Accounting Standards Summary

ACCOUNTING STANDARDS SUMMARY
ACCOUNTING STANDARDS
IAS
1 Presentation of financial statements 2
2 Inventory 2
7 Statement of Cash Flows -
8 Accounting Policies, Changes in Accounting Estimates & errors 3
10 Events After the Reporting Period 4
12 Income Taxes 5
16 Property, Plant and Equipment 6
19 Employee Benefits 8
20 Government Grants 9
21 Foreign Exchange Rates 12
23 Borrowing Costs 13
24 Related Party Disclosures 14
27 Separate Financial Statements 15
28 Investments in Associates 16
32 Financial Instruments: Presentation 17
33 Earnings Per Share 18
34 Interim Financial Reporting -
36 Impairment of Assets 19
37 Provisions, Contingent Liabilities & Contingent Assets 24
38 Intangible Assets 27
40 Investment Property 29
41 Agriculture 30
IFRS -
1 First-time Adoption of IFRS
2 Share-based Payment 31
3 Business Combinations 33
5 Assets Held for Sale & Discontinued Ops 34
7 Financial Instruments: Disclosures -
8 Operating Segments 36
9 Financial Instruments 37
10 Consolidated Financial Statements 40
11 Joint Arrangements 41
12 Disclosure of Interests in Other Entities -
13 Fair Value Measurement 42
15 Revenue from Contracts with Customers 43
16 Leases 47
1
IAS 1 Presentation of Financial Statements
Reporting entity Reporting entity Material uncertainty (MU) facing the

is a going concern is a NON going concern business
Presentation FS prepared using GC basis FS prepared using Break Up Basis

(i.e. use IFRSs)
Disclosure Disclosure of GC basis is not needed. To disclose the change in the basis of - Principal events causing the MU
An entity is PRESUMED to be a going preparation of FS - Management plans to overcome MU
concern - Statement that company is
experiencing MU
IAS 2 Inventory
Good inventory Work in progress

Inventory must be stated at the lower of cost & Net Realisable Value Inventories must be stated at the lower of cost and Net Realisable Value
Cost of raw materials & labour must be included as incurred.
Production overheads must be absorbed according to stage of
completion.
NRV should be selling price less costs to completion.
COST Includes: Cost FORMULAS:

 Costs of purchase, including non-recoverable taxes, transport & handling - For UNIQUE items: Actual cost
 Net of trade volume rebates - For items in BULK: FIFO, Weighted average,
 Costs of conversion (manufacturing cost) Standard cost, Retail Method.
 Other costs to bring inventory into its present condition and location. - LIFO prohibited.
Obsolete / slow moving inventory Faulty / Damaged inventory Bespoke inventory on cancelled contracts
Allowance for obsolete inventory Faulty inventory is no longer saleable & Bespoke inventory on cancelled contracts
must be recognized as an expense & included must be written down to its Net Realizable must be written off if it cannot be sold to
as part of cost of sales Value ($0) another customer.
in the period in which the allowance is made. Any write-down to NRV Any write-down to NRV
must be recognized as an expense & included must be recognized as an expense & included
as part of cost of sales as part of cost of sales
in the period in which the write-down occurs. in the period in which the write-down occurs.
2
IAS 8 Accounting Policies, Changes in Accounting Estimates & Errors
Prior period error:

Errors may arise from mistakes and oversights or misinterpretation of information.
Errors that are discovered in a subsequent period are prior-period errors. Material prior-period errors are adjusted retrospectively
Presentation Disclosure
Accounting entries made RETROSPECTIVELY against RESERVES NATURE of the prior period error
Accounting policy:
Entity must follow the accounting policies required by IFRS. However, for some situations, standards offer a choice.
Where no guidance is given by IFRSs. In these situations, management should select appropriate accounting policies.
Change of accounting policy:

- A change of accounting policy can come about as a result of a new or revised accounting standard. Eg: revenue recognition IFRS 15
- Changing inventory valuation from FIFO to WEIGHTED AVERAGE is a change of accounting policy
- A property transferred from owner-occupation to status of investment property under the fair value model
DOES NOT amount to a change in accounting policy. This is considered CHANGE OF USE of the asset
Accounting entries made RETROSPECTIVELY against RESERVES NATURE of the change in policy
Change in accounting estimate:

A change in an accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of
an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.
Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors
Accounting entries made PROSPECTIVELY in SOPL NATURE & AMOUNT of change that has an effect in the current
period
3
IAS 10 Events After the Reporting Period
Post balance sheet events are events, both favourable and unfavourable,
that occur between the reporting date and the date when the financial statements are authorised for issue.
Events occurring between
Year-end Date F/S to be approved for issue

31 / 12 /20X4 14 / 04 / 20X5
Therefore, companies need to evaluate all events that occurred AFTER their reporting date
and assess whether they are ADJUSTING events or NON-ADJUSTING events
Adjusting event:
One that provides evidence of conditions existing @ the year-end
Recognition Disclosure
The financial effect of an adjusting event No special disclosures

results in a DOUBLE ENTRY
NON-Adjusting event:
One that DOES NOT provide evidence of conditions existing @ the year-end.
Dividends declared AFTER THE YEAR END is non-adjusting.
The NON-adjusting event results in a DISCLOSURE NOTE to FS Disclose nature of event & estimate of financial effect OR
state that estimate cannot be made
NON-Adjusting event that BECOMES adjusting by virtue of the NON GOINCERN STATUS of reporting entity
A company becoming a Non-Going Concern AFTER THE YEAR-END is an adjusting event
FS of the reporting entity should be prepared on a BREAK-UP basis. Disclose:

- The nature of event causing client to become a non-
going concern.
- the CHANGE IN THE BASIS of preparation of FS
4
IAS 12 Income Taxes
Recognition ALL temporary differences recognised as DT liabilities.
Revaluation of property is a temporary difference. DT must be provided for EVEN IF there is NO INTENTION to sell the
asset.
Tax loss recognised as a DT asset ONLY to extent it is PROBABLE that taxable profit will be available against which the
asset can be used. If a company has going concern problems, DT asset relating to losses should not be recognised.
Measurement Temporary differences = Difference between the CARRYING AMOUNT of an asset / liability and its TAX BASE.
Temporary differences multiplied by current tax rate.
EXAMPLE 1 – CALCULATION OF DEFERRED TAX

A non-current asset costing $2,000 was acquired at the start of Year 1. It is being depreciated straight line over four years.
Year Annual depreciation CAs granted on this asset

$ $
1 500 800
2 500 600
3 500 360
4 500 240
2,000 2,000
Year Carrying value @ y/e Tax base @ y/e Temporary Deferred Tax balance @ y/e
(Cost - acc depreciation) (Cost - acc CAs) timing difference Tax rate = 25%
$ $ $ $
1 1,500 1,200 300 $75
2 1,000 600 400 $100
3 500 240 260 $65
4 Nil Nil Nil $0
IAS 12 requires that a deferred tax liability is recorded in respect of ALL taxable temporary differences that exist at the year-end
EXAMPLE 2 - REVALUATIONS OF NON-CURRENT ASSETS

Revaluations of non-current assets (NCA) are a further example of a taxable temporary difference.
When an NCA is revalued, the revaluation surplus is recorded in equity (in a revaluation reserve) and reported as OCI.
While the carrying value of the asset has increased, the tax base of the asset remains the same and so a temporary difference arises.
Tax will become payable on the surplus when the asset is sold and so the temporary difference is taxable.
Since the revaluation surplus has been recognised within equity, to comply with matching, the tax charge on the surplus is also charged to equity.
Suppose that in Example 1, the asset is revalued to $2,500 at the end of year 2, as shown in Table below.
Year 2 Carrying Value Tax base Temporary difference

Opening balance 1,500 1,200 300
Depreciation charge / capital allowance (500) (600) 100
Revaluation 1,500 1,500
Closing balance 2,500 600 1,900
The carrying value will now be $2,500 while the tax base remains at $600. There is, therefore, a temporary difference of $1,900, of which $1,500
relates to the revaluation surplus. This gives rise to a deferred tax liability of 25% x $1,900 = $475 at the year-end to report in the SOFP.
The liability was $75 at the start of the year (Example 1) and thus there is an increase of $400 to record.
However, the increase in relation to the revaluation surplus of 25% x $1,500 = $375 will be charged to the revaluation reserve (OCI).
The remaining increase of $25 will be charged to the Income Statement as before.
The overall double entry is:

DR Tax expense in Income Statement $25
DR Revaluation reserve in equity $375
CR Deferred tax liability in SFP $400
5
IAS 16 Property, Plant and Equipment
Recognition CRITERIA for recognizing cost AS PPE. WHEN should the accounting entries be made:
When it is probable that: If the asset is PURCHASED - DEBIT PPE on the date of delivery.
Cost of the asset can be reliably measured If the asset is BEING built - DEBIT “Asset under construction”
Future economic benefits associated with the asset as costs are incurred.
will flow to the entity
COSTS: Only costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of
operating in the manner intended by the management to be capitalized. (To include installation costs and the costs of the
inspection and the safety certificate because these costs are necessarily incurred in getting the machine ready for use.
SUBSEQUENT COSTS capitalized ONLY IF costs can be reliably measured & these will lead to ADDITIONAL economic
benefits flowing to the entity. E.g.: upgrades to improve quality, modifications to extend useful life, improvements beyond previous
standards of performance, new production process to reduce cost.
Costs to bring the asset back to its former performance must be expensed as incurred.
COMPONENTIZATION: MANDATORY ROUTINE BORROWING COSTS

Component replaced REGULAR MAJOR INSPECTIONS: must be capitalized. Rules in
capitalized. INSPECTIONS: Expensed as incurred. IAS 23.
Depreciate over component’s Amount capitalized DECOMMISSIONING
Useful Life. CA of parts & depreciated over time COSTS must be capitalized.
replaced derecognized. until the next inspection. Rules in IAS 37.
Measurement NCA to be stated either using cost or revaluation model.
COST MODEL: Asset carried @ cost less accumulated depreciation and impairment losses.
Depreciate over Useful Life.
Methods of depreciation: straight line, reducing balance, units of production, or simply any method that reflects
the pattern in which the asset is consumed. Different assets can therefore have different methods of depreciation.
Depreciation commences when the item of PPE is READY for its intended use. (Therefore if asset is READY for its
intended use (meaning that the item of PPE is in the desired location & condition), depreciation MUST BEGIN even if it has yet to
be “put into use”. Therefore use “Available-for-use-date” & NOT “Put-into-use-date”
REVALUATION MODEL: Regular revaluation (3 - 5 years)

Asset carried @ revalued amount, being its fair value at the date of the revaluation, less subsequent depreciation.
If one asset is revalued, then only that entire CLASS of assets must be revalued. Selective revaluation within the class NOT
permitted. Examples of separate classes given in IAS 16 are land and buildings (property) & machinery (plant).
An entity could revalue its property, but does not have to also revalue its plant.
Presentation COST MODEL : Cost LESS accumulated depreciation LESS impairment losses
REVALUATION MODEL: Revalued amount, being its fair value at the date of the revaluation, less subsequent depreciation
Disclosure Depreciation methods used
Contractual commitments for acquisition of PPE (Contingent Liability Note)
6
QUESTION F7 - SEPT 2016
Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for mobile phones.
It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated on the straight-line basis,
time apportioned in the years of acquisition and disposal.
The machine was revalued to $81,000 on 1 July 20X4. There was no change to its useful life at that date.
A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity. The accountant considers that Aphrodite
will need to recognise an impairment loss in relation to this damage. The accountant has ascertained the following information at 1 October 20X6:
(1) The carrying amount of the machine is $60,750.
(2) An equivalent new machine would cost $90,000.
(3) The machine could be sold in its current condition for a gross amount of $45,000. Dismantling costs would amount to $2,000.
(4) In its current condition, the machine could operate for three more years which gives it a value in use figure of $38,685.
In accordance with IAS 16, what is the depreciation charged to Aphrodite Co’s SOPL in respect of the machine for the y/e 31/12/20X4?
Depreciation 1 January to 30 June 20X4 (80,000/10 x 6/12) = 4,000
Depreciation 1 July to 31 December 20X4 (81,000/9 x 6/12) = 4,500
Total depreciation = 8,500
REVALUATION
QUESTION
The information below relates to the FS of a company as at 30 September 20X5.
Carrying Tax
amount base
Plant 110,000 90,000
Land 280,000 200,000
Tax rate 20%
Calculate deferred tax liability & revaluation surplus
ANSWER - deferred tax liability

Carrying Tax Taxable temporary Deferred tax
amount base difference @ 20%
Plant 110,000 90,000 (20,000) (4,000)
Land 280,000 200,000 (80,000) (16,000)
Total deferred tax liability (20,000)
ANSWER - revaluation surplus

$
Revaluation gain (280,000 – 200,000) 80,000
LESS: Associated deferred tax (see above) (16,000)
64,000
7
IAS 19 Employee Benefits
EXAMPLE: Defined Benefit Scheme

Finland operates a defined benefit pension scheme for all its employees.
The closing balances on the scheme assets and liabilities at 31 March 20X4 were $60 million & $64 million respectively.
Finland’s actuary has provided the following information that has yet to be accounted for in the year-ended 31 March 20X5.
$ million
Current service cost 9
Past service cost 8
Contributions paid in 5
Benefits paid out 6
Fair value of plan assets 66
Fair value of plan liabilities 75
Yield on high-quality corporate bonds 5%
Calculate the amounts that will appear in the financial statements of Finland for the year ended 31 March 20X5.
BISCUIT taken from mapitaccountancy.com
Pension Asset Pension liability
Opening balance 60m DR 64m CR
Benefits paid out 6m CR 6m DR
Increase in assets [5% X $60m] 3m DR
Service costs [9 + 8] 17m CR
Contribution 5m DR
Un-recognized (re-measurement) 4m DR 3.2m DR

[Balancing figure] goes to OCI
Interest cost [5% X $64m] 3.2m CR
Total – FV by actuarist 66m DR 75m CR
SOPL OCI SOFP
Service costs 17m DR Actuarial GAIN [4m + 3.2m] 7.2m CR Net pension obligations [75m – 66m] 9m CR
Interest cost 3.2m DR
Increase in asset 3m CR
8
IAS 20 Accounting for Govt GRANTS & Disclosure of Govt ASSISTANCE
Government grants: Assistance by government, in the form of TRANSFERS OF RESOURCES to an entity, IN RETURN FOR past or future
compliance with certain conditions relating to the operating activities of the entity. EXCLUDE forms of government assistance that cannot
reasonably have a value placed on them and which cannot be distinguished from the normal trading transactions of the entity. (Eg: free advice)
MONETARY Grants related to INCOME (Grant monies RECEIVED for costs)

Recognition Measurement Presentation
For PAST COSTS INCURRED : DR Bank CR Other Income

Recognize as Other Income in period received
For CURRENT COSTS : DR Bank

Recognize as Other Income CR Other Income or related expense
(or set-off against related expense) in period received
For FUTURE COSTS : Now …
NOT recognized as “Other Income” DR Bank CR Deferred Income
UNTIL such expenses have been incurred.
When grant received, to credit Deferred Income
QUESTION
Pootle Co received a government grant of $60,000 on 1 September 20X4. The conditions of the grant state that Pootle Co must employ a local
worker on a full-time contract over a five-year period. Pootle Co expects to meet the conditions of the grant.
The full grant has been recorded as Other Income for the year ended 31 Dec 20X4.
What is the adjustment required to account correctly for the grant as at 31 December 20X4?
ANSWER
Monthly recognition of Grant as Other Income
$60,000 / [5 years x 12 months] = $1,000 per month.
SOPL SOFP
To recognize as Other Income 4,000
$4,000 [$1,000 X 4 months (Sept – Dec)] in the SOPL.
To recognize as Deferred Income ($60,000 - $4,000) $56,000
The correcting journal entry required:

