the next unless a change is justified either by a change
in circumstances or a requirement of a new IFRS. [IAS 1.45]
equity
Materiality and aggregation
Each material class of similar items must be presented separately in the financial
income and expenses, including gains and losses
statements. Dissimilar items may be aggregated only if the are individually
immaterial. [IAS 1.29]
contributions by and distributions to owners (in their capacity as However, information should not be obscured by aggregating or by providing
owners) immaterial information, materiality considerations apply to the all parts of the
financial statements, and even when a standard requires a specific disclosure,
cash flows. materiality considerations do apply. [IAS 1.30A-31]*
That information, along with other information in the notes, assists users of financial * Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
statements in predicting the entity's future cash flows and, in particular, their timing
and certainty. Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required
Components of financial statements or permitted by an IFRS. [IAS 1.32]
A complete set of financial statements includes: [IAS 1.10]
a statement of financial position (balance sheet) at the end of the Comparative information
period IAS 1 requires that comparative information to be disclosed in respect of the
previous period for all amounts reported in the financial statements, both on the
a statement of profit or loss and other comprehensive income for the face of the financial statements and in the notes, unless another Standard requires
period (presented as a single statement, or by presenting the profit or loss section otherwise. Comparative information is provided for narrative and descriptive where
in a separate statement of profit or loss, immediately followed by a statement it is relevant to understanding the financial statements of the current period. [IAS
presenting comprehensive income beginning with profit or loss) 1.38]
An entity is required to present at least two of each of the following primary financial
a statement of changes in equity for the period statements: [IAS 1.38A]
statement of financial position*
a statement of cash flows for the period
statement of profit or loss and other comprehensive income
notes, comprising a summary of significant accounting policies and
other explanatory notes separate statements of profit or loss (where presented)

comparative information prescribed by the standard. statement of cash flows


An entity may use titles for the statements other than those stated above. All
financial statements are required to be presented with equal prominence. [IAS statement of changes in equity
1.10]
When an entity applies an accounting policy retrospectively or makes a related notes for each of the above items.
retrospective restatement of items in its financial statements, or when it reclassifies * A third statement of financial position is required to be presented if the entity
items in its financial statements, it must also present a statement of financial retrospectively applies an accounting policy, restates items, or reclassifies items,
position (balance sheet) as at the beginning of the earliest comparative period. and those adjustments had a material effect on the information in the statement of
Reports that are presented outside of the financial statements including financial financial position at the beginning of the comparative period. [IAS 1.40A]
reviews by management, environmental reports, and value added statements are Where comparative amounts are changed or reclassified, various disclosures are
outside the scope of IFRSs. [IAS 1.14] required. [IAS 1.41]
Fair presentation and compliance with IFRSs Structure and content of financial statements in general
The financial statements must "present fairly" the financial position, financial IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
performance and cash flows of an entity. Fair presentation requires the faithful the financial statements, which must be distinguished from other
representation of the effects of transactions, other events, and conditions in information in a published document
accordance with the definitions and recognition criteria for assets, liabilities, income
and expenses set out in the Framework. The application of IFRSs, with additional each financial statement and the notes to the financial statements.
disclosure when necessary, is presumed to result in financial statements that
In addition, the following information must be displayed prominently, and repeated
achieve a fair presentation. [IAS 1.15]
as necessary: [IAS 1.51]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an
explicit and unreserved statement of such compliance in the notes. Financial
statements cannot be described as complying with IFRSs unless they comply with the name of the reporting entity and any change in the name
all the requirements of IFRSs (which includes International Financial Reporting
Standards, International Accounting Standards, IFRIC Interpretations and SIC whether the financial statements are a group of entities or an individual
Interpretations). [IAS 1.16] entity
Inappropriate accounting policies are not rectified either by disclosure of the
accounting policies used or by notes or explanatory material. [IAS 1.18]
information about the reporting period presented and labelled in a clear and understandable manner; be consistent from
period to period; and not be displayed with more prominence than the required
the presentation currency (as defined by IAS 21 The Effects of subtotals and totals. [IAS 1.55A]*
Changes in Foreign Exchange Rates) * Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Further sub-classifications of line items presented are made in the statement or in
the level of rounding used (e.g. thousands, millions). the notes, for example: [IAS 1.77-78]:
classes of property, plant and equipment
Reporting period
There is a presumption that financial statements will be prepared at least annually. disaggregation of receivables
If the annual reporting period changes and financial statements are prepared for a
different period, the entity must disclose the reason for the change and state that disaggregation of inventories in accordance with IAS 2 Inventories
amounts are not entirely comparable. [IAS 1.36]
disaggregation of provisions into employee benefits and other items
Statement of financial position (balance sheet)
classes of equity and reserves.
Current and non-current classification
An entity must normally present a classified statement of financial position, Format of statement
separating current and non-current assets and liabilities, unless presentation based IAS 1 does not prescribe the format of the statement of financial position. Assets
on liquidity provides information that is reliable. [IAS 1.60] In either case, if an asset can be presented current then non-current, or vice versa, and liabilities and equity
(liability) category combines amounts that will be received (settled) after 12 months can be presented current then non-current then equity, or vice versa. A net asset
with assets (liabilities) that will be received (settled) within 12 months, note presentation (assets minus liabilities) is allowed. The long-term financing approach
disclosure is required that separates the longer-term amounts from the 12-month used in UK and elsewhere fixed assets + current assets - short term payables =
amounts. [IAS 1.61] long-term debt plus equity is also acceptable.
Current assets are assets that are: [IAS 1.66]
expected to be realised in the entity's normal operating cycle Share capital and reserves
Regarding issued share capital and reserves, the following disclosures are
held primarily for the purpose of trading required: [IAS 1.79]
numbers of shares authorised, issued and fully paid, and issued but not
expected to be realised within 12 months after the reporting period fully paid

cash and cash equivalents (unless restricted). par value (or that shares do not have a par value)
All other assets are non-current. [IAS 1.66]
Current liabilitiesare those: [IAS 1.69] a reconciliation of the number of shares outstanding at the beginning
expected to be settled within the entity's normal operating cycle and the end of the period

held for purpose of trading description of rights, preferences, and restrictions

due to be settled within 12 months treasury shares, including shares held by subsidiaries and associates

