ACCA Strategic Business Reporting (UK)

IAS 38 Intangible Assets: Disclosures

IAS 38 states that an entity must disclose: The amount of research and development expenditure expensed in the period • The amortisation methods used • For intangible assets assessed as having an indefinite useful life, the reasons supporting that assessment • The date of any revaluations, if applicable, as well as the methods and assumptions used • A reconciliation of the carrying amount of intangibles at the beginning and end of the reporting period

IAS 12 Income Taxes: Disclosures

An entity must disclose: • the major components of its tax expense • tax recognised directly in equity • tax relating to items recognised directly in equity • tax relating to each component of other comprehensive income • an explanation of the relationship between tax expense and accounting profit

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Changes in accounting policy

An entity should only change its accounting policies if required by a standard, or if it results in more reliable and relevant information New accounting standards normally include transitional arrangements on how to deal with any resulting changes in accounting policy If there are no transitional arrangements, changes in accounting policy should be applied retrospectively. The entity adjusts the opening balance of each affected component of equity, and the comparative figures are presented as if the new policy had always been applied

Integrated reporting

An integrated report explains how an entity creates value over the short-, medium- and long-term To this extent, a number of fundamental concepts underpin the IR framework. These are: • The capitals (financial, manufactured, intellectual, human, social, and natural) • The organisation's business model • The creation of value over time

Consolidated statement of cash flows: Associates

Associates are not part of the group and therefore cash flows between the group and the associate must be reported in the statement of cash flows. Cash flows relating to associates that need to be separately reported within the statement of cash flows are as follows: • dividends received from an associate • loans made to associates • cash payments to acquire associates • cash receipts from the sale of associates These cash flows should be presented as cash flows from investing activities

Implications of adopting new accounting standards

Before adopting new accounting standards, an entity should always consider the following: • Transitional guidance • Bonuses and performance related pay • IT systems • Covenants on loans • Earnings per share • Perception • Knowledge

UK GAAP vs IFRS: Associates

Carrying amount: FRS 102 specifies that any transactions costs are added onto the initial carrying amount of an associate Under IFRS, these costs are expensed to profit or loss ------------------------- Implicit goodwill: FRS 102 specifies that any difference between the consideration paid to acquire an associate and the investor's share of the fair value of the associate's net assets is implicit goodwill. This goodwill should be amortised over its useful economic life

Cash and cash equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value IAS 7 does not define 'readily convertible' but notes that an investment would qualify as a cash equivalent if it had a short maturity of three months or less from the date of acquisition

IAS 7 Statement of Cash Flows: Classification of cash flows

Cash flows are classified under one of three headings: • Cash flows from operating activities - defined as the entity's principal revenue earning activities and other activities that do not fall under the next two headings • Cash flows from investing activities - defined as the acquisition and disposal of long-term assets and other investments (excluding cash equivalents) • Cash flows from financing activities - defined as activities that change the size and composition of the entity's equity and borrowings

Consolidated statement of cash flows: Acquisitions

Cash flows from investing activities: Acquisition of subsidiary, net of cash acquired (X) • Actual cash flow for the purchase of the subsidiary net of any cash held by the subsidiary that is now controlled by the group

Consolidated statement of cash flows: Disposals

Cash flows from investing activities: Disposal of subsidiary, net of cash disposed of X • The cash received from the sale of the subsidiary, net of any cash held by the subsidiary that the group has lost control over

UK GAAP vs IFRS: Business Combinations

Consideration: With regards to contingent consideration, FRS 102 states that the estimated amount payable is only included in the calculation of goodwill if it is probable that it will be incurred. Costs directly attributable to the acquisition are also included in the calculation of goodwill (such as legal and professional fees) Under IFRS 3 Business Combinations, contingent consideration is measured at fair value and included in the calculation of goodwill. The fair value of the contingent consideration will incorporate the probability that the payment will be made. Transaction costs related to the acquisition are expensed to P&L

Key ratios: Liquidity and working capital

Current ratio: Current assets / Current liabilities Inventory holding period: (Inventories / Cost of sales) x 365 days Receivables collection period: (Trade receivables / Revenue) x 365 days Payables payment period: (Trade Payables / Purchases) x 365 days

IAS 32 Financial Instruments: Presentation

Deals with the classification of financial instruments and their financial statement presentation

IFRS 7 Financial Instruments: Disclosures

Deals with the disclosure of financial instruments in financial statements The main disclosures required are: 1 Information about the significance of financial instruments for an entity's financial position and performance 2 Information about the nature and extent of risks arising from financial instruments (qualitative and quantitative disclosures)

IAS 36 Impairment of Assets: Cash-generating units (CGUs)

Definition: A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets Impairment of a CGU: Deal with any specifically impaired assets first, then impair the CGU. IAS 36 requires that an impairment loss attributable to a CGU should be allocated to write down the assets in the following order: 1 Purchased goodwill 2 The other assets (including other intangible assets) in the CGU on a pro-rata basis based on the carrying amount of each asset in the CGU

IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Restructuring

Definition: A restructuring is a programme that is planned and controlled by management and has a material effect on: • the scope of a business undertaken by the reporting entity in terms of the products or services it provides • the manner in which a business undertaken by the reporting entity is conducted Measurement: A restructuring provision can only be recognised where an entity has a constructive obligation to carry out the restructuring A restructuring provision should only include the direct costs of restructuring

IAS 41 Agriculture

Definitions: • A biological asset is 'a living plant or animal' • Agricultural produce is 'the harvested product of the entity's biological assets' • Harvest is 'the detachment of produce from a biological asset or the cessation of a biological asset's life processes' Recognition: • Biological assets are initially measured at fair value less estimated costs to sell, then revalued at each reporting period • Agricultural produce should be recognised and measured at fair value less estimated costs to sell, after produce has been harvested, it becomes inventory (use IAS 2 Inventories)

UK GAAP vs IFRS: Intangible assets

Development costs: Under FRS 102, capitalisation of development expenditure is optional IAS 38 Intangible Assets requires that development expenditure is capitalised if certain criteria are met ------------------------- Grants: FRS 102 specifies that an intangible asset acquired by way of a grant shall be recognised at its fair value on the date that the grant is received or receivable ------------------------- Useful life: FRS 102 says that if the useful life of an intangible asset cannot be measured reliably then it must be estimated. The estimate used should not exceed 10 years IAS 38 allows entities to regard an intangible asset as having an indefinite useful economic life if it cannot foresee an end to the period over which the asset will generate economic benefits

Disposal of a subsidiary

Disposals in the individual financial statements: Sales proceeds X Carrying amount of shares sold (X) ---- Profit/(loss) on disposal X/(X) • Reported as an exceptional item on P&L ----------------------- Disposals in the consolidated financial statements: Where control of a subsidiary has been lost: Disposal proceeds X Fair value of retained interest X --- X (Sum of above) --- Less interest in subsidiary disposed of: Net assets of subsidiary at disposal date Y Goodwill at disposal date Y Less: Carrying amount of NCI at disposal date (Y) --- (Y) (Sum of above) --- Profit/(loss) to the group Z/(Z) [X-Y] ----------------------- Presentation of disposed subsidiary in the consolidated financial statements: There are two ways of presenting the results of the disposed subsidiary: (i) Time-apportionment line-by-line • In the CSP&L, income and expenses of the subsidiary are consolidated up to the date of disposal (ii) Discontinued operation (IFRS 5)

Accounting for associates: Adjustments

Dividends received from the associate must be removed from the consolidated statement of profit or loss The group share of any unrealised profit arising on transactions between the group and the associate must be eliminated. • If the associate is the seller: Dr Share of the associate's profit (P/L)/Retained earnings (SFP) Cr Inventories (SFP) • If the associate is the purchaser: Dr Cost of sales (P/L)/Retained earnings (SFP) Cr Investment in the associate (SFP)

IAS 10 Events after the Reporting Period: Definition

Events after the reporting period are events 'that occur between the reporting date and the date on which the financial statements are authorised for issue'. There are two types of event after the reporting period: • adjusting events • non-adjusting events