Dr Other Income $56,000
Cr Deferred Income $56,000
9
MONETARY Grants related to ASSETS (Grant monies RECEIVED to purchase assets.)
Recognition - CHOICE: Measurement Presentation
Monies received DR Bank CR Deferred income

INITIALLY recognized as Deferred Income. Disclosure Annually:
ANNUALLY recognized as Other Income Accounting policy adopted for DR Deferred Income CR Other income
(over LIFE of the asset) grant monies RECEIVED
Monies received to purchase assets DR Bank CR PPE
SET-OFF AGAINST COST OF ASSET Annually: No special entries
QUESTION
On 1 April 20X7, Chestnut Co received a grant of $2.6m towards a new production machinery. The machinery cost $4m and is expected to have to
have a useful life of five years. Depreciation is charged on a straight line proportionate basis.
Chestnut Co uses the deferred income method in relation to government grants
What is the carrying amount of the non-current liability in respect of the government grant in Chestnut Co’s SOFP as at 31 Dec 20X7?
ANSWER
$
Grant received 1 April 20X7 2.6m
Grant money transferred to Other Income in SOPL [($2.6m / 60 months) X 9 months] 0..39m
Deferred Income 2.21m
Deferred Income – Presentation in SOFP @ 31 Dec 20X7 $

Deferred Income – CURRENT liability [($2.6m / 60 months) X 12 months 0.52m
Deferred Income – NON CURRENT liability 1.69m
NON-MONETARY Grants (Use of land for a period, equipment received free of charge)
Recognition Measurement Presentation
Free use of government land: Value the land / equipment / intangible DR Asset CR Deferred Income
INITIALLY recognize as Deferred Income. @ the nominal consideration paid to
Recognize as Other Income over the term of grant government OR @ FV.
Annually :
Free equipment / license / rights: But FV should only be used where DR Deferred Income CR Other income
INITIALLY recognize as Deferred Income. there is an ACTIVE MARKET
Recognize as Other Income over LIFE of equipment for that asset. (Active market unlikely Disclosure
to exist if license or rights are in a Disclose the accounting policy adopted:
remote location) nominal value or FV
10
REPAYMENT OF GRANT (Grant with CONDITIONS ATTACHED)
At any time, when PROBABLE the conditions attached to a grant will not be met,
Disclosure
a PROVISION for repayment of grant should be recognized.
Unfulfilled conditions &
Any required repayment of a government grant RECEIVED IN AN EARLIER REPORTING PERIOD contingencies attached to
is treated as change in estimate prospectively in SOPL recognized grants
QUESTION
On 1 January 20X6, Gardenbugs Co received a $30,000 government grant relating to equipment which cost $90,000 and had a useful life of six
years. The grant was netted off against the cost of the equipment. On 1 January 20X7, when the equipment had a carrying amount of $50,000, its
use was changed so that it was no longer being used in accordance with the grant. This meant that the grant needed to be repaid in full but by 31
December 20X7, this had not yet been done.
Specify the journal entry required to reflect accounting treatment of the government grant & equipment in the F/S of Gardenbugs for y/e
31 December 20X7
ANSWER
The repayment of the grant must be treated as a change in accounting estimate. The carrying amount of the asset must be increased as the netting
off method has been used. The resulting extra depreciation must be charged immediately to profit or loss.
Original As if no grant Adjustment

Cost 90,000 90,000
Grant (30,000)
60,000
Depreciation (10,000) [Yr 1] (15,000) [Yr 1] Dr Depn exp 20,000
(15,000) [Yr 2] Under depreciation in Yr 1  5,000
Depreciation in Yr 2  15,000
Carrying amount 50,000 [1/1/X7] 60,000 [31/12/X7] Dr PPE 10,000
Cr provision for repayment of grant 30,000
11
IAS 21 The Effects of Changes in Foreign Exchange Rates
MEASUREMENT RULES – INDIVIDUAL COMPANY
Transactions Balances - MONETARY ITEMS Balances – NON MONETARY ITEMS

(Income & expenses) (like payables, receivables, bank) (like inventory, PPE)
Record transactions @ spot rate. Initial translation @ spot rate Initial translation @ spot rate
Spot rate is the exchange rate at the day
of the transaction RE-translation at year end @ closing rate. Non-monetary items carried at the HISTORIC
Gain / loss on RE-translation  SOPL rate. No RE-translation at year end
An average rate for a week or month may

be used if the exchange rate does not
fluctuate significantly.
Non-monetary items measured at FAIR VALUE
are translated at the rate of the
date when the fair value is re-measured
Exchange gains or losses on non-monetary items
measured at fair value are recognized
as part of the change in fair value posted in OCI
or SOPL.
MEASUREMENT RULES – FOREIGN SUBSIDIARY
Transactions Balances - MONETARY ITEMS Balances – NON MONETARY ITEMS

(Income & expenses) (like payables, receivables, bank) (like inventory, PPE)
Record transactions @ spot rate. RE-translation at year end @ closing rate. RE-translation at year end @ closing rate.
Spot rate is the exchange rate at the day Gain / loss on RE-translation  OCI Gain / loss on RE-translation  OCI
of the transaction
An average rate for a week or month may

be used if the exchange rate does not
fluctuate significantly.
12
IAS 23 Borrowing Costs
RECOGNITION RULES
QUALIFYING ASSET (QA) FUNDS BORROWED BORROWING COSTS
A QA is an asset that necessarily takes a  These will be funds borrowed for the  Borrowing costs that are
SUBSTANTIAL PERIOD OF TIME TO GET purpose of financing the construction of the directly attributable to the acquisition,
READY for its intended use or sale. asset, AND construction or production
Examples include: general borrowings which would have been of a Qualifying Asset
 Inventories (that are not produced over a avoided if the expenditure on the asset had MUST be capitalised
short period of time) NOT occurred. as part of the cost of that asset.
 Manufacturing plants , power generation
facilities  Borrowed funds can include overdrafts,  Borrowing costs includes interest expense:
 Intangible assets short-term & long-term borrowings - - calculated by the Effective Interest method
 Investment properties including inter-co borrowings. - finance charges on finance leases and
- exchange differences arising from foreign
currency borrowings relating to interest
costs.
 Other borrowing costs expensed to SOPL

when incurred
MEASUREMENT RULES
Interest earned from the temporary investment of

- specific loans
-
-
DISCLOSURE RULES


QUESTION
ANSWER
13
IAS 24 Related Party Disclosures
RECOGNITION RULES – Who is a RELATED PARTY?
An ENTITY as a related party A PERSON as a related party Not a Related party:
An ENTITY is related to a reporting entity KEY Management Personnel (KMP)  Entities with a director or other
IF: KMPs are those persons having KMP in common
1. The entity & the reporting entity are authority AND responsibility  Two venturers in control of a JV
members of the same group. for planning, directing & controlling
2. The entity is an associate the activities of the entity, directly or indirectly,
including any director (whether ED or NED) of that entity.
3. The entity is JV investment.
4. The entity provides key management
personnel services to the reporting If a person is related to the entity based on the above-
entity or to the parent of the reporting mentioned criteria, ALL its CLOSE FAMILY MEMBERS
entity. are also related parties.
Close members of the family of a person are those family
members who may be expected to influence, or be
influenced by, that person in their dealings with the entity
and include:
 that person’s children and spouse or domestic partner.
 children of that person’s spouse or domestic partner; and
 dependents (i.e., someone depending financially) of that
person or that person’s spouse or domestic partner.
Person having CONTROL / JOINT CONTROL or

SIGNIFICANT INFLUENCE over the reporting entity.
DISCLOSURE REQUIREMENTS
An ENTITY as a related party A PERSON as a related party

IF there are Related Party Transactions: IF there are Related Party Transactions:
 Nature of RELATIONSHIP  Nature of RELATIONSHIP
 TRANSACTIONS & amounts  TRANSACTIONS & amounts
 Outstanding BALANCES including terms & conditions of settlement  Outstanding BALANCES including terms & conditions of settlement
 Information about impairment or bad debts with RPs  Information about impairment or bad debts with RPs
KMP compensation
14
IAS 27 Separate Financial Statements
There are THREE types of financial statements
INDIVIDUAL FS CONSOLIDATED FS SEPARATE FS
An individual FS is not a defined term Consolidated FS = Preparation of SEPARATE financial

in IAS 27. The individual FS of the reporting entity + statements is not mandatory under IFRS,
Individual FS = its subsidiaries’ individual FS but an entity might be required by local
FS of reporting entity + Consolidated financial statements present the legislation or it might elect to present
its investments in JVs and/or associates assets, liabilities, equity, income, expenses, separate financial statements.
which are accounted for using and cash flows of the parent and its
subsidiaries as those of a single economic IAS 27 deals with accounting for
the equity method.
entity. INVESTMENTS in subsidiaries, JVs &
associates in the entity’s SEPARATE
Please note that group includes only a
financial statements.
parent and its subsidiaries.
The financial statements of an entity that
does not have a subsidiary, associate or joint
venturer’s interest in a joint venture are not
separate financial statements
Investment Entities that are exempt from the
requirement to prepare consolidated FS
should account for investments in their
separate FS.
Measurement



15
IAS 28 Investments in Associates and Joint Ventures
Recognition
 Rebuttable PRESUMPTION: Other ways significant influence
20% - 50% shareholding gives rise to significant influence evidenced:
unless clearly demonstrated this is not the case  Representation on the board of directors
 Holding < 20% means NO significant influence unless influence  Power to participate in the financial &
can be clearly demonstrated. operating policy-making process
 A substantial or majority ownership by another investor does not  Interchange of managerial personnel
necessarily preclude an entity from having significant influence  Provision of essential technical information
 Recognize as an ASSOCIATE IF significant influence is proven.
Measurement The investment in an associate is EQUITY ACCOUNTED.

The equity method is used from the date significant influence arises, to the date, significant influence ceases
Disclosure SOPL to include separate line item of the share of profit or loss of associates accounted for using the equity method (IAS1)
QUESTION 1
Johnson paid $1·2 million for a 30% investment in Treem’s equity shares on 1 February 20X5.
Treem’s profit after tax for the year ended 30 September 20X5 was $750,000.
On 30 September 20X5, Treem had $300,000 goods in its inventory which it had bought from Johnson in September 20X5.
These had been sold by Johnson at a mark-up on cost of 20%. Treem has not paid any dividends.
On the assumption that Treem is an associate of Johnson, what would be the carrying amount of the investment in Treem in the
consolidated statement of financial position of Johnson as at 30 September 20X5?
$’000
Investment at cost 1,200
Share of post-acquisition profit 150 (750 x 8/12 x 30%)
URP in inventory (15) (300 x 20/120 x 30%)
1,335
QUESTION 2
For many years, Dilemma has owned 35% of the voting shares and held a seat on the board of Myno which has given Dilemma significant influence
over Myno. The other shares (65%) in Myno were held by many other shareholders who all owned less than 10% of the share capital.
On this basis, Dilemma considered Myno to be an associate and has used equity accounting to account for its investment.
In March 20X5, Agresso made an offer to buy all of the shares of Myno. The offer was supported by the majority of Myno’s directors.
Dilemma did not accept the offer & held on to its shares in Myno. On 1 April 20X5, Agresso announced that it had acquired the other 65% of the
share capital of Myno & immediately convened a board meeting at which three of the previous directors of Myno were replaced, including the seat
held by Dilemma. Dilemma has a year end of 30 June.
Required: Explain how the investment in Myno should be treated in the consolidated F/S at 30 June 20X5.
ANSWER
To be treated as an associate (i.e. equity accounted) an investor must have significant influence over the investee company.
Significant influence is the power to participate in (but not control) the affairs of the investee.
There are several ways in which significant influence is determined, the most important of which is that a holding of 20% or more of voting shares
leads to ‘presumed’ influence. Another indicator of influence is A SEAT ON THE BOARD of the investee. Prior to Agresso’s offer, Dilemma could
demonstrate both of these influences and correctly treated Myno as an associate.
IAS 28 says the 20% holding criteria gives PRESUMED INFLUENCE unless it can be clearly shown that this is not the case.
After the successful offer by Agresso, Dilemma still holds 35% of Myno (it did not sell its shares); however, there is strong evidence that this no
longer gives Dilemma any level of influence over Myno. From 1 April 20X5, Myno became a subsidiary of Agresso which means it can exert control
over Myno. It is difficult to see how Dilemma can have any influence over Myno when Agresso is exerting active control as is evidenced by Dilemma
immediately LOSING ITS SEAT ON THE BOARD of Myno.
Thus from 1 July 20X4 to 31 March 20X5, Myno should (continue to) be equity accounted in the consolidated financial statements of Dilemma.
At that date equity accounting should cease and instead Myno should be treated as a (simple) financial asset equity investment.
Its initial carrying amount at 1 April 20X5 would be its carrying amount immediately before reclassification; subsequently it would (probably) be
accounted for at Fair Value Through Profit or Loss with any dividends received being treated as investment income.
16
IAS 32 – Financial instruments – Presentation
RECOGNITION RULES
Preference shares - Preference shares – Convertible debentures

FIXED rate of dividend & NO FIXED rate of dividend &
MANDATORY redemption date NO MANDATORY redemption date
The substance is that The substance is that These are COMPOUND FINANCIAL
there is a contractual obligation to deliver there is NO contractual obligation to deliver INSTRUMENTS that contain
cash &, therefore, cash &, therefore, both a LIABILITY & an EQUITY element.
should be recognized as a LIABILITY. should be recognized as EQUITY.
As such split accounting needs to be made
As such the dividend will be considered As such the dividend will be debited to
for the two elements. This is because the
a finance cost. Equity & appear in the SOCE.
company does not know if it has an obligation
n co
to pay cash on the redemption of the debt, or

whether the debt will be settled by an equity
distribution.
EXAMPLE
A company issues $20m of 4% convertible loan notes at par on 1 January 20X5. The loan notes are redeemable for cash or equity shares on the
basis of 20 shares per $100 of debts at the option of the loan note holder 31 December 20X7.
Similar but non-convertible loan notes carry an interest rate of 9%.
End of Year 1 End of Year 2 End of Year 3 Cumulative

Discount rates 4% 0.96 0.93 0.89 2.78
Discount rates 9% 0.92 0.84 0.77 2.53
$’000 $’000 $’000

Proceeds of issue 20,000
REDEMPTION
$20m discounted @ 9% over 3 years 15,400 $20m X 0.77 = 15,400K
$20m ÷ 1.09 ÷ 1.09 ÷ 1.09
INTEREST $20m X 4% = $800

Yr X5 800 ÷ 1.09 736 $800 X 0.92 = 736K
Yr X6 800 ÷ 1.09 ÷ 1.09 672 $800 X 0.84 = 672K
Yr X7 800 ÷ 1.09 ÷ 1.09 ÷ 1.09 616 2,024 $800 X 0.77 = 616K
LIABILITY COMPONENT 17,424 17,424
EQUITY (the balancing figure) 2,576
The liability component will be valued by discounting the potential cash outflows to PV using rate of similar but non-convertible loans.
The EQUITY component will then be the balancing figure. (Meaning: cash received – liability component = equity component).
Therefore, ON RECEIPT of cash proceeds, DR Bank 20,000 CR Financial Liability 17,424 CR Equity 2,576
But the presentation @ 31 Dec 20X5 …

