Equity – 2 understand it all at best

06/07/2021

Equity

There are, at least, two ways to discuss equity:

Equity is the residual interest in the assets of the entity after deducting all its liabilities, or
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

But also:

For the purposes of IFRS 3, equityinterests is used broadly to mean ownership interests of investor-owned entities and owner, member or participant interests of mutual entities.
The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.
An equity-settled share-based payment transaction is a share-based payment transaction in which the entity:
1. receives goods or services as consideration for its own equity instruments (including shares or share options), or
2. receives goods or services but has no obligation to settle the transaction with the supplier.

1. Equity the residual interest in the assets of the entity after deducting all its liabilities

1. Statement of Financial Position

Assets

Equity and liabilities

1. Non-current assets

2. Current assets

Help

A – TOTAL ASSETS [1 + 2] = B

3. Non-current liabilities (including Provisions)

4. Current liabilities (including Provisions)

5. Equity [1 + 2 -/- 3 -/- 4]

Help

B – TOTAL EQUITY AND LIABILITIES [3 + 4 + 5] = A

Example Disclosure financial instruments

05/07/2021

Example Disclosure financial instruments

The guidance for this example disclosure financial instruments is found here.

7 Financial assets and financial liabilities

This note provides information about the group’s financial instruments, including:

an overview of all financial instruments held by the group
specific information about each type of financial instrument
accounting policies
information about determining the fair value of the instruments, including judgements and estimation uncertainty involved.

The group holds the following financial instruments: [IFRS 7.8]

Amounts in CU’000	Notes	2020	2019
Financial assets
Financial assets at amortised cost
– Trade receivables	7(a)	15,662	8,220
– Other financial assets at amortised cost	7(b)	4,598	3,471
– Cash and cash equivalents	7(e)	55,083	30,299
Financial assets at fair value through other comprehensive income (FVOCI)	7(c)	6,782	7,148
Financial assets at fair value through profit or loss (FVPL)	7(d)	13,690	11,895
Derivative financial instruments
– Used for hedging	12(a)	2,162	2,129
		97,975	63,162
Example Disclosure financial instruments
Financial liabilities
Liabilities at amortised cost
– Trade and other payables¹	7(f)	13,700	10,281
– Borrowings	7(g)	97,515	84,595
– Lease liabilities	8(b)	11,501	11,291
Derivative financial instruments
– Used for hedging	12(a)	766	777
– Held for trading at FVPL	12(a)	610	621
		124,092	107,565

The group’s exposure to various risks associated with the financial instruments is discussed in note 12. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. [IFRS 7.36(a), IFRS 7.31, IFRS 7.34(c)]

Onerous

29/06/2021

This is an overview of the use of onerous in the IFRS Standards, the major Standard being IAS 37 (see below).

IAS 37: ‘Onerous Contracts – Cost of Fulfilling a Contract’

IAS 37 defines an onerous contract as one in which the unavoidable costs of meeting the entity’s obligations exceed the economic benefits to be received under that contract. If an entity has a contract that is onerous the present obligation under the contract should be recognized and measured as a provision. An onerous contract is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

The amendment to IAS 37, that will become effective 1 January 2022, clarifies the meaning of ‘costs to fulfil a contract’. Contract costs Contract costs The amendment was part of some narrow-scope amendments issued by IASB in May 2020.

The amendment explains that the direct cost of fulfilling a contract comprises:

the incremental costs of fulfilling that contract (for example, direct labour and materials); and
an allocation of other costs that relate directly to fulfilling contracts (for example, an allocation of the depreciation charge for an item of PP&E used to fulfil the contract). (IAS 37.68A)

The amendment also clarifies that, before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract.

The amendment could result in the recognition of more onerous contract provisions, because previously some entities only included incremental costs in the costs to fulfil a contract.

Realised cash flows differ from expectations

18/06/2021

Realised cash flows differ from expectations – The is forward-looking, so cash flows may sometimes be realised in a way that differs in a way that differs from the entity’s expectations at the time of the original assessment.

For example, the entity … Read more

Accounting policies for financial instruments

18/06/2021

Accounting policies for financial instruments – a quite complete overview of all kinds of accounting issues for financial instruments such as measurement categories, initial recognition, amortised costs and effective interest rate, financial assets, impairment, derecognition, financial liabilities, derecognition, and derivatives. Enjoy it!