Foreign exchange and cash flow statements

Exchange gains and losses: • The values of assets and liabilities denominated in an overseas currency will increase or decrease partly due to movements in exchange rates • These movements must be factored into workings (balance reconciliations) in order to determine the actual cash payments and receipts during the year Overseas cash balances: • If cash balances are partly denominated in a foreign currency, the effect of exchange rate movements must be reported in the statement of cash flows in order to reconcile the cash balances at the beginning and end of the period. • According to IAS 7, this reconciling item is presented separately from cashflows from operating, investing and financing activities

FRS 101 Reduced Disclosure Framework

FRS 101 permits exemptions from many of the disclosure requirements found in International Financial Reporting Standards FRS 101 can only be applied in the individual financial statements of subsidiaries and parent companies that otherwise fully apply International Financial Reporting Standards

UK GAAP vs IFRS: Foreign currency translation

FRS 102 does not require the presentation of a separate translation reserve for foreign exchange differences arising on the translation of a subsidiary ------------------------- Under FRS 102, foreign exchange differences are not reclassified from other comprehensive income to profit or loss on the disposal of the overseas subsidiary Whereas they are reclassified under IAS 21

FRS 102 The Financial Reporting Standard Applicable in the UK and the Republic of Ireland

FRS 102 is a single standard that is organised by topic. It is based on IFRS for Small and Medium Entities (the SMEs Standard), although there are some differences

UK GAAP vs IFRS: Measurement bases

FRS 102 notes that there are two commonly used measurement bases. These are: • Historical cost, and • Fair value In contrast, the Conceptual Framework outlines: • Historical cost, and • Current value

UK GAAP vs IFRS: Inventories

FRS 102 permits the reversal of inventory impairments IAS 2 does not allow this

UK GAAP vs IFRS: Discontinued operations

FRS 102 requires that a line-by-line analysis is provided on the face of the income statement in a column called 'discontinued operations' IFRS 5 Non-current Assets Held for Sale and Discontinued Operations allows a single figure to be presented on the face of the statement of profit or loss

UK GAAP vs IFRS: Non-controlling interest (NCI)

FRS 102 requires that the NCI at acquisition is only measured using the proportionate method IFRS 3 Business Combinations allows the NCI at acquisition to be measured at either: • Fair value, or • Its proportionate share of the subsidiary's identifiable net assets

UK GAAP vs IFRS: Investment property

FRS 102 requires the use of the fair value model unless the fair value cannot be determined reliably IAS 40 Investment Property allows entities to measure investment property using either the cost model or the fair value model ------------------------- FRS 102 allows an entity that rents investment property to another group company to account for it as PPE in its separate financial statements IAS 40 does not permit this treatment

UK GAAP vs IFRS: Agriculture

FRS 102 says that, for each class of biological assets, an entity can choose to use the cost model or the fair value model IAS 41 Agriculture requires biological assets to be measured using a fair value model

UK GAAP vs IFRS: Impairment of assets

FRS 102 specifies that a recoverable amount need not be determined unless there are indicators of impairment IAS 36 Impairment of Assets requires that some assets are subject to annual impairment review (such as goodwill)

UK GAAP vs IFRS: Revenue

FRS 102 splits revenue accounting into 3 main areas: • Revenue from goods - recognised when the risks and rewards of ownership transfer from the buyer to the seller • Revenue from services - recognised according to the stage of completion • Revenue from construction contracts - recognised according to the stage of completion IFRS 15 Revenue from Contracts with Customers adopts a five step model for revenue recognition

IFRS 9 Financial Instruments: Investments in debt instruments

Financial assets that are debt instruments can be measured in one of three ways: • Amortised cost (if held until maturity) • FVOCI (if held to maturity and then sold) • FVP&L (if neither of the above)

Going concern

Financial statements are prepared with the expectation that a business will remain in operation for at least the next 12 months from the reporting period

IFRS 16 Leases: Lessor disclosures

For finance leases, IFRS 16 requires lessors to disclose: • Profit or loss arising on the sale • Finance income • Data about changes in the carrying amount of the net investment in finance leases • A maturity analysis of lease payments receivable. For operating leases, lessors should disclose a maturity analysis of undiscounted lease payments receivable

Step acquisitions: Goodwill calculation

For the purposes of the goodwill calculation, the consideration will be the fair value of the previously held equity interest plus the fair value of the consideration transferred for the most recent purchase of shares at the acquisition date Proforma: Fair value of previously held interest X Fair value of consideration for additional interest X NCI at acquisition X Less: FV of net assets at acquisition (X) ---- Goodwill at acquisition X

Key ratios: Long-term financial stability

Gearing: Debt / Equity or Debt + Equity Interest cover: Profit before interest and tax / interest payable

Translating Goodwill

Goodwill should be calculated in the functional currency of the subsidiary According to IAS 21, goodwill should be treated like other assets of the subsidiary and translated at the reporting date using the closing rate

Key ratios: Profitability

Gross profit margin: (Gross profit / Sales revenue) x 100 Operating profit margin: (Operating profit / Sales revenue) x 100 Return on capital employed (ROCE): (Operating profit / Capital employed) x 100

UK GAAP vs IFRS: Non-current assets

Held for sale: FRS 102 does not contain the concept of 'held for sale'. As such, assets are depreciated or amortised up to the date of disposal. However, FRS 102 identifies the decision to sell an asset as a potential indicator of impairment; an impairment review should be performed ------------------------- Borrowing costs: Under FRS 102, an entity may adopt a policy of capitalising borrowing costs IAS 23 Borrowing Costs requires that borrowing costs attributable to a qualifying asset are capitalised ------------------------- Estimate reviews: FRS 102 only requires entities to review the useful economic life of assets if evidence exists that they have changed IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets require that an entity reviews residual values and useful lives annually

IAS 16 Property, Plant and Equipment: Measurement models

IAS 16 allows a choice between: • the cost model - cost less any accumulated depreciation and impairment losses • the revaluation model - property, plant and equipment is carried at fair value less any subsequent accumulated depreciation and impairment losses

IAS 16 Property, Plant and Equipment: Definition

IAS 16 defines property, plant and equipment as tangible items that: • 'are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes • are expected to be used during more than one period'

IAS 16 Property, Plant and Equipment: Disclosures

IAS 16 requires entities to disclose: • measurement bases used • useful lives and depreciation rates • a reconciliation of carrying amounts at the beginning and end of the period If items of property, plant and equipment are stated at revalued amounts, information about the revaluation should also be disclosed

IAS 16 Property, Plant and Equipment: Derecognition

IAS 16 says that an asset should be derecognised when disposal occurs, or if no further economic benefits are expected from the asset's use or disposal • The gain or loss on derecognition of an asset is the difference between the net disposal proceeds, if any, and the carrying amount of the item • When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings, or it may be left in the revaluation surplus within other components of equity

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: Disclosures

IAS 20 requires the following disclosures: • the accounting policy and presentation methods adopted • the nature of government grants recognised in the financial statements • unfulfilled conditions relating to government grants that have been recognised

IAS 7 Statement of Cash Flows: Interest and dividends

IAS 7 allows interest and dividends, whether received or paid, to be classified under any of the three headings, provided the classification is consistent from period to period The practice adopted in this text is to classify: • Interest received as a cash flow from investing activities • Interest paid as a cash flow from operating activities • Dividends received as a cash flow from investing activities • Dividends paid as a cash flow from financing activities

IFRS 8 Operating Segments: Disclosures

IFRS 8 requires disclosure of the following: • Factors used to identify reportable segments • The types of products and services sold by each reportable segment

CSFP: Intra-group trading

If P and S trade with each other than this will probably be done on credit. Note that these intra-group transactions are usually recorded within a single account in each entity, known as the current account. This will lead to:- a receivables (current) account in one entity's SFP- a payables (current) account in the other entity's SFP These are amounts owing within the group rather than outside the group and therefore they must not appear in the consolidated statement of financial position. They are therefore cancelled against each other on consolidation, by deducting from the relevant lines on the SFP