for which the entity does not have an unconditional right to defer shares reserved for issuance under options and contracts
settlement beyond 12 months (settlement by the issue of equity instruments does
not impact classification). a description of the nature and purpose of each reserve within equity.
Other liabilities are non-current. Additional disclosures are required in respect of entities without share capital and
where an entity has reclassified puttable financial instruments. [IAS 1.80-80A]
When a long-term debt is expected to be refinanced under an existing loan facility,
and the entity has the discretion to do so, the debt is classified as non-current, even Statement of profit or loss and other comprehensive income
if the liability would otherwise be due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an Concepts of profit or loss and comprehensive income
undertaking under a long-term loan agreement on or before the reporting date, the Profit or loss is defined as "the total of income less expenses, excluding the
liability is current, even if the lender has agreed, after the reporting date and before components of other comprehensive income". Other comprehensive income is
the authorisation of the financial statements for issue, not to demand payment as a defined as comprising "items of income and expense (including reclassification
consequence of the breach. [IAS 1.74] However, the liability is classified as non- adjustments) that are not recognised in profit or loss as required or permitted by
current if the lender agreed by the reporting date to provide a period of grace other IFRSs". Total comprehensive income is defined as "the change in equity
ending at least 12 months after the end of the reporting period, within which the during a period resulting from transactions and other events, other than those
entity can rectify the breach and during which the lender cannot demand immediate changes resulting from transactions with owners in their capacity as owners". [IAS
repayment. [IAS 1.75] 1.7]
Line items
The line items to be included on the face of the statement of financial position are:
[IAS 1.54] Comprehensive Income = Profit + Other
(a) property, plant and equipment for the period or Loss Comprehensive Income
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i)) All items of income and expense recognised in a period must be included in profit or
(e) investments accounted for using the equity method loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some
(f) biological assets IFRSs require or permit that some components to be excluded from profit or loss
(g) inventories and instead to be included in other comprehensive income.
(h) trade and other receivables
Examples of items recognised outside of profit or loss
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables Changes in revaluation surplus where the revaluation method
(l) provisions is used under IAS 16 Property, Plant and Equipment and IAS 38 Intangible
(m) financial liabilities (excluding amounts shown under (k) and (l)) Assets
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12 Remeasurements of a net defined benefit liability or asset
(p) liabilities included in disposal groups recognised in accordance with IAS 19 Employee Benefits (2011)
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent. Exchange differences from translating functional currencies
Additional line items, headings and subtotals may be needed to fairly present the into presentation currency in accordance with IAS 21 The Effects of
entity's financial position. [IAS 1.55] Changes in Foreign Exchange Rates
When an entity presents subtotals, those subtotals shall be comprised of line items
made up of amounts recognised and measured in accordance with IFRS; be
Other requirements
Gains and losses on remeasuring available-for-sale financial Additional line items may be needed to fairly present the entity's results of
assets in accordance with IAS 39 Financial Instruments: Recognition and operations. [IAS 1.85]
Measurement Items cannot be presented as 'extraordinary items' in the financial statements or in
the notes. [IAS 1.87]
The effective portion of gains and losses on hedging Certain items must be disclosed separately either in the statement of
instruments in a cash flow hedge under IAS 39 or IFRS 9 Financial comprehensive income or in the notes, if material, including: [IAS 1.98]
Instruments write-downs of inventories to net realisable value or of property, plant
and equipment to recoverable amount, as well as reversals of such write-downs
Gains and losses on remeasuring an investment in equity
instruments where the entity has elected to present them in other restructurings of the activities of an entity and reversals of any
comprehensive income in accordance with IFRS 9 provisions for the costs of restructuring

The effects of changes in the credit risk of a financial liability disposals of items of property, plant and equipment
designated as at fair value through profit and loss under IFRS 9.
disposals of investments
In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors requires the correction of errors and the effect of changes in accounting
policies to be recognised outside profit or loss for the current period. [IAS 1.89] discontinuing operations

Choice in presentation and basic requirements litigation settlements


An entity has a choice of presenting:
a single statement of profit or loss and other comprehensive income, other reversals of provisions
with profit or loss and other comprehensive income presented in two sections, or
Statement of cash flows
two statements: Rather than setting out separate requirements for presentation of the statement of
o a separate statement of profit or loss cash flows, IAS 1.111 refers to IAS 7 Statement of Cash Flows.

o a statement of comprehensive income, immediately Statement of changes in equity


IAS 1 requires an entity to present a separate statement of changes in equity. The
following the statement of profit or loss and beginning with profit or loss [IAS 1.10A]
statement must show: [IAS 1.106]
The statement(s) must present: [IAS 1.81A]
total comprehensive income for the period, showing separately
profit or loss
amounts attributable to owners of the parent and to non-controlling interests
total other comprehensive income
the effects of any retrospective application of accounting policies or
restatements made in accordance with IAS 8, separately for each component of
comprehensive income for the period
other comprehensive income
an allocation of profit or loss and comprehensive income for the period reconciliations between the carrying amounts at the beginning and the
between non-controlling interests and owners of the parent. end of the period for each component of equity, separately disclosing:
o profit or loss
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or
o other comprehensive income*
separate statement of profit or loss, if presented): [IAS 1.82-82A]
revenue
o transactions with owners, showing separately contributions
by and distributions to owners and changes in ownership interests in subsidiaries
gains and losses from the derecognition of financial assets measured that do not result in a loss of control
at amortised cost * An analysis of other comprehensive income by item is required to be presented
either in the statement or in the notes. [IAS 1.106A]
finance costs The following amounts may also be presented on the face of the statement of
changes in equity, or they may be presented in the notes: [IAS 1.107]
share of the profit or loss of associates and joint ventures accounted for amount of dividends recognised as distributions
using the equity method
the related amount per share.
certain gains or losses associated with the reclassification of financial
assets Notes to the financial statements
The notes must: [IAS 1.112]
tax expense present information about the basis of preparation of the financial
statements and the specific accounting policies used
a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw disclose any information required by IFRSs that is not presented
materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, elsewhere in the financial statements and
administrative, etc). [IAS 1.99] If an entity categorises by function, then additional
information on the nature of expenses at a minimum depreciation, amortisation provide additional information that is not presented elsewhere in the
and employee benefits expense must be disclosed. [IAS 1.104] financial statements but is relevant to an understanding of any of them
Notes are presented in a systematic manner and cross-referenced from the face of
Other comprehensive income section the financial statements to the relevant note. [IAS 1.113]
The other comprehensive income section is required to present line items which are IAS 1.114 suggests that the notes should normally be presented in the following
classified by their nature, and grouped between those items that will or will not be order:*
reclassified to profit and loss in subsequent periods. [IAS 1.82A] a statement of compliance with IFRSs
An entity's share of OCI of equity-accounted associates and joint ventures is
presented in aggregate as single line items based on whether or not it will
a summary of significant accounting policies applied, including: [IAS
subsequently be reclassified to profit or loss. [IAS 1.82A]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016. 1.117]
When an entity presents subtotals, those subtotals shall be comprised of line items o the measurement basis (or bases) used in preparing the
made up of amounts recognised and measured in accordance with IFRS; be financial statements
presented and labelled in a clear and understandable manner; be consistent from
period to period; not be displayed with more prominence than the required subtotals o the other accounting policies used that are relevant to an
and totals; and reconciled with the subtotals or totals required in IFRS. [IAS 1.85A- understanding of the financial statements
85B]* supporting information for items presented on the face of the statement
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016. of financial position (balance sheet), statement(s) of profit or loss and other
comprehensive income, statement of changes in equity and statement of cash
flows, in the order in which each statement and each line item is presented country of incorporation