Op balance Fin cost 9% Interest pd 4% Cl balance
Year 1 17,424 1,568 (800) 18,192
SOPL
Finance costs 1,568
SOFP
Equity - option to convert 2,576
4% convertible loan notes 18,192
17
IAS 33 – Earnings per share
An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the SOCI,
basic and diluted EPS.
IAS 33 establishes rules for calculation of both: Basic earnings per share; and Diluted earnings per share.
Basic earnings per share Diluted earnings per share
Earnings Earnings adjusted for consequential changes

Number of shares Number of shares + notional extra shares
Earnings Earnings
Group profit OR loss After Tax (from continuing operations) Group profit OR loss After Tax (from continuing operations)
less non-controlling interests less non-controlling interests
less preference dividends less preference dividends
Number of shares Number of shares

The weighted average number of ordinary shares in issue during the The equity share capital may increase IN THE FUTURE
period because the company might have issued some contracts or securities
that are NOT the ordinary shares right now,
EXAMPLE 1 – PRIMO CO
but CAN convert to them in the future, for example:
Date Shares
issued  Loans CONVERTIBLE to ordinary shares
1 / 10 / 20X4 Balance @ beginning of year 200,000  CONVERTIBLE preference shares
1 / 3 / 20X5 New shares issued for cash 100,000
 Share warrants and options
30 / 9 / 20X5 Balance @ year end 280,000
 Employee plans that grant them some ordinary shares as
Weighted average number of shares: their remuneration
(200,000 X 12/12) + (100,000 X 7/12) = 258,333 shares
EXAMPLE 2 – ABBOTT CO EXAMPLE 1 – LIMA CO
Issued shares: Ordinary shares of $1 each 100,000

Ordinary shares of $1 each 100,000 15% CONVERTIBLE loan stock 40,000
10% REDEEMABLE preference shares of $1 each 200,000 (convertible in 2 years’ time
at the rate of 4 ordinary shares
Earnings: for every $5 of loan stock)
Gross profit 500,000 Rate of tax 30%
Operating expenses (300,000)
Preference dividends (2,000) Number of shares
Profit before Tax 198,000 Ordinary shares of $1 each 100,000
Tax (assume 30%) (59,400) Loan stock (40,000 X 4/5) 32,000
Profit after Tax 138,600 132,000
Earnings per share: 138,600 = 138.6 cents Earnings:

100,000 Gross profit 500,000
Operating expenses (300,000)
Interest saved (due to loan stock conversion) 6,000
Profit before Tax 206,000
Tax (assume 30%) (61,800)
Profit after Tax 144,200
Diluted earnings per share: 144,200 = 109.2 cents

132,000
18
IAS 36 Impairment of Assets
Impairment indicators
Impairment refers to an ABRUPT decrease in value. It can be as a result of internal or external factors.
INTERNAL INDICATORS EXTERNAL INDICATORS

 Obsolescence or physical damage  Significant decline in market value
 Asset is idle, part of a restructuring  Negative changes in
or held for disposal technology, markets, economy or laws
 Worse economic performance than expected  Increases in market interest rates
 Declining asset performance , breakdowns (this will affect discount rate for calculation of VIU)
 Increased maintenance
RECOGNITION rules
MANDATORY to check ANNUALLY whether there are indicators of impairment
ANNUAL IMPAIRMENT TESTING IMPAIRMENT TESTING
REGARDLESS of indicators ONLY WHEN there are indicators
ANNUAL IMPAIRMENT TEST compulsory for : For other assets, test for impairment ONLY IF
- Intangible assets with an indefinite useful life there are INDICATORS of impairment.
- Goodwill
- CGUs to which goodwill has been allocated
- Intangible assets NOT YET available for use
NOTE: Where an annual impairment test is required for goodwill and

certain other intangible assets,
IAS 36 allows the impairment test to be performed at any time during
the period, provided it is performed at the same time every year.
MEASUREMENT rules
The aim of IAS 36, Impairment of Assets, is to ensure that assets are carried at no more than their recoverable amount.
IMPAIRMENT LOSS = Carrying Amount LESS Recoverable Amount. RECOVERABLE AMOUNT = Higher of FVLCS and VIU
FV less Price in a binding sale agreement in an arm’s length transaction LESS costs of disposal of the asset.
costs to sell In the absence of a binding sale, use the FV hierarchy (IFRS 13)
COSTS TO SELL (costs to dispose of the asset): legal costs, stamp duty, costs of removing asset, & direct incremental
costs to bring an asset into condition for its sale.
Value In Use Estimate of the future cash flows the entity expects to derive from the asset discounted
using PRE-TAX discount rate.
(The ENTITY’S WACC or the ENTITY’S incremental rate of borrowing may be used as a SURROGATE)
(When estimating the cash flows attributable to a CGU for the VIU calculation, it will be more relevant for client to use
growth rates, specific to the CGU (if available) instead of using the company’s annual growth rates.
Assumptions behind cash flows must be reasonable and supportable.
19
QUESTION 1 - Calculation of impairment (F7 - Q4 JUNE 2015)
During the year, Metric recently purchased owns an item of plant which has a carrying amount of $248,000 as at 31 March 20X5.
It is being depreciated at 12½% per annum on a reducing balance basis.
The plant is used to manufacture a specific product which has been suffering a slow decline in sales.
Metric has estimated that the plant will be retired from use on 31 March 20X8.
The estimated net cash flows from the use of the plant and their present values are:
Year to 31 March Net cash flows $ Present Values $

20X6 120,000 109,200
20X7 80,000 66,400
20X8 52,000 39,000
252,000 214,600
On 1 April 2015, Metric had an alternative offer from a rival to purchase the plant for $200,000.
At what value should the plant appear in Metric’s SOFP as at 31 March 20X5?
ANSWER
Recoverable amount is the HIGHER OF VIU ($214,600) & FVLCS ($200,000)).

Carrying amount = $217,000 [ 248,000 – (248,000 x 12·5%)]
Lower of CA & RA : $214,600
QUESTION 2
Factory
At 1 January 20X7, Chestnut Co’s factory had a carrying amount of $5m. It has a remaining useful life of ten years at that date. On 31 December
20X7, there was an impairment review of the factory, and the recoverable amount was deemed to be $2.5m. Chestnut Co’s factory had previously
been revalued upwards and the revaluation surplus has a credit balance of $1m relating to this factory.
Calculate the depreciation & impairment of Chestnut Co’s factory for the year ended 31 December 20X7
ANSWER
$
Carrying amount @ 1 Jan 20X7 5m
Useful life = 10 years Annual depreciation (0.5m)
Carrying amount @ 31 Dec 20X7 4.5m
Recoverable amount @ 31 Dec 20X7 2.5m
Impairment loss 2m
Journal entry for depreciation

DR Depreciation for 20X7 $0.5m
CR Accumulated depreciation $0.5m
Journal entry for impairment loss

DR revaluation surplus (SOFP) $1m
DR impairment loss (SOPL) $1m
CR Factory $2m
20
QUESTION 3 - Allocation of impairment loss for a CGU (F7 – Q12 DEC 2014)
The net assets of Fyngle, a cash generating unit (CGU), are: $
Property, plant and equipment 200,000
Allocated goodwill 50,000
Product patent 20,000
Net current assets (at net realisable value) 30,000
300,000
As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.
How will the impairment loss be allocated?
Allocated goodwill 50,000 (50,000) 0

PPE 200,000 (45,455) 154,545 Goodwill should be written off in full.
The remaining loss is allocated
Product patent 20,000 (4,545) 15,455
PRO RATA to PPE & product patent.
NCA @ NRV 30,000 - 30,000
300,000 100,000 200,000
21
REVERSAL OF IMPAIRMENT
REVERSAL OF IMPAIRMENT from previous year – RULES

An impairment loss may only be reversed if there has been a change in the estimates used to determine the asset's recoverable amount since
the last impairment loss had been recognized.
If this is the case, then the carrying amount of the asset shall be increased to its recoverable amount.
However, the increase in the carrying value of the asset can ONLY BE UP TO
what the depreciated historical cost would have been if the impairment had not occurred.
Any reversal of an impairment loss is recognized immediately in the income statement,
unless the asset is carried at a revalued amount, in which case the reversal will be treated as a revaluation increase.
REVERSAL DISALLOWED REVERSAL ALLOWED

Impairment loss on goodwill For ALL other assets, reversal is allowed (See reversal RULES)
INCORRECT WAY OF CALCULATING REVERSAL CORRECT WAY OF CALCULATING REVERSAL
$ million
20X4
Asset purchased 9.500
Depreciation to 31 Mar 20X4 (9.5m/20years) (0.475)
Impairment loss charged to SOPL to 31 Mar 20X4 (0.775)
31 March 20X4 Year-end carrying amount 8.250
20X5 20X4
Depreciation to 31 Mar 20X5 (8.25m/19 years) (0.434) Asset purchased 9.500
Carrying amount prior to impairment review 7.816 Depreciation to 31 Mar 20X4 (9.5m/20years) (0.475)
Recoverable Amount @ 31 Mar 20X5 8.850 Depreciation to 31 Mar 20X5 (9.5m/20years) (0.475)
Carrying amount WITH NO IMPAIRMENT 8.550
Carrying amount prior to impairment review 7.816
Reversal of impairment credited to SOPL 1.034 Impairment loss reversal LIMITED TO 0.734
22
QUESTION
Chestnut Co’s head office cost $12m on 1 January 20X1 and is being depreciated over a 40-year life. On 31 December 20X4, there was an
impairment review of the head office, and the recoverable amount was deemed to be $9m. A more recent valuation, at 31 December 20X7, has
estimated that the recoverable amount of the head office is $11m
Chestnut Co uses the cost model when accounting for its head office.
What is the carrying amount of Chestnut’s HO in the SOFP as at 31 Dec 20X7?
ANSWER
20X1 – 20X4 $
Annual depreciation 20X1 – X4 [(12m / 40) X 4] (1.2m)
Carrying amount @ 31 Dec 20X4 10.8
Recoverable amount @ 31 Dec 20X4 9m
Lower of CA & RA 9m
DR Impairment loss $1.8m DR PPE $1.8m

[$10.8m – 9m]
20X5 – 20X7 $
Carrying amount @ 31 Dec 20X7 8.25
REVALUATION 11m
The valuation of $11m on 31 Dec 20X7 means there is a REVERSAL of the original impairment loss.
IAS 36 requires that the reversal of an impairment loss must not exceed the CA that would have been
determined had no impairment loss been recognized in prior years.
Calculation of impairment reversal

$
Carrying amount @ 31 Dec 20X7 WITHOUT IMPAIRMENT 9.9m
$
Carrying amount @ 31 Dec 20X7 WITHOUT IMPAIRMENT 9.9m
Carrying amount @ 31 Dec 20X7 WITH IMPAIRMENT 8.25m
Reversal of impairment is limited to 1.65m
DR PPE $1.65m
CR Reversal of impairment loss $1.65m
Carrying amount of Chestnut’s HO in the SOFP as at 31 Dec 20X7

$
Carrying amount @ 31 Dec 20X7 including earlier 20X4 IMPAIRMENT 8.25m
Reversal of impairment (max) 1.65m
Carrying Amount Of Chestnut’s HO In The SOFP As At 31 Dec 20X7 9.9m
23
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
RECOGNITION RULES
PROVISION CONTINGENT LIABILITY CONTINGENT ASSET
An entity must recognize a provision if, and A contingent liability is a A contingent asset:
only if ALL 3 criteria are met: POTENTIAL obligation - is a possible asset
- a PRESENT Obligation that is POSSIBLE to arise that arises from PAST events, AND
(LEGAL or CONSTRUCTIVE) has arisen from a FUTURE event
- whose existence will be confirmed
as a result of a PAST obligating event A contingent liability only by the occurrence or non-occurrence
- Payment is PROBABLE (> 50% likely), is NOT RECOGNIZED in the FS. of one or more uncertain future events
(If an outflow is not probable, the item is Instead, only disclose the existence of the not wholly within the control of the entity.
treated as a contingent liability) and contingent liability, unless the possibility of
Contingent assets
- the Amount can be reliably estimated payment is remote.
are NOT RECOGNIZED in the FS.
Instead, they are disclosed when it is
Example of contingent liability:
PROBABLE that the inflow of
Capital commitments approved & contracted. benefits are to be received.
However, when the inflow of benefits are

VIRTUALLY CERTAIN,
an ASSET IS RECOGNISED in the FS
because that asset is no longer considered to
be contingent.
Disclosure of contingent liabilities is not
required when the possibility of any outflow in
settlement is POSSIBLE OR REMOTE .
MEASUREMENT RULES – INITIAL MEASUREMENT (PROVISION)
EXPECTED VALUE METHOD MOST LIKELY OUTCOME

Provisions for warranties, customer refunds This means: Provision should be for the best estimate of the
Provisions for large populations of events expenditure required to settle the obligation.
like for warranties, customer refunds Provisions for one-off events @ PV
are measured at a probability-weighted expected value. (Provisions for environmental clean-up, settlement of a lawsuit)
EXAMPLE: are measured at the most likely amount @ PV using a PRE-tax
Provision required for product warranty claims against 200,000 units discount rate that reflects current market assessments of the time
of retail goods supplied with a one-year warranty. value of money.
70% of sales will have no claim, 20% of sales will require

a $25 repair, 10% of sales will require a $120 repair
The provision for the product warranty claims should be calculated
on a probability-weighted expected value basis.
[ (70% x nil) + (20% x $25) + (10% x $120) ] x 200,000 units
= $3.4 million
MEASUREMENT RULES – RE-MEASUREMENT of PROVISIONS @ each year-end
EXPECTED VALUE METHOD MOST LIKELY OUTCOME

Provisions warranties, customer refunds Provisions for one-off events @ PV
Review and adjust provisions at each year end Unwinding the discount
If an outflow is no longer probable, provision is reversed When a provision has a long-term nature (beyond 12 months)
& is valued at its present value, in each reporting period,
FINANCE COST must be recognized.
Formula: Opening NPV multiplied by the discount rate .
24
DISCLOSURE RULES
PROVISION CONTINGENT LIABILITY CONTINGENT ASSET
Circumstances giving rise to Circumstances giving rise to

RECONCILIATION the contingent liability the contingent asset.
for each class of provision:
 opening balance
 additions
 used (amounts charged against the
provision)
 unused amounts reversed
 unwinding of the discount, or
changes in discount rate
 closing balance
For each class of provision,

a brief DESCRIPTION OF:
 The nature of the obligation
 Expected timing of cash outflows
 Uncertainties about timing or
amounts of cash flows
 Major assumptions concerning future
events
 amount of any expected
reimbursement, if any
Double entry
DEBIT CREDIT
Recognition of provision Expense (SOPL) Provision
Unwinding the discount Finance Cost Provision
When the provision is utilized Provision Bank
Reimbursements if virtually certain Monies receivable Other Income (SOPL)
25
RESTRUCTURING :
A ‘restructuring’ is a programme PLANNED & CONTROLLED BY MANAGEMENT
that MATERIALLY CHANGES the scope of the business or the manner in which it is conducted.
A restructuring may be a closure or reorganisation of a business facility.
RECOGNITION RULES
An entity must recognize a provision if, and only if ALL 3 criteria are met:
- a PRESENT Obligation (LEGAL or CONSTRUCTIVE) has arisen as a result of a PAST obligating event
- PROBABLE (> 50% likely) outflow of resources embodying economic benefits to settle the obligation
(If an outflow is not probable, the item is treated as a contingent liability) and
- The Amount can be reliably estimated
Restructuring provision (other than due to an acquisition) Restructuring provision on acquisition
A CONSTRUCTIVE OBLIGATION for restructuring arises ONLY IF: Recognize provision ONLY IF there is an obligation @ acquisition
date.
 there is a detailed formal plan for the restructuring;
AND
 the company has raised a valid expectation
IN THOSE AFFECTED that the plan will be implemented –
i.e. either by starting to implement the plan OR
announcing its main features to those affected.
A board decision of itself is insufficient to create a present obligation

as a result of a past event.
Detailed formal plan - meaning:

Management has specified:
 the facility to be closed
 the estimated timing of the closure
 the approximate number of employees
it plans to make redundant
MEASUREMENT RULES – MOST LIKELY OUTCOME
INITIAL MEASUREMENT (restricting provision) RE-MEASUREMENT of PROVISIONS @ each year-end
This means: Provision should be for the best estimate of the Provisions for one-off events @ PV
expenditure required to settle the obligation. Unwinding the discount
Provisions for one-off events @ PV When a provision has a long-term nature (beyond 12 months)
Provision for restructuring, is measured at the most likely amount & is valued at its present value, in each reporting period,
@ PV using a PRE-tax discount rate that reflects current market FINANCE COST must be recognized.
assessments of the time value of money.
Formula: Opening NPV multiplied by the discount rate .
Restructuring provision
Restructuring provision
to include only DIRECT expenditures necessarily required by the
Review and adjust provisions at each year end
restructuring, example:
 employee termination benefits
 consulting fees that relate directly to the restructuring
 onerous contract provisions
 contract termination costs and
 expected costs from when operations cease until final
disposal
Costs associated with the ongoing activities of the entity

(like relocation costs) CANNOT be included.
Re-training costs CANNOT be included.
Provisions for future operating losses CANNOT be recognized
because there is no obligation at the end of the reporting period.
26
IAS 38 Intangible Assets
Examples of intangible assets NOT intangibles

Patents Internet domains INTERNALLY GENERATED
(protect the FUNCTIONALITY & DESIGN of an invention) Computer software Any other expense (other than R &
Trademarks (protect the brand NAME). Databases (including customer lists) D)
Copyrights (protect the ARTWORK) Video & audiovisual material MUST NOT be recognized as an
Trade secrets (protect the INFORMATION) (e.g. movies, TV programmes) intangible asset.
Expense as incurred.
Trade dress (Eg: the shape of Coca-Cola bottles) Import quotas
- Internally generated goodwill
Licensing agreements Development costs *** - Start-up, pre-opening, and pre-
Royalty agreements operating costs
Franchise agreements - Training cost
Newspaper mastheads (Purchased) - Advertising and promotional cost
- Relocation costs
RECOGNITION RULES (i.e. to recognize as an intangible ASSET)
Cost or Fair Value reliably measured Future Economic Benefits: Control over asset - meaning:
- COST SAVINGS (reduces production cost) POWER to obtain benefits from the asset
- Able to generate REVENUE. (bear RISKS & enjoy REWARDS of
ownership)
RESEARCH & DEVELOPMENT *** ALL OTHER INTANGIBLES
Criteria for capitalizing research expenses as

development costs



SUBSEQUENT EXPENDITURE
27
MEASURMENT RULES
INITIAL MEASUREMENT SUBSEQUENT MEASUREMENT

Measured initially at COST AMORTISATION IMPAIRMENT REVALUATION
Intangible - FINITE life Intangible - FINITE life Revaluation model may be
Test for impairment ONLY IF applied to the whole of that
Amortise over useful life.
there are INDICATORS of asset. (meaning an intangible
(Remaining life should be
impairment. asset must not be revalued while
reviewed at least annually)
it is still being developed)
Amortisation method should
Intangible - INDEFINITE life
reflect the expected pattern of Revaluation ONLY WHERE
Annual test for impairment
consumption of the future an active market exists for
economic benefits REGARDLESS of whether there
are INDICATORS of impairment. such assets.
(Eg unit of production method).
(e.g., for freely transferable
OR if the pattern cannot be
intangible assets such as
determined reliably,
taxi licences, fishing licenses or
the straight-line method of
production quotas).
amortisation should be used.
START DATE for amortisation: An active market cannot exist for

when available for use. most intangibles because
THE ASSET IS UNIQUE
(like brands, newspaper
Intangible - INDEFINITE life mastheads, music & film
Not amortised. publishing rights, patents, or
trademarks), & the price paid for
one asset may not provide
sufficient evidence of the fair
value of another.
For the intangibles which can be

revalued:
DR intangible asset
CR Revaluation Surplus
(Rules are the same as for PPE)
Intangible - INDEFINITE life

The term ‘indefinite’ does not mean ‘infinite’.
Indefinite life means there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
There should be an ANNUAL REVIEW to determine whether events and circumstances continue to support an indefinite useful life assessment for
that asset.
If they do not, the change in the useful life assessment from indefinite to finite should be accounted for as a CHANGE IN AN ACCOUNTING
ESTIMATE.
28
IAS 40 Investment Property
RECOGNITION RULES (i.e. to recognize property as an investment property)

Investment property = property (land, building [or part of a building] OR both that is:
INTENDED to be held for capital COMPLETE in its construction EMPTY of owner-occupation,

appreciation or rental or both not used in production or supply of goods &
(including land for undetermined use) Amendment to IAS 40 in 2009 services, or for administration,
and not held for sale Property that is BEING constructed or not used by group companies, or employees,
in the ordinary course of business. developed for future use as investment
properties MUST be accounted for as Partial own use
The fact that the property
investment properties, even during the If the owner uses part of the property for its
has not yet been let by the reporting date
construction or development phase. own use, & part to earn rentals or for capital
does not impact on this classification
(Therefore, the property NEED NOT be appreciation, & the portions can be sold or
complete in its construction) leased out separately, they are accounted for
SEPARATELY. The part that is rented out is
an investment property.
MEASURMENT RULES
INITIAL MEASUREMENT SUBSEQUENT MEASUREMENT
IF PURCHASED An entity CAN CHOOSE between the FV or COST model.

COST, including transaction The method chosen MUST be applied to ALL investment properties.
costs (stamp duties) Model chosen must be DISCLOSED
PLUS directly attributable
expenses such as, legal fees, FAIR VALUE MODEL COST MODEL
transfer fees.
- Investment properties are measured at FV, - Investment property is depreciated over the
which is the price that would be received remaining useful life.
IF payment for investment to sell the investment property - Investment property tested for impairment if there
property will only be made in the in an arms-length transaction, without deducting are indicators of impairment
future, the purchase price must transaction costs @ year end (see IFRS 13)
be discounted to PV. - Revaluation NOT PERMITTED
- Property is not depreciated
- Gains or losses arising from
IF SELF-CONSTRUCTED changes in the fair value of investment property
CONSTRUCTION COST must be included in SOPL
SUSEQUENT COSTS
should be capitalised if: INVESTMENT PROPERTY HELD FOR SALE INVESTMENT PROPERTY HELD FOR SALE
- There are Future economic If investment properties measured at FV, If investment properties measured using cost
it cannot be classified as Held For Sale model, it should be classified as Held For Sale
benefits that can be derived
(because it does NOT have a CARRYING (because it does have a CARRYING AMOUNT)
from the expenditure
- Costs can be reliably AMOUNT)
measured
Change of USE of property is NOT a change of accounting policy.

When a property is transferred from owner-occupation to status of investment property under the fair value model, the gain is to be treated in the
same way as a revaluation under IAS 16.
To conclude if a property has changed use there should be an assessment of whether the property meets the definition of an investment property.
This change must be supported by evidence. A CHANGE IN INTENTION, IN ISOLATION, IS NOT ENOUGH TO SUPPORT A TRANSFER.
29
IAS 41 Agriculture
Recognition
RULES ARE SIMILAR TO OTHER ASSETS

Cost or Fair Value reliably measured
Future Benefits - PROBABLE that either there be cost savings or the asset is able to generate revenue.
Control over asset - meaning: POWER to obtain benefits from the asset ( bear RISKS & enjoy REWARDS of ownership)
AGRICULTURAL LAND is accounted for under IAS 16
BIOLOGICAL ASSETS ( relate to MANAGED agricultural activity) Initial @ year-end Difference
Bearer PLANTS : IAS 16 IAS 16 (If revalued,

( Eg: tea bushes, grapevines, oil palms, orchards, rubber & coconut GAINS go to OCI,
trees) just like for PPE)
While bearer plant is growing, capitalize costs just as with “PPE - Self
Constructed Assets” (IAS 16)
Depreciate over Useful Life & test for impairment @ each year-end
Bearer ANIMALS: IAS 41 @ FVLCS @ FVLCS SOPL

( Raising livestock: Cows for milk, cows for producing young) If no FV, cost If no FV, cost
Consumable PLANTS: IAS 41 less accumulated
( Trees for logging may take years to grow, flower plants) depreciation
Consumable ANIMALS: IAS 41 less impairment
(Livestock for slaughter, fish farming)
All costs related to biological assets that are measured at FV are recognized as expenses when incurred,
OTHER THAN costs to purchase biological assets
A
AGRICULTURAL PRODUCE before harvest @ point of harvest After harvest
Agricultural produce is the harvested product/outputs of biological @ FVLCS IAS 2:

assets (Eg Trees that will be logged in the year, tea leaves, grapes, oil FV @ point of
palm fruit, latex & coconuts ) harvest forms ‘cost’
FAIR VALUE :
L1 - Quoted market price in an active market (For consumable plants & animals)
L2 - Market Determined Prices (Where active market does not exist)
L3 - PV of expected cashflows where market-determined prices don’t exist (Eg a 3-year-old tree that won’t be chopped down for another 10 years)
NOTE: IGNORE future sales contract prices. Do not use future sales contract prices EVEN IF there is an agreed price to sell the asset.
COSTS TO SELL:
 INCLUDE commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges,
and transfer taxes and duties. Point-of-sale costs
 EXCLUDE transport and other costs necessary to get assets to a market (these are taken into account in arriving at fair value).
GOVERNMENT GRANTS - Unconditional

A government grant related to a biological asset measured at FVLCS is recognized as income in SOPL, when, and ONLY WHEN, receivable.
GOVERNMENT GRANTS - Conditional

A conditional government grant, including where a government grant requires an entity not to engage in specified agricultural activity, is recognized
as income in SOPL when and ONLY WHEN, the conditions of the grant are met.
Presentation IAS 1 requires biological assets to be presented separately on the SOFP
Disclosure Description of each type of biological asset, by a broad group
30
IFRS 2 - Share-based Payment
IFRS 2 requires an expense to be recognised for the goods or services received by a company. The corresponding entry in the accounting records
will either be a liability or an increase in the equity of the company, depending on whether the transaction is to be settled in cash or in equity shares.
RECOGNITION
Purchase of GOODS Purchase of SERVICES

Goods acquired in a share-based payment transaction should be Services acquired in a share-based payment transaction
recognised when they are received. should be recognised when services are received.
In the case of goods, it is obvious when this occurs. However, it is often more difficult to determine when services are
received.
EQUITY settled - EXAMPLE If shares which are issued that vest immediately,
1 March 20X5: Sabu Co contacts Xerox Co on to manufacture a then it can be assumed that these are in consideration of past
services. As a result, the expense should be recognised
bespoke printing machine for 200 of Sabu’s shares.
IMMEDIATELY.
30 June 20X5: Xerox agrees to manufacture the machine.
31 July 20X5: Xerox delivers the machine. Alternatively, if the share-based payment vest (becomes an
The cost of the printing machine will be recognised on the date it was entitlement) in the future, then it is assumed that the equity instruments
delivered. Sabu’s share price on 31 July 20X5 was $50. relate to future services and recognition is therefore SPREAD OVER
200 X $50 = $10,000 THAT VESTING PERIOD (period during which specified conditions are
DR Printing Machine $10,000 to be satisfied e.g. remain in employment for 3 years).
CR Equity $10,000 [200 shares issued]
CASH settled
Cash-settled share-based payment transactions occur where goods
are paid for at amounts that are based on the price of the company’s
equity instruments. The expense for cash settled transactions is the
cash paid by the company.
EXAMPLE
1 March 20X5: Sabu Co contacts Xerox Co on to manufacture a
bespoke printing machine for 200 of Sabu’s shares based on Sabu’s
share price on date of delivery
30 June 20X5: Xerox agrees to manufacture the machine.
31 July 20X5: Xerox delivers the machine.
The cost of the printing machine will be recognised on the date it was
delivered. Sabu’s share price on 31 July 20X5 was $50.
200 X $50 = $10,000
DR Printing Machine $10,000
CR Liability (Payables a/c) $10,000
DISCLOSURE
- Nature & extent of share-based payments that existed during the period.
- How fair value was determined.
- Effect of share-based payments on profit or loss & financial position
31
MEASUREMENT
IFRS 2 ‘fair value’ differs from the definition of fair value in IFRS 13.
If payment is EQUITY settled If payment is CASH settled

EMPLOYEE SHARE OPTIONS with employees CASH-SETTLED AWARDS with employees
FAIR VALUE of the share options @ grant date. (such as A SHARE APPRECIATION RIGHT)
FAIR VALUE of the share awards would be
NOTE: Grant date occurs when there is BOTH a mutual
the FV of the liability at each reporting date
understanding of the terms & a legally enforceable arrangement.
Thus, IF an award requires board or shareholder approval to be legally
binding, under IFRS 2 the grant date is not until such approval has
been given, even if the terms of the award are fully understood at an
earlier date.
The FV of options at the grant date will usually be measured by using a

pricing model (such as Black-Scholes)
Staff entitled Staff entitled
Calculation of expense: Calculation of expense:
Options granted to each Awards granted to each
S X OX FX T S X AX FX T
FV of option @ grant date FV of liability @ reporting date
Time to vesting Time for payment
If EQUITY settled If payment is CASH settled

DR Share Based Payment Expense CR Equity DR Share Based Payment Expense CR Liability
SBPE must be recognised EVEN IF the company’s share price has SBPE must be recognised EVEN IF the company’s share price has
fallen. The fall in share price is a market condition & should be ignored fallen. The fall in share price is a market condition & should be ignored
for the purpose of calculating the SBPE for the year. for the purpose of calculating the SBPE for the year.
SBPE be adjusted each year to account for staff turnover. SBPE be adjusted each year to account for staff turnover.
It is also important for the measurement of the expense that it has been It is also important for the measurement of the expense that it has been
calculated based on the share options being granted midway through calculated based on the share awards being granted midway through
the accounting period. the accounting period.
EQUITY-SETTLED SHARE BASED PAYMENT EXPENSE

An entity grants 100 share options to each of its 500 staff on the condition that the employees remain in its employment for the next 3 years.
Year Resigned Staff expected to leave Award will vest for : FV @ grant date
1 35 60 more staff expected to resign in yrs 2 & 3 500 - 35 - 60 = 405 10.00
2 40 25 more staff expected to resign during yr 3 500 - 35 - 40 - 25 = 400 10.00
3 22 500 - 35 - 40 - 22 = 403 10.00
Year Calculation Cumulative expense DR SOPL

1 405 employees x 100 options x $10.00 x 1/3 135,000 135,000
CASH-SETTLED AWARDS (such as A SHARE APPRECIATION RIGHT)

An entity grants 100 cash-settled awards to each of its 500 staff on the condition that the employees remain in its employment for the next 3 yrs.
Cash is payable at the end of 3 years based on the entity’s share price @ the end of Year 3.
Year Resigned Staff expected to leave Award will vest for : Share price @ y/e
1 35 60 more staff expected to resign in yrs 2 & 3 500 - 35 - 60 = 405 14.40
2 40 25 more staff expected to resign during yr 3 500 - 35 - 40 - 25 = 400 15.50
3 22 500 - 35 - 40 - 22 = 403 18.20
Year Calculation Cumulative expense DR SOPL

1 405 employees x 100 awards x $14.40 x 1/3 194,400 194,400
32
IFRS 3 Business Combinations
ACQUISITION COSTS
All acquisition costs, even those directly related to the acquisition such as professional fees (legal, accounting, valuation, etc), must be expensed.
POST-ACQUISITION PROFITS
The date the subsidiary results are consolidated is the date the acquirer gets CONTROL. (Refer to IFRS 10)
CONTINGENT CONSIDERATION
Contingent consideration is required to be recognized at fair value EVEN IF it is not deemed to be probable of payment at the date of the
acquisition. All subsequent changes in debt contingent consideration are recognized in the SOPL.
GOODWILL
P acquires 100% of S on 1/1/20X1 when S’s share capital was 5 million $1 shares & reserves were $8 million. Year-end 31/12/20X1.
Consideration:
$10m payable in cash on 1/1/20X1
$4m payable in cash on 1/1/20X3
$4m payable in cash on 1/1/20X3 IF S’s sales increased by 30% in that period.
P has a cost of capital of 12%.
Profits of S for the year ended 20X1 = $2m
FAIR VALUE OF NET ASSETS IN SUBSIDIARY @ Acquisition @ y/e

Share capital $ 5m $ 5m
Reserves $ 8m $10m
13,000 15,000
CALCULATION OF GOODWILL on 1/1/20X1

FAIR VALUE OF CONSIDERATION $’000
Cash consideration 10,000
Deferred consideration payable in 2 yr’s time $4000 ÷ 1.12 ² 3,188
Contingent consideration payable in 2 yr’s time $4000 ÷ 1.12 ² 3,188
COST OF INVESTMENT in subsidiary 16,376
LESS : FAIR VALUE OF NET ASSETS (13,000)
GOODWILL 5,976
The goodwill is shown under NON-CURRENT ASSETS.