IFRS 16 Leases: Short-life and low value assets

If the lease is short-term (12 months or less at the inception date) or of a low value (around less than $5,000) then a simplified treatment is allowed In these cases, the lessee can choose to recognise the lease payments in profit or loss on a straight line basis. No lease liability or right-of-use asset would therefore be recognised

IAS 36 Impairment of Assets

Impairment is a reduction in the recoverable amount of an asset or cash-generating unit below its carrying amount An impairment occurs if the carrying amount of an asset is greater than its recoverable amount Recoverable amount: The higher of: • FV less costs to sell, and • Value in use (i.e. PV)

UK GAAP vs IFRS: Financial instruments

Impairment of financial instruments: FRS 102 adopts an incurred loss model. This means that an impairment loss is only recognised in respect of financial assets if objective evidence of impairment has occurred IFRS 9 Financial Instruments adopts an 'expected loss' model for financial asset impairments. This involves recognising a loss allowance for all financial assets measured at amortised cost or FVOCI (except equity instruments) based on the level of credit risk

IAS 40 Investment Property: Disclosures

In respect of investment properties, IAS 40 says that an entity must disclose: • whether the cost or fair value model is used • amounts recognised in profit or loss for the period • a reconciliation between the carrying amounts of investment property at the beginning and end of the period • the fair value of investment property if the entity uses the cost model

Control to control scenarios: Increasing a shareholding in a subsidiary (e.g. 80% to 85%)

Increasing a shareholding in a subsidiary (e.g. 80% to 85%) The accounting treatment of the above situation is as follows: • The NCI within equity decreases • The difference between the consideration paid for the extra shares and the decrease in the NCI is accounted for within equity (normally, in 'other components of equity') Note that no profit or loss arises on the purchase of the additional shares. Goodwill is not recalculated. Proforma to calculate the adjustments required to NCI and other components of equity: Cash paid X [Cr] Decrease in NCI (X) Dr ---- Decrease/(increase) to other components of equity X/(X) [Dr/Cr (bal. entry)] The decrease in NCI will represent the proportionate reduction in the carrying amount of the NCI at the date of the group's additional purchase of shares, e.g. if the NCI shareholding reduces from 30% to 20%, then the carrying amount of the NCI must be reduced by one-third (20%/30%)

Materiality

Information is material if omitting, misstating or obscuring it would influence the economic decisions of financial statement users When assessing whether information is material, an entity should consider: • Quantitative factors - measures of revenue, profit, assets, and cash flows • Qualitative factors - related party transactions, unusual transactions, geography, and wider economic uncertainty The Board recommends a systematic process when making materiality judgements: Step 1) Identify information that could be material Step 2) Assess whether that information is material Step 3) Organise the information in draft financial statements Step 4) Review the draft financial statements

IAS 34 Interim Financial Reporting

Interim financial reports are prepared for a period shorter than a full financial year. Entities may be required to prepare interim financial reports under local law or listing regulations IAS 34 does not require the preparation of interim reports, but sets out the principles that should be followed if they are prepared and specifies their minimum content

IFRS 11 Joint Arrangements

Joint arrangements are defined 'as arrangements where two or more parties have joint control Joint arrangements may take the form of either: • joint operations • joint ventures

IFRS 11 Joint Arrangements: Joint operations

Joint operations are defined as joint arrangements whereby 'the parties that have joint control have rights to the assets and obligations for the liabilities Accounting treatment: If the joint operation meets the definition of a 'business' then the principles in IFRS 3 Business Combinations apply when an interest in a joint operation is acquired: • Acquisition costs are expensed to profit or loss as incurred • The identifiable assets and liabilities of the joint operation are measured at fair value • The excess of the consideration transferred over the fair value of the net assets acquired is recognised as goodwill

IFRS 11 Joint Arrangements: Joint ventures

Joint ventures are defined as joint arrangements whereby 'the parties have joint control of the arrangement and have rights to the net assets of the arrangement Accounting treatment: In the individual financial statements, an investment in a joint venture can be accounted for: • at cost • in accordance with IFRS 9 Financial Instruments, or • by using the equity method

FRS 105 The Financial Reporting Standard Applicable to the Micro-entities Regime

Micro-entities can choose to prepare their financial statements in accordance with FRS 105 An entity qualifies as a micro-entity if it satisfies two of the following three requirements: • Turnover of not more than £632,000 a year • Gross assets of not more than £316,000 • An average number of employees of 10 or less FRS 105 is based on FRS 102 but with some amendments to satisfy legal requirements and to reflect the simpler nature of micro-entities.

Accounting for an impairment with a non-controlling interest

NCI - fair value method: • Goodwill calculated under the fair value method represents full goodwill • Any impairment of goodwill is allocated between the group and the NCI based upon their respective shareholdings NCI - proportionate method: • If the NCI is valued at acquisition at its share of the subsidiary's net assets then only the goodwill attributable to the group is calculated • To allocate to NCI as well, goodwill must be grossed up to include goodwill attributable to the NCI prior to conducting the impairment review • As only the parent's share of the goodwill is recognised in the group accounts, only the parent's share of the goodwill impairment loss should be recognised

UK GAAP vs IFRS: Goodwill

Negative goodwill: According to FRS 102, negative goodwill is recognised on the statement of financial position immediately below goodwill. It should be followed by a subtotal of the net amount of goodwill and the negative goodwill, i.e. it is presented as a negative asset IFRS 3 Business Combinations refers to negative goodwill as a 'gain on bargain purchase'. This is recognised immediately in profit or loss

IAS 40 Investment Property: Measurement

On recognition, investment property is recognised at cost. After recognition an entity may choose either: • the cost model • the fair value model

Disposal of a foreign subsidiary

On the disposal of a foreign subsidiary, the cumulative exchange differences recognised as other comprehensive income and accumulated in a separate component of equity become realised IAS 21 requires that these exchanges differences are recycled (i.e. reclassified) on the disposal of the subsidiary as part of the profit or loss on disposal

Key ratios: Investor ratios

P/E ratio: Current share price / Latest earnings per share

Other components of equity

Parent's other components of equity (100%) X For each subsidiary: group share of post-acquisition other components of equity (W2) X ---- Other components of equity to consolidated SFP X

UK GAAP vs IFRS: Leases

Per FRS 102, no liability is recognised in respect of operating leases in the financial statements of a lessee, even though it meets the definition of a liability as outlined in FRS 102 IFRS 16 Leases requires lessees to recognise a lease liability and right-of-use asset in respect of all leases, unless short-term or of low value

UK GAAP vs IFRS: Income tax

Permanent differences: FRS 102 uses the concept of permanent differences. Permanent differences arise because certain types of income and expenses are non-taxable or disallowable, or because certain tax charges or allowances are greater or smaller than the corresponding income or expense in the financial statements. Deferred tax is not recognised on permanent differences IAS 12 does not use 'permanent difference'. deferred tax assets and liabilities are recognised for 'temporary differences'

IAS 19 Employee Benefits: Accounting for defined benefit plans (P&L)

Profit and loss: • Net interest component - Charged (or credited) to P&L and represents the change in the net pension liability (or asset) due to the passage in time. It is computed by applying the discount rate at the start of the year to the net defined benefit liability (or asset) • Service cost component - This is charged to profit or loss and is comprised of three elements: Current service cost, past service cost and any gain/loss on settlement

Consolidated statement of profit or loss: Mechanics of consolidation

Profit or loss, combining income and expense for both parent and subsidiary (W1) Group structure diagram (W2) Workings for any adjustments detailed in the question, e.g. PUP, fair value depreciation etc (W3) non-controlling interest (NCI) share of profit

IAS 16 Property, Plant and Equipment: Initial recognition

Property, plant and equipment should initially be measured at its cost This comprises of: • The purchase price • costs involved in bringing the asset to the location and into working condition • Dismantling costs - the present value of these costs should be capitalised Expense items, such as fuel, training and warranty costs, should be written off as incurred