other disclosures, including: address of registered office or principal place of business


o contingent liabilities (see IAS 37) and unrecognised
contractual commitments description of the entity's operations and principal activities

o non-financial disclosures, such as the entity's financial risk if it is part of a group, the name of its parent and the ultimate parent of
management objectives and policies (see IFRS 7 Financial Instruments: the group
Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies if it is a limited life entity, information regarding the length of the life
this order just to be an example of how notes can be ordered and adds additional
examples of possible ways of ordering the notes to clarify that understandability and Terminology
comparability should be considered when determining the order of the notes. The 2007 comprehensive revision to IAS 1 introduced some new terminology.
Other disclosures Consequential amendments were made at that time to all of the other existing
IFRSs, and the new terminology has been used in subsequent IFRSs including
Judgements and key assumptions amendments. IAS 1.8 states: "Although this Standard uses the terms 'other
An entity must disclose, in the summary of significant accounting policies or other comprehensive income', 'profit or loss' and 'total comprehensive income', an entity
notes, the judgements, apart from those involving estimations, that management may use other terms to describe the totals as long as the meaning is clear. For
has made in the process of applying the entity's accounting policies that have the example, an entity may use the term 'net income' to describe profit or loss." Also,
most significant effect on the amounts recognised in the financial statements. [IAS IAS 1.57(b) states: "The descriptions used and the ordering of items or aggregation
1.122] of similar items may be amended according to the nature of the entity and its
Examples cited in IAS 1.123 include management's judgements in determining: transactions, to provide information that is relevant to an understanding of the
when substantially all the significant risks and rewards of ownership of entity's financial position."
financial assets and lease assets are transferred to other entities
Term before 2007 Term as amended by IAS 1 (2007)
whether, in substance, particular sales of goods are financing revision of IAS 1
arrangements and therefore do not give rise to revenue.
An entity must also disclose, in the notes, information about the key assumptions balance sheet statement of financial position
concerning the future, and other key sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year. [IAS cash flow statement statement of cash flows
1.125] These disclosures do not involve disclosing budgets or forecasts. [IAS 1.130]
income statement statement of comprehensive income
Dividends (income statement is retained in case
In addition to the distributions information in the statement of changes in equity (see of a two-statement approach)
above), the following must be disclosed in the notes: [IAS 1.137]
the amount of dividends proposed or declared before the financial recognised in the income recognised in profit or loss
statements were authorised for issue but which were not recognised as a statement
distribution to owners during the period, and the related amount per share

the amount of any cumulative preference dividends not recognised. recognised [directly] in recognised in other comprehensive
equity (only for OCI income
components)
Capital disclosures
An entity discloses information about its objectives, policies and processes for
managing capital. [IAS 1.134] To comply with this, the disclosures include: [IAS recognised [directly] in recognised outside profit or loss (either
1.135] equity (for recognition both in OCI or equity)
qualitative information about the entity's objectives, policies and in OCI and equity)
processes for managing capital, including>
o description of capital it manages removed from equity and reclassified from equity to profit or loss
recognised in profit or loss as a reclassification adjustment
o nature of external capital requirements, if any ('recycling')

o how it is meeting its objectives Standard or/and IFRSs


quantitative data about what the entity regards as capital Interpretation

changes from one period to another


on the face of in
whether the entity has complied with any external capital requirements
and equity holders owners (exception for 'ordinary equity
holders')
if it has not complied, the consequences of such non-compliance.
balance sheet date end of the reporting period
Puttable financial instruments
IAS 1.136A requires the following additional disclosures if an entity has a puttable reporting date end of the reporting period
instrument that is classified as an equity instrument:
summary quantitative data about the amount classified as equity
after the balance sheet after the reporting period
date
the entity's objectives, policies and processes for managing its
obligation to repurchase or redeem the instruments when required to do so by the
instrument holders, including any changes from the previous period

the expected cash outflow on redemption or repurchase of that class of


financial instruments and

information about how the expected cash outflow on redemption or


repurchase was determined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed
elsewhere in information published with the financial statements: [IAS 1.138]
domicile and legal form of the entity
in which the write-down occurs. Any reversal should be recognised in the income
statement in the period in which the reversal occurs. [IAS 2.34]
Expense recognition
IAS 18 Revenue addresses revenue recognition for the sale of goods. When
inventories are sold and revenue is recognised, the carrying amount of those
IAS 2 inventories is recognised as an expense (often called cost-of-goods-sold). Any
The objective of IAS 2 is to prescribe the accounting treatment for inventories. It write-down to NRV and any inventory losses are also recognised as an expense
provides guidance for determining the cost of inventories and for subsequently when they occur. [IAS 2.34]
recognising an expense, including any write-down to net realisable value. It also Disclosure
provides guidance on the cost formulas that are used to assign costs to inventories. Required disclosures: [IAS 2.36]
Scope accounting policy for inventories
Inventories include assets held for sale in the ordinary course of business (finished
goods), assets in the production process for sale in the ordinary course of business carrying amount, generally classified as merchandise, supplies,
(work in process), and materials and supplies that are consumed in production (raw materials, work in progress, and finished goods. The classifications depend on what
materials). [IAS 2.6] is appropriate for the entity
However, IAS 2 excludes certain inventories from its scope: [IAS 2.2]
work in process arising under construction contracts (see IAS carrying amount of any inventories carried at fair value less costs to sell
11 Construction Contracts)
amount of any write-down of inventories recognised as an expense in
financial instruments (see IAS 39 Financial Instruments: Recognition the period
and Measurement)
amount of any reversal of a write-down to NRV and the circumstances
biological assets related to agricultural activity and agricultural produce that led to such reversal
at the point of harvest (see IAS 41 Agriculture).
Also, while the following are within the scope of the standard, IAS 2 does not apply carrying amount of inventories pledged as security for liabilities
to the measurement of inventories held by: [IAS 2.3]
producers of agricultural and forest products, agricultural produce after cost of inventories recognised as expense (cost of goods sold).
harvest, and minerals and mineral products, to the extent that they are measured at IAS 2 acknowledges that some enterprises classify income statement expenses by
net realisable value (above or below cost) in accordance with well-established nature (materials, labour, and so on) rather than by function (cost of goods sold,
practices in those industries. When such inventories are measured at net realisable selling expense, and so on). Accordingly, as an alternative to disclosing cost of
value, changes in that value are recognised in profit or loss in the period of the goods sold expense, IAS 2 allows an entity to disclose operating costs recognised
change during the period by nature of the cost (raw materials and consumables, labour
costs, other operating costs) and the amount of the net change in inventories for the
commodity brokers and dealers who measure their inventories at fair period). [IAS 2.39] This is consistent with IAS 1 Presentation of Financial
value less costs to sell. When such inventories are measured at fair value less Statements, which allows presentation of expenses by function or nature.
costs to sell, changes in fair value less costs to sell are recognised in profit or loss
in the period of the change.
Fundamental principle of IAS 2
Inventories are required to be stated at the lower of cost and net realisable value
(NRV). [IAS 2.9]
Measurement of inventories
Cost should include all: [IAS 2.10]
costs of purchase (including taxes, transport, and handling) net of trade
discounts received

