NOTES

www.ACCAGlobalBox.com
 Downloaded From "http://www.ACCAGlobalBox.com"

STRATEGIC BUSINESS

ox
B
REPORTING

l
ba
lo
G
A
C
C
A
Ms. Aleena Kareem
October 19, 2018

www.ACCAGlobalBox.com
© ACCA
 Assumed Knowledge for SBR
 Financial Reporting Syllabus

ox
 SKANS Ecampus recorded lectures

B
 http://ready.campusinsight.net

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Assumed Knowledge for SBR

 Reflect understanding of Conceptual Framework rather than regurgitation
of contents

ox
 Talk around standard, reason for existence, rationale and criticisms

l B
 Sound understanding of basic consolidation techniques

ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Conceptual Framework - Definitions
 Definitions of the elements relating to financial position

ox
B
 Asset. An asset is a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the entity.

b al
lo
 Liability. A liability is a present obligation of the entity arising from past events, the

G
settlement of which is expected to result in an outflow from the entity of resources

A
embodying economic benefits.

C
C
A
 Equity. Equity is the residual interest in the assets of the entity after deducting all its
liabilities.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Conceptual Framework - Definitions

 Definitions of the elements relating to performance

ox
B
 Income. Income is increases in economic benefits during the accounting period
in the form of inflows or enhancements of assets or decreases of liabilities that

l
ba
result in increases in equity, other than those relating to contributions from equity

lo
participants.

G
A
 Expense. Expenses are decreases in economic benefits during the accounting

C
period in the form of outflows or depletions of assets or incurrences of liabilities
C
that result in decreases in equity, other than those relating to distributions to
A
equity participants.

www.ACCAGlobalBox.com
© ACCA
 Logics behind Double entries
 Impact on elements of accounting

ox
 Examples

B
 Recognition of assets

bal
lo
G
A
 Recognition of liabilities

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IAS 16 – PROPERTY, PLANT

ox
B
AND EQUIPMENT

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Recognition
 To incorporate PPE in financial statements

ox
B
Criteria

al
 Probable future inflow of ecnonomic benefits

b
 Cost reliably measurable

lo
G
A
 Aggregation and Segmenting as per the nature of asset

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 Initial measurement

ox
B
 Subsequent measurement

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
IAS 38 – INTANGIBLE

bal
lo
ASSETS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Intangible asset

ox
An identifiable non-monetary asset without physical substance

l B
Three critical attributes of an intangible asset are:

ba
 Identifiability

lo
G
 Control (power to obtain benefits from the assets)

A
 Future economic benefits (such as revenues or reduced future costs)

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Recognition and Measurement

Asset should meet:

ox
B
Definition of Intangible Asset

b al
lo
Recognition criteria:

G
- Probable future inflow of economic

A
benefits from asset

C
C
- Reliable measurement of cost of asset
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Recognition and Measurement

 Initially measured at COST (same rules as IAS 16)

ox
Separate rules, if:

B
 Acquired separately: At cost

l
 Acquired as part of a business combination: At fair value

ba
 Acquired by way of a government grant: As per IAS 20

lo
G
 Obtained in an exchange of assets: At fair value

A
 Generated internally (Discussed later)

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Research and Development
 Accounting treatment of Research

ox
B
al
 Accounting treatment of Development

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Amortization & Impairment

 Asset With Finite Useful Life

ox
l B
ba
lo
 Asset With Indefinite Useful Life

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 IAS 40 – INVESTMENT

ox
B
PROPERTY

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Investment property:

ox
 Property (Land and building) held to earn rentals or for capital appreciation or

B
both, instead of:

l
ba
 Production/ supply of goods/ services or for administrative purposes (IAS 16)

lo
 Sale in the ordinary course of business (IAS 2)

G
Owner-occupied property:

A
C
 Property held for use in the production/ supply of goods/ services or for
administrative purposes. C
A

www.ACCAGlobalBox.com
© ACCA
 Recognition
Asset meeting definition of investment property recognised when:

ox
 Probable future inflow of economic benefits

B
 Cost reliably measurable

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 Initial Measurement

ox
l B
 Subsequent Measurement

ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
IAS 36 – IMPAIRMENT OF

bal
lo
ASSETS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
 Impairment Loss: Amount by which carrying amount of an asset exceeds its

ox
recoverable amount.
 Recoverable Amount: Higher of an asset’s net selling price and its value in use.

l B
 Value In Use: Present value of estimated future cash flows arising from the

ba
continuing use of an asset and from its disposal at the end of its useful life.

lo
(Discount rate used is pre-tax)

G
 Net Selling Price: Amount obtainable from the sale of an asset at fair value less

A
the costs of disposal.

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Impairment Assessment
Assets to be impaired annually

ox
 Intangible assets with indefinite useful life

B
 Intangible assets under development

al
 Goodwill acquired in business combination (IFRS 3)

b
lo
G
An enterprise should assess at each reporting date:

A
 Any indication that an asset may be impaired

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Recognition of Impairment loss

 Recognized as an expense in the statement of profit or loss immediately.

ox
 If asset is carried at revalued amount, the loss is recognized directly against any
revaluation surplus. Any over and above amount is expensed in P&L

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Cash Generating Unit (CGU)
 Cash Generating Unit: Smallest identifiable group of assets that generates cash
inflows from continuing use, largely independent of the cash inflows from other

ox
assets.

B
 Corporate Assets: Assets other than goodwill that contribute to the future cash

al
flows of both the cash-generating unit under review and other cash-generating

b
units.

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Cash Generating Unit

 The impairment loss on a CGU is allocated in the following order:

ox
1. To any asset that is impaired

B
2. To goodwill in the cash generating unit

l
3. To all other assets in the CGU on a pro rata basis based on carrying value

ba
 When allocating an impairment loss the carrying amount of an asset should not

lo
be reduced below the higher of its fair value less costs to sell, value in use or zero.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Reversal of impairment loss
Considerations on reversal of an Impairment Loss for a cash generating unit:

ox
 First, asset other than goodwill on a pro-rata basis based on the carrying amount
of each asset in the unit; and

B
 Impairment loss recognized for goodwill shall not be reversed in a subsequent

al
period.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IFRS 5- NON-CURRENT

ox
B
ASSETS HELD FOR SALE AND

l
ba
lo
DISCONTINUED

G
A
C
OPERATIONS
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Held For Sale: A non-current asset whose carrying amount will be recovered
principally through a Sale transaction rather than through continuing use.

ox
Discontinued Operation:

B
 Separately identifiable components

bal
 Represents a major line of the entity’s business

lo
 Part of a plan to dispose of a major line of business or a geographical area

G
 Subsidiary acquired with a view to resell

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Disposal Group: A group of assets and possibly some liabilities that an entity intends
to dispose of in a single transaction.

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Accounting Treatment
 Presented separately on the Statement of Financial Position within current assets.

ox
 For a disposal group the related liabilities are also reported separately within
current liabilities.

B
 Disclosed separately in the statement of financial position at the lower of their

al
carrying value and fair value less costs to sell.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting Treatment
Conditions:

ox
a) Available for immediate sale in its present condition allowing for terms that are
usual or customary

B
b) Sale must be highly probable (expected within 1 year of reclassification)

l
ba
c) Must be genuinely sold, not abandoned.

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Accounting Treatment
Highly Probable:

ox
 Management committed to a plan to sell

B
 Active programme to locate a buyer and complete the sale initiated

al
 Sale price reasonable compared to its current fair value.

b
lo
 Sale expected to be complete within one year from the date of classification.