UK GAAP vs IFRS: Government grants

Recognition: Under FRS 102, two methods of recognising government grants: • The performance model - If no conditions are attached to the grant, it is recognised as income immediately. If conditions are attached to the grant, it is only recognised as income when all conditions have been met • The accruals model - Grants are recognised as income on a systematic basis, either as costs are incurred (revenue grants) or over the asset's useful life (capital grants) IAS 20 Accounting for Government Grants and the Disclosure of Government Assistance adopts an accruals model for government grant recognition ------------------------- Repayment: FRS 102 says that a liability should be recognised when the repayment meets the definition of a liability IAS 20 provides detailed guidance on how to deal with the repayment of a government grant

Fundamental characteristics

Relevance and faithful representation are the fundamental characteristics of useful financial information

UK GAAP vs IFRS: Provisions

Restructuring provisions: FRS 102 states that a provision for restructuring costs should be recognised when a legal or constructive obligation exists IAS 37 Provisions, Contingent Liabilities and Contingent Assets provides detailed guidance on restructuring provisions - such as when a constructive obligation arises, and the amounts that can be included in the provision ------------------------- Financial guarantee contracts: FRS 102 states that financial guarantee contracts may be classified as provisions or contingent liabilities (depending on the probability of payment) Under IFRS, financial guarantee contracts are accounted for using IFRS 9 Financial Instruments

Accounting for associates

Statement of financial position: Cost X P% of post-acquisition reserves X/(X) Impairment losses (X) P% of unrealised profits if P is the seller (X) P% of excess depreciation on fair value adjustments (X) ---- Investment in associate X ----------------------- Statement of profit or loss and other comprehensive income: P% of associate's profit after tax X Less: Current year impairment loss (X) Less: P% of unrealised profits if associate is the seller (X) Less: P% of excess depreciation on fair value adjustments (X) ---- Share of profit of associate X

CSFP: (W2) Net assets of subsidiary

Table: Columns consists of: • At acquisition date • At reporting date • Post-acquisitions (difference between reporting date and acquisition date) Rows consist (including FV adj): • Equity capital (Cap and prem) • Other components of equity • Retained earnings • FV Adjustment • FV Adjustment depreciation • PUP (If sub is the seller)

Exposure Draft (ED)

The Board has launched a project to improve communication in financial statements, with a particular emphasis on financial performance. Its proposals are outlined in Exposure Draft ED/2019/7 General Presentation and Disclosures This Exposure Draft outlines four broad proposals that will require reporting entities to: • present defined subtotals in the statement of profit or loss • disaggregate information in more useful ways • disclose information about management performance measures reported in the financial statements • potentially alter classification in the statement of cash flows of certain items

Control to control scenarios: Sale of shares without losing control (e.g. 80% to 75%)

The accounting treatment of the above situation is as follows: • The NCI within equity is increased • The difference between the proceeds received and the increase in the non-controlling interest is accounted within equity (normally, in 'other components of equity'). Note that no profit or loss arises on the sale of the shares. Goodwill is not recalculated. The following proforma will help to calculate the adjustments required to NCI and other components of equity: Cash proceeds received X Dr Increase in NCI (X) Cr ---- Increase/(Decrease) to other components of equity X/(X) Cr/Dr (bal. entry) The increase in the NCI will be the share of the net assets (always) and goodwill (fair value method only) of the subsidiary at the date of disposal which the parent has effectively sold to the NCI, e.g. if the NCI shareholding increases from 20% to 30%, then the carrying amount of the NCI must be increased by 10% of the subsidiary's net assets and, if using the fair value method, goodwill (10% x Net assets)

IFRS 2 Share-based Payment: Disclosures

The main disclosures required by IFRS 2 are as follows: • a description of share-based payment arrangements • the number of share options granted or exercised during the year • the total share-based payment expense

Fair value

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

Exchange differences

The process of translating an overseas subsidiary gives rise to exchange gains and losses These gains and losses arise for the following reasons: • Goodwill: Goodwill is retranslated each year-end at the closing rate. It will therefore increase or decrease in value simply because of exchange rate movements • Opening net assets: At the end of the prior year, the net assets of the subsidiary were translated at the prior year closing rate. This year, those same net assets are translated at this year's closing rate. Therefore, opening net assets will have increased or decreased simply because of exchange rate movements • Profit: The income and expenses (and, therefore, the profit) of the overseas subsidiary are translated at the average rate. However, making a profit increases the subsidiary's assets which are translated at the closing rate. This disparity creates an exchange gain or loss

CSFP: Provision for Unrealised Profit (PUP)

The process to adjust for unrealised profit is: 1) Determine the value of closing inventory held by an individual entity which has been purchased from another entity in the group 2) Using mark-up or margin, calculate the value of profit included within closing inventory 3) Make the adjustments - These will depend on the seller If the seller is the parent: Dr Group retained earnings (deduct the profit in W5) Cr Group inventory (deduct from inventory on the face of the SFP) The seller is the subsidiary: Dr Subsidiary retained earnings (deduct the profit in W2 - in reporting date column) Cr Group inventory (deduct from inventory on the face of the SFP)

Key omissions from the SMEs Standard

The subject matter of several reporting standards has been omitted from the SMEs Standard, as follows: • Earnings per share (IAS 33) • Interim reporting (IAS 34) • Segmental reporting (IFRS 8) • Assets held for sale (IFRS 5)

Accounting choices disallowed under the SMEs Standard

There are a number of accounting policy choices allowed under full IFRS and IAS Standards that are not available to companies that apply the SMEs Standard. Under the SMEs Standard: • For Goodwill, the fair value method for measuring the non-controlling interest is not available • The revaluation model is not permitted for intangible assets • After initial recognition, investment property is remeasured to fair value at the year end with gains or losses recorded in profit or loss. The cost model can only be used if fair value cannot be measured reliably or without undue cost or effort

IFRS 1 First-time Adoption of International Financial Reporting Standards

There are five issues that need to be addressed when adopting IFRS Standards: 1 The date of transition to IFRS Standards 2 Which IFRS Standards should be adopted 3 How gains or losses arising on adopting IFRS Standards should be accounted for 4 The explanations and disclosures to be made in the year of transition 5 The exemptions available

Consolidation of a foreign operation

Translating the subsidiary's financial statements The rules for translating an overseas subsidiary into the presentation currency of the group are as follows: • Income, expenses and other comprehensive income are translated at the exchange rate in place at the date of each transaction. The average rate for the year may be used as an approximation • Assets and liabilities are translated at the closing rate of exchange

UK GAAP vs IFRS: Employee benefits

Under FRS 102 an entity only accounts for termination benefits when it has a detailed formal plan for the restructuring and has no realistic possibility of withdrawal IAS 19 Employee Benefits says that termination benefits are recognised at the earlier of: • the date when the entity can no longer withdraw the offer, and • the date when costs associated with a restructuring are recognised under IAS 37 Provisions, Contingent Liabilities and Contingent Assets

UK GAAP vs IFRS: Statement of cash flows

Under FRS 102, small entities, mutual life assurance companies, pension funds and certain investment funds are not required to produce a statement of cashflows This exemption does not exist in IAS 7 Statement of Cash Flows

UK GAAP vs IFRS: Events after the reporting period

Under both FRS 102 and IAS 10 Events after the Reporting Period, no liability is recognised for dividends declared after the reporting date. However, FRS 102 says that the dividend can be presented as a separate component of retained earnings

Additional performance measures (APM)

Users of financial statements are demanding more information. In response, many entities present additional performance measures (APMs) in their published many statements, such as: • EBIT - earnings before interest and tax • EBITDA - earnings before interest, tax, depreciation and amortisation • Net financial debt - gross debt less cash and cash equivalents and other financial assets • Free cash flow - cash flows from operating activities less capital expenditure

UK GAAP vs IFRS: Share-based payment

Valuation: When measuring the fair value of equity instruments granted, FRS 102 requires the use of a three tier hierarchy: 1 Observable market prices 2 The use of entity specific market data, such as recent transactions in the instrument 3 A valuation method that uses, wherever possible, market data ------------------------- Recognition: Under FRS 102, schemes which offer a choice of settlement are not split into an equity component and a liability component. Instead FRS 102 provides rules to determine whether to account for them as a wholly cash-settled transaction or a wholly equity-settled transaction