costs of conversion (including fixed and variable manufacturing


overheads) and

other costs incurred in bringing the inventories to their present location


and condition
IAS 23 Borrowing Costs identifies some limited circumstances where borrowing
costs (interest) can be included in cost of inventories that meet the definition of a
qualifying asset. [IAS 2.17 and IAS 23.4]
Inventory cost should not include: [IAS 2.16 and 2.18]
abnormal waste

storage costs

administrative overheads unrelated to production

selling costs

foreign exchange differences arising directly on the recent acquisition


of inventories invoiced in a foreign currency

interest cost when inventories are purchased with deferred settlement


terms.
The standard cost and retail methods may be used for the measurement of cost,
provided that the results approximate actual cost. [IAS 2.21-22]
For inventory items that are not interchangeable, specific costs are attributed to the
specific individual items of inventory. [IAS 2.23]
For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost
formulas. [IAS 2.25] The LIFO formula, which had been allowed prior to the 2003
revision of IAS 2, is no longer allowed.
The same cost formula should be used for all inventories with similar characteristics
as to their nature and use to the entity. For groups of inventories that have different
characteristics, different cost formulas may be justified. [IAS 2.25]
Write-down to net realisable value
NRV is the estimated selling price in the ordinary course of business, less the
estimated cost of completion and the estimated costs necessary to make the sale.
[IAS 2.6] Any write-down to NRV should be recognised as an expense in the period
Decrease in inventories xx,xxx

Increase in trade payables xx,xxx

IAS 7
Interest expense xx,xxx
The objective of IAS 7 is to require the presentation of information about the
historical changes in cash and cash equivalents of an entity by means of a
statement of cash flows, which classifies cash flows during the period according to Less Interest accrued but not yet paid xx,xxx
operating, investing, and financing activities.
Fundamental principle in IAS 7 Interest paid xx,xxx
All entities that prepare financial statements in conformity with IFRSs are required
to present a statement of cash flows. [IAS 7.1]
The statement of cash flows analyses changes in cash and cash equivalents during Income taxes paid xx,xxx
a period. Cash and cash equivalents comprise cash on hand and demand deposits,
together with short-term, highly liquid investments that are readily convertible to a Net cash from operating activities xx,xxx
known amount of cash, and that are subject to an insignificant risk of changes in
value. Guidance notes indicate that an investment normally meets the definition of a the exchange rate used for translation of transactions denominated in a
cash equivalent when it has a maturity of three months or less from the date of foreign currency should be the rate in effect at the date of the cash flows [IAS 7.25]
acquisition. Equity investments are normally excluded, unless they are in substance
a cash equivalent (e.g. preferred shares acquired within three months of their cash flows of foreign subsidiaries should be translated at the exchange
specified redemption date). Bank overdrafts which are repayable on demand and rates prevailing when the cash flows took place [IAS 7.26]
which form an integral part of an entity's cash management are also included as a
component of cash and cash equivalents. [IAS 7.7-8] as regards the cash flows of associates, joint ventures, and
Presentation of the Statement of Cash Flows subsidiaries, where the equity or cost method is used, the statement of cash flows
Cash flows must be analysed between operating, investing and financing activities. should report only cash flows between the investor and the investee; where
[IAS 7.10] proportionate consolidation is used, the cash flow statement should include the
Key principles specified by IAS 7 for the preparation of a statement of cash flows venturer's share of the cash flows of the investee [IAS 7.37]
are as follows:
operating activities are the main revenue-producing activities of the aggregate cash flows relating to acquisitions and disposals of
entity that are not investing or financing activities, so operating cash flows include subsidiaries and other business units should be presented separately and classified
cash received from customers and cash paid to suppliers and employees [IAS 7.14] as investing activities, with specified additional disclosures. [IAS 7.39] The
aggregate cash paid or received as consideration should be reported net of cash
investing activities are the acquisition and disposal of long-term and cash equivalents acquired or disposed of [IAS 7.42]
assets and other investments that are not considered to be cash equivalents [IAS
7.6] cash flows from investing and financing activities should be reported
gross by major class of cash receipts and major class of cash payments except for
financing activities are activities that alter the equity capital and the following cases, which may be reported on a net basis: [IAS 7.22-24]
borrowing structure of the entity [IAS 7.6] o cash receipts and payments on behalf of customers (for
example, receipt and repayment of demand deposits by banks, and receipts
interest and dividends received and paid may be classified as collected on behalf of and paid over to the owner of a property)
operating, investing, or financing cash flows, provided that they are classified
consistently from period to period [IAS 7.31] o cash receipts and payments for items in which the turnover
is quick, the amounts are large, and the maturities are short, generally less than
cash flows arising from taxes on income are normally classified as three months (for example, charges and collections from credit card customers, and
operating, unless they can be specifically identified with financing or investing purchase and sale of investments)
activities [IAS 7.35]
o cash receipts and payments relating to deposits by
for operating cash flows, the direct method of presentation is financial institutions
encouraged, but the indirect method is acceptable [IAS 7.18]
The direct method shows each major class of gross cash receipts and gross cash o cash advances and loans made to customers and
payments. The operating cash flows section of the statement of cash flows under repayments thereof
the direct method would appear something like this: investing and financing transactions which do not require the use of
cash should be excluded from the statement of cash flows, but they should be
Cash receipts from customers xx,xxx separately disclosed elsewhere in the financial statements [IAS 7.43]

Cash paid to suppliers xx,xxx entities shall provide disclosures that enable users of financial
statements to evaluate changes in liabilities arising from financing activities [IAS
Cash paid to employees xx,xxx 7.44A-44E]*

the components of cash and cash equivalents should be disclosed, and


Cash paid for other operating expenses xx,xxx
a reconciliation presented to amounts reported in the statement of financial position
[IAS 7.45]
Interest paid xx,xxx
the amount of cash and cash equivalents held by the entity that is not
Income taxes paid xx,xxx available for use by the group should be disclosed, together with a commentary by
management [IAS 7.48]
* Added by Disclosure Initiative amendments, effective 1 January 2017.
Net cash from operating activities xx,xxx