G
 No indication that there will be significant changes made to the plan of sale.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 Measured at the lower of:

ox
 Fair value less costs to sell

B
 Carrying amount (in accordance with relevant Standard)
 Impairment loss is to be recognised in the statement of profit or loss

l
ba
 Subsequent increase in fair value less cost to sell can be recognised in the

lo
statement of profit or loss – to the extent the depreciated historical cost would

G
have been if the impairment had not been recognised

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Subsequent Measurement -
 No further depreciation or amortisation

ox
 Fair value less costs to sell re-measured at every reporting date

B
 Further impairment or a reversal of previous impairment loss recognised in
statement of profit or loss

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IAS 37 - PROVISIONS,

ox
B
CONTINGENT LIABILITIES

l
ba
lo
AND CONTINGENT ASSETS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Provision: Liability of uncertain timing or amount.

ox
B
Obligating Event: Event that creates a legal or constructive obligation that results in

al
an enterprise having no realistic alternative to settling that obligation.

b
lo
G
Legal obligation: Obligation that derives from:

A
a) A contract (through its explicit or implicit terms);

C
b) Legislation; or
C
A
c) Other operation of law.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Constructive obligation: Obligation that derives from an enterprise’s action, where:

ox
a) Based on established pattern of past practice, published policies or a sufficiently
specific current statement and

B
b) As a result, the enterprise has created a valid expectation on the part of those

l
ba
other parties that it will discharge those responsibilities

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Contingent liability:

ox
a) A possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of uncertain future

B
events; or

b al
b) A present obligation that arises from past events but is not recognized because:

lo
I. It is not probably that an outflow of resources will be required to settle the

G
obligation; or

A
C
II. The amount of the obligation cannot be measured with sufficient reliability.
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Contingent asset: Possible asset that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain

ox
future events.

l B
ba
Onerous contract: A contract in which unavoidable costs of meeting the obligations

lo
under the contract exceed the economic benefits expected to be received.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
A restructuring is a program that is planned and controlled by management, and
materially changes either:

ox
a) The scope of a business undertaken by an enterprise; or

B
b) The manner in which that business is conducted.

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Recognition
Provisions are recognized when:

ox
 An entity has a present obligation based on a past event;

B
 It is probable that an outflow of economic benefits will be required to settle the
obligation; and

l
ba
 A reliable estimate can be made of amount.

lo
If these conditions are not met, no provision shall be recognized.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Measurement
 Amounts recognized as provision are the best estimate of the expenditure
required to settle the present obligation at the reporting date. This means that:

ox
 Provisions for one-off events are measured at the most likely amount.

B
 Provisions for large populations of events are measured at a probability-weighted

al
expected value.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 Both measurements are at discounted present value using a pre-tax discount rate

ox
 In reaching the best estimate, the risks and uncertainties that surround the
underlying events, should be taken into account.

B
 Reimbursement of provision should be recognized when it is virtually certain that it

l
ba
will be received.

lo
 In SOFP, reimbursement is shown as an asset and provision is shown at gross

G
amount however, in statement of profit or loss they can be netted off.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Measurement
Re-Measurement of Provisions:

ox
 Review and adjust provisions at each reporting date

B
 If outflow is no longer probable, reverse the provision to statement of profit or loss.

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Application
Rules for Recognition and Measurement:

ox
 Provisions shall not be recognized for future operating losses.

B
 If an entity has a contract that is onerous, the present obligation under the
contract shall be recognized and measured as a provision.

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Restructuring
Examples of Restructuring:

ox
 Sale or termination of a line of business

B
 Closure of business locations

al
 Changes in management structure

b
 Fundamental re-organization of company

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Restructuring
Restructuring provisions should be accrued as follows:

ox
Sale of operation: Accrue provision only after a binding sale agreement.

B
Closure or re-organization: Accrue only after a detailed formal plan is adopted and
announced publicly.

l
ba
Restructuring provision on acquisition (merger): Accrue relevant provisions only if

lo
announced at acquisition and only if a detailed formal plan is adopted 3 months

G
after acquisition.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Restructuring
 A management or board decision to restructure taken before the reporting date
gives rise to a constructive obligation at the reporting date if the entity has,

ox
before the reporting date:

B
 Stated to implement the restructuring plan; or

al
 Announced the main features to those affected by the restructuring sufficiently,

b
lo
to raise a valid expectation.

G
 Restructuring provisions should include only direct expenditures caused by the
restructuring.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Contingent Liability
 An enterprise should not recognize a contingent liability.

ox
 A contingent liability is disclosed in financial statements, unless the possibility of an
outflow of resources embodying economic benefits is remote.

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 IFRS 5- NON-CURRENT

ox
B
ASSETS HELD FOR SALE AND

bal
lo
DISCONTINUED

G
A
C
OPERATIONS
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Held For Sale: A non-current asset whose carrying amount will be recovered
principally through a Sale transaction rather than through continuing use.

ox
Discontinued Operation:

B
 Separately identifiable components

l
ba
 Represents a major line of the entity’s business

lo
 Part of a plan to dispose of a major line of business or a geographical area

G
 Subsidiary acquired with a view to resell

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Disposal Group: A group of assets and possibly some liabilities that an entity intends
to dispose of in a single transaction.

ox
B
b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting Treatment
 Presented separately on the Statement of Financial Position within current assets.

ox
 For a disposal group the related liabilities are also reported separately within
current liabilities.

B
 Disclosed separately in the statement of financial position at the lower of their

l
ba
carrying value and fair value less costs to sell.

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Accounting Treatment
Conditions:

ox
a) Available for immediate sale in its present condition allowing for terms that are
usual or customary

B
b) Sale must be highly probable (expected within 1 year of reclassification)

b al
c) Must be genuinely sold, not abandoned.

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting Treatment
Highly Probable:

ox
 Management committed to a plan to sell

B
 Active programme to locate a buyer and complete the sale initiated

l
ba
 Sale price reasonable compared to its current fair value.

lo
 Sale expected to be complete within one year from the date of classification.

G
 No indication that there will be significant changes made to the plan of sale.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Measurement
 Measured at the lower of:

ox
 Fair value less costs to sell

B
 Carrying amount (in accordance with relevant Standard)
 Impairment loss is to be recognised in the statement of profit or loss

bal
 Subsequent increase in fair value less cost to sell can be recognised in the

lo
statement of profit or loss – to the extent the depreciated historical cost would

G
have been if the impairment had not been recognised

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Subsequent Measurement -
 No further depreciation or amortisation

ox
 Fair value less costs to sell re-measured at every reporting date

B
 Further impairment or a reversal of previous impairment loss recognised in
statement of profit or loss

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
IFRS 2

bal
lo
G
SHARED BASED PAYMENT
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

SHARED BASED PAYMENT

When goods or services received in exchange of shares, share options (equity
instrument) or cash based on share price.

ox
B
IFRS 2 has been divided into 3 components;

l
ba
• Share based payment (Equity settled share based payment)

lo
• Cash based on share price (Cash settled share based payment)

G
• Choice of settlement

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 SCOPE: (Outside the scope)
• Issue of shares to owners in capacity of owners (IAS 32)

ox
e.g. right issue or bonus issue

B
• Exchange of shares in a business combination (IFRS 3)

al
e.g. as consideration of goodwill and replacement rewards

b
• Contracts that may or will be settled, net in company shares (IFRS 9)

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

TYPES OF SHARE BASED PAYMENTS

• Equity settled share based payment

ox
• Cash settled share based payment

B
• Choice of settlement

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 TYPES OF SHARE BASED PAYMENTS
Equity settled share based payment
• When goods or service received in exchange of shares or share options (equity
instrument)

ox
B
• Dr. Asset/ Expense for service $xx

bal
Cr. Equity $xx

lo
G
• Allocation of expense for services, if vesting period exists, allocate the expense

A
over the vesting period

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

TYPES OF SHARE BASED PAYMENTS

Equity settled share based payment
• Allocation of expense for service, immediately vesting, charge expense to profit
and loss immediately

ox
• Equity once recorded can’t be remeasured

B
• Calculation:

l
ba
No. of share options expected to vest × Fair value of share option at grant date ×

lo
time ratio

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Example:
No. of employees = 100

ox
Options per employee = 1,000

B
Fair value of option = $3

al
Exercise price = $2

b
Vesting period = 3 years

lo
G
10 employees left during the first year.