CSFP: (W4) Non-controlling interest

Working: NCI value at acquisition (as in(W3)) X NCI share of post-acquisition reserves (W2) X NCI share of impairment (fair value method only) (X) ---- Non controlling interest X

CSFP: (W5) Group retained earnings

Working: P's retained earnings (100%) X P's % of S's post-acquisition retained earnings X Add: gain on bargain purchased (W3) X Less: P's share of impairment (W3) (X) Less: goodwill impairment** (W3) (X) ---- Group retained earnings X goodwill impairment** If the NCI was valued at fair value at the acquisition date, then only the parent's share of the goodwill impairment is deducted from retained earnings

CSFP: (W3) Goodwill

Working: Parent holding (investment) at FV: Cash X Contingent consideration X Deferred consideration* X NCI at acquisition** X ---- Less: FV of net assets at acquisition (W2) (X) ---- Goodwill on acquisition X (Sum of the above) Impairment (X) ---- Goodwill at carrying amount X (Sum of the above) Deferred consideration*: May need to apply the discount fraction to the deferred amount: 1/(1 + r)^n or may be given NCI at acquisition**: If fair value method adopted: NCI value = FV of NCI's holding at acquisition (number of shares NCI own × subsidiary share price) If proportion of net assets method adopted: NCI value = NCI % × fair value of net assets at acquisition (from W2)

CSP&L: Non-controlling interest (NCI) share of profit

Workings: Subsidiary's profit after tax X Less: FV depreciation (X) PUP (where sub is seller) (X) Impairment (if using the FV method) (X) Goodwill impairment (X) ---- Adjusted subsidiary profit X ---- Non-controlling interest (Adj sub profit × NCI%) X

IFRS 16 Leases: Definitions

• A lease is a contract, or part of a contract, that conveys the right to use an underlying asset for a period of time in exchange for consideration • The lessor is the entity that provides the right-of-use asset and, in exchange, receives consideration • The lessee is the entity that obtains use of the right-of-use asset and, in exchange, transfers consideration • A right-of-use asset is the lessee's right to use an underlying asset over the lease term • Finance lease is a lease where substantially all of the risks and rewards of the underlying asset transfer to the lessee • Operating lease is a lease that does not meet the definition of a finance lease

Key simplifications in the SMEs Standard

• Borrowing costs are always expensed to profit or loss • Associates and jointly controlled entities can also be accounted for using cost or fair value • Depreciation and amortisation estimates are not reviewed annually • Expenditure on research and development is always expensed to P&L • If an entity is unable to make a reliable estimate of the useful life of an intangible asset (including goodwill), then the useful life is assumed to be 10 years • On the disposal of an overseas subsidiary, cumulative exchange differences that have been recognised in other comprehensive income are not recycled to profit or loss • For financial instruments, debt instruments are measured at amortised cost and investments in shares at fair value with changes in fair value are recognised in P&L

Enhancing characteristics

• Comparability • Timeliness • Verifiability • Understandability

IAS 21 The Effects of Changes in Foreign Exchange Rates: Definitions

• Functional currency is the currency of the primary economic environment where the entity operates • Presentation currency is defined by IAS 21 as the currency in which the entity presents its financial statements. This can be different from the functional currency

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: Definitions

• Government grants are transfers of resources to an entity in return for past or future compliance with certain conditions. They exclude assistance that cannot be valued and normal trade with governments • Government assistance is government action designed to provide an economic benefit to a specific entity. It does not include indirect help such as infrastructure development. This is not recognised in financial statements

IAS 33 Earnings per Share

• IAS 33 Earnings per Share applies to listed entities. If private entities choose to disclose earnings per share, it must be calculated in accordance with IAS 33 Basic EPS: Profit or loss for the period attributable to equity shareholders / Weighted average number of ordinary shares outstanding in the period Diluted EPS: Many companies issue convertible instruments, options and warrants that entitle their holders to purchase shares in the future at below the market price. When these shares are eventually issued, the interests of the original shareholders will be diluted. The dilution occurs because these shares will have been issued at below market price

IAS 38 Intangible Assets: Recognition

• Initial recognition: measured at cost Subsequent recognition: • the cost model, or • the revaluation model Amortisation: An entity must assess whether the useful life of an intangible asset is finite or indefinite • Finite - straight line basis with zero residual value • Indefinite - subject to an annual impairment review

The code of ethics and conduct

• Integrity • Objectivity • Professional Competence and Due Care • Confidentiality • Professional behaviour

IAS 19 Employee Benefits: Types of employee benefits

• Post-employment benefits - This normally relates to retirement benefits • Short-term employee benefits - This includes wages and salaries, bonuses and other benefits • Termination benefits - Termination benefits arise when benefits become payable upon employment being terminated, either by the employer or by the employee accepting terms to have employment terminated • Other long-term employee benefits - This comprises other items not within the above classifications and will include long-service leave or awards, long-term disability benefits and other long-service benefits

Consolidated statement of cash flows: Cash paid to NCIs

• When a subsidiary that is not wholly owned pays a dividend, some of that dividend is paid outside of the group to the NCI • Dividends paid to NCIs should be disclosed separately in the statement of cash flows To calculate the dividend paid, reconcile the non-controlling interest in the statement of financial position from the opening to the closing balance (Use T-Account for NCI)

IFRS 15 Revenue from Contracts with Customers: Revenue recognition

1) Identify the contract 2) Identify the separate performance obligations within a contract 3) Determine the transaction price 4) Allocate the transaction price to the performance obligations in the contract 5) Recognise revenue when (or as) a performance obligation is satisfied

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Changes in accounting estimates

A change in an accounting estimate is not a change in accounting policy According to IAS 8, a change in accounting estimate must be recognised prospectively by including it in the statement of profit or loss and other comprehensive income for the current period and any future periods that are also affected

IAS 1 Presentation of Financial Statements

A complete set of financial statements has the following components: • a statement of financial position • a statement of profit or loss and other comprehensive income (or statement of profit or loss with a separate statement of other comprehensive income) • a statement of changes in equity • a statement of cash flows • accounting policies note and other explanatory notes

IFRS 9 Financial Instruments: Compound instruments

A compound instrument is a financial instrument that has characteristics of both equity and liabilities. An example would be debt that can be redeemed either in cash or in a fixed number of equity shares Initial recognition: A compound instrument must be split into a liability component and an equity component: • The liability component is calculated as the present value of the repayments, discounted at a market rate of interest for a similar instrument without conversion rights • The equity component is calculated as the difference between the cash proceeds from the issue of the instrument and the value of the liability component

IFRS 16 Leases: Lessor accounting (Operating Leases)

A lessor recognises income from an operating lease on a straight line basis over the lease term Any direct costs of negotiating the lease are added to the cost of the underlying asset. The underlying asset should be depreciated in accordance with IAS 16Property, Plant and Equipment or IAS 38 Intangible Assets

Mid-year acquisitions

A parent entity consolidates a subsidiary from the date that it achieves control. If this happens partway through the reporting period then it will be necessary to pro-rate the results of the subsidiary so that only the post-acquisition income and expenses are consolidated into the group statement of profit or loss

Disposal of an associate

A profit or loss on disposal will arise in the consolidated statement of profit or loss This is calculated as follows: Disposal proceeds X Fair value of retained interest X Carrying amount of associate at disposal (X) --- Profit/(loss) to the group X/(X)

Small and medium sized entities

A small or medium entity may be defined or characterised as follows: • they are usually owner-managed by a relatively small number of individuals such as a family group, rather than having an extensive ownership base • they are usually smaller entities in financial terms such as revenues generated and assets and liabilities under the control of the entity they usually have a relatively small number of employees • they usually undertake less complex or difficult transactions which are normally the focus of a financial reporting standard

Step acquisitions

A step acquisition occurs when the parent company acquires control over the subsidiary in stages. This is achieved by buying blocks of shares at different times. Acquisition accounting is only applied at the date when control is achieved • At the date when the equity interest is increased and control is achieved: 1) re-measure the previously held equity interest to fair value 2) recognise the resulting gain or loss in profit or loss for the year (or in OCI if the shares had been designated to be measured at FVOCI) 3) calculate goodwill and the NCI on either a partial or full basis