The indirect method adjusts accrual basis net profit or loss for the
effects of non-cash transactions. The operating cash flows section of the statement
of cash flows under the indirect method would appear something like this:
Profit before interest and income taxes xx,xxx

Add back depreciation xx,xxx

Add back impairment of assets xx,xxx

Increase in receivables xx,xxx


is required by a standard or interpretation; or

results in the financial statements providing reliable and more relevant


information about the effects of transactions, other events or conditions on the
entity's financial position, financial performance, or cash flows. [IAS 8.14]
IAS 8
Note that changes in accounting policies do not include applying an accounting
policy to a kind of transaction or event that did not occur previously or were
Key definitions [IAS 8.5] immaterial. [IAS 8.16]
If a change in accounting policy is required by a new IASB standard or
Accounting policies are the specific principles, bases, conventions, interpretation, the change is accounted for as required by that new pronouncement
rules and practices applied by an entity in preparing and presenting financial or, if the new pronouncement does not include specific transition provisions, then
statements. the change in accounting policy is applied retrospectively. [IAS 8.19]
Retrospective application means adjusting the opening balance of each affected
component of equity for the earliest prior period presented and the other
A change in accounting estimate is an adjustment of the carrying
comparative amounts disclosed for each prior period presented as if the new
amount of an asset or liability, or related expense, resulting from reassessing the
accounting policy had always been applied. [IAS 8.22]
expected future benefits and obligations associated with that asset or liability.

International Financial Reporting Standardsare standards and However, if it is impracticable to determine either the period-specific
interpretations adopted by the International Accounting Standards Board (IASB). effects or the cumulative effect of the change for one or more prior periods
They comprise: presented, the entity shall apply the new accounting policy to the carrying amounts
o International Financial Reporting Standards (IFRSs) of assets and liabilities as at the beginning of the earliest period for which
retrospective application is practicable, which may be the current period, and shall
o International Accounting Standards (IASs) make a corresponding adjustment to the opening balance of each affected
component of equity for that period. [IAS 8.24]
o Interpretations developed by the International Financial
Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Also, if it is impracticable to determine the cumulative effect, at the
Committee (SIC) and approved by the IASB. beginning of the current period, of applying a new accounting policy to all prior
Materiality. Omissions or misstatements of items are material if they periods, the entity shall adjust the comparative information to apply the new
could, by their size or nature, individually or collectively, influence the economic accounting policy prospectively from the earliest date practicable. [IAS 8.25]
decisions of users taken on the basis of the financial statements.
Disclosures relating to changes in accounting policies
Prior period errors are omissions from, and misstatements in, an
entity's financial statements for one or more prior periods arising from a failure to
use, or misuse of, reliable information that was available and could reasonably be Disclosures relating to changes in accounting policy caused by a new standard or
expected to have been obtained and taken into account in preparing those interpretation include: [IAS 8.28]
statements. Such errors result from mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud. the title of the standard or interpretation causing the change

Selection and application of accounting policies the nature of the change in accounting policy

a description of the transitional provisions, including those that might


When a Standard or an Interpretation specifically applies to a transaction, other
have an effect on future periods
event or condition, the accounting policy or policies applied to that item must be
determined by applying the Standard or Interpretation and considering any relevant
Implementation Guidance issued by the IASB for the Standard or Interpretation. for the current period and each prior period presented, to the extent
[IAS 8.7] practicable, the amount of the adjustment:
In the absence of a Standard or an Interpretation that specifically applies to a o for each financial statement line item affected, and
transaction, other event or condition, management must use its judgement in
developing and applying an accounting policy that results in information that is o for basic and diluted earnings per share (only if the entity is
relevant and reliable. [IAS 8.10]. In making that judgement, management must refer applying IAS 33)
to, and consider the applicability of, the following sources in descending order: the amount of the adjustment relating to periods before those
presented, to the extent practicable
the requirements and guidance in IASB standards and interpretations
if retrospective application is impracticable, an explanation and
dealing with similar and related issues; and
description of how the change in accounting policy was applied.
the definitions, recognition criteria and measurement concepts for
assets, liabilities, income and expenses in the Framework. [IAS 8.11] Financial statements of subsequent periods need not repeat these disclosures.
Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
Management may also consider the most recent pronouncements of other
standard-setting bodies that use a similar conceptual framework to develop the nature of the change in accounting policy
accounting standards, other accounting literature and accepted industry practices,
to the extent that these do not conflict with the sources in paragraph 11. [IAS 8.12] the reasons why applying the new accounting policy provides reliable
and more relevant information
Consistency of accounting policies
for the current period and each prior period presented, to the extent
practicable, the amount of the adjustment:
An entity shall select and apply its accounting policies consistently for similar o for each financial statement line item affected, and
transactions, other events and conditions, unless a Standard or an Interpretation
specifically requires or permits categorisation of items for which different policies o for basic and diluted earnings per share (only if the entity is
may be appropriate. If a Standard or an Interpretation requires or permits such applying IAS 33)
categorisation, an appropriate accounting policy shall be selected and applied
the amount of the adjustment relating to periods before those
consistently to each category. [IAS 8.13]
presented, to the extent practicable

Changes in accounting policies if retrospective application is impracticable, an explanation and


description of how the change in accounting policy was applied.
An entity is permitted to change an accounting policy only if the change:
Financial statements of subsequent periods need not repeat these disclosures.
If an entity has not applied a new standard or interpretation that has been issued
but is not yet effective, the entity must disclose that fact and any and known or IAS 10
reasonably estimable information relevant to assessing the possible impact that the
new pronouncement will have in the year it is applied. [IAS 8.30]
Key definitions
Changes in accounting estimates
Event after the reporting period: An event, which could be favourable or
The effect of a change in an accounting estimate shall be recognised prospectively unfavourable, that occurs between the end of the reporting period and the date that
by including it in profit or loss in: [IAS 8.36] the financial statements are authorised for issue. [IAS 10.3]
Adjusting event: An event after the reporting period that provides further evidence
of conditions that existed at the end of the reporting period, including an event that
the period of the change, if the change affects that period only, or indicates that the going concern assumption in relation to the whole or part of the
enterprise is not appropriate. [IAS 10.3]
the period of the change and future periods, if the change affects both. Non-adjusting event: An event after the reporting period that is indicative of a
condition that arose after the end of the reporting period. [IAS 10.3]
However, to the extent that a change in an accounting estimate gives rise to
changes in assets and liabilities, or relates to an item of equity, it is recognised by Accounting
adjusting the carrying amount of the related asset, liability, or equity item in the
period of the change. [IAS 8.37]
Adjust financial statements for adjusting events - events after the
balance sheet date that provide further evidence of conditions that existed at the
Disclosures relating to changes in accounting estimates end of the reporting period, including events that indicate that the going concern
assumption in relation to the whole or part of the enterprise is not appropriate. [IAS
Disclose: 10.8]