Summary of significant financial instruments accounting policies

1 Financial assets and liabilities

1.1 Summary of measurement categories

The insurer classifies its financial assets into the following categories:

Business model and cash flow characteristics	Type of financial instruments	Classification
Hold to collect business model and solely payments of principal and interest	Cash and cash equivalents	Amortised cost (AC)
Hold to collect and sell business model and solely payments of principal and interest	Government bonds	Fair value through other

1 Strong Read Determination of separable assets

18/06/2021

Determination of separable assets

– Businesses are created to bring together diverse resources and generate synergies that will be realised in jointly produced cash flows. While businesses typically acquire assets separately, they realise benefits from them jointly. If no synergies were anticipated, there would be no point in bringing resources together in the first place. As a result, combinations of resources where synergies are believed to exist typically command a higher price when sold jointly than they would when sold separately. This creates a problem for example for the fair value and realisable value bases, which typically look at the amounts that could be realised from the disposal of separable assets.

Consider the case of an item of … Read more

IFRS 9 ECL Model best read – Impairment of investments and loans

18/06/2021

Impairment of investments and loans

is about impairment in a ‘normal’ business not complicated accounting but straightforward accounting calculations.

Normal operations

Although the focus for IFRS 9 Financial Instruments is on financial institutions such as banks and insurance companies, ‘normal’ operating entities are also affected by IFRS 9. Maybe their investment and loan portfolios are less complex but in operating a business and as part of the internal credit risk management practice policy making it is still important to implement the impairment model under IFRS 9 Financial Instruments.

The objective of these approaches to expected credit losses or timely recording of impairments/loss allowances is to provide approaches that result in a situation in which very different reporting entities all … Read more

Expected credit losses on financial assets

18/06/2021

Expected credit losses on financial assets relates to the impairment requirements that are applied to:

Financial assets measured at amortised cost (originated, purchased, reclassified or modified incl. trade receivables),

Financial assets measured at fair value through other comprehensive income,

Loan commitments except those measured Read more

Note 1 Cash and cash equivalents

16/06/2021

Definition of cash and cash equivalents

IAS 7.6 includes the following definitions:

‘Cash’:

Cash on hand (physical currency held), and
Demand deposits.

‘Cash equivalents’:

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

IAS 7.7 then notes that cash equivalents are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. IAS 7.7 also notes that:

‘…an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition.’

Demand deposits

Demand deposits are not defined in IFRS. However, in order to qualify as cash, the related balance needs to have the same liquidity as cash itself, and so funds on ‘demand deposit’ need to be capable of being withdrawn at any time without penalty.

In general, deposits which can be withdrawn without penalty within 24 hours, or one working day, are regarded as being demand deposits. These include amounts deposited at financial institutions (such as funds in a bank current account), and may extend to cover deposits at non-financial institutions such as legal advisers, if funds are held for client in separate and designated accounts that can be called upon by the client at any time.

If a deposit does not qualify to be regarded as cash, it may qualify to be classified as a cash equivalent.

Consider this!

Questions arise about whether investments that can be withdrawn on demand (e.g. money market funds) could qualify to be regarded as cash equivalents.

In general, this is possible, but only in very limited circumstances.

This is because, in addition to the existence of the demand feature, all of the other requirements of IAS 7 need to be met. An interest bearing deposit at a financial institution might result in the amount of cash that would be received being known, and there might be an insignificant risk of changes in value (in particular in the current low interest rate environment), even if there is an early withdrawal penalty.

However, it is also necessary for it to be demonstrated that the investment is being held for the purpose of meeting short-term cash commitments rather than for investment or other purposes (IAS 7.7).

It may be difficult to reconcile this last requirement to the characteristics of the investment, particularly as its maturity (excluding the demand feature) increases.

Short term maturity

What Is Fintech reporting IFRS 15

05/06/2021

What Is Fintech or Financial Technology And Its Benefits?

New and fast-growing technologies like Financial Technology or Fintech have the potential benefits to collect and process data in real-time. This transforms how all businesses are working, how products and services are creating in the new economy, and how customers are engaging in this process. Every professional and commercial industry is affecting due by this change in workflows and business processes. The financial and economic sector is no exception.

Financial Technology or Fintech?

Fintech, short for Financial Technology, is a growing field and is now an economic revolution by the tech-savvy. It is the development of new technology to transform traditional institutions such as banks and insurance companies by uplift how they handle their finances and economic services. The process is not only digitizing money but also monetizing data to fit into the digitized world.

FinTech solutions have huge potential benefits for all businesses, especially new and existing small businesses. Small and medium-sized enterprises (SMEs) are essential for economic maturity and employment. However, others may find it difficult to get the financing they need to survive and thrive.

Example

Automated drafting of portfolio management commentaries – Analytics & Reporting (October 2018, Societe Generale Securities Services)

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