Subsidiaries acquired exclusively with a view to resale

A subsidiary acquired exclusively with a view to resale is not exempt from consolidation However, if it meets the 'held for sale' criteria in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: • it is presented in the financial statements as a disposal group classified as held for sale. This is achieved by amalgamating all its assets into one line item and all its liabilities into another • it is measured, both on acquisition and at subsequent reporting dates, at fair value less costs to sell

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: Repayments

A government grant that becomes repayable is accounted for as a revision of an accounting estimate (a) Income-based grants: Debit the repayment to any liability for deferred income. Any excess repayment must be charged to profits immediately (b) Capital-based grants deducted from cost: Increase the cost of the asset with the repayment. This will also increase the amount of depreciation that should have been charged in the past. This should be recognised and charged immediately (c) Capital-based grants treated as deferred income: Debit the repayment to any liability for deferred income. Any excess repayment must be charged against profits immediately

Liability

A present obligation of the entity to transfer an economic resource as a result of a past event

IFRS 2 Share-based Payment: Definitions

A share-based payment occurs when an entity buys goods or services from other parties (such as employees or suppliers) and: • settles the amounts payable by issuing its shares or share options, or • incurs liabilities for cash payments based on its share price There are two main types: • Equity-settled share-based payments: the entity acquires goods or services in exchange for equity instruments of the entity (e.g. shares or share options) • Cash-settled share-based payments: the entity acquires goods or services in exchange for amounts of cash measured by reference to the entity's share price

IFRS 2 Share-based Payment: Cash-settled share-based payments

Accounting treatment: The double entry for a cash-settled share-based payment transaction is: Dr Profit or loss/Asset Cr Liabilities Measurement: The entity remeasures the fair value of the liability arising under a cash-settled scheme at each reporting date Where services are received in exchange for cash-settled share-based payments, the expense is recognised over the period that the services are rendered (the vesting period)

IFRS 2 Share-based Payment: Equity-settled share-based payments

Accounting treatment: When an entity receives goods or services as a result of an equity-settled share-based payment transaction, it posts the following double entry: Dr Expense/Asset Cr Equity (Other components of equity) Measurement: The basic principle is that share-based payment transactions are measured at fair value: • if transaction is with employees/other similar services - measure at FV at grant date For goods/services: • if FV of goods/services can be measure reliably - measure at FV at date the goods/services are received • if FV of goods/services cannot bee measure reliably - measure at FV at grant date

IAS 19 Employee Benefits: Accounting for defined benefit plans (OCI)

Other comprehensive income: • Remeasurement component - Is the difference remaining between the net obligations at the beginning and end of the year after P&L items, contributions and benefits have been posted • The difference (balancing figure) will either be charged or credited to the OCI

IAS 24 Related Party Disclosures: Disclosures

Parent and subsidiary relationships: IAS 24 requires that relationships between parents and subsidiaries should always be disclosed. The name of the parent and, if different, the ultimate controlling party should be given Key management personnel: Total compensation granted to key management personnel should be disclosed and broken down into the following categories: • short-term benefits • pension benefits • termination benefits • share-based payment schemes Disclosure of transactions and balances: If there have been transactions between related parties, and/or if there are balances outstanding between the parties, the following should be disclosed: • nature of the related party relationship • description of the transactions • the amounts of the transactions • the amounts and details of any outstanding balances • allowances for receivables in respect of the outstanding balances • the irrecoverable debt expense in respect of outstanding balances • Government-related entities: A reporting entity is exempt from the above disclosures in respect of transactions and balances that they have with a government that has control, joint control or significant influence over the reporting entity If this exemption is applied, IAS 24 requires that the following disclosures are made instead: • details of the government and a description of its relationship with the reporting entity • details of individually significant transactions • an indication of the extent of other transactions that are significant in aggregate

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Prior period errors

Prior period errors are misstatements and omissions in the financial statements of prior periods as a result of not using reliable information that should have been available IAS 8 says that material prior period errors should be corrected retrospectively in the first set of financial statements authorised for issue after their discovery. Opening balances of equity, and the comparative figures, should be adjusted to correct the error

IAS 40 Investment Property: Definition

Property (land or buildings) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Provisions: • a provision is a liability of uncertain timing or amount • measured at the best estimate of the expenditure required to settle the obligation as at the reporting date • If a provision has been discounted to present value, then the discount must be unwound and presented in finance costs in the statement of profit or loss: Dr Finance costs (P/L) Cr Provisions (SFP) Contingent liability: • a possible obligation that arises from past events and whose existence will be confirmed by the outcome of uncertain future events which are outside of the control of the entity • If possibility of a future outflow of economic benefits is: i) Remote - ignore ii) Possible - disclose iii) Probable - disclose/provide Contingent asset: • a possible asset that arises from past events and whose existence will be confirmed by uncertain future events that are outside of the entity's control • If possibility of a future inflow of economic benefits is: i) Remote - ignore ii) Possible - ignore iii) Probable - disclose

IAS 23 Borrowing Costs

Recognition: Borrowing costs should be capitalised if they relate to the acquisition, construction or production of a qualifying asset Capitalisation period: Borrowing costs should only be capitalised while construction is in progress Specific and general borrowings: • Specific - interest payable on loan less income earned on the temporary investment of the borrowings • General - applying the weighted average general borrowings rate to the expenditure incurred on the asset Disclosures: IAS 23 requires the following disclosures: • the value of borrowing costs capitalised during the period • the capitalisation rate

IFRS 8 Operating Segments

Requires certain entities to disclose information about each of its operating segments that will enable users of the financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates IFRS 8 applies to entities which trade debt or equity instruments in a public market

IAS 38 Intangible Assets: Research and development expenditure

Research expenditure: Cannot be recognised as an intangible asset, therefore write off as incurred to the statement of profit or loss Development expenditure: Recognise as an intangible asset if, and only if, an entity can demonstrate all of the following (PIRATE): • Probable flow of economic benefit from the asset, whether through sale or internal cost savings • Intention to complete the intangible asset and use or sell it • Reliable measure of development cost • Adequate resources to complete the project • Technical feasibile • Expected to be profitable

IAS 12 Income Taxes: Specific situations

Revaluations: • Deferred tax should be recognised on the revaluation of property, plant and equipment • Revaluation gains are recorded in OCI and so any deferred tax arising on the revaluation must also be recorded in OCI Share option schemes: • Accounting for share option schemes involves recognising an annual remuneration expense in profit or loss throughout the vesting period • Tax relief is not normally granted until the share options are exercised • This delayed tax relief means that equity-settled share-based payment schemes give rise to a deferred tax asset Unused tax losses: • Where an entity has unused tax losses, IAS 12 allows a deferred tax asset to be recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilised

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance: Recognition

IAS 20 says that government grants should not be recognised until the conditions for receipt have been complied with and there is reasonable assurance that the grant will be received Grants should be matched with the expenditure towards which they are intended to contribute in the statement of profit or loss • presented as a credit in the statement of profit or loss, or • deducted from the related expense Grants for purchases of non-current assets should be recognised over the expected useful lives of the related assets. • deduct the grant from the cost of the asset and depreciate the net cost, or • treat the grant as deferred income and release to profit or loss over the life of the asset

IAS 36 Impairment of Assets: Disclosures

IAS 36 requires disclosure of the following: • impairment losses recognised during the period • impairment reversals recognised during the period For each material loss or reversal: • the amount of loss or reversal and the events causing it • the recoverable amount of the asset (or cash generating unit) • the level of fair value hierarchy (per IFRS 13) used in determining fair value less costs to sell • the discount rate(s) used

Asset

A present economic resource controlled by an entity as a result of a past event

Income

Increases in assets or decreases in liabilities that result in an increase to equity

IAS 2 Inventories

Initial measurement: Measured at cost Subsequent measurement: IAS 2 requires inventories to be written down to the lower of cost and net realisable value (NRV) on a line-by-line basis