Do not adjust for non-adjusting events - events or conditions that arose


the nature and amount of a change in an accounting estimate that has after the end of the reporting period. [IAS 10.10]
an effect in the current period or is expected to have an effect in future periods
If an entity declares dividends after the reporting period, the entity shall
if the amount of the effect in future periods is not disclosed because not recognise those dividends as a liability at the end of the reporting period. That is
estimating it is impracticable, an entity shall disclose that fact. [IAS 8.39-40] a non-adjusting event. [IAS 10.12]

Errors Going concern issues arising after end of the reporting period

The general principle in IAS 8 is that an entity must correct all material prior period An entity shall not prepare its financial statements on a going concern basis if
errors retrospectively in the first set of financial statements authorised for issue after management determines after the end of the reporting period either that it intends
their discovery by: [IAS 8.42] to liquidate the entity or to cease trading, or that it has no realistic alternative but to
do so. [IAS 10.14]
restating the comparative amounts for the prior period(s) presented in
which the error occurred; or Disclosure

if the error occurred before the earliest prior period presented, restating
Non-adjusting events should be disclosed if they are of such importance that non-
the opening balances of assets, liabilities and equity for the earliest prior period
disclosure would affect the ability of users to make proper evaluations and
presented.
decisions. The required disclosure is (a) the nature of the event and (b) an estimate
of its financial effect or a statement that a reasonable estimate of the effect cannot
However, if it is impracticable to determine the period-specific effects of an error on be made. [IAS 10.21]
comparative information for one or more prior periods presented, the entity must A company should update disclosures that relate to conditions that existed at the
restate the opening balances of assets, liabilities, and equity for the earliest period end of the reporting period to reflect any new information that it receives after the
for which retrospective restatement is practicable (which may be the current reporting period about those conditions. [IAS 10.19]
period). [IAS 8.44] Companies must disclose the date when the financial statements were authorised
Further, if it is impracticable to determine the cumulative effect, at the beginning of for issue and who gave that authorisation. If the enterprise's owners or others have
the current period, of an error on all prior periods, the entity must restate the the power to amend the financial statements after issuance, the enterprise must
comparative information to correct the error prospectively from the earliest date disclose that fact. [IAS 10.17]
practicable. [IAS 8.45]

Disclosures relating to prior period errors IAS 11

The objective of IAS 11 is to prescribe the accounting treatment of revenue and


Disclosures relating to prior period errors include: [IAS 8.49]
costs associated with construction contracts.
What is a construction contract?
the nature of the prior period error A construction contract is a contract specifically negotiated for the construction of
an asset or a group of interrelated assets. [IAS 11.3]
for each prior period presented, to the extent practicable, the amount of Under IAS 11, if a contract covers two or more assets, the construction of each
the correction: asset should be accounted for separately if (a) separate proposals were submitted
o for each financial statement line item affected, and for each asset, (b) portions of the contract relating to each asset were negotiated
separately, and (c) costs and revenues of each asset can be measured. Otherwise,
o for basic and diluted earnings per share (only if the entity is the contract should be accounted for in its entirety. [IAS 11.8]
Two or more contracts should be accounted for as a single contract if they were
applying IAS 33)
negotiated together and the work is interrelated. [IAS 11.9]
the amount of the correction at the beginning of the earliest prior period
If a contract gives the customer an option to order one or more additional assets,
presented construction of each additional asset should be accounted for as a separate
contract if either (a) the additional asset differs significantly from the original
if retrospective restatement is impracticable, an explanation and asset(s) or (b) the price of the additional asset is separately negotiated. [IAS 11.10]
description of how the error has been corrected. What is included in contract revenue and costs?
Contract revenue should include the amount agreed in the initial contract, plus
Financial statements of subsequent periods need not repeat these disclosures. revenue from alternations in the original contract work, plus claims and incentive
payments that (a) are expected to be collected and (b) that can be measured
reliably. [IAS 11.11]
Contract costs should include costs that relate directly to the specific contract, plus
costs that are attributable to the contractor's general contracting activity to the Deferred tax The amounts of income taxes recoverable in future
extent that they can be reasonably allocated to the contract, plus such other costs assets periods in respect of:
that can be specifically charged to the customer under the terms of the contract.
[IAS 11.16] a. deductible temporary differences
Accounting b. the carryforward of unused tax losses,
If the outcome of a construction contract can be estimated reliably, revenue and and
costs should be recognised in proportion to the stage of completion of contract c. the carryforward of unused tax credits
activity. This is known as the percentage of completion method of accounting. [IAS
11.22]
To be able to estimate the outcome of a contract reliably, the entity must be able to Current tax
make a reliable estimate of total contract revenue, the stage of completion, and the
costs to complete the contract. [IAS 11.23-24]
If the outcome cannot be estimated reliably, no profit should be recognised. Instead, Current tax for the current and prior periods is recognised as a liability to the extent
contract revenue should be recognised only to the extent that contract costs that it has not yet been settled, and as an asset to the extent that the amounts
incurred are expected to be recoverable and contract costs should be expensed as already paid exceed the amount due. [IAS 12.12] The benefit of a tax loss which
incurred. [IAS 11.32] can be carried back to recover current tax of a prior period is recognised as an
The stage of completion of a contract can be determined in a variety of ways - asset. [IAS 12.13]
including the proportion that contract costs incurred for work performed to date bear Current tax assets and liabilities are measured at the amount expected to be paid to
to the estimated total contract costs, surveys of work performed, or completion of a (recovered from) taxation authorities, using the rates/laws that have been enacted
physical proportion of the contract work. [IAS 11.30] or substantively enacted by the balance sheet date. [IAS 12.46]
An expected loss on a construction contract should be recognised as an expense
as soon as such loss is probable. [IAS 11.22 and 11.36] Calculation of deferred taxes
Disclosure
o amount of contract revenue recognised; [IAS 11.39(a)]
o method used to determine revenue; [IAS 11.39(b)] Formulae
o method used to determine stage of completion; [IAS 11.39(c)] and Deferred tax assets and deferred tax liabilities can be calculated using the following
o for contracts in progress at balance sheet date: [IAS 11.40] formulae:
o aggregate costs incurred and recognised profit
Temporary Difference = Carrying Amount Tax base
o amount of advances received
o amount of retentions Deferred Tax Asset = Temporary Difference X Tax rates
Presentation or Liability
The gross amount due from customers for contract work should be shown as an
asset. [IAS 11.42]
The gross amount due to customers for contract work should be shown as a liability.
[IAS 11.42]