A
No. of employees expected to leave in remaining years are 22.

C
11 employees left during year 2. 6 further employees were expected to leave by the
end of year 3 C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

TYPES OF SHARE BASED PAYMENTS

Cash settled share based payment
When goods or services are received in exchange of cash based on share price

ox
B
Dr. Asset/Expense $xx

l
Cr. Liability $xx

ba
lo
G
Allocation of expense for services, if vesting period exists, allocate expense over
vesting period

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 TYPES OF SHARE BASED PAYMENTS
Cash settled share based payment
• Allocation of expense for services, if immediately vesting, charge expense to
profit and loss immediately

ox
• Liability will be remeasured to its fair value at each reporting date

B
Calculation:

b al
No. of SAR’s expected to vest × Fair value of SAR’s at each reporting date × time

lo
ratio

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Year 1 Year 2 Year 3

ox
B
Vesting

l
Grant Date Date

ba
lo
G
A
C
Conditions Attached over the
C
vesting period; VESTING
A
CONDITONS

www.ACCAGlobalBox.com
© ACCA
 VESTING CONDITIONS
• Market based conditions:

ox
Conditions related to share price of the company e.g. share price, P/E ratio, earning
yield ratio target

B
bal
 Accounting:

lo
Ignore, because they are already considered in calculation of fair value at grant

G
date

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

VESTING CONDITIONS
• Non-market related conditions:

ox
Conditions other than market related conditions e.g. EPS target, minimum service
period, cost reduction

l B
ba
 Accounting:

lo
Consider, in calculation of no. of share options expected to vest

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 MEASUREMENT OF EQUITY SETTLED SBP
Transaction Transaction
with with third

ox
employees party

B
al
Fair value of equity
Fair value of goods and
instrument at grant date

b
services can’t be
is used because

lo
measured reliably, fair
services received from
value of equity
employees can’t be

G
instrument is used.
measured reliably

A
C
Fair value of good and
If fair value of equity
services can be

C
instrument can’t be
measured reliably, fair
measured reliably then
A value of goods and
use intrinsic value of
services received is
share option
used.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

VARIABLE VESTING PERIOD

Due to market related conditions, access vesting period at grant date;

ox
• Can’t be longer than original

B
• Can be shorter if actually vest

l
Due to non-market related conditions, access vesting period at grant date

ba
SBP Transaction during the year:

lo
G
• Allocate expense on pro rata basis (Monthly basis)

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 MODIFICATION AND REPRICING
Fair value of Fair value of
option option

ox
increases decreases

B
al
Beneficial for Not beneficial

b
employees for employees

lo
G
A
Continue original Continue original

C
calculation calculation

C
A
Allocate expense of
increase in fair value of
option due to modification Ignore
over period between
modification date and
modification
vesting date

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

MODIFICATION AND REPRICING

If modification is after vesting period

ox
B
• No condition period attached, immediately charge to profit and loss

l
ba
• condition period attached, allocate expense over vesting period

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 CHOICE OF SETTLEMENT
Counter
Entity has
party has
choice

ox
choice

B
Same as issue
Access

al
of compound
obligation to pay
instrument. Use

b
cash exists or
split

lo
not based on
accounting

G
A
Liability: Present
Management
value of future

C
intention
cash outfllows

C
A
Equity: Residual
Past practice
value

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

COUNTER PARTY – CHOICE OF SETTLEMENT

Transaction with employee

ox
B
• Formula

l
Fair value of equity route/ alternative $x

ba
Less liability (PV) ($x)

lo
G
(R.V) Equity Option $x

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 COUNTER PARTY – CHOICE OF SETTLEMENT
Transaction with third party

ox
B
• Formula

al
Fair value of goods/services $x

b
Less liability (PV) ($x)

lo
G
(R.V) Equity Option $x

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

COUNTER PARTY – CHOICE OF SETTLEMENT

Transaction with third party

ox
B
Double Entry:

l
Dr. Asset/ Expense $xx

ba
Cr. Liability $xx

lo
G
Cr. Equity Option $xx

A
Liability will be remeasured

C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
al
CONSOLIDATED FINANCIAL

b
lo
G
STATEMENTS

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions

Group of Companies: when one company (Parent) takes control of

ox
another company (subsidiary).

l B
ba
Subsidiary: a company controlled by another company.

lo
Parent: a company that controls one or more subsidiaries.

G
A
Non-Controlling Interest: collective representation of the shareholders

C
C
that normally own 49% or less of equity.
A
Consolidated Financial Statements: F/S of whole Group presented
as a single set of accounts.
www.ACCAGlobalBox.com
© ACCA
 Control

According to IFRS 10 Consolidated Financial Statements an investor

ox
controls an investee when it is exposed, or has rights, to variable

B
al
returns from its involvement with the investee and has the ability to

b
lo
affect those returns through its power over the investee.

G
A
C
C
 Existence of parent subsidiary relationship:
A
 Parent holds more than one half of the voting power of the entity

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Control

 The parent has power over more than one half of the voting rights.

ox
 The parent has the power to govern the financial and operating

B
policies of the entity.

l
ba
 The parent has the power to appoint or remove a majority of the

lo
G
board of directors

A
 The parent has the power to cast the majority of votes at meetings of

C
the board C
A

www.ACCAGlobalBox.com
© ACCA
 Exemptions

Consolidated financial statements not prepared if:

ox
 The parent itself is a wholly or partially owned subsidiary of another

B
entity. Its securities are not publicly traded.

bal
 The parent’s debt or equity instruments are not traded in a public

lo
G
market.

A
 The parent did not file its financial statements with a securities

C
C
commission or other regulatory organisation.
A
 The ultimate parent publishes consolidated financial statements that
comply with IFRS.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

General Rules

 Same accounting policies should be used for holding company and

ox
the subsidiaries. Adjustments must be made where there is a

B
difference.

l
ba
 The reporting dates of parent and subsidiary will be the same in most

lo
cases.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Separate Accounting

 The holding company produces its own separate financial

ox
statements.

B
al
 Investments in subsidiaries and associates have to be accounted for

b
lo
at cost or in accordance with IFRS 9.

G
A
 Where subsidiaries are classified as held for sale then the provisions

C
C
of IFRS 5 have to be complied with.
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

ox
l B
ba
CONSOLIDATED STATEMENT OF

lo
FINANCIAL POSITION

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

 On acquisition, the investment by the parent company in the

ox
subsidiary is cancelled of against the equity. Any excess remaining is

B
al
known as goodwill

b
lo
G
A
 All assets and liabilities of the subsidiary are added on a line by line

C
C
basis with those of the parent company
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement of Financial Position

ox
 If the control is less than 100%, the remaining investment is known

l B
as non-controlling interest and a portion of equity becomes

ba
lo
attributable to NCI

G
A
C
 Fair value of NCI
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

Consideration might be paid in the following ways:

ox
 By cash

B
al
 By share for share exchange

b
lo
 By deferred consideration

G
A
 By contingent consideration

C
 By loan notes C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement of Financial Position

By Share for share exchange

ox
l B
 Parent Co. share price x No. of shares issued

ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

Deferred consideration: is recorded at present value at the date of

ox
acquisition.