IFRS 15 Revenue from Contracts with Customers: Contract modifications

A contract modification is a change in the scope or price of a contract The modification is accounted for as a separate contract if: • the scope of the contract increases because of the addition of distinct goods or services, and • the price increases by an amount that reflects the stand-alone selling prices of the additional goods or services If not accounted for as a separate contract, the modification will be accounted for as: • the termination of the existing contract and the creation of a new contract if the remaining goods are distinct from those transferred before the modification • • part of the original contract, if the remaining goods and services are not distinct from those transferred before the modification and so form part of a single performance obligation

IFRS 8 Operating Segments: Quantitative thresholds

An entity must separately report information about an operating segment that meets any of the following quantitative thresholds: • its reported revenue, including both sales to external customers and inter-segment sales, is 10% or more of the combined revenue of all operating segments • its reported profit or loss is 10% or more of the greater, in absolute amount, of: - the combined reported profit of all operating segments that did not report a loss and - the combined reported loss of all operating segments that reported a loss • its assets are 10% or more of the combined assets of all operating segments At least 75% of the entity's external revenue must be included in reportable segments. Other segments should be identified as reportable segments until 75% of external revenue is reported Information about other business activities and operating segments that are not reportable are combined into an 'all other segments' category

IAS 19 Employee Benefits: Disclosure requirements

An entity should disclose the following information about defined benefit plans: • Significant actuarial assumptions used to determine the net defined benefit obligation or assets • a general description of the type of plan operated • a reconciliation of the assets and liabilities recognised in the statement of financial position • the charge to total comprehensive income for the year, separated into the appropriate components • analysis of the remeasurement component to identify returns on plan assets, together with actuarial gains and losses arising on the net plan obligation • sensitivity analysis and narrative description of how the defined benefit plan may affect the nature, timing and uncertainty of the entity's future cash flows

IAS 38 Intangible Assets: Recognition criteria

An entity should recognise an intangible asset if all the following criteria are met: • The asset is identifiable (i.e. it is separable or it arises from contractual or other legal rights) • The asset is controlled by the entity • The asset will generate future economic benefits for the entity • The cost of the asset can be measured reliably

IAS 38 Intangible Assets: Definition

An identifiable non-monetary asset without physical substance

Operating Segment definition

An operating segment is defined as 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 to make decisions about resources to be allocated to the segment and assess its performance • for which discrete financial information is available

IFRS 9 Financial Instruments: Derivatives

Common derivatives: • Forward contracts • Futures contracts • Swaps • Options On initial recognition, derivatives should be measured at fair value. Transaction costs are expensed to the statement of profit or loss. At the reporting date, derivatives are remeasured to fair value. Movements in fair value are recognised in profit or loss (essentially FVP&L) Embedded derivatives: A component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative • If in scope of IFRS 9, use this standard • If not, separate out and measure at FVP&L

IFRS 9 Financial Instruments

Concerned with the initial and subsequent measurement of financial instruments

IAS 12 Income Taxes: Current tax

Current tax is the amount expected to be paid to the tax authorities by applying the tax laws and tax rates in place at the reporting date Current tax is recognised in the financial statements by posting the following entry: Dr Tax expense (P/L) Cr Tax payable (SFP) Tax expense = current tax +/- movement in deferred tax

Expenses

Decreases in assets or increases in liabilities that result in decreases to equity

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Definition: An entity shall classify a non-current asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use Classification: Following conditions must be met: • The asset must be available for immediate sale • Sale must be highly probable • Sale is expected to be completed within a year from the date of classification • it is unlikely that the plan to sell will be withdrawn Measurement: Measured at lower of: •Carrying amount, and • Fair value less costs to sell Disclosures: In the period in which a non-current asset or disposal group has been classified as held for sale, or sold, IFRS 5 says that the entity must disclose: • a description of the non-current asset (or disposal group) • a description of the facts and circumstances of the sale or expected sale • any impairment losses or reversals recognised

Business combinations and deferred tax

Fair value adjustments: • The identifiable assets and liabilities of the acquired subsidiary are consolidated at fair value but the tax base derives from the values in the subsidiary's individual financial statements • A temporary difference is created, giving rise to deferred tax in the consolidated financial statements Provisions for unrealised profit: • Inter-company trading may cause unrealised profits, this adjustment will reduce the carrying amount of inventory in the consolidated financial statements but the tax base of the inventory remains as its cost in the individual financial statements of the purchasing company • This creates a deductible temporary difference, giving rise to a deferred tax asset in the consolidated financial statements Unremitted earnings: • A temporary difference arises when the carrying amount of investments in subsidiaries, associates or joint ventures is different from the tax base

IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Specific situations

Future operating losses: IAS 37 says that provisions should not be recognised for future operating losses because: • They relate to future, rather than past, events • The loss-making business could be closed and the losses avoided, meaning that there is no obligation to make the losses. An expectation of future operating losses is an indication that assets may be impaired. An impairment review should be conducted in accordance with IAS 36Impairment of Assets Onerous contracts: A contract in which the unavoidable costs of meeting the contract exceed the economic benefits expected to be received under it A provision should be recognised for the present obligation under the contract. The provision is measured at the lower of: • the cost of fulfilling the contract, or • the cost of terminating it and suffering any penalties Environmental provisions: A provision is recognised if a past event has created an obligation to repair environmental damage • Measure at cost either at present value or using the life of the assets if expenditure results in future economic benefits

IFRS 9 Financial Instruments: Hedge accounting

Hedge accounting is a method of managing risk by designating one or more hedging instruments so that their change in fair value is offset, in whole or in part, by the change in fair value or cash flows of a hedged item Types of hedge accounting: • Fair value hedge - change in FV hedge: i) Remeasured at FV at reporting date ii) Carrying amount of hedged item will be adjusted for the change in FV since inception of the hedge • Cash flow hedge - change in cash flows hedge i) Remeasured to fair value at the reporting date ii) Gain/loss is recognised in OCI

IFRS 15 Revenue from Contracts with Customers: Disclosures

IFRS 15 requires an entity to disclose: • Revenue recognised from contracts with customers • Contract balances and assets recognised from costs incurred obtaining or fulfilling contracts • Significant judgements used, and any changes in judgements

IFRS 15 Revenue from Contracts with Customers: Contract costs

IFRS 15 says that the following costs must be recognised as an asset (i.e. capitalised): • the costs of obtaining a contract excluding costs that would have been incurred regardless of whether the contract was obtained or not • the costs of fulfilling a contract if they do not fall within the scope of another standard (such as IAS 2 Inventories) and the entity expects them to be recovered The capitalised costs of obtaining and fulfilling a contract will be amortised to the statement of profit or loss as revenue is recognised General costs, and costs of wasted labour and materials, are expensed to profit or loss as incurred

IFRS 8 Operating Segments: Aggregation

IFRS 8 says that two or more operating segments can be aggregated and reported as a single operating segment provided that they have similar economic characteristics, and are similar in the following respects: • products and services • production processes • classes of customer • distribution methods

IFRS 16 Leases: Lessee disclosures

If right-of-use assets are not presented separately on the face of the SFP then they should be included within the line item that would have been used if the assets were owned. The entity must disclose which line item includes right-of-use assets. IFRS 16 requires lessees to disclose the following amounts: • The depreciation charged on right-of-use assets • Interest expenses on lease liabilities • The expense relating to short-term leases and leases of low value assets • Cash outflows for leased assets Right-of-use asset additions • The carrying amount of right-of-use assets • A maturity analysis of lease liabilities.