A gain from a bargain purchase (where ‘goodwill is negative’) is immediately recognized in SOPL at the acquisition date
CALCULATION OF GOODWILL IMPAIRMENT@ 31/12/20X1 $’000 $’000

Carrying Value of the subsidiary @ year-end
Net Assets of the subsidiary @ year-end 15,000
Goodwill @ acquisition 5,976 20,976
Recoverable Amount of the subsidiary @ year-end (Higher of:)
Value in Use $17m
FVLCS $13m 17,000
IMPAIRMENT 3,976
Goodwill is not amortized but must be tested at EACH year-end for impairment in accordance with IAS 36
Reversal of impairment loss is NOT permitted for goodwill. (IAS 36)
CALCULATION OF NON CONTROLLING INTEREST

EXAMPLE:
P buys 80% of S for $40m on 1 / 1 / X1 when S’s share capital was $10m & S’s reserves were $20m.
Immediately prior to P acquiring S, S’s shares had a market value of $3.50 each.
Using proportionate method Using Fair / full value method

NCI is calculated as a % of subsidiary’s net assets at acquisition NCI : given in Q or share price immediately prior to acquisition is given
S’s net assets : Share capital $10m 10m shares @ $3.50 each X 20% = $7m
Reserves $20m
$30m X 20% = 6m
33
IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
SCOPE
IFRS 5 does not apply to: IFRS 5 applies when:
- Deferred tax assets (IAS 12). The carrying amount of an asset will be recovered principally through
- Assets arising from employee benefits (IAS 19) a SALE TRANSACTION rather than through its continuing use.
- Financial assets within the scope of IFRS 9 It must be available for immediate sale in its present condition.
- Non-current assets valued using FV model (IAS 40)
- Non-current assets measured at FVLCS (IAS 41)
WINDING UP / ABANDONMENT
- If an entity is winding up operations or ‘abandoning’ assets,
then these assets do not meet the definition of held-for-sale.
- If the asset is temporarily not being used, it is not deemed
to be abandoned.
IMPORTANT NOTE:
However, a disposal group that is to be abandoned may meet
the definition of a discontinued activity.
RECOGNITION as Held For Sale

Management is committed to a plan to sell the asset Management Accountant Available Seriously Sexy
There needs to be specificity to the plan. That means: Taken from CLAIR FINCH
- the assets need to be identified
- the actions to be taken are identified
- there is an expected date of completion.
- management must have the authority to commit to the plan.
(Sale is approved by Board / sometimes shareholders / sometimes government authority / sometimes lender)
- and it is unlikely that any significant changes to the plan will be made
Actively looking for a buyer to sell @ REASONABLE PRICE in relation to the current FV. (This includes marketing efforts)
The asset (or disposal group) is Available for immediate sale in its present condition.
This means the asset is ready to be sold and transferred with only usual and customary terms and conditions.
An example where this may not be the case is where a manufacturing facility is being sold, but a backlog of orders exists that is not part of the
transaction. If the company must retain the facility until the backlog is complete, the available for immediate sale criterion would not be met.
Sale must be HIGHLY probable
Sale should be completed within 12 MONTHS from the classification date (It is possible that the sale may not be completed within one year, but the
delay effectively must be caused by events beyond the entity’s control and the entity must still be committed to selling the asset.)
MEASUREMENT
 IMMEDIATELY PRIOR TO classification as HFS, the carrying amount of the asset is measured in accordance with applicable IFRSs.
 AFTER classification, the NCA (or disposal groups) is measured at the LOWER OF carrying amount and FV less costs to sell.
Any write-downs arising out of this process are treated as impairment losses. (No reversal for impairment)
 Impairment must be considered both at the time of classification & subsequently at each reporting date.
 Non-current assets (or disposal groups) classified as held for sale are NOT depreciated
As at 30 September 20X4 Dune’s property in its statement of financial position was:

Property at cost (useful life 15 years) $45 million Accumulated depreciation $6 million
On 1 April 20X5, Dune decided to sell the property. The property is being marketed by a property agent at a price of $42 million, which was
considered a reasonably achievable price at that date. The expected costs to sell have been agreed at $1 million. Recent market transactions
suggest that actual selling prices achieved for this type of property in the current market conditions are 10% less than the price at which they are
marketed.
At 30 September 20X5 the property has not been sold.
At what amount should the property be reported in Dune’s statement of financial position as at 30 September 20X5?
Carrying amount = $37·5 million [$45m – $6m – $1.5m depreciation for 6 months] No further depreciation when classified as HFS.
Fair Value Less Cost To Sell = $36·8 million [(42m x 90%) – 1m].
Therefore included at $36·8 million (lower of Carrying Amount and FVLCS).
34
PRESENTATION & DISCLOSURE : NON CURRENT ASSETS HELD FOR SALE / DISPOSAL GROUP( in the SOFP)
 Description of the non-current asset as “Held For Sale” or “Disposal group”
 Non-current assets HFS & assets of disposal groups must be disclosed SEPARATELY presented
 The liabilities of a disposal group must be disclosed separately in the SOFP & NOT set off against assets HFS ASSETS
Non-current Assets
 There should be a description of facts and circumstances of the sale (disposal) and the expected timing
Current Assets
 Prior year balances in the SOFP are NOT reclassified as held for sale. Held For Sale
LIABILITIES
Noncurrent Liabilities
Current Liabilities
Held For Sale
Discontinued operations
Disposed of Held For sale AND Subsidiary was acquired exclusively

with a view to resale (Sub held for disposal)
A discontinued operation is a part of an A discontinued operation is a part of an entity that
An investment in a sub for which control is
entity that HAS BEEN disposed of. is classified as HFS AND
intended to be temporary because the sub was
- represents a separate major line of
acquired and is held exclusively with a view to
business or geographical area of operations
its subsequent disposal within 12 months
- is part of a single coordinated plan to
should account for its investment in the sub as
dispose of separate major lines of business
an asset HFS, rather than consolidate it.
or geographical area of operations
However, if the sub had previously been
consolidated but now HFS, must continue to
consolidate it till it is actually disposed of.
IFRS 5 prohibits the retroactive classification as a discontinued op when criteria met after year end
PRESENTATION & DISCLOSURE: DISCONTINUED OPERATIONS ( SOPL & cash flow statement)
In SOPL Cash flow statement presentation

Once there is a discontinued operation, Separate disclosure of the net cash flows attributable to the operating,
the RESULTS IN RELATION TO THE DIVISION investing, & financing activities of a discontinued operation
must be disclosed separately in the SOPL. on the face of the cash flow statement OR disclosed in the notes.
This should apply to the results for the entire period, and
not just the results since the operation became discontinued.
Comparative figures should also be re-classified. Comparative figures should also be re-classified.
Scenario Explanation Discontinued Assets Held

Operation For Sale
A Entity disposes of a discontinued operation by selling the underlying assets. Yes Yes
The sales transaction, however, is INCOMPLETE at the reporting date
B Entity has ceased activities that meet the definition of a discontinued operation Yes No
without selling any assets
C Entity ceases activities & has ALREADY COMPLETED THE SALE of the underlying assets Yes No
or disposal group at the reporting date
D Entity will sell or has sold assets (after year end) that are within the scope of IFRS 5, No Yes
but does not discontinue any of its operations
35
IFRS 8 Operating Segments
Applies to listed companies
An OPERATING SEGMENT is a component of an entity:
 That engages in Business Activities from which
it may earn revenues and incur expenses
 Whose operating results are regularly reviewed by the entity’s
chief operating decision-maker (CODM) to make decisions about resources to
Are there operating segments?
be allocated to the segment and assess its performance
 For which Discrete financial information is available
REPORTABLE SEGMENT
Information is required to be disclosed separately about each identified operating segment and Any REPORTABLE?
aggregated operating segments that exceed the QUANTITATIVE THRESHOLDS.
If a segment is reportable, then it MUST be separately disclosed.
QUANTITATIVE THRESHOLDS
Disclosure of an operating segment that meets ANY OF the following thresholds:
 Its reported revenue, INCLUDING both sales to external customers and intersegment sales or transfers, is
≥ 10 % of the combined revenue, internal and external, of all operating segments
 The absolute amount of its reported profit or loss is
 ≥ 10 % of combined reported profit of all PROFITABLE operating segments or
 ≥10 % of combined reported loss of all LOSS MAKING operating segments
 Its assets are ≥ 10 % of the combined assets of all operating segments.
The operating segments of a transport and logistics group are:
External Internal Profit Assets Liabilities Reportable

revenue revenue segment?
Parcels $2,000 $30 ($100) $3,000 $2,000 

Logistics / distribution $3,000 $20 $600 $8,000 $3,000 
MANY other services $5,000 $50 $1,050 $20,000 $14,000
$10,000 $100 $1,550 $31,000 $19,000
10% of $10,100 = $1,010 10% of profits = $165 10% = $3,100

10% of losses = $10
MANY other services: These are NOT separate segments. IFRS 8 states that two or more operating segments may be aggregated into a single
operating segment as long as the segments have similar ECONOMIC CHARACTERISTICS (Eg “Similar long-term average gross margins”)
& are similar in certain QUALITATIVE ASPECTS like:
- nature of products and service
- nature of production processes
- type or class or customers
- methods of product distribution
- nature of the regulatory environment (i.e. banking)
So ordinarily the “MANY other services” would not be disclosed. However we need to CHECK WHETHER the 2 reported segments meet the 75%
external revenue test: For parcels & logistics = Currently only $5,000 out of $10,000 (50%).
Therefore additional operating segments (other products) may be added as reportable segments until the 75% threshold is reached
Note.
There is no longer a primary and secondary segment format.
An entity that has determined that its operating segments are based on its products and services does not need to provide geographical segment
information. (Unless the operating segments are based on geography rather than products or services)
36
IFRS 9 Financial Instruments: Recognition & measurement
NEW RULES for impairment of financial assets

TRADE RECEIVABLES (Example from IFRSbox)
ABC, a trading company, has trade receivables with gross carrying amount of $ 500,000 at the end of 20X4.
Careful analysis of the trade receivables showed the following:

One of ABC’s customers, debtor A, filed for bankruptcy proceedings during 20X4. ABC’s receivable to debtor A amounts to $ 2,200 and
ABC expects to recover close to nil. The aging structure of remaining trade receivables is as follows:
‘Simplified approach’ using a provision matrix
Past due days $ % of expected credit loss Loss allowance

on Day 1
Within maturity 392,200 0.5 % 1,961

1 - 30 days overdue 52,300 0.8 % 418
31 - 90 days overdue 27,600 5.6 % 1,546
91 - 180 days overdue 13,200 8.9 % 1,175
181 - 365 days overdue 7,500 20.3 % 1,523
365 + days overdue 5,000 70 % 3,500
Receivable A - bankrupt 2,200 100 % 2,200
Total 500,000 12,323
The third column of the table contains percentages of expected credit loss in the individual aging groups.
ABC estimated these percentages based on the HISTORICAL EXPERIENCE and ADJUSTED IT, WHERE NECESSARY,
FOR FORWARD-LOOKING ESTIMATES.
How should ABC calculate the allowance for receivables in line with IAS 39 and IFRS 9?
IAS 39 requires recognizing the impairment loss to the extent it has ALREADY BEEN INCURRED. So you are not looking to future expectations or
anything like that. Instead, you need to examine just the events leading to impairment loss already incurred.
Therefore, write off $2,200.
IFRS 9
Here, things totally change.