B
Initial recognition:

bal
lo
Dr. Cost of investment

G
Cr. Provision for deferred consideration

A
C
Subsequent recognition Unwinding of discount
C
A
Dr. Consolidates retained earnings
Cr. Provision for deferred consideration

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement of Financial Position

Contingent consideration: At times, the parent Co. agrees to pay the

ox
consideration if certain conditions are met. These conditions are

B
contingent events and IFRS 3 measures such consideration at fair

l
ba
value

lo
G
A
C
Initial recognition:
C
A
Dr. Cost of investment
Cr. Provision for contingent consideration

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

Goodwill

ox
 Full Goodwill method

B
al
 Proportionate share of Goodwill

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement of Financial Position

Fair Value Adjustment

ox
 Gain or loss is adjusted in the calculation of goodwill

l B
 Additional depreciation is deducted from retained earnings.

ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

ox
Intra-group balances are removed from consolidated statement of

B
financial position only if balances reconcile.

bal
Dr. Payables

lo
G
Cr. Receivables

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement of Financial Position

If balances do not reconcile:

ox
Make the adjustments for in transit items

l B
 Cash in transit

ba
lo
DR Cash

G
CR Receivables

A
C
 Goods in transit C
A
DR Inventories
CR Payables

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement of Financial Position

Intra-Group unrealized profits

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

CSOFP – Intra group unrealised profits

Downstream transactions:

ox
If P Co sold goods to S Co and these goods remain in the inventory at

l B
the year end, the profit recognized by the P Co will be eliminated (No

ba
lo
impact on NCI)

G
Dr. Consolidated Reserves

A
C
Cr. Inventory
C
A

www.ACCAGlobalBox.com
© ACCA
 CSOFP – Intra group unrealised profits

Upstream transactions:

ox
If the S Co. sold goods to P.Co. the profits earned by the S.Co. will be

B
al
eliminated not only from group reserve but also from NCI

b
lo
Dr. Consolidated Reserves

G
Dr. NCI

A
C
Cr. Inventories C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Intra group sale of non-current assets

ox
 Elimination of profit

l B
 Adjustment of additional depreciation

ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

Intra group loans:

ox
The portion of loan given by the P.Co to its subsidiary is an intra-group

B
al
receivable/ payable and is eliminated as such.

b
lo
Dr. Loan liability

G
Cr. Loan Asset

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Any interest receivable payable on intra-group loans is eliminated but

ox
only to the extent related to the parent

B
Dr. Interest payable

l
ba
Cr. Interest receivable

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

If the P.Co has not recorded interest receivable on loans given to the

ox
sub Co. the first treatment is to record the interest receivable.

B
al
Dr. Interest receivable

b
lo
Cr. Consolidated reserves

G
A
Then the intra-group interest receivable/payables is eliminated

C
C
Dr. Interest payable
A
Cr. Interest receivable

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Intra-group dividends:

ox
If the parent Co has not recorded the dividend recoverable, it should be recorded:

l B
Dr. Dividend receivable

ba
lo
Cr. Consolidated reserve

G
After this an intra-group, dividends receivable/payable exists which is eliminated:

A
C
Dr. Consolidated reserves
C
A
Dr. NCI

Cr. Dividend payable

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

Goodwill in consolidated Statement of Financial Position:

ox
Acquisition-date: Fair value of consideration transferred by parent X

B
Plus: Fair (or full) value of the NCI at date of acquisition X

al
Less: Fair value of subsidiary’s identifiable net assets at date of acquisition (x)

b
lo
Equals: Total Goodwill X

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Full or fair value of NCI

ox
IFRS-3, allows/requires goodwill to be stated at full value i.e. a part of

l B
ba
goodwill shall now be attributable to NCI

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

Impairment Of Goodwill

ox
B
Under this approach the goodwill appearing in the consolidated

al
Statement of Financial Position is the total goodwill. The accounting

b
lo
treatment will be:

G
A
Dr Group retained Earnings X

C
C
A
Dr Non-controlling interest X

Cr Goodwill X

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Consolidated Retained Earnings

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

Non-controlling Interest

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Assets & Share capital

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated Statement Of Financial Position

Acquisition during the year

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated Statement Of Financial Position

Consolidated Revaluation Reserve

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
al
QUESTIONS?

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

ox
CONSOLIDATED STATEMENT OF

l B
ba
PROFIT OR LOSS AND OTHER

lo
G
COMPREHENSIVE INCOME
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated statement of profit or loss

 Show results of the group as if it were a single entity

ox
B
al
 Add sales, cost of sales and other expenses on a line by line basis.

b
lo
Parent Co. figures are added to post acquisition figures of Subsidiary

G
Co.

A
C
C
A
 The majority of figures are simple aggregations of the results of the
parent and all the subsidiaries (line by line) down to profit after tax.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated statement of profit or loss

 In aggregating the results, intra-group transactions are eliminated.

ox
l B
ba
 Non-controlling interest is ignored until profit after tax. The interest in

lo
profits after tax is subtracted as a one-liner to leave profits

G
attributable to members of the parent.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 P group plc - Pro-forma Consolidated statement of profit or loss
For year ended 30 November 20X6

ox
$'m
Sales revenue (P+S less intra-group sales) X

B
Cost of Sales (X)
(P+S less intra-group purchases plus unrealised profit in inventory)

al
Gross Profit X
Distribution Costs (P+S) (X)

b
Administrative Expenses (P+S) (X)

lo
Group operating Profit X

G
Interest and similar income receivable X
(P+S less intra group interest income)

A
Interest expenses (P+S less intra-group interest expense) (X)
X

C
Share of Profits of Associate (PAT) X
Profit before tax
C X
A
Income tax expense (P+S) (X)
Profit for the period X
Profit attributable to :
Owners of the parent X
Non-controlling interest X

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated statement of profit or loss

OTHER ADJUSTMENTS

ox
 If the subsidiary is acquired during the current accounting period the

l B
profit for the period is apportioned between pre-acquisition and post-

ba
lo
acquisition elements.

G
 After profit after tax in consolidated statement, total profits are divided

A
C
between profits attributable to group and to NCI
C
A
 Dividends receivable by the parent must be cancelled against
dividends paid from the subsidiary.

www.ACCAGlobalBox.com
© ACCA
 Consolidated statement of profit or loss

 Intra Group purchase and sales are removed from the consolidated

ox
statement by cancelling from both sales and cost of sales.

B
al
 The unrealized profit adjustment is to increase cost of sales. In case

b
lo
of upstream transaction, the unrealized profit is deducted from profit

G
attributable to NCI also.

A
C
 Investment in loans leads to intra-group finance cost and inter-group
C
A
dividends.
 These cancel out in the same way as for dividends.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidated statement of profit or loss

 Impairment of goodwill is treated as an administration expense

ox
unless otherwise stated

l B
ba
 No impact of fair value adjustment on acquisition at the statement of

lo
profit or loss. Any additional depreciation related to fair value

G
adjustment are charged by adding to cost of sales and deducting

A
C
from profit after tax of subsidiary, while calculating profit attributable
C
A
to NCI.

www.ACCAGlobalBox.com
© ACCA
 ox
B
al
DISPOSAL OF INVESTMENT

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Introduction

 FR syllabus includes only full disposal i.e. all the holding is sold (say,

ox
70% to nil)

l B
 The effective date of disposal is when control is lost.

ba
lo
 Subsidiaries are consolidated until the date control is lost therefore

G
profits need to be time-apportioned.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Accounting Treatment

 In case of Statement of profit or loss and other comprehensive

ox
income, consolidate results and non-controlling interests to the date

B
of disposal.

bal
 Show group profit or loss on disposal

lo
G
 In case of Statement of financial position, there will be no non-

A
controlling interests and no consolidation.