The following formula can be used in the calculation of deferred taxes arising from
Objective of IAS 12 unused tax losses or unused tax credits:

Deferred Tax Asset = Unused tax loss or unused tax credits X Tax rates
The objective of IAS 12 (1996) is to prescribe the accounting treatment for income
taxes.
In meeting this objective, IAS 12 notes the following:

o It is inherent in the recognition of an asset or liability that that asset


or liability will be recovered or settled, and this recovery or settlement may Tax bases
give rise to future tax consequences which should be recognised at the The tax base of an item is crucial in determining the amount of any temporary
same time as the asset or liability difference, and effectively represents the amount at which the asset or liability
o An entity should account for the tax consequences of transactions would be recorded in a tax-based balance sheet. IAS 12 provides the following
and other events in the same way it accounts for the transactions or other guidance on determining tax bases:
events themselves.

o Assets. The tax base of an asset is the amount that will be


Key definitions deductible against taxable economic benefits from recovering the carrying
amount of the asset. Where recovery of an asset will have no tax
[IAS 12.5] consequences, the tax base is equal to the carrying amount. [IAS 12.7]
o Revenue received in advance. The tax base of the recognised
liability is its carrying amount, less revenue that will not be taxable in future
Tax base The tax base of an asset or liability is the amount periods [IAS 12.8]
attributed to that asset or liability for tax purposes o Other liabilities. The tax base of a liability is its carrying amount,
less any amount that will be deductible for tax purposes in respect of that
liability in future periods [IAS 12.8]
Temporary Differences between the carrying amount of an asset o Unrecognised items. If items have a tax base but are not
differences or liability in the statement of financial position and
recognised in the statement of financial position, the carrying amount is nil
its tax bases
[IAS 12.9]
o Tax bases not immediately apparent. If the tax base of an item is
Taxable Temporary differences that will result in taxable not immediately apparent, the tax base should effectively be determined in
temporary amounts in determining taxable profit (tax loss) of such as manner to ensure the future tax consequences of recovery or
differences future periods when the carrying amount of the asset settlement of the item is recognised as a deferred tax amount [IAS 12.10]
or liability is recovered or settled o Consolidated financial statements. In consolidated financial
statements, the carrying amounts in the consolidated financial statements
Deductible Temporary differences that will result in amounts that are used, and the tax bases determined by reference to any consolidated tax
temporary are deductible in determining taxable profit (tax loss) return (or otherwise from the tax returns of each entity in the group). [IAS
differences of future periods when the carrying amount of the 12.11]
asset or liability is recovered or settled

Deferred tax The amounts of income taxes payable in future Examples


liabilities periods in respect of taxable temporary differences The determination of the tax base will depend on the applicable tax laws
and the entity's expectations as to recovery and settlement of its assets
in the foreseeable future and that taxable profit will be available against which the
temporary difference will be utilised. [IAS 12.44]
and liabilities. The following are some basic examples: The carrying amount of deferred tax assets are reviewed at the end of each
reporting period and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow the benefit of part or all of that deferred tax
o Property, plant and equipment. The tax base of property, asset to be utilised. Any such reduction is subsequently reversed to the extent that
plant and equipment that is depreciable for tax purposes that is used it becomes probable that sufficient taxable profit will be available. [IAS 12.37]
in the entity's operations is the unclaimed tax depreciation permitted A deferred tax asset is recognised for an unused tax loss carryforward or unused
as deduction in future periods tax credit if, and only if, it is considered probable that there will be sufficient future
o Receivables. If receiving payment of the receivable has no taxable profit against which the loss or credit carryforward can be utilised.
tax consequences, its tax base is equal to its carrying amount [IAS 12.34]
o Goodwill. If goodwill is not recognised for tax purposes, its Measurement of deferred tax
tax base is nil (no deductions are available) Deferred tax assets and liabilities are measured at the tax rates that are expected
o Revenue in advance. If the revenue is taxed on receipt to apply to the period when the asset is realised or the liability is settled, based on
but deferred for accounting purposes, the tax base of the liability is tax rates/laws that have been enacted or substantively enacted by the end of the
equal to its carrying amount (as there are no future taxable reporting period. [IAS 12.47] The measurement reflects the entity's expectations, at
amounts). Conversely, if the revenue is recognised for tax purposes the end of the reporting period, as to the manner in which the carrying amount of its
when the goods or services are received, the tax base will be equal assets and liabilities will be recovered or settled. [IAS 12.51]
to nil IAS 12 provides the following guidance on measuring deferred taxes:
o Loans. If there are no tax consequences from repayment
of the loan, the tax base of the loan is equal to its carrying amount. If o Where the tax rate or tax base is impacted by the manner in which
the repayment has tax consequences (e.g. taxable amounts or the entity recovers its assets or settles its liabilities (e.g. whether an asset is
deductions on repayments of foreign currency loans recognised for sold or used), the measurement of deferred taxes is consistent with the way
tax purposes at the exchange rate on the date the loan was drawn in which an asset is recovered or liability settled [IAS 12.51A]
down), the tax consequence of repayment at carrying amount is o Where deferred taxes arise from revalued non-depreciable assets
adjusted against the carrying amount to determine the tax base
(e.g. revalued land), deferred taxes reflect the tax consequences of selling
(which in the case of the aforementioned foreign currency loan
the asset [IAS 12.51B]
would result in the tax base of the loan being determined by
o Deferred taxes arising from investment property measured at fair
reference to the exchange rate on the draw down date).
value under IAS 40 Investment Property reflect the rebuttable presumption
that the investment property will be recovered through sale [IAS 12.51C-
51D]
o If dividends are paid to shareholders, and this causes income taxes
to be payable at a higher or lower rate, or the entity pays additional taxes or
Recognition and measurement of deferred taxes receives a refund, deferred taxes are measured using the tax rate applicable
to undistributed profits [IAS 12.52A]
Recognition of deferred tax liabilities
The general principle in IAS 12 is that a deferred tax liability is recognised for all Deferred tax assets and liabilities cannot be discounted. [IAS 12.53]
taxable temporary differences. There are three exceptions to the requirement to
recognise a deferred tax liability, as follows: Recognition of tax amounts for the period

o liabilities arising from initial recognition of goodwill [IAS 12.15(a)] Amount of income tax to recognise
o liabilities arising from the initial recognition of an asset/liability other The following formula summarises the amount of tax to be recognised in an
than in a business combination which, at the time of the transaction, does accounting period:
not affect either the accounting or the taxable profit [IAS 12.15(b)]
o liabilities arising from temporary differences associated with
investments in subsidiaries, branches, and associates, and interests in joint
arrangements, but only to the extent that the entity is able to control the Tax Recognize = Current tax for the Period + Movement in deferred Tax balances
timing of the reversal of the differences and it is probable that the reversal for the period for the period
will not occur in the foreseeable future. [IAS 12.39]