Of course, bad debt provision to debtor A’s receivable of $ 2,200 will not be any different.
This receivable has already been credit-impaired and full lifetime expected credit loss is simply 100% of this receivable – $ 2,200.
However, what about the remaining receivables?
Well, based on the statistics in the 3rd column it seems that ABC can reasonably expect some credit loss in the future, although no loss
events have happened yet. However, ABC’s past experience shows that ABC can expect 0.5% credit loss on the trade receivables that are totally
healthy and performing normally in line with the contractual terms. The percentages increase with increasing days that the receivables are overdue.
As a result, ABC needs to RECOGNIZE Allowance for Credit Losses based on PROVISION MATRIX,
as this simplification is permitted by IFRS 9.
Therefore, ABC should recognize a loss allowance of $12,323 for EXPECTED credit losses
NOTE: Management is responsible for the methods & assumptions used to calculate the new credit loss estimate,
even if that information is prepared by a vendor.
37
Is the asset an Is the DEBT’S contractual Is business model’s objective
NO NO YES YES
EQUITY instrument? cash flows solely payments of ONLY TO HOLD financial asset
principal & interest? to collect contractual cash flows?
YES NO
YES
NO
NO
NO
YES
YES
FVOCI FVTPL FVOCI Amortized cost

Equity Debt instrument Interest revenue,
instrument credit impairment,
foreign exchange
gains/losses
Dividends recognized
recognized in SOPL.
in SOPL.
Subsequent changes Interest calculated

in FV recognized in using
OCI. Effective Interest Rate
On derecognition, On derecognition,
cumulative gains & gains & losses
losses in OCI NOT recognised in SOPL.
reclassified to SOPL.
No impairment
recognized in SOPL
No recycling
QUESTION - F7 SEPT 2016

Two recently purchased investments in publically-traded equity shares are Included within the financial assets of Zinet Co at 31 March 20X9.
Investment 1 - 10% of the issued share capital of Haruka Co.
This shareholding was acquired as a long-term investment as Zinet Co wishes to participate as an active shareholder of Haruka Co.
Investment 2 - 10% of the issued share capital of Lukas Co.
This shareholding was acquired for speculative purposes and Zinet Co expects to sell these shares in the near future.
Neither of these shareholdings gives Zinet Co significant influence over the investee companies.
Wherever possible, the directors of Zinet Co wish to avoid taking any fair value movements to profit or loss,
so as to minimise volatility in reported earnings.
How should the fair value movements in these investments be reported in Zinet Co’s F/S for the year ended 31 March 20X9?
A In profit or loss for both investments
B In other comprehensive income for both investments
C In Profit or Loss for investment 1 and in Other Comprehensive Income for investment 2
D In Other Comprehensive Income for investment 1 and in Profit or Loss for investment 2
ANSWER: D
38
FINANCIAL LIABILITIES AT AMORTISED COST (Excerpt - by Tom Clendon, Student Accountant)
The default position is, and the majority of financial liabilities are, classified and accounted for at amortized cost.
Financial liabilities that are classified as amortized cost are INITIALLY MEASURED at fair value LESS any transaction costs.
Accounting for a financial liability at amortized cost means that the liability's effective interest rate (EIR) is charged as a finance cost
to the SOPL (not the interest paid in cash) and changes in market rates of interest are ignored – ie the liability is not revalued at the reporting date.
In simple terms this means that each year the liability will increase with the finance cost charged to the SOPL and decrease by the cash repaid.
EXAMPLE 1: Accounting for a financial liability at amortized cost

Laxman raises finance by issuing zero coupon bonds at par on the first day of the current accounting period with a nominal value of $10,000.
The bonds will be redeemed after two years at a premium of $1,449. The effective rate of interest is 7%.
SOLUTION
Laxman is receiving cash that it is obliged to repay, so this financial instrument is classified as a financial liability.
The liability will be classified and accounted for at amortized cost and initially measured at fair value LESS the transaction costs.
The bonds are being issued at par, so there is neither a premium nor discount on issue. Thus Laxman initially receives $10,000.
There are no transaction costs and, if there were, they would be deducted. Thus, the liability is initially recognized at $10,000.
In applying amortized cost, the finance cost to be charged to the SOPL is calculated by applying the EIR (in this example 7%)
to the opening balance of the liability each year. The finance cost will increase the liability.
The workings for the liability being accounted for at amortized cost:
The bond is a zero coupon bond meaning that no actual interest is
paid during the period of the bond. Even though no interest is paid
Opening + fin charge Less Closing there will still be a finance cost in borrowing this money.
balance 7% on op bal cash paid balance The premium on redemption of $1,449 the finance cost.
Year 1 $10,000 $700 (Nil) $10,700 The finance cost is expensed over the period of the loan.
Inappropriate to spread the cost evenly as this would be ignoring the
Year 2 $10,700 $749 ($11,449) Nil
compound nature of finance costs, thus the EIR is given.
In final year, a single cash payment wholly discharges the obligation.
EXAMPLE 2: Accounting for a financial liability at amortized cost

Broad raises finance by issuing $20,000 6% four-year loan notes on the first day of the current accounting period.
The loan notes are issued at a discount of 10%, and will be redeemed after three years at a premium of $1,015.
The effective rate of interest is 12%. The issue costs were $1,000.
SOLUTION
With both a discount on issue and transaction costs, the first step is to calculate the initial measurement of the liability.
Cash received - the nominal value less the discount on issue ($20,000 x 90%) $18,000
Less the transaction costs ($1,000)
Initial recognition of the financial liability $17,000
Opening + fin charge Less cash paid @ year end Closing

balance 12% on op bal (6% coupon X nominal value of liability $20K) balance
Year 1 $17,000 $2,040 ($1,200) $17,840
Year 2 $17,840 $2,141 ($1,200) $18,781
Year 3 $18,781 $2,254 ($1,200) $19,835
Year 4 $19,835 $2,380 (1,200) ($1,015) ($20,000) Nil
Total finance costs $8,815
Because the cash paid each year is less than the finance cost, each year the outstanding liability grows and for this reason the finance cost
increases year on year as well. The total finance cost charged to income over the period of the loan comprises not only the interest paid, but also
the discount on the issue, the premium on redemption and the transaction costs.
Interest paid (4 years x $1,200) = $4,800

Discount on issue (10% x $20,000) = $2,000
Premium on redemption $1,015
Issue costs $1,000
Total finance costs $8,815
39
HEDGING
“Hedging” means “to protect”. An entity may wish “to protect” itself from changes in external factors such as interest rates, exchange rates or
commodity prices. A hedge is a financial instrument that mitigates risk. (There are many types of financial instruments which can be used to hedge
against risk like forwards, futures, options & swaps)
A forward contract is a PRIVATE contract that is negotiated between counterparties without going through an exchange or other
type of formal intermediaries, although a broker may help arrange the trade. The terms of the agreement are CUSTOMIZABLE
(regarding the price, the quality and the quantity, as well as a specific delivery date of the underlying asset). The counter parties
settle at the end of the agreement. Although this type of derivative offers flexibility, it poses credit risk because there is no
clearing corporation.
A futures contract is TRADED ON AN EXCHANGE. The counterparties do not work directly with their counterpart; rather, each party
works with a clearance house that is monitoring the transaction. The clearance house is a part of a stock exchange. Credit risk is
significantly reduced because of this. The terms of the agreement are STANDARDIZED (regarding the price, the quality and the
quantity, as well as the delivery date of the underlying asset. However, there is a range of delivery dates in a futures contract)
40
CASH FLOW hedge FAIR VALUE hedge
CASH FLOW HEDGE FAIR VALUE HEDGE

Cash flow hedge is a Fair value hedge is a
hedge of the exposure to VARIABILITY IN CASH FLOWS that hedge of the exposure to CHANGES IN FAIR VALUE that
a) is attributable to a particular risk associated with a) is attributable to a particular risk associated with
a recognized asset a recognised asset
(you’re worried that you might RECEIVE LESS MONEY (here you have a “fixed item” in your SOFP &
in the future than now) or you’re worried that the VALUE of your asset
a recognized liability will fluctuate with the market in the future) or
(you’re worried that you might have to PAY MORE MONEY a recognised liability
in the future than now) or (here you have a “fixed item” in your SOFP &
a HIGHLY PROBABLE FORECAST TRANSACTION you’re worried that the VALUE of your liability
(planned transaction with another party will fluctuate with the market in the future) or
with no commitment INITIALLY), and an unrecognised FIRM COMMITMENT, and
b) could affect profit or loss b) could affect profit or loss.
The hedge is TRANSACTION related.

For example, the hedge of a forecast purchase of NOTE: the Hedged ITEM & the Hedging INSTRUMENT
- inventory in foreign currency will have negative correlation. Therefore, you are trying to decrease
- cotton for your business the volatility of the values in the SOFP.
- oranges for your business
- airplane fuel for your airline
So, you are hedging the exposure to the cash flow risk.
In a cash flow hedge, you want to FIX the amount of money
you’ll receive or pay – so that this amount would be the same
NOW and IN THE FUTURE
The KEY to differentiating whether it is a cash flow hedge or fair value hedge is to ask yourself,
WHAT RISK are you hedging (protecting yourself) against. Cashflows? Or Fair Values?
- Gains / losses on effective portion of the instrument Changes in FV of the hedging instrument is recognised in SOPL.
is recognised in OCI. Changes in FV of the hedged item is also recognised in SOPL.
- Gains / losses on effective portion
is RECLASSIFIED through SOPL when the item is recognised.
- Gain / loss on ineffective portion of the instrument
is recognised through SOPL
To qualify for hedge accounting, FORMAL DOCUMENTATION must be in place at the inception of the hedge relationship on:
 The hedged ITEM
 The hedging INSTRUMENT (whether forwards, futures, options, or swaps)
 The NATURE OF THE RISK being hedged. Different companies are concerned about different risks (for example, some entities
might be concerned about exchange rates or interest rates, while others might be concerned about commodity prices).
 Statement as to whether the entity is hedging the FAIR VALUE of the asset or liability or CASH FLOWS.
 Describe the EFFECTIVENESS of the hedge.
41
CASH FLOW HEDGE
FUTURES CONTRACT - AirAsia
1 August 20X5 AirAsia (Malaysia) BUDGETED the need for 1,000,000 gallons of aviation fuel for its planes for use in November 20X5.
There is concern about the value of aviation fuel fluctuating due to the uncertainty around the weather impacting the harvest.
AirAsia enters into a FUTURES CONTRACT to give AirAsia the rights & obligation to purchase the 1,000,000 gallons for USD$2.50.
The futures contract expires end of October. AirAsia executes contract on 15 October.
Spot rate Futures rate

on 15 Oct
1/8 USD$2.50 USD$2.50
30 / 9 USD$2.70 USD$2.90 AirAsia’s financial y/e
15 / 10 USD$2.80 USD$2.80
Spot rate Futures rate Payable Receivable FV Gain (loss)

on 15 Oct to broker (monies receivable (Payable – Rec’ble)
on hedging instrument
Price locked in
IF futures contract is sold)
1/8 $2.50 $2.50 $2,500,000 $2,500,000 0

30 / 9 $2.70 $2.90 $2,500,000 $2,900,000 $400,000 $400,000
15 / 10 $2.80 $2.80 $2,500,000 $2,800,000 $300,000 ($100,000)
$300,000
Accounting for Cash Flow Hedge 🠋 Hedging instrument JOURNALS

1/8
AirAsia enters into futures contract. Spot rate = futures rate,
therefore, futures contract has no value. No journal entry needed.
Determine the gain or loss on hedging instrument and hedged item at the REPORTING DATE
30 / 9 DR Futures Contract $400,000
GAIN on hedging instrument CR Cash Flow Hedge Reserve in OCI $400,000
Determine the gain or loss when FUTURES CONTRACT EXECUTED
15 / 10 DR Cash Flow Hedge Reserve in OCI $100,000
LOSS on hedging instrument when futures contract is executed. CR Futures Contract $100,000
15 / 10 DR Bank $300,000
Futures contract is sold. Cash received from broker CR Futures Contract $300,000
15 / 10 DR Aviation Fuel (1,000,000 gallons * USD$2.80) $2,800,000

AirAsia purchases aviation fuel on 15/10 @ spot rate CR Bank $2,800,000
Recycle / reclassify gain (loss) in OCI to SOPL

15 / 10 DR Cash Flow Hedge Reserve in OCI $300,000
Recycle / reclassify gain (loss) for THIS contract to SOPL CR Cost of Goods Sold $300,000
Futures contract Cash Flow Hedge Reserve in OCI
30/9 400,000 15/10 100,000 15/10 100,000 30/9 400,000

15/10 Bank 300,000 15/10 COGS 300,000
400,000 400,000 400,000 400,000
42
CASH FLOW HEDGE
FUTURES CONTRACT – Murphy Co
Murphy Co is an orange juice manufacturer. They are PLANNING to purchase a shipment of 1 million oranges in 3 months.
There is concern about the value of the purchase fluctuating due to the uncertainty around the weather impacting the harvest.
The current price is $0.2 million for 1 million oranges.
To mitigate the risk, Murphy enters into a derivative FUTURES contract to purchase 1 million oranges in 3-months’ time at $0.2 million.
The futures contract expires end of August. Murphy Co executes contract on 1 August.
Spot rate Futures rate

in 3 months
1/5 $0.2m $0.2m
30 / 6 $0.25m $0.25m Murphy’s financial y/e
1/8 $0.31m $0.31m
Spot rate Futures rate Payable Receivable FV Gain (loss)

in 3 months to broker (monies receivable (Payable – Rec’ble)
on hedging instrument
Price locked in
IF futures contract is sold)
1/5 $0.2m $0.2m $200,000 $200,000 0 0

30 / 6 $0.25m $0.25m $200,000 $250,000 $50,000 $50,000
1/8 $0.31m $0.31m $200,000 $310,000 $110,000 $60,000
$110,000
Accounting for Cash Flow Hedge 🠋 Hedging instrument JOURNALS

1/8
Murphy enters into futures contract. Spot rate = futures rate,
therefore, futures contract has no value. No journal entry needed.
30 / 6 DR Futures Contract $50,000
GAIN on hedging instrument CR Cash Flow Hedge Reserve in OCI $50,000
Determine the gain or loss when FUTURES CONTRACT EXECUTED
1/8 DR Futures Contract $60,000
GAIN on hedging instrument when futures contract is executed. CR Cash Flow Hedge Reserve in OCI $60,000
1/8 DR Bank $110,000
Futures contract is sold. Cash received from broker CR Futures Contract $110,000
1/8 DR purchases $310,000
Murphy purchases oranges on 1/8 @ spot rate CR Bank $310,000
Recycle / reclassify gain (loss) in OCI to SOPL
1/8 DR Cash Flow Hedge Reserve in OCI $110,000
Recycle / reclassify gain (loss) for THIS contract to SOPL CR Cost of Goods Sold $110,000
Futures contract Cash Flow Hedge Reserve in OCI
30/6 50,000 15/10 Bank 110,000 15/10 COGS 110,000 30/6 50,000
1/8 60,000 1/8 60,000
110,000 110,000 110,000 110,000
43
CASH FLOW HEDGE
FORWARD CONTRACT – Piaget Co
12 June Piaget Co signed a binding agreement to purchase 2,000 watches from Clock Co, a supplier from Farland with a total purchase price
1m Fars .The watches are shipped (& title passes on 16 June). Piaget Co finally pays on 15 July.
Because of concerns about movements in forex rates, on 12 June, Piaget entered into a FORWARD RATE CONTRACT on Fars with a forex
broker so as to receive 1m Fars on 15 July at a forward rate of F1 = $0.61.
The Far exchange rates to local dollar are as follows:
Spot rate Forward rate Forward contract Future purchase of oranges

for delivery Hedging instrument Hedged item
on 15 July
12 / 6 F1 = $0.60 F1 = $0.61
16 / 6 F1 = $0.59 F1 = $0.60
30 / 6 F1 = $0.62 F1 = $0.63 Piaget’s financial y/e
15 / 7 F1 = $0.64 F1 = $0.64
Spot rate Forward Payable Receivable FV Gain A/c payable FX

rate to broker (monies receivable (Payable – (loss) loss
for Price locked on on
IF forward is sold) Rec’ble)
delivery in hedging retrans
on 15 July 1m Fars instrument
-lation
*$0.61
12 / 6 F1 = $0.60 F1 = $0.61 $610K $610K 0 0 - -
16 / 6 F1 = $0.59 F1 = $0.60 $610K 1m Fars *$0.60 = $600K (10K) (10K) 1m Fars *$0.59 = $590K -
30 / 6 F1 = $0.62 F1 = $0.63 $610K 1m Fars *$0.63 = $630K 20K 30K 1m Fars *$0.62 = $620K 30K
15 / 7 F1 = $0.64 F1 = $0.64 $610K 1m Fars *$0.64 = $640K 30K 10K 1m Fars *$0.64 = $640K 20K
30K
Accounting for Cash Flow Hedge 🠋 Accounts payable JOURNALS Hedging instrument JOURNALS
12 / 6 - -
Order placed for watches.
Determine the gain or loss on hedging instrument and hedged item JUST BEFORE GOODS RECEIVED
16 / 6 DR Cash Flow Hedge Reserve in OCI $10K
Loss on hedging instrument (just before goods rec’d) CR Forward Contract $10K
Recycle / reclassify gain or loss in OCI to SOPL AFTER GOODS RECEIVED
16 / 6 DR Inventory (Purchases) $590K
Goods received (use spot rate for date goods received) CR FX Accounts payable $590K
16 / 6 DR Loss on forward contract (SOPL) $10K
Recycle hedging loss to SOPL after goods received CR Cash Flow Hedge Reserve in OCI $10K
30 / 6 Piaget’s financial y/e DR FX loss on retranslation $30K
Loss on RETRANSLATION - accounts payable balance @ ye CR FX Accounts payable $30K
30 / 6 DR Forward Contract $30K
Gain on hedging instrument @ ye CR gain on Forward Contract (SOPL) $30K
Recycle / reclassify gain or loss in OCI to SOPL ON SETTLEMENT
15 / 7 DR FX loss on retranslation $20K
Loss on RETRANSLATION payable balance on settlement date CR FX Accounts payable $20K
15 / 7 DR Forward Contract $10K
Gain on hedging instrument on settlement date CR gain on Forward Contract (SOPL) $10K
15 / 7 CR Bank $640K
Settle accounts payable balance DR FX Accounts payable $640 K
15 / 7 DR Bank $30K
Settle up the forward contract cash received CR Forward Contract $30 K
from FX broker
44
IFRS 10 Consolidated Financial Statements
IFRS 10 addresses the accounting for consolidated financial statements.
Consolidation is required until such time as control ceases, EVEN IF control is temporary
IFRS 10 changes whether an entity is consolidated by revising the definition of control. IFRS 10 creates a new, and broader, definition of control.
This may result in changes to a consolidated group (i.e., more or fewer entities being consolidated).
Assessing control requires a comprehensive understanding of an investee’s purpose & design, & the investor’s rights & exposures to variable
returns, as well as rights & returns held by OTHER investors. This may require input from sources outside of the accounting function, such as
operational personnel & legal counsel, & information external to the entity & also require significant judgment of the facts & circumstances.
3 KEY QUESTIONS : Control exists when an investor has:

1. POWER over the investee (defined in IFRS 10 as when the investor has existing rights that give it the current ability to direct the relevant
activities). (Can the investor control the MAIN decisions [ the” RELEVANT ACTIVITIES” ] made by the investment.
Eg: Pricing, output, location of manufacturing, how operations are going to be funded, appointing key management personnel)
2. Exposure, or rights, to VARIABLE RETURNS from its involvement with the investee. Usually this is :
- dividends
- returns that are not available to other interest holders
e.g. economies of scale, cost savings, scarce products, access to proprietary knowledge or synergies.
- Access to liquidity that an investor has from its involvement with an investee
Returns can be positive, negative or both.
3. The ABILITY TO USE ITS POWER over the investee to affect the amount of the investor’s returns
(Eg: Can investor dictate the dividend policy of the investment?)
If the answer to ALL THREE Qs is YES, then treat the investment as a SUBSIDIARY… therefore use ACQUISITION ACCOUNTING & consolidate
Considerations in deciding whether investor has POWER.

 Proportion of voting shares investor OWNS or CONTROLS. ( if > 50% , treat as subsidiary)
 Are there agreements with other shareholders? (These are often related parties who agree to vote in line with the investor’s wishes)
 Does the investor have options that allow it to acquire a controlling interest?
 Is the investor relatively a lot larger than other shareholders?
 Is the investor a principal (who makes decisions) or an agent (who carries out instructions) ? P often determine the remuneration of A
Investor is required CONTINUOUSLY to reassess whether it controls an investee.

STOP consolidating when control is LOST.
Eg: Subsidiary is located in a country where a military coup has taken place and Parent has lost control of the investment for the foreseeable future
CONSOLIDATION PROCEDURES
 Combine assets, liabilities, income, expenses, cash flows of the parent and subsidiary.
 Fully eliminate intra group transactions and balances.
 Parent and subsidiaries must have UNIFORM accounting policies and reporting dates.
 Reporting dates cannot vary by more than 3 months.
 Consolidation of an investee begins from the DATE the investor obtains CONTROL
 Consolidation is required until such time as control ceases, EVEN IF control is temporary.
INVESTMENT ENTITY
A parent that qualifies as an investment entity MUST NOT consolidate its subsidiaries. Instead, those subsidiaries MUST be accounted for at
FVTPL in accordance with IFRS 9.
An Investment Entity is an entity that commits to its investors (Entity must have > 1 investor & > 1 investment) that its BUSINESS PURPOSE is to
invest funds solely for returns from capital appreciation, investment income or both. Most investment entities will be in the fund management
industry, including private equity and venture capital funds.
The PARENT of an investment entity only obtains the benefit of the exception in its consolidated financial statements if the parent, itself, meets the
definition of an investment entity.
Disclosure Refer to IFRS 12 Disclosure of Interests in Other Entities
45
IFRS 11 Joint Arrangements
KEY FEATURES of Joint ARRANGEMENT:
1) Two or more investors control another through a CONTRACT between the investors
2) Control is SHARED. The shareholding & profit share DO NOT have to be equal.
3) Decision making about relevant activities is SHARED
(For “Relevant Activities” see IFRS 10) All parties must agree 100%. (No individual party can veto).
Joint control occurs when you and I TOGETHER have control of another entity BUT individually only have influence.
When there is joint control, this is a joint arrangement.
A joint arrangement (JA) is either a JOINT OPERATION or a JOINT VENTURE.
JVs are incorporated but JOs are not.
JOINT VENTURE JOINT OPERATIONS
A JV usually involves the setting up of a separate company. No need to create a separate company.
The parties ( the joint venturers) have the rights to the The parties ( the joint operators) have rights to ASSETS and
NET ASSETS (profits generated by the JV the obligations for the LIABILITIES of the JA
but NOT THE INDIVIDUAL ASSETS of the JV. The joint operators could work together on a jointly owned asset
or working together on a joint contract.
In a JV you & I have joint control of the operation In a JO, you & I have joint control of the operation BUT
Each party is seen to have as very very significant influence. your assets are yours & my assets are mine.
So a JV is accounted for as an associate Each party keeps its own accounting records.
using EQUITY method. The accounting follows the substance.
The details of associate accounting remains in the old IAS 28 Each joint operator accounts for :
- Its assets (+ its share of assets held jointly)
- Its liabilities (+ its share of liabilities incurred jointly)
- Its revenue from the sale of its share of the output from the JO.
- Its share of the revenue from the sale of the output from the JO
- Its expenses ( + its share of any expenses incurred jointly)
The above are accounted for in accordance with the applicable
IFRSs.
46
IFRS 13 Fair Value Measurement
Definition
Fair value is the price that would be RECEIVED to sell an asset or PAID to transfer a liability
in an orderly transaction between market participants at the measurement date.
This is the notion of an exit price. Therefore, the exit price is the fair value.
Market participants
Market participants are buyers and sellers in the principal or the most advantageous market for the asset or liability,
with the following characteristics:
 independent
 knowledgeable
 able to enter into transaction
 willing to enter into transaction.
PRINCIPAL MARKET MOST ADVANTAGEOUS MARKET
Fair value should be taken from PRINCIPAL MARKET. In the absence of a principal market, it is assumed that the transaction
The LARGEST market in which the asset / liability is traded. would occur in the MOST ADVANTAGEOUS MARKET.
Principal market is one with GREATEST VOLUME & ACTIVITY. This is the market that maximizes the amount that would be received to
Use principal market EVEN IF asset itself is not being purchased / sell the asset or minimizes the amount that would be paid to transfer
traded in that market. the liability, after taking into account transaction costs & transport
Different entities can have different principal markets costs. ( in order to identify which the most advantageous market)
as it DEPENDS ON which market the entity has ACCESS to.
Eg: a listed stock exchange, Commodities, Oil, Currencies,
In either case, the ENTITY MUST HAVE ACCESS to the market on the measurement date.
PRICES - FAIR VALUE HIERARCHY
The highest priority is given to Level 1 inputs and the lowest priority to Level 3 inputs
The price used to measure fair value MUST NOT be adjusted for transaction costs, BUT SHOULD consider transportation costs.
L1 - Quoted market prices exist for IDENTICAL assets / liabilities in an ACTIVE MARKET
L2 - L1 quoted prices not available but FV is based on observable market data for an IDENTICAL ASSET.
Example :
- a quoted price for a SIMILAR asset in an ACTIVE MARKET. ( Possibly a “2nd hand” market)
- a quoted price for IDENTICAL assets in a MARKET THAT IS NOT ACTIVE ( Eg FV of an unquoted share, valuation based on a recent
transaction)
L3 - Use unobservable inputs for assets / liabilities using the BEST INFORMATION AVAILABLE.
(Eg a unique piece of art, a star footballer, decommissioning costs)
Use own data such as spreadsheet of cash flows or management judgement.
FOR NON FINANCIAL ASSETS

Assume the HIGHEST & BEST USE of an asset
This takes into account the use of the asset which is :
- PHYSICALLY possible
- LEGALLY permissible (Eg For investment property, to consider whether there are zoning restrictions)
- FINANCIALLY feasible (Whether it will produce adequate returns for market participants)
It does not matter whether the entity intends to use the asset differently.
IFRS 13 allows management to PRESUME that the current use of an asset is the highest and best use UNLESS market or other factors suggest
otherwise.
47
IFRS 15 Revenue from Contracts with Customers (2014)
Five-Step Model ( COPAR)
Contract identified
The contract MUST meet the following criteria:
- Contract must be approved contract AND both parties are SUBSTANTIALLY committed to performing their respective obligations.
(See Suggested answer P2 Hybrid Sept/Dec 2015 Q4a i) The contract must be enforceable.
( The contract can be written, oral or implied by the entity’s business practices See Example 4 Dink)
- Each parties rights regarding the goods & services to be transferred can be identified
- Payment terms can be identified. (E.g. When payment is to be made? What currency? )
The price may not be agreed upon upfront. E.g. a cost-plus contract or fees for a lawyer $1000 / hour BUT total fees not agreed.
- Contract must have commercial substance ( i.e. it must make sense commercially … sale or return has no commercial sense.
An artificially inflated selling price also does not make commercial sense)
- It is PROBABLE that the entity will collect the consideration to which it is entitled in exchange for the goods/services transferred.
(To ONLY CONSIDER the customer’s ability & intention to pay that amount of consideration when it is due )
Obligations must be identifiable in the contract.

A performance obligation is A PROMISE IN A CONTRACT with a customer to transfer GOODS or SERVICES to the customer.
The performance obligation may be identified explicitly in the contract or implied through previous business practices, published policies or
statements by the entity. (Therefore, the sale of goods that comes together with services must be unbundled. Eg the company may sell cars that
include a 3-year warranty deal, or the company may sell computers that include 3-year maintenance) See Example 1 Astro Example 2 DIGI
Price for the transaction. (The amount the entity EXPECTS to be paid in exchange for transferring the goods or services. )
- The price EXCLUDES sales tax

- but INCLUDES variable consideration [Meaning: price may change due to bulk discount…therefore use probability-weighted approach. [The
estimate of this must be made upfront on Day 1.] Update estimate at each reporting date to represent any changes prospectively. See
Example 3 Ola Co
- For practical purposes, revenue only requires an adjustment for the time value of money where there is a gap of more than one year
between payment and the transfer of the goods or services (These terms have been AGREED between the parties beforehand, either
explicitly or implicitly). No need to discount revenue to Present Value if payment is expected within 12 months. See Example 4 Dink)
- INCLUDES non-cash consideration ( The non-cash item is to be measured at Fair Value)
Allocate the transaction price to EACH performance obligation on the basis of relative stand-alone selling prices
Recognize revenue when performance obligation satisfied & customer has “CONTROL” over the goods / services
 Revenue relating to GOODS is recognized when ownership risks & rewards are passed to customer…on delivery of goods.
(“at a point of time”).
 Revenue relating to SERVICES is recognized over a period of time. The entity transfers control of a good or service over time and,
therefore, satisfies a performance obligation and recognizes revenue over time.
Revenue can only be recognized over time IF ONE OF the following CRITERIA is met:
CRITERION EXAMPLE
The customer SIMULTANEOUSLY RECEIVES AND CONSUMES the benefits Routine or recurring services like a
provided by the entity’s performance as the entity performs magazine subscription
The entity’s performance creates or enhances AN ASSET (for example, work in Building an asset on a customer’s site
progress) THAT THE CUSTOMER CONTROLS as the asset is created or enhanced or
The entity’s performance does not create an asset with an alternative use to the entity Building a specialised asset that only the
AND the entity has an enforceable right to payment for performance completed to date customer can use OR building an asset
to a customer order
EXPECTED CONTRACT LOSSES
IFRS 15 is silent on recognizing expected contract losses. However, IAS 37 requires an entity to make a provision for “unavoidable costs for
fulfilling an obligation” As such, when it is probable that project costs will exceed project revenue, the expected loss should be immediately
recognized as an expense, regardless of the stage of completion of the development.
48
EXAMPLE 1
Astro sells smart TV sets & TV channel subscriptions. The smart TV usually retails for $560 & the subscription, $60 a month.
Customers can however pay for a two-year deal which includes both the TV set & the TV channels for $62 a month.
Astro has a year-end of 31 December.
Requirement:
Calculate how Astro should account for a two-year contract signed with a customer on 1 April 20X1.
C There is a contract for the two-year deal.
O There are two. Astro has to deliver a TV set AND the monthly channel subscription & clearly the two are separable. This is unbundling.
P The discount has to be taken into consideration here

The two year contract based on STAND ALONE FAIR VALUES = 560 + (24 months X $60) = $2,000
The two year contract WITH the deal = (24 months X $62.50 ) = $1,500
With the deal there is a discount of $500… which is 25%
A Allocate transaction price of $1,500 to individual performance obligations.

We apply the discount to the TV set. Normal price $560 – 25% discount = $420
Monthly rental (normally pay $60 a month less 25% discount = $45 a month
R The revenue recognition for 20X1 is:

On 1/4/X1 Revenue from the TV set = $420
Rental for 9 months @ $45 = $405
Total = $825
DR Cash ( monies received from customer $62.50 X 9 months) = $562.50
CR Revenue from sale of goods $420.00
CR Revenue from channel subscription $405.00
DR Unbilled revenue $262.50
NOTE:
Telecommunications
Key insight: Airtime providers will now be required to recognize more revenue associated with a subsidized handset at the start of the contract and
less revenue as the contract continues regardless of the pattern of billings.
NOTE:
Retail, wholesale and distribution

Key insight: An entity in the retail sector will have to consider if a warranty provides assurance that a product meets agreed-upon specifications
only, or if it provides for additional maintenance service. The latter will require accounting for a separate performance obligation.
49
EXAMPLE 2 ( Example taken from IFRSBox)
Billy enters into a 12-month telecom plan with the local mobile operator DIGI on 1 July 20X1. The terms of the plan are as follows:
Billy’s monthly fixed fee is $ 100.
Billy receives a free handset at the inception of the plan.
DIGI sells the same handsets for $ 300 and the same monthly prepayment plans without handset for $ 80/month.
DIGI has a year-end of 31 December.
Requirement:
How would DIGI recognize the revenues from this plan in line with IAS 18 and IFRS 15 at 31 December 20X1
Revenue under IAS 18

Under the previous rules of IAS 18, DIGI recognizes no revenue from the sale of the handset, because DIGI gives it away for free.
The cost of the handset is recognized to profit or loss and effectively, DIGI treats that as a cost of acquiring new customer.
Revenue from monthly plan is recognized on a monthly basis.
Therefore revenue for 6 months to 31 Dec 20X1 = $100 X 6 = $600
The monthly journal entry is to DR cash CR revenues with $ 600. Simple as that.
Revenue under IFRS 15
C There is a contract for a 12-month telecom plan.
O There are two. DIGI has to deliver a handset AND deliver network services over 1 year & clearly the two are separable.
This is unbundling.
P The discount has to be taken into consideration here

The two year contract based on STAND ALONE FAIR VALUES = 300 + (12 months X $80) = $1,260
The two year contract WITH the deal = (12 months X $100 ) = $1,200
With the deal there is a discount of $60… which is 4.8%
A Allocate transaction price of $1,200 to individual performance obligations.