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Parent Company’s Accounts

In the parent's individual financial statements the profit or loss on

ox
disposal of a subsidiary will be calculated as:

l B
ba
$

lo
Sales proceeds X

G
Less: Carrying amount (cost in P’s own statement of financial (X)

A
position)

C
Profit (loss) on disposal X/(X)

C
A

www.ACCAGlobalBox.com
© ACCA
 Disposal of Subsidiary

In the group financial statements the profit or loss on disposal will be

ox
calculated as:

B
al
b
$ $

lo
Proceeds X

G
Less: Amounts recognized prior to disposal:

A
C
Net assets of subsidiary X
Goodwill
C X
A
Non-controlling interest (X) (X0
Profit/loss X/(X)

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Disposal of Subsidiary

If the disposal is mid-year:

ox
 Calculate both net assets and the non-controlling interest at disposal

l B
date

ba
lo
 Any dividends declared, paid in the year of disposal or prior to

G
disposal date must be deducted from the net assets of the subsidiary

A
C
if not already accounted for.
C
A
 Goodwill recognised prior to disposal is the original goodwill arising
less any impairment to date.

www.ACCAGlobalBox.com
© ACCA
 ox
B
al
IAS 28 – INVESTMENTS IN

b
lo
ASSOCIATES

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions

An associate is an entity, over which the investor has significant

ox
influence and that is neither a subsidiary nor an interest in a joint

B
venture.

l
ba
Significant influence is the power to participate in the financial and

lo
operating policy decisions of the investee but is not control or joint

G
A
control over those policies.

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Significant Influence

Significant influence is usually evidenced by:

ox
 Representation on the board of directors Participating in policy

B
al
making process.

b
lo
 Material transactions between the investor and the investee

G
 Interchange of managerial personnel; or

A
C
C
 Provision of essential technical information.
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Equity Method

Statement of profit or loss

ox
Dividend income from associates (reported in the investor's books) is

B
replaced by the share of profit after tax of the associate.

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Equity Method

Statement of Financial Position

ox
Initially the Investments in Associates is shown at cost, identifying any

B
al
goodwill included in the cost.

b
lo
In subsequent years the Investor's accounts will show:

G
A
 The investment at cost

C
C
 Plus group share of associate's post acquisition reserves.
A
 Less any impairment of investment to date.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consolidation

ox
B
SBR

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Consolidated statement of

ox
B
financial position

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

PIECEMEAL ACQUISITION

 Step-wise acquisition

ox
 Previous holding 10%. 45% additional acquisition

l B
ba
lo
Goodwill

G
 45% consideration xx

A
C
 10% fair value C xx
A
 Less net assets at the date of acquisition (xx)
 Goodwill XX

www.ACCAGlobalBox.com
© ACCA
 PIECEMEAL ACQUISITION

 Simple investment to Subsidiary

ox
B
bal
Goodwill

lo
G
Fair value of existing holding xx

A
C
Consideration for new investment xx
C
A
Less Net assets (xx)
Goodwill xx

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

PIECEMEAL ACQUISITION

 Simple investment to Subsidiary

ox
l B
ba
lo
Gain/loss on old investment

G
A
Fair value of existing holding xx

C
Less Carrying value C (xx)
A

Consolidated retained earning xx

www.ACCAGlobalBox.com
© ACCA
 PIECEMEAL ACQUISITION

 Associate to Subsidiary

ox
B
bal
Goodwill

lo
G
Fair value of existing holding xx

A
C
Consideration for new investment xx
C
A
Less Net assets (xx)
Goodwill xx

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

PIECEMEAL ACQUISITION

 Associate to Subsidiary

ox
l B
ba
lo
Gain/loss on old investment

G
A
Fair value of existing holding xx

C
Less Carrying value C (xx)
A

Consolidated retained earning/P&L xx

www.ACCAGlobalBox.com
© ACCA
 PIECEMEAL ACQUISITION

 Simple investment to Associate

ox
 No calculation of Goodwill

B
bal
lo
Calculation of investment in Associate

G
Fair value of existing holding xx

A
C
C
Consideration for new investment xx
A
Share of post acquisition reserves xx
Investment in Associate xx

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

PIECEMEAL ACQUISITION

 Simple investment to Associate

ox
l B
ba
lo
Gain/loss on old investment

G
A
Fair value of existing holding xx

C
Less Carrying value C (xx)
A

Consolidated retained earning xx

www.ACCAGlobalBox.com
© ACCA
 PIECEMEAL ACQUISITION

 Subsidiary to Subsidiary

ox
 No impact on Goodwill

B
al
 The only adjustment is to reduce NCI

b
lo
G
A
C
Dr. NCI
C
A
Dr./Cr. Capital Reserve
Cr. Cash

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

PIECEMEAL ACQUISITION
 Subsidiary to Subsidiary

ox
 The cash amount already available in data

B
 Calculation of NCI value required

l
ba
Calculation of valuation of NCI

lo
Net assets of subsidiary (Pre + Post) xx

G
Multiply: % of NCI xx

A
C
XX
C
A
NCI Goodwill xx

Fair value of NCI – Net Assets XX x Fraction

www.ACCAGlobalBox.com
© ACCA
 ox
B
Disposal of investment

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Introduction

 In case of Statement of financial position, there will be

ox
B
no non-controlling interests and no consolidation at

l
ba
year end

lo
G
 The effective date of disposal is when control is lost.

A
C
C
 Subsidiaries are consolidated until the date control is
A

lost therefore profits need to be time-apportioned.

www.ACCAGlobalBox.com
© ACCA
 Disposal

Complete disposal

ox
B
 Dr. Non-controlling interest

bal
lo
 Dr. Cash

G
A
C
 Cr. Goodwill A
C
 Cr. Net assets

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Disposal

Subsidiary to simple investment

ox
 Dr. Non-controlling interest

l B
ba
 Dr. Cash

lo
G
 Dr. Remaining investment

A
C
 Dr./Cr. Profit/Loss (Bal. fig.)
C
A
 Cr. Goodwill
 Cr. Net assets

www.ACCAGlobalBox.com
© ACCA
 Disposal

Partial disposal

ox
Subsidiary to Associate

B
al
 Dr. Non-controlling interest

b
lo
 Dr. Cash

G
 Dr. Investment in Associate

A
C
 C
Dr./Cr. Profit/Loss (Bal. fig.)
A
 Cr. Goodwill
 Cr. Net assets

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Disposal
Subsidiary to Subsidiary

ox
 Dr. Cash

B
 Dr./Cr. Capital Reserve (Bal. fig.)

l
ba
 Cr. Non-controlling interest

lo
G
A
Calculation of NCI

C
 Net assets of subsidiary x %old holding xx
C
A
 Parent goodwill xx

XX x Fraction

www.ACCAGlobalBox.com
© ACCA
 ox
B
FOREIGN CURRENCY

bal
lo
TRANSACTIONS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

ox
B
Consolidated statement of

l
ba
lo
PROFIT OR LOSS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Profit or Loss and Other Comprehensive
Income
1. Show results of the group as if it were a single entity.

ox
2. The majority of figures are simple aggregations of the results of the

B
parent and all the subsidiaries (line by line) down to profit after tax.

bal
lo
3. In aggregating the results, intra-group transactions are eliminated.