Where to recognise income tax for the period


Example
Consistent with the principles underlying IAS 12, the tax consequences of
An entity undertaken a business combination which results in the
transactions and other events are recognised in the same way as the items giving
recognition of goodwill in accordance with IFRS 3 Business Combinations.
rise to those tax consequences. Accordingly, current and deferred tax is recognised
The goodwill is not tax depreciable or otherwise recognised for tax
as income or expense and included in profit or loss for the period, except to the
purposes.
extent that the tax arises from: [IAS 12.58]
As no future tax deductions are available in respect of the goodwill, the tax
base is nil. Accordingly, a taxable temporary difference arises in respect of
the entire carrying amount of the goodwill. However, the taxable temporary o transactions or events that are recognised outside of profit or loss
difference does not result in the recognition of a deferred tax liability (other comprehensive income or equity) - in which case the related tax
because of the recognition exception for deferred tax liabilities arising from amount is also recognised outside of profit or loss [IAS 12.61A]
goodwill. o a business combination - in which case the tax amounts are
recognised as identifiable assets or liabilities at the acquisition date, and
accordingly effectively taken into account in the determination of goodwill
when applying IFRS 3 Business Combinations. [IAS 12.66]

Recognition of deferred tax assets


A deferred tax asset is recognised for deductible temporary differences, unused tax Example
losses and unused tax credits to the extent that it is probable that taxable profit will An entity undertakes a capital raising and incurs incremental costs directly
be available against which the deductible temporary differences can be utilised, attributable to the equity transaction, including regulatory fees, legal costs
unless the deferred tax asset arises from: [IAS 12.24] and stamp duties. In accordance with the requirements of IAS 32 Financial
Instruments: Presentation, the costs are accounted for as a deduction from
equity.
o the initial recognition of an asset or liability other than in a business Assume that the costs incurred are immediately deductible for tax
combination which, at the time of the transaction, does not affect accounting purposes, reducing the amount of current tax payable for the period. When
profit or taxable profit. the tax benefit of the deductions is recognised, the current tax amount
associated with the costs of the equity transaction is recognised directly in
equity, consistent with the treatment of the costs themselves.
Deferred tax assets for deductible temporary differences arising from investments in
subsidiaries, branches and associates, and interests in joint arrangements, are only
recognised to the extent that it is probable that the temporary difference will reverse
IAS 12 provides the following additional guidance on the recognition of income tax o amount of deferred tax expense (income) relating
for the period: to changes in tax rates or the imposition of new taxes
o amount of the benefit arising from a previously
o Where it is difficult to determine the amount of current and deferred unrecognised tax loss, tax credit or temporary difference of a prior
period
tax relating to items recognised outside of profit or loss (e.g. where there are
o write down, or reversal of a previous write down, of
graduated rates or tax), the amount of income tax recognised outside of
profit or loss is determined on a reasonable pro-rata allocation, or using a deferred tax asset
another more appropriate method [IAS 12.63] o amount of tax expense (income) relating to
o In the circumstances where the payment of dividends impacts the changes in accounting policies and corrections of errors.
tax rate or results in taxable amounts or refunds, the income tax
consequences of dividends are considered to be more directly linked to past IAS 12.81 requires the following disclosures:
transactions or events and so are recognised in profit or loss unless the past
transactions or events were recognised outside of profit or loss [IAS 12.52B]
o The impact of business combinations on the recognition of pre- o aggregate current and deferred tax relating to items recognised
combination deferred tax assets are not included in the determination of directly in equity
goodwill as part of the business combination, but are separately recognised o tax relating to each component of other comprehensive income
[IAS 12.68] o explanation of the relationship between tax expense (income) and
o The recognition of acquired deferred tax benefits subsequent to a the tax that would be expected by applying the current tax rate to accounting
business combination are treated as 'measurement period' adjustments profit or loss (this can be presented as a reconciliation of amounts of tax or a
(see IFRS 3 Business Combinations) if they qualify for that treatment, or reconciliation of the rate of tax)
otherwise are recognised in profit or loss [IAS 12.68] o changes in tax rates
o Tax benefits of equity settled share based payment transactions o amounts and other details of deductible temporary differences,
that exceed the tax effected cumulative remuneration expense are unused tax losses, and unused tax credits
considered to relate to an equity item and are recognised directly in equity. o temporary differences associated with investments in subsidiaries,
[IAS 12.68C] branches and associates, and interests in joint arrangements
o for each type of temporary difference and unused tax loss and
credit, the amount of deferred tax assets or liabilities recognised in the
Presentation
statement of financial position and the amount of deferred tax income or
expense recognised in profit or loss
Current tax assets and current tax liabilities can only be offset in the statement of o tax relating to discontinued operations
financial position if the entity has the legal right and the intention to settle on a net o tax consequences of dividends declared after the end of the
basis. [IAS 12.71] reporting period
Deferred tax assets and deferred tax liabilities can only be offset in the statement of o information about the impacts of business combinations on an
financial position if the entity has the legal right to settle current tax amounts on a acquirer's deferred tax assets
net basis and the deferred tax amounts are levied by the same taxing authority on o recognition of deferred tax assets of an acquiree after the
the same entity or different entities that intend to realise the asset and settle the acquisition date.
liability at the same time. [IAS 12.74]
The amount of tax expense (or income) related to profit or loss is required to be
presented in the statement(s) of profit or loss and other comprehensive income. Other required disclosures:
[IAS 12.77]
The tax effects of items included in other comprehensive income can either be o details of deferred tax assets [IAS 12.82]
shown net for each item, or the items can be shown before tax effects with an o tax consequences of future dividend payments. [IAS 12.82A]
aggregate amount of income tax for groups of items (allocated between items that
will and will not be reclassified to profit or loss in subsequent periods). [IAS 1.91]
In addition to the disclosures required by IAS 12, some disclosures relating to
income taxes are required by IAS 1 Presentation of Financial Statements, as
Disclosure
follows:

IAS 12.80 requires the following disclosures:


o Disclosure on the face of the statement of financial position about
current tax assets, current tax liabilities, deferred tax assets, and deferred
o major components of tax expense (tax income) [IAS 12.79] tax liabilities [IAS 1.54(n) and (o)]
Examples include: o Disclosure of tax expense (tax income) in the profit or loss section
o current tax expense (income) of the statement of profit or loss and other comprehensive income (or
o any adjustments of taxes of prior periods separate statement if presented). [IAS 1.82(d)]
o amount of deferred tax expense (income) relating
to the origination and reversal of temporary differences