We apply the discount to the TV set. Normal price $300 – 4.8% discount = $285.60
Monthly rental (normally pay $80 a month less 4.8% discount = $76.20 a month

On 1/1/X1 Revenue from the TV set = $285.60
Rental for 6 months @ $76.20 = $457.20
Total revenue = 742.80
DR Cash ( monies received from customer $100 X 6 months) = $600.00
CR Revenue from sale of goods $285.60
CR Revenue from network services $457.20
DR Unbilled revenue $142.80
50
EXAMPLE 3 ( Example taken from Kieran MacGuire)
Ola Co enters into a contract on 1 Jan 20X1 to sell cans of beans to Dodger Co.
The contract is for one year to sell beans at $2 per can if Dodger buys <300,000 cans over the period,
$1.80 per can if Dodger buys 300,000 – 400,000 cans, and $1.50 per can if Dodger buys > 400,000 cans.
During January 20X1, Ola sells 28,000 can of beans to Dodger. It believes there is a 20% probability of selling < 300,000 cans,
50% probability of selling 300,000 – 400,000 cans and 30% probability of selling > 400,000 cans
Requirement:
Calculate the revenue figure that Ola should include in its Statement of Profit or Loss for January X1.
ANSWER: Use probability – weighted calculation.

= 28,000 X [ (20% X $2.00) + (50% X $1.80) + (30% X $1.50) = 28,000 X $1.75 = $49,000
DR Dodger (28,000 X $2.00) = $56,000 CR Revenue $49,000 CR Deferred income $7,000
EXAMPLE 4: ( Example taken from Martin Jones PQ Magazine )

Dink is a bridge builder. On 1 January 20X1, Dink has agreed to build a bridge for the government who have given their concrete agreement to pay
$500m in 4 years’ time.
The PV of the $500m at the year start when building begins is $440m.
There is no written contract but the government has approved the plans & have always paid the builders on time in the past.
The $500m includes the bridge & the land on the south bank.
Sold separately the bridge & the land have a FV ratio of 4 to 1.
The government took control of the land at year start & the surveyor certifies the bridge as 40% complete at year end.
Requirement:
Calculate how Dink should account for the contract in its financial statements for the year ended 31 December 20X1.
ANSWER : In order to calculate the revenue for the year 20X1, we first need to check whether the 5 steps in IFRS 15 exist.
C There is a contract. Even though there is no signed paper, there is a contract.

The government has agreed & have always paid in the past.
O There are two. Dink has to deliver a bridge and land & clearly the two are separable. This is unbundling.
P The finance considerations are material & must be stripped out & recognised separately under IFRS 9.
So the price is $440m under IFRS 15
A The 4:1 ratio gives us $352m for the bridge & $88m for the land. (352 + 88 = 440)

Land (recognised at the point control is transferred at the year start) $ 88
Bridge (recognised at 40% completion at the year-end)
40% of $352m $141
Current revenue $229
DR Progress Billings $229 CR Contract revenue in profit or loss $229
EXAMPLE 5
Knight Co enters into a contract to sell a machine to Perry Co on 1 January 20X1 for $800,000. Knight’s usual terms are payment within 30 days
but to incentivise Perry to sign the contract, Knight stated that they could pay on 1 January 20X3. Knight has a risk adjusted cost of capital of 12%.
Requirement:
Calculate how Knight should account for the contract in its financial statements for the year ended 31 December 20X1.
At 1/1/20X1 $800 K ÷ [(1.12%)^2] = $638 K

DR Receivables $638 K CR Revenue $638 K
At 31/12/X1 to recognise finance income. $638 K X 12% = $77 K

DR Receivables $77 K CR Finance Income $77 K
51
IFRS 16 Leases (Notes for IFRS 16 summarised from Tan Liong Tong / MASB)
A ‘right-of-use’ model REPLACES the ‘risks and rewards’ model. The distinction between operating and finance leases is eliminated for lessees.
Recognition
Lease classification is determined at the inception date. IFRS 16 states that a contract contains a lease if:
R Right to control the use of an Control means the customer has BOTH the right to substantially all of the economic benefits from
use of the asset, for the whole period of use & can direct the use of the asset.
 Right to change what type of output is produced.

Direct the use of the asset means
 Right to change when the output is produced.
(assuming the asset is a
 Right to change where the output is produced.
machine)
 Right to change how much of the output is produced.
I Identified asset, For the asset to be ‘identified’ the supplier of the asset
MUST NOT have the right to substitute the asset for an alternative asset
throughout its period of
use.
The fact that the supplier of the asset has the right or the obligation to substitute the asset when a repair
is necessary does not preclude the asset from being an ‘identified asset’.
T for a period of Time, in The lease term is NOT short ( lease is > 12 months)
[BUT any short-term lease that contains a purchase option is not short-term]
E Exchange for a consideration Value of asset is NOT low (Eg >$5,000)
IFRS 16 permits two EXEMPTIONS: (Means: Do not show Right - Of - Use Asset, Lease liability)
Lease term ≤ 12 months + Exemption must be applied to ALL items in SAME CLASS
No option to purchase
Low value Exemption is applied on one-by-one basis
Depreciation (Right-of-use asset)
The right of use asset is subsequently depreciated. Depreciation is over the shorter of the useful life of the asset and the lease term, unless the title
to the asset transfers at the end of the lease term, in which case depreciation is over the useful life.
An ‘identified asset’ (This example is from ACCA technical article)
For the asset to be ‘identified’ the supplier of the asset MUST NOT have the right to substitute the asset for an alternative asset throughout
its period of use.
The fact that the supplier of the asset has the right or the obligation to substitute the asset when a repair is necessary does not preclude the asset
from being an ‘identified asset’.
Example - identified assets

Under a contract between a local government authority (L) and a private sector provider (P), P provides L with 20 trucks to be used for refuse
collection on behalf of L for a 6-year period. The trucks, which are owned by P, are specified in the contract.
L determines how they are used in the refuse collection process. When the trucks are not in use, they are kept at L’s premises.
L can use the trucks for another purpose if it so chooses. If a particular truck needs to be serviced or repaired, P is required to substitute a truck of
the same type. Otherwise, and other than on default by L, P cannot retrieve the trucks during the six-year period.
Conclusion: The contract is a lease. L has the right to use the 20 trucks for six years which are identified and explicitly specified in the contract.
Once delivered to L, the trucks can be substituted only when they need to be serviced or repaired.
52
The right to direct the use of the asset
IFRS 16 states that a customer has the right to direct the use of an identified asset [meaning: CONTROL] if the customer has the right to direct
how and for what purpose the asset is used throughout its period of use, or
Example - the right to direct the use of an asset

A customer (C) enters into a contract with a road haulier (H) for the transportation of goods from London to Edinburgh on a specified truck.
The truck is explicitly specified in the contract and H does not have substitution rights.
The goods will occupy substantially all of the capacity of the truck.
The contract specifies the goods to be transported on the truck and the dates of pickup and delivery.
H operates and maintains the truck and is responsible for the safe delivery of the goods.
C is prohibited from hiring another haulier to transport the goods or operating the truck itself.
Conclusion: This contract does not contain a lease.
There is an identified asset. The truck is explicitly specified in the contract and H does not have the right to substitute that specified truck.
C does have the right to obtain substantially all of the economic benefits from use of the truck over the contract period.
Its goods will occupy substantially all of the capacity of the truck, thereby preventing other parties from obtaining economic benefits from use of the
truck.
However, C does not have the right to control the use of the truck because C does not have the right to direct its use.
C does not have the right to direct how and for what purpose the truck is used. How and for what purpose the truck will be used
(i.e. the transportation of specified goods from London to Edinburgh within a specified timeframe) is predetermined in the contract. C has the same
rights regarding the use of the truck as if it were one of many customers transporting goods using the truck.
EXAMPLE – accounting for leases

A lessee enters into a 20-year lease of one floor of a building, with an option to extend for a further five years.
Lease payments are $80,000 per year during the initial term and $100,000 per year during the optional period, all payable at the end of each year.
To obtain the lease, the lessee incurred initial direct costs of $25,000.
At the commencement date, the lessee concluded that it is not reasonably certain to exercise the option to extend the lease and, therefore,
determined that the lease term is 20 years.
The interest rate implicit in the lease is 6% per annum. The present value of the lease payments is $917,600.
Initial Measurement of the Lease Liability

The lessee shall initially measure the lease liability at the present value of the lease payments that are not paid at that date
At the commencement date, the lessee incurs the initial direct costs and measures the lease liability $917,600.
PV of lease payments $917,600

Initial direct costs $25,000
Carrying amount of the right of use asset $942,600
Annual depreciation charge will be $47,130 ($942,600 x 1/20).
The lease liability will be measured using amortised cost principles.
Year Bal b/fwd Finance cost 6% Rental Bal b/fwd

1 917,600 55,056 (80,000) 892,656
2 892,656 53,559 (80,000) 866,215
20-year life
At the end of year one, the carrying amount of the right of use asset will be $895,470 ($942,600 less 5% depreciation). = 5%
The interest cost of $55,056 will be taken to the statement of profit or loss as a finance cost.
The total lease liability at the end of year one will be $892,656. As the lease is being paid off over 20 years,
some of this liability will be paid off within a year and should therefore be classed as a current liability.
To find this figure, we look at the remaining balance following the payment in year two. Here, we can see that the remaining balance is $866,215.
This will represent the non-current liability, being the amount of the $892,656 which will still be outstanding in over a year.
The current liability element is therefore $26,441.This represents the $80,000 paid in year two less year two’s finance costs of $53,559 (or $892,656-
$866,215).
53
Sale and leaseback transactions
Accounting treatment depends on WHETHER the transaction is really a SALE.
The transfer of an asset is accounted for as a sale when the performance obligation is satisfied (IFRS 15).
If the buyer-lessor has CONTROL of the asset, the transfer of the asset is a sale transaction.
Conversely, if the leaseback provides the seller-lessee with the ability to direct the use of AND obtain substantially all of the remaining benefits from
the asset, then the buyer-lessor does not obtain control of the asset and the transfer is not a sale.
For example: buyer-lessor DOES NOT HAVE CONTROL of the asset IF:
 the lease term is for the major part of the remaining economic life of the asset or
 the PV of the lease payments accounts for substantially all of the FV of the asset.
When a transfer is a SALE
EXAMPLE from Tan Liong Tong / MASB) … selling price = FV of the asset
At 1 January 20x8, Entity K (seller-lessee) owns a ship with a carrying amount of $30 million.
The Fair Value of the ship on this date is $40,000,000.
On this date, it sells the ship to a finance entity (buyer-lessor) at FV for cash consideration of $40m & immediately leases back the
ship for a non-cancellable lease period of 5 years, with an option to extend the lease term for another 5 years at the end of year 5.
But there is no significant economic incentive to extend the lease period and Entity K determines the lease term at five years.
The lease payment in the non-cancellable lease period is fixed at $6 million p.a, payable in arrears @ end of each year.
The remaining economic life of the ship is 20 years.
Entity K determines that the sale satisfies the requirements of IFRS 15 to be accounted for as a sale of the ship.
The interest rate implicit in the lease is 8% per annum. The Present Value of the lease payments discounted at 8% is $23,956,000.
The allocation of the carrying amount of the ship is as follows:
Components Fair Value $’000 Proportion % Carrying Amount $’000

Buyer-lessor’s
Right - Of - Use retained (PV) 23,956 59.89% 17,967
books
Rights transferred 16,044 40.11% 12,033
At the commencement
Total 40,000 100.00% 30,000 date, the buyer-lessor
recognises
the purchase of the ship
At the commencement date, Entity K accounts for the transaction as follows: at $40 million as PPE.
Subsequently,
$’000 $’000
the leaseback shall be
DR Cash 40,000 treated as an
DR Right-of-use asset 17,967 operating lease &
the lessor recognises
CR Lease liability 23,956 rental income on a
CR PPE – ship 30,000 straight-line basis.
CR Gain on disposal in profit or loss 4,011
Entity K recognizes only the amount of the gain that relates to the rights transferred to the finance entity.
$10m ($40m – $30m) X $16,044,000 = $4,011,000

$ 40,000,000 (FV)
Transfer is NOT a SALE

The asset remains in the SOFP. The ‘sales proceeds’ are recognized as a financial liability and accounted for by applying IFRS 9.
In the same circumstances, the buyer recognizes a financial asset equal to the ‘sales proceeds’.
Assume the facts are the same as earlier example except that conditions in IFRS 15 not met
Proceeds $40m
$’000 $’000
DR Cash 40,000
CR Financial liability 40,000
54

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ACCOUNTING STANDARDS SUMMARY

Reporting entity Reporting entity Material uncertainty (MU) facing the

Presentation FS prepared using GC basis FS prepared using Break Up Basis

Good inventory Work in progress

COST Includes: Cost FORMULAS:

Prior period error:

Change of accounting policy:

Change in accounting estimate:

Events occurring between

Year-end Date F/S to be approved for issue

The financial effect of an adjusting event No special disclosures

FS of the reporting entity should be prepared on a BREAK-UP basis. Disclose:

EXAMPLE 1 – CALCULATION OF DEFERRED TAX

Year Annual depreciation CAs granted on this asset

EXAMPLE 2 - REVALUATIONS OF NON-CURRENT ASSETS

Year 2 Carrying Value Tax base Temporary difference

The overall double entry is:

COMPONENTIZATION: MANDATORY ROUTINE BORROWING COSTS

Measurement NCA to be stated either using cost or revaluation model.

REVALUATION MODEL: Regular revaluation (3 - 5 years)

The information below relates to the FS of a company as at 30 September 20X5.

ANSWER - deferred tax liability

ANSWER - revaluation surplus

EXAMPLE: Defined Benefit Scheme

Yield on high-quality corporate bonds 5%

BISCUIT taken from mapitaccountancy.com

Pension Asset Pension liability

Opening balance 60m DR 64m CR

Benefits paid out 6m CR 6m DR

Increase in assets [5% X $60m] 3m DR

Service costs [9 + 8] 17m CR

Un-recognized (re-measurement) 4m DR 3.2m DR

Interest cost [5% X $64m] 3.2m CR

Total – FV by actuarist 66m DR 75m CR

SOPL OCI SOFP

Interest cost 3.2m DR

MONETARY Grants related to INCOME (Grant monies RECEIVED for costs)

For PAST COSTS INCURRED : DR Bank CR Other Income

For CURRENT COSTS : DR Bank

To recognize as Deferred Income ($60,000 - $4,000) $56,000

The correcting journal entry required:

Recognition - CHOICE: Measurement Presentation

Monies received DR Bank CR Deferred income

Deferred Income – Presentation in SOFP @ 31 Dec 20X7 $

Recognition Measurement Presentation

Original As if no grant Adjustment

MEASUREMENT RULES – INDIVIDUAL COMPANY

Transactions Balances - MONETARY ITEMS Balances – NON MONETARY ITEMS

An average rate for a week or month may

MEASUREMENT RULES – FOREIGN SUBSIDIARY

Transactions Balances - MONETARY ITEMS Balances – NON MONETARY ITEMS

An average rate for a week or month may

QUALIFYING ASSET (QA) FUNDS BORROWED BORROWING COSTS

 Other borrowing costs expensed to SOPL

Interest earned from the temporary investment of

RECOGNITION RULES – Who is a RELATED PARTY?

An ENTITY as a related party A PERSON as a related party Not a Related party:

Person having CONTROL / JOINT CONTROL or

An ENTITY as a related party A PERSON as a related party

There are THREE types of financial statements