G
4. Non-controlling interest is ignored until profit after tax. The interest in

A
C
profits after tax is subtracted as a one-liner to leave profits attributable
C
to members of the parent.
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

P group plc - Pro-forma Consolidated statement of profit or loss

For year ended 30 November 20X6
$'m
Sales revenue (P+S less intra-group sales) X
Cost of Sales (X)
(P+S less intra-group purchases plus unrealised profit in inventory)

ox
Gross Profit X
Distribution Costs (P+S) (X)

B
Administrative Expenses (P+S) (X)

l
ba
Group operating Profit X
Interest and similar income receivable X

lo
(P+S less intra group interest income)

G
Interest expenses (P+S less intra-group interest expense) (X)

A
X

C
Share of Profits of Associate (PAT) X
Profit before tax
C X
A
Income tax expense (P+S) (X)
Profit for the period X
Profit attributable to :
Owners of the parent X
Non-controlling interest X

www.ACCAGlobalBox.com
© ACCA
 Profit or Loss and Other Comprehensive
Income
OTHER ADJUSTMENTS

ox
 If the subsidiary is acquired during the current accounting period the

B
profit for the period is apportioned between pre-acquisition and post-

bal
acquisition elements.

lo
G
 After profit after tax in consolidated statement, total profits are divided

A
between profits attributable to group and to NCI

C
 C
Dividends receivable by the parent must be cancelled against dividends
A
paid from the subsidiary.

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Profit or Loss and Other Comprehensive

Income
 Impairment of goodwill is treated as an administration

ox
expense unless otherwise stated

l B
ba
 No impact of fair value adjustment on acquisition at the

lo
G
statement of profit or loss. Any additional depreciation

A
related to fair value adjustment are charged by adding
C
C
A
to cost of sales and deducting from profit after tax of
subsidiary, while calculating profit attributable to NCI.

www.ACCAGlobalBox.com
© ACCA
 Disposal – Statement of profit or loss

 Subsidiary to Associate

ox
B
bal
lo
G
A
C
C
A

 Subsidiary to simple investment

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Disposal – Statement of profit or loss

 Subsidiary to Subsidiary

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 IFRS 15 – REVENUE FROM

ox
B
CONTRACTS WITH

bal
lo
CUSTOMERS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Revenue
 Income arising in the course of an entity’s ordinary activities (Normal trading and
operating activities)

ox
B
 Five step model for revenue recognition

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Five-Step Model Framework
STEP 1: Identify the Contract with the Customer

ox
Conditions for IFRS 15 application:

B
 Approved by all relevant parties

al
 Each party’s rights can be identified

b
lo
 Payment terms can be identified

G
 There is commercial substance

A
 Consideration will probably be collected

C
C
 The contract can be written, verbal or implied
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Five-Step Model Framework

STEP 2: Identify the separate performance obligations

ox
 Assess at the inception of the contract, the goods or services promised and
identify the performance obligation:

B
 Distinct goods or services (or bundle)

l
ba
 Series of distinct goods or services; substantially the same and that have the same pattern of

lo
transfer to the customer.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Five-Step Model Framework
STEP 3: Determine Transaction Price:

ox
 It is the amount to which an entity expects to be entitled in exchange for the
goods and services.

B
 Where elements of variable consideration exist, the entity will estimate the

al
amount of variable consideration to which it will be entitled under the contract.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Five-Step Model Framework

 A more restrictive approach is applied in respect of sales or usage-based royalty
revenue arising from licences of intellectual property.

ox
 Such revenue is recognised only when the underlying sales or usage occur.

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Five-Step Model Framework
STEP 4: Allocation of Transaction Price

ox
B
 If a contract has multiple performance obligations, the transaction price is
allocated to them by reference to the relative standalone selling prices.

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Five-Step Model Framework

STEP 5: Revenue Recognition

ox
B
 Revenue is recognised as control is passed over.

l
 Control is defined as the ability to direct the use of and obtain substantially all of

ba
the remaining benefits from the asset

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Five-Step Model Framework
 If an entity satisfies the performance obligation at a point in time, revenue will be
recognised when control is passed.

ox
 If an entity satisfies the performance obligation over the period of time, revenue is

B
recognised over time

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Five-Step Model Framework

 Factors that may indicate the point in time when control passes include, but are
not limited to:

ox
 The entity has a present right to payment

B
 The customer has legal title

l
ba
 The entity has transferred physical possession

lo
 The customer has the significant risks and rewards

G
 The customer has accepted the asset.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Mighty IT Co has developed an accounting software package. The company offers
a supply and installation service for $1,000 and a separate two-year technical

ox
support service for $500. Alternatively, it also offers a combined goods and services

B
contract which includes both of these elements for $1,200. payment for the

al
combined contract is due one month after the date of installation.

b
lo
For each combined contract sold, what is the amount of revenue which Mighty IT Co

G
should recognized in respect of the supply and installation service in accordance

A
with IFRS 15?

C
A. $700
C
A
B. $800
C. $1,000
D. $1,200

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Contract Costs
 Incremental costs of obtaining a contract are recognised as an asset if the entity
expects to recover those costs.

ox
 Costs incurred to fulfil a contract are recognised as an asset if all of the following

B
criteria are met:

l
ba
 The costs relate directly to a contract

lo
 The costs generate or enhance resources of the entity that will be used in satisfying

G
performance obligations in the future; AND
 The costs are expected to be recovered.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Contract Costs
 The asset recognised in respect of the costs to obtain or fulfil a contract is
amortised on a systematic basis that is consistent with the pattern of transfer of

ox
the goods or services to which the asset relates.

B
b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Extracts for Construction Contracts P&L

$

ox
Revenue

B
(Contract price x %age of completion) – Revenue already recognized xx

l
ba
in previous years

lo
- Cost

G
(Total cost x %age of completion) – Cost already recognized in previous (xx)

A
C
years

Profit/ Loss C xx
A

www.ACCAGlobalBox.com
© ACCA
 Extracts for Statement of Financial Position
$

ox
Actual costs to date xx

B
al
Add: Profit to date xx

b
lo
Less: Progress billings to date (xx)

G
CONTRACT ASSET/LIABILITY xx

A
C
C
A
RECEIVABLES xx

(Billings to date – Payment to date)

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Percentage of Completion

 Input method / Cost Method

ox
= Actual cost to date x 100%

B
Total cost

l
ba
= Hours incurred to date x 100%

lo
G
Total hours to complete the project

A
C
 Output Method C
A
= Agreed value of work x 100%
Contract price

www.ACCAGlobalBox.com
© ACCA
 Sale of Goods with Rendering of Services
 Revenue of goods sold should be recognised when control passes to customer
(usually at delivery date)

ox
B
 Rendering of services revenue should be allocated over service period

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Sale of Goods with Right to return

 Goods will not be returned – Revenue

ox
 Goods are expected to be returned – Refund liability

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Sale as Commission Agent
 Commission earned will be recognised as revenue

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Warranty
 Assurance that the product will comply with agreed upon specifications –
Provision as per IAS 37

ox
B
 Additional warranty that customer can purchase – Separate performance

l
ba
obligation & its revenue is allocated over period of warranty

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Licensing
 Right to use – Recognise revenue at a particular point in time

ox
B
 Right to access – Recognise revenue over period of time

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Consignment Inventory
 Arrangement where a product is delivered to a customer (dealer) under
consignment arrangement. As dealer doesn’t obtain control of the product so

ox
NO revenue recognised

B
Indicators:

l
ba
 Product is controlled by entity until sold to customers

lo
 Entity may require a return of product or transfer from one dealer to another

G
 Dealer has no unconditional obligation to pay

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Sale on Repurchase Terms
 Repurchase price is already fixed and more than selling price

ox
 Loan arrangement

B
b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Bill and Hold Arrangement

 Customer invoiced but vendor retains physical possession

ox
 Revenue recognised when control passes and ALL the following criteria are met

l B
a) The reason for the bill-and-hold arrangement must be substantive

ba
b) The product must be identified separately as belonging to the customer

lo
G
c) The product currently must be ready for physical transfer to the customer

A
d) The entity cannot have the ability to use the product or to direct it to another

C
customer
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
IFRS 16 – LEASES

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Lessee Accounting
 Single model for lease accounting (Recognise asset and lease liability for all

ox
leases)