IFRS 16 Leases: Sale and leaseback - Transfer is a sale

If the transfer does qualify as a sale then the seller-lessee must measure the right-of-use asset as the proportion of the previous carrying amount that relates to the rights retained The initial value of the right-of-use asset is therefore: (fair value of lease liability / sale proceeds) × previous carrying amount The seller-lessee will recognise a profit or loss based only on the rights transferred to the buyer-lessor The buyer-lessor accounts for the asset purchase using the most applicable accounting standard (such as IAS 16 Property, Plant and Equipment). The lease is accounted for by applying lessor accounting requirements

IFRS 16 Leases: Sale and leaseback - Transfer is not a sale

If the transfer is not a sale then the seller-lessee continues to recognise the transferred asset and will recognise a financial liability equal to the transfer proceeds i.e. the transfer proceeds are treated as a loan

IAS 19 Employee Benefits: Defined benefit plan amendments, curtailments and settlement

If there is a plan amendment, settlement or curtailment (PASC) then the effect of this is calculated by comparing the net defined benefit deficit before and after the event • A curtailment is a significant reduction in the number of employees covered by a pension plan. This may be a consequence of employees being made redundant

IAS 19 Employee Benefits: The asset ceiling

Most defined benefit pension plans are in deficit (i.e. the obligation exceeds the plan assets) although some defined benefit pension plans show a surplus. If a defined benefit plan is in surplus, IAS 19 states that the surplus must be measured at the lower of: • the amount calculated as normal • the total of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. This is known as applying the 'asset ceiling' - a surplus can only be recognised to the extent that it will be recoverable in the form of refunds or reduced contributions in the future

IFRS 2 Share-based Payment: Equity-settled share-based payments - performance conditions

In addition to service conditions, some share based payment schemes have performance conditions that must be satisfied before they vest, such as: • achieving a specified increase in the entity's profit • the completion of a research project • achieving a specified increase in the entity's share price. Performance conditions can be classified as either market conditions (e.g. minimum share price target) or non-market conditions (e.g. EPS or profit targets)

IFRS 16 Leases: Lease liability

Initial measurement: The lease liability is initially measured at the present value of the lease payments that have not yet been paid Lease payments should include the following: • Fixed payments • Amounts expected to be payable under residual value guarantees • Options to purchase the asset that are reasonably certain to be exercised • Termination penalties Subsequent measurement: The carrying amount of the lease liability is increased by the interest charge, calculated as the outstanding liability multiplied by the discount rate of interest This interest is also recorded in the statement of profit or loss: Dr Finance costs (SPL) X Cr Lease liability (SFP) X The carrying amount of the lease liability is reduced by cash repayments: Dr Lease liability X Cr Cash X

IFRS 16 Leases: The right-of-use asset

Initial measurement: The right-of-use asset is initially recognised at cost IFRS 16 says that the initial cost of the right-of-use asset comprises: • The amount of the initial measurement of the lease liability • Lease payments made at or before the commencement date • Initial direct costs • The estimated costs of removing or dismantling the underlying asset asper the conditions of the lease Subsequent measurement: The right-of-use asset is measured using the cost model (unless another measurement model is chosen). This means that it is measured at its initial costless accumulated depreciation and impairment losses Depreciation is calculated as follows: • If ownership of the asset transfers to the lessee at the end of the lease term then depreciation should be charged over the asset's remaining useful life • Otherwise, depreciation is charged over the shorter of the useful life and the lease term

IFRS 9 Financial Instruments: Financial liabilities

Initial recognition: At initial recognition, financial liabilities are measured at fair value • If the financial liability will be held at fair value through profit or loss, transaction costs should be expensed to the statement of profit or loss • If the financial liability will not be held at fair value through profit or loss, transaction costs should be deducted from its carrying amount Subsequent measurement: The subsequent treatment of a financial liability is that they can be measured at either: • Amortised cost • FVP&L

IFRS 9 Financial Instruments: Financial assets

Initial recognition: IFRS 9 says that an entity should recognise a financial asset 'when, and only when, the entity becomes party to the contractual provisions of the instrument' Impairment: Loss allowances - must be recognised for financial assets that are debt instruments and which are measured at amortised cost or at FVOCI

IFRS 16 Leases: Lessor accounting (Finance Leases)

Initial treatment: At the inception of a lease, lessors present assets held under a finance lease as a receivable. The value of the receivable is calculated as the present value of: • Fixed payments • Variable payments that depend on an index or rate, valued using the index or rate at the lease commencement date Residual value guarantees • Unguaranteed residual values • Purchase options that are reasonably certain to be exercised • Termination penalties Subsequent treatment: The subsequent treatment of the finance lease is as follows: • The carrying amount of the lease receivable is increased by finance income earned, which is also credited to the statement of profit or loss • The carrying amount of the lease receivable is reduced by cash receipts

IFRS 9 Financial Instruments: Investments in equity instruments

Investments in equity instruments (such as an investment in the ordinary shares of another entity) are measured at either: • FVP&L - This is the usual desgnation (trading purposes). Recognised at FV, transaction costs are expensed to P&L. At reporting date, asset is revalued with gains and losses recorded in P&L • FVOCI - Use only if equity instrument is not held for trading and there must be an irrecoverable choice for this designation upon initial recognition of the asset. Recognised at FV plus transaction costs. At reporting date, and immediately before disposal, asset is revalued to FV with gains and losses recorded in OCI.

IAS 36 Impairment of Assets: Reversal of an impairment loss

The calculation of impairment losses is based on predictions of what mayhappen in the future. Sometimes, actual events turn out to be better than predicted. If this happens, the recoverable amount is re-calculated and the previous write-down is reversed A reversal of an impairment loss is recognised immediately as income in profit or loss. If the original impairment was charged against the revaluation surplus, it is recognised as other comprehensive income and credited to the revaluation reserve An impairment loss recognised for goodwill cannot be reversed in a subsequent period

Consequences of unethical behaviour

The consequences for individuals include: • Fines • The loss of professional reputation • Being prevented from acting as a director or officer of a public company in the future • The possibility of being expelled by a professional accountancy body • A prison sentence

IAS 19 Employee Benefits: Accounting for defined contribution plans

The entity should charge the agreed pension contribution to profit or loss as an employment expense in each period The expense of providing pensions in the period is often the same as the amount of contributions paid. However, an accrual or prepayment arises if the cash paid does not equal the value of contributions due for the period

IAS 40 Investment Property: Transfers

Transfers to or from investment property can only be made if there is a change of use: • Transfer from investment property to owner-occupied property - Use FV at date of the change • Transfer from investment property to inventory - Account for under IAS 2 Inventories • Transfer from owner-occupied property to investment property to be carried at fair value - FV model per IAS 16 PPE • Transfer from inventories to investment property to be carried at fair value - Any change in the carrying amount caused by the transfer should be recognised in P&L

Equity

The residual interest in the net assets of an entity

IAS 19 Employee Benefits: Accounting for defined benefit plans (SFP)

The statement of financial position: Under a defined benefit plan, an entity has an obligation to its employees. The entity therefore has a long-term liability that must be measured at present value An entity offsets its pension obligation and its plan assets and reports the net position: • If the obligation exceeds the assets, there is a plan deficit (the usual situation) and a liability is reported in the statement of financial position • If the assets exceed the obligation, there is a surplus and an asset is reported in the statement of financial position

IAS 24 Related Party Disclosures: Definition

The transfer of resources, services or obligations between related parties, regardless of whether a price is charge • A related party is defined as 'a person or entity that is related to the entity that is preparing its financial statements

IAS 19 Employee Benefits: Post-employment benefit plans

There are two main types of pension plan: • defined contribution plans (i.e. a pension plan) • defined benefit plans (post employment benefits)

IAS 12 Income Taxes: Deferred tax

There will be differences between the principles in an accounting standard and the tax rules in a particular jurisdiction. Accounting profits therefore differ from taxable profits • A temporary difference is the difference between the carrying amount of an asset or liability and its tax base. • The tax base is the amount attributed to an asset or liability for tax purposes (i.e. capital allowances) Deferred tax asset = Tax base > carrying amount Deferred tax liability = Tax base < carrying amount

Purpose of Conceptual Framework

To assist: • the Board when developing new IFRS Standards, helping to ensure that these are based on consistent concepts • preparers of financial statements when no IFRS Standard applies to a particular transaction, or when an IFRS Standard offers a choice of accounting policy • all parties when understanding and interpreting IFRS Standards

IAS 21 The Effects of Changes in Foreign Exchange Rates: Treatment of year-end balances (SFP)

• Monetary items: Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency, e.g. cash, receivables, payables, loans - Retranslate using closing rate with gains/losses going to the P&L • Non-monetary items: Other items in the SFP, e.e. non-current assets, inventory, investments - Don't retranslate, if the item is carried at FV, the FV should be translated on the date it was determined