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IFRS 3 Business Combinations

Fair Value of Tangible Assets

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In the event of Business Combinations tangible assets (current – Non-current) are best valued with the market or income approaches. If adequate data are not available to derive an indication of value through these methods, an appraiser may use the replacement cost method, which adjusts the original cost for changes in the price level to determine its current replacement cost. The current replacement cost is then adjusted due to physical use or functional obsolescence.

Property, Plant and Equipment (PP&E) must be recognized at fair value for current capacity. Accumulated depreciation is not carried forward. An appraiser may use the cost approach, in which a market participant would pay no more for an asset than the amount necessary to replace it to produce at current capacity. Continue Reading “Fair Value of Tangible Assets”

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IFRS 15 Revenue from Contracts with Customers

Revenue from contracts with customers

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IFRS 15 is called ‘Revenue from contracts with customers’. What is revenue?, What is a contract?, and what is a customer? Here are some of the explanations……

What is revenue?

Revenue has stepped reasoning with regards to the definition of revenue. Revenue is defined as ‘Income arising in the course of an entity’s ordinary activities’. It is something but not the end, income on its own is defined as ‘Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants’.

Income has been defined in the Conceptual Framework for Financial Reporting 2018, Revenue in IAS 18 Revenue, the standard preceding IFRS 15. Income is defined in a much broader and universal sense.

The distinction between revenue and other types of income, such as gains, is important as many users of financial statements focus more on revenue than other types of income. Continue Reading “Revenue from contracts with customers”

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IAS 10 Events after the Reporting Period

Events after the Reporting period

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When should a reporting entity recognise events after the reporting period in the financial statements that are being finalised?

What are the disclosures that should be given about the date when the financial statements were authorised for issue and about the events after the reporting date?

The answers look a bit colorful but are spot on and short……

The three important terms were it is all about are:

  • Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue.
  • Adjusting events are events occurring after the reporting date that provide evidence of conditions that existed at the end of the reporting period.

Continue Reading “Events after the Reporting period”

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IFRS 13 Fair value measurement

Approaches to valuation for unquoted equity instruments

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The three valuation approaches and techniques described in IFRS 13 are:

  • Market approach,
  • Income approach,
  • Adjusted net asset method.

IFRS 13  does not prescribe a specific valuation technique, but encourages the use of professional judgment together with consideration of all facts and circumstances surrounding the measurement. These three different valuation approaches could be applied in determining the fair value of an unquoted equity instrument. However, regardless of the valuation technique used, the fair value measurement of those equity instruments must reflect market conditions at the investor’s reporting date. Continue Reading “Approaches to valuation for unquoted equity instruments”

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IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Provisions and contigent liabilities

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A provision shall be recognised when:

  1. an entity has a present obligation (legal or constructive) as a result of a past event;
  2. it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  3. a reliable estimate can be made of the amount of the obligation.

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

An entity shall not recognise a contingent liability.

This is what it is about, make your decision supportable!

Where, as a result of past events, there may be an outflow of resources embodying future economic benefits in settlement of: (a) a present obligation; or (b) a possible obligation whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
There is a present obligation that probably requires an  outflow of resources.There is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources.There is a possible obligation or a present obligation where the likelihood of an outflow of resources is remote.
A provision is recognised (paragraph 14)No provision is recognised (paragraph 27)No provision is recognised (paragraph 27).
Disclosures are required for the provision (paragraphs 84 and 85).Disclosures are required for the contingent liability (paragraph 86).No disclosure is required (paragraph 86).
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IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Leasehold makegood and restoration provisions

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Lease makegood / leasehold restoration provisions should be recognised in relation to properties held under operating leases. Such a provision may arise because many property leases contain clauses under which the lessee has to make good dilapidations or other damage which occurs to the property during the course of the lease or restore a property to a specified condition.

Overview

Under IAS 37.14, a provision shall be recognised when:

  • “An entity has a present obligation (legal or constructive) as a result of a past event;
  • It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
  • A reliable estimate can be made of the amount of the obligation.”

Continue Reading “Leasehold makegood and restoration provisions”

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IAS 12 Income Taxes

Corporate taxes

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Also called income taxes, but than for corporates. Here we go…………  Just a reminder …… Two things in life are certain: …… DEATH……. and ……..TAXES

What is it about?

IAS 12 Income taxes prescribes the accounting treatment for income taxes being the accounting for the current and future tax consequences of:

  • the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position, and
  • transactions and other events of the current period that are recognised in an entity’s financial report.

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IAS 19 Employee Benefits

What is a correct discount rate in pension calculations?

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Some background information on the discussion on pension plans and discount rates. Choosing the correct discount rate in calculation pension liabilities is not an easy task and a task that brings public responsibility.

Interest rates in the European area are close to zero because the ECB holds its benchmark refinancing rate at zero since March 2016, see table below:

Continue Reading “What is a correct discount rate in pension calculations?”

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IAS 19 Employee Benefits

Sponsor Accounting for a Pension Asset

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A pension asset arises when total contributions by the sponsor of a defined-benefit plan (plus interest income) are greater than all pension expense since the plan’s inception.

For example, a pension plan fund had a net pension asset of $9.312 billion before considering any valuation allowance.

As with any recorded asset (think of accounts receivable, or a building), a pension asset signals that the sponsor can benefit from the asset in the future. However, unlike other types of assets, a sponsor does not own the plan assets in a pension plan. This unique accounting situation requires a sponsor to consider whether and when it can benefit from the surplus assets in a pension plan. Continue Reading “Sponsor Accounting for a Pension Asset”

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IAS 19 Employee Benefits

Determining annual pension expense

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In general terms, pension expense reported in the statement of profit or loss is driven by how much the pension liability increased during the year, net of returns on the plan’s assets. Normally, a pension liability increases as employees earn additional future benefits from an additional year of service, and as they get closer to collecting retirement benefits. These factors also increase the pension expense in the statement of profit or loss.

Plan assets increase with returns that the plan earns on its investments, reducing the pension expense reported in the statement of profit or loss. Continue Reading “Determining annual pension expense”