B
Except (Optional)

l
ba
 Lease for less than 12 months

lo
 Low value items

G
A
C
Accounting
C
 Rentals are recorded as expense on a straight line basis in P&L over lease term
A
 Expense = Total payments
Lease term

www.ACCAGlobalBox.com
© ACCA
 Initial Measurement
 Right-of-use asset

ox
 Lease liability

B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Initial Measurement
Right-of-Use Asset
 Initially measured at COST

ox
Cost includes

B
 The amount of initial lease liability

l
 Lease payments made on or before commencement

ba
 Initial direct costs incurred

lo
G
 Estimated costs of dismantling or site restoration

A
 Less: Incentives

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Initial Measurement
Lease Liability
 Present value of unpaid lease payment

ox
Includes

B
 Fixed rental payments less incentives

al
 Variable lease payments based on an index or rate

b
 Purchase option price (reasonably certain)

lo
G
 Guaranteed Residual Value

A
 Penalty for termination of lease

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Interest Rate
 Interest rate implicit in a lease

ox
 Incremental borrowing rate by lessee

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Subsequent Measurement
Right-of-Use Asset
 Measured using COST MODEL

ox
Except

B
 Fair value model of IAS 40

al
 Revaluation model under IAS 16

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Subsequent Measurement Lease Liability

 Increase carrying amount to reflect interest

ox
 Reduce carrying amount to reflect lease payments

B
 Re-measure carrying amount to reflect any reassessment or lease modifications

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Subsequent Measurement Lease Liability
 Variable lease payments recognised in the period in which the event or condition
occurs

ox
B
 Lease modification recognised as separate lease if

b al
 Scope of lease increases

lo
 Consideration for the lease increases

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting by Lessee
Start of Year 1

ox
 Dr. Right-of-use Asset

B
Cr. Lease liability

l
Cr. Bank

ba
lo
G
End of Year 1

A
 Dr. Finance cost

C
Cr. Lease liability
C
A
 Dr. Lease Liability
Cr. Bank

www.ACCAGlobalBox.com
© ACCA
 Accounting by Lessee

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting by Lessee

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Accounting by Lessee

ox
B
bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting by Lessee

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Sales and Lease Back
 IFRS 15 guidance to determine transaction a sale or not

ox
 When performance obligation satisfied

B
al
 Transfer is a sale

b
 Transfer is not a sale

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Sales and Lease Back

Transfer is a sale

ox
 The right-of-use asset is recorded in proportion to the previous carrying amount of
the asset that relates to the right of use retained

B
 Gains and losses are limited to the amount relating to the rights transferred

l
ba
 Adjustments required if sale is not at fair value or lease payments are not at

lo
market rates

G
 Accounting for pre-payment or additional financing

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Sales and Lease Back
Double entry

ox
 Dr. Bank

B
Dr. Right to use

al
Cr. Asset

b
Cr. Lease Liability

lo
G
Cr. P&L (Bal. Fig.)

A
C
 % Retained = Lease liability
C
A
Fair value

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Sales and Lease Back

Transfer is not a sale

ox
 Financial liability is recognised equal to the proceeds transferred

B
 The financial liability is accounted for in accordance with IFRS 9.

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
IAS 12 – INCOME TAXES

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Accounting profit: Net profit (or loss) for the reporting period before deducting tax
expense.

ox
B
Taxable Profit: Profit (or loss) for a period, determined in accordance with the local

l
ba
tax authority's rules, upon which income taxes are payable.

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Tax Expense: consists of three elements:

ox
 Current tax expense

B
 Adjustments to tax charges of prior periods (over/under provisions)

al
 Transfers to/from deferred tax.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Current Tax
The amount of income tax payable (or recoverable) in respect of the taxable profit
(or loss) for the period.

ox
Accounting for Current Tax:

B
 Tax payable for current period treated as expense and adjustment of under/over

l
ba
provision of prior periods

lo
 If tax expense and provision at year end are greater than the payment, the

G
difference is disclosed as current tax liability and vice versa.

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Current Tax
Accounting for Current Tax:

ox
 Current tax = Taxable profits/loss x %age of tax

B
 Tax expense/income will follow the treatment of line item (OCI /P&L/SOCIE )

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Current Tax
Under/Over Provision related to previous years

ox
B
Trial balance(single effect)

l
ba
lo
Dr. Cr.

G
Under provision (Expense) xx

A
C
Over provision (Income) xx
C
A

www.ACCAGlobalBox.com
© ACCA
 Current Tax – Current year
Tax Payable

ox
Dr. Tax Expense

B
Cr. Provision for tax

bal
Tax Refund

lo
G
Dr. Tax Refund

A
Cr. Tax Expense

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Current Tax – Prior period

Under Provision

ox
 Shown as debit in Trial Balance

B
 Increases the tax expense

l
ba
Over Provision

lo
G
 Shown as credit in Trial Balance

A
 Decreases the tax expense

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Deferred Tax
Tax Base: The amount attributed to an asset or liability for tax purposes.

ox
Tax base-Asset: The amount that will be deductible for tax purposes against any
future taxable benefits derived from the asset.

B
Tax base-Liability: The carrying amount of a liability less any amount that will be

al
deductible for tax purposes in respect of that liability in future periods.

b
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Deferred Tax
Accounting for Deferred Tax:

ox
 Deferred tax liabilities: Income taxes payable in future periods in respect of
taxable temporary differences.

l B
 Deferred tax assets: Income taxes recoverable in future periods in respect of:

ba
 Deductible temporary differences

lo
G
 The carry forward of unused tax losses
 The carry forward of unused tax credits

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Temporary Differences
Temporary Differences are differences between the carrying amount of an asset or
liability in the SOFP and its tax base.

ox
B
al
Temporary

b
Differences

lo
G
A
Taxable

C
C
A
Deductible

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 Calculate temporary difference between carrying value and tax base

ox
 Deferred tax = Temporary difference x Tax rate (% of tax)

l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Measurement
 Measurement is at tax rates expected to be applicable in the period when the
asset is realised or liability is settled.

ox
 The rates used should be enacted or substantially enacted by the end of the

B
reporting period.

al
 It depends upon the expectations of the manner in which the recovery or

b
lo
settlement of tax asset/ liability will take place.

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Measurement
 The values cannot be discounted.

ox
 Deferred tax expense is recognized in the statement of profit or loss.

B
 If the tax relates to items, credited or charged directly to equity, then the current
tax and deferred tax shall also be directly treated in equity.

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Double entries
Statement of profit or loss item

ox
 Increase in Deferred tax liability

B
Dr. Tax Expense

al
Cr. Deferred tax liability

b
lo
 Decrease in Deferred tax liability

G
Dr. Deferred tax liability

A
C
Cr. Tax expense
C
A
 Deferred tax due to revaluation
Dr. Revaluation reserve/ OCI
Cr. Deferred tax liability

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Presentation
 Current tax assets and liabilities are offset in the SOFP, if the entity has the legal
right and the intention to settle on a net basis.

ox
 Deferred tax assets and liabilities are offset in the SOFP only if the entity has the

B
legal right to settle on a net basis.

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 ox
B
FINANCIAL INSTRUMENTS

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Definitions
Financial Instrument: A contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity.

ox
B
Examples

l
ba
 Shares (Ordinary shares, preference shares)

lo
 Debentures ( Loan notes, Loan stock)

G
 Derivatives (Futures, Forwards, Option, Swap)

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Definitions
Financial Assets:

ox
 Cash

B
 Contractual right to receive cash or another financial asset

al
 An equity instrument of another entity.

b
lo
G
Financial Liabilities: Liability that is a contractual obligation to deliver cash or
another financial asset to another entity

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Equity Instruments
Equity Instrument: A contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities.

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Initial Recognition
A financial asset or a financial liability should be recorded in an entity’s statement of
financial position:

ox
 When it becomes a party to the contractual provisions of the instrument

B
b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Financial Assets - Measurement

Initial Measurement:

ox
At fair value: Purchase consideration paid to acquire the financial asset plus

B
transaction costs (except instruments at FVTPL)

l
ba
lo
Subsequent Measurement:

G
Depends upon whether the investment is in a debt instrument or an equity

A
C
instrument
C
A

www.ACCAGlobalBox.com
© ACCA
 Financial Assets - Measurement
Debt Instruments:

ox
 At fair value through profit or loss (FVTPL)

B
 At amortised cost

b al
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Financial Assets - Measurement

Amortised cost

ox
Two tests have to be passed:

B
 The business management model test

l
ba
Business management model to hold the investment for collection of contractual

lo
cash flows

G
 BMM should be assessed on portfolio level

A
C
 Irregular sale doesn’t effect BMM
 C
Entity may have more than one BMM for different portfolios
A
 The contractual cash flow characteristics test
Investments can generate contractual cash flows at specified time

www.ACCAGlobalBox.com
© ACCA
 Financial Assets - Measurement
Equity instruments: Measured at

ox
 Fair value either through profit or loss, OR

B
 Fair value through other comprehensive income

b al
lo
Equity instrument recognised at fair value through other comprehensive income,

G
provided:

A
 It is NOT held for trading AND

C
 There is an irrevocable election to recognise gain/losses in OCI
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Financial Assets - Measurement

Debt instrument recognised at fair value through other comprehensive income:

ox
 BMM is to hold investment for collection of contractual cash flows and to sell

B
 Same as amortised cost

l
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Financial Liabilities
Types

ox
 Loan notes – Financial Liability

B
 Convertible loan notes - Compound financial instruments (Financial liability +
Equity)

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Financial Liabilities - Measurement

Subsequent Measurement:

ox
Financial liabilities (other than liabilities held for trading and derivatives that are
liabilities) are recorded at amortised cost using the effective interest rate method

l B
ba
Opening Finance cost Interest paid Closing

lo
balance of charged (b/d x (principle amount x balance of

G
liability effective rate of nominal rate of liability
interest interest)

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Compound Instruments
Compound Instrument: Financial instrument that has characteristics of both equity
and liabilities. It should be split into:

ox
 A financial liability (the debt)

B
 An equity instrument (the option to convert into shares)

bal
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Compound Instruments
Accounting

ox
Split accounting is done for Convertible Bond i.e. split between Liability and Equity

l B
ba
1. Calculate fair value of liability component:

lo
 Based on present value of future cash flows assuming non-conversion

G
 Apply discount rate equivalent to interest on similar non-convertible debt

A
instrument

C
1. Equity = remainder
C
A

www.ACCAGlobalBox.com
© ACCA
 Compound Instruments
Accounting

ox
$

B
Value of convertible loan xx

bal
Less: Liability (xx)

lo
G
(Max. possible cashflows x Discount factor on loan without conversion option)

A
Equity option (Balancing figure) xx

C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Issue cost, Interest and Dividend paid

Accounting for Liability

ox
 Issue costs and Interest paid are charged as Finance cost in P&L

B
 Finance cost is calculated using Effective interest rate method

l
ba
Accounting for Equity

lo
G
 Issue costs and Dividend paid are charged to equity in Statement of changes in
equity

A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Effective Interest Rate Method
Finance cost

ox
 Issue cost

B
 Discount on issuance

al
 Interest expense

b
 Premium on redemption

lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

ox
IFRS 8

l B
ba
OPERATING SEGMENTS

lo
G
A
C
C
A

Ms. Aleena Kareem

www.ACCAGlobalBox.com
© ACCA
 IFRS 8 – Operating Segments

Segment reporting

ox
B
 By product/region/operation

bal
lo
 Risk & rewards

G
A
C
 Profitability C
A
 Management view

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IFRS 8 – Operating Segments

Segment reporting criteria

ox
B
Operating segment

l
ba
 Revenue and expenses

lo
G
A
 Financial information available

C
 C
Resource allocated, segment results review from
A

resource allocation

www.ACCAGlobalBox.com
© ACCA
 IFRS 8 – Operating Segments

Segment reporting criteria

ox
B
Quantitative threshold:

al
 Segment reported revenue is 10% or more of the combined

b
lo
revenue

G
A
 Its assets are 10% or more of the combined assets
C
C
A
 Its reported profit/loss is 10% or more of the greater of the
combined reported profit & reported loss of segment

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IFRS 8 – Operating Segments

ox
l B
ba
lo
G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 IFRS 8 – Operating Segments

Segment reporting criteria

ox
B
Quantitative threshold:

bal
 If the total external revenue reported by operating

lo
G
segments constitutes less than 75% of the total

A
C
revenue, additional operating segments shall be
C
A
identified as reportable segments until at least 75% of
the entity’s revenue is included in reporting segments

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IFRS 8 – Operating Segments

Aggregation criteria

ox
Two or more operating segments may be aggregated if the segments are

B
similar in each of the following respects:

l
ba
lo
 The nature of the product & services

G
 The nature of the production process

A
C
 The type or class of customer for their products & services
C
A
 The method used to distribute their product or provide their services
 The nature of the regulatory environment

www.ACCAGlobalBox.com
© ACCA
 IFRS 8 – Operating Segments

Disclosures

ox
B
 An entity shall report profit/loss & total assets for each

al
reportable segment

b
lo
G
 Other disclosures are required if specific amounts are

A
C
received regarding each reportable segment
C
A
 Judgments made by the management for the purpose of
aggregation

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

IFRS 8 – Operating Segments

Disclosures

ox
 Operating segment information disclosed is not necessarily IFRS

B
compliant

l
ba
lo
 Operating segment information disclosed must be reconciled back to

G
IFRS amounts disclosed

A
C
 Entity reports geographical information if available
C
A
 An entity provides information about the extent of its reliance on its
major customer (greater than 10% revenue)

www.ACCAGlobalBox.com
© ACCA
 ox
B
IFRS 11

bal
lo
G
JOINT ARRANGEMENTS
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Joint
arrangement

ox
B
Agreement

l
ba
lo
G
Joint control
(common

A
control)

C
C
A
Operation Entity Asset

www.ACCAGlobalBox.com
© ACCA
 1. Net assets belong to the
parties involved

2. Asset right/ ownership &

Joint Venture Obligations ; Joint venture
itself

Joint arrangement

ox
3. Profit Sharing

B
al
Yes Need to consider factors

b
lo
Separate Established

G
No Joint controlled operation

A
1. Asset right/ownership &

C
obligations belongs to

C
A parties involved

Jointly Controlled 2. Sharing of Assets and

Operation Liabilities

Revenue Sharing

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Accounting – IFRS 11

 Joint venture is sort of associate

ox
B
 IAS 28, equity method of consolidation is used

l
ba
 Jointly controlled operation;

lo
G
i. Asset × %

A
C
ii. Liabilities × %
C
A
iii. Income × %
iv. Expenses × %

www.ACCAGlobalBox.com
© ACCA
 ox
B
IAS 24

bal
lo
RELATED PARTY TRANSACTIONS

G
A
C
C
A

www.ACCAGlobalBox.com
© ACCA
 Downloaded From "http://www.ACCAGlobalBox.com"

Related party disclosures

Definition of Why disclosures What disclosures

ox
related party are required are required

l B
ba
 Amount of
a) PERSON: Provide information about
transaction

lo
• A key management personal entity financial position &  Nature of transaction
• Any person who has control,

G
performances to shareholders  Outstanding balance
joint control, significant
 Irrecoverable debt

A
influence over reporting
 Director’s

C
entity
remuneration (IAS19
C + IFRS 2)
A
 Names of related
b) Entity party
• Structures

www.ACCAGlobalBox.com
© ACCA