IFRS 2 Fair value of equity instruments granted

IFRS 2 Fair value of equity instruments granted – Share-based payment transactions with employees are measured with reference to the fair value of the equity instruments granted (IFRS 2.11).

The fair value of a equity instrument granted is determined as follows (IFRS 2.16-17):

  • If market prices are available for the actual equity instruments granted – i.e. shares or share options with the same terms and conditions – then the estimate of fair value is based on these market prices. IFRS 2 Fair value of equity instruments granted
  • If market prices are not available for the equity instruments granted, then the fair value of equity instruments granted is estimated using a valuation technique.

IFRS 2 (IFRS Read more

IFRS 7 Complete Maturity analysis disclosure

IFRS 7 Complete Maturity analysis disclosure – IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments.

Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the information presented. [IFRS 7 6]

The two main categories of disclosures required by IFRS 7 are:

  1. information about the significance of financial instruments [IFRS 7 7 – 30]
  2. information about the nature and extent of risks arising from financial instruments [IFRS 7 31 – 42]

So IFRS 7 bets … Read more

IAS 36 Best brilliant impairment of telecom assets

IAS 36 Best brilliant impairment of telecom assets sets out the procedures that an entity should follow to ensure that it carries its assets at no more than th IAS 36 Best brilliant impairment of telecom assets eir recoverable amount. Recoverable amount is the higher of the amount to be realised through using or selling the asset.

Where the carrying amount exceeds the recoverable amount, the asset is impaired and an impairment loss must be recognised.

The standard details the circumstances when an impairment loss should be reversed, and also sets out required disclosures for impaired assets, impairment losses, reversals of impairment losses as well as key estimates and assumptions used in measuring the recoverable amounts of cash-generating units (CGUs) that contain goodwill or intangible assets with indefinite … Read more

Compound financial instruments

Compound financial instruments – An incredible shift in accounting concepts

Compound financial instruments contain elements which are representative of both equity and liability classification.

A common example is a convertible bond, which typically (but not always, see ‘2 Convertible bonds‘ below) consists of a liability component in relation to a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, Compound financial instruments to convert the bond into a fixed number of ordinary shares of the entity).

Other examples of possible compound financial instruments include instruments with rights to a fixed minimum dividend and additional discretionary dividends, and instruments with fixed dividend rights but … Read more

Valuation of unquoted equity instruments

Valuation of unquoted equity instruments – The three valuation approaches and techniques described in IFRS 13 are: Valuation of unquoted equity instruments

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.

Market approach

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable … Read more

DCF Calculation Value of the business

DCF Calculation Value of the business – This is a simple example to show the workings of a Discounted Cash Flow (DCF) model, which is hopefully also understandable for non-mathematicians.

Using cash-flow-based measurement techniques is done using all the following factors:

  1. estimates of future cash flows. DCF Calculation Value of the business
  2. possible variations in the estimated amount or timing of future cash flows for the asset or liability being measured, caused by the uncertainty inherent in the cash flows.
  3. the time value of money. DCF Calculation Value of the business
  4. the price for bearing the uncertainty inherent in the cash flows (a risk premium or risk discount). The price for bearing that uncertainty depends on the extent of
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Outcome uncertainty

Outcome uncertainty is uncertainty about the amount or timing of any inflow or outflow of economic benefits that will ultimately result from an asset or liability.

It is different from measurement uncertainty and existence uncertainty. Outcome uncertainty


“Uncertainty” in accounting refers to the difficulty of predicting outcomes because of limited or inexact knowledge. Financial statements often contain estimates and other information based on uncontrollable events that can impact future financial reporting and transactions. Generally accepted accounting standards provide processes by which uncertainty is factored into financial statements. Accountants recognize some uncertainties as inherent in certain financial transactions. The challenge is to recognize uncertainty and apply the information in ways that reflect a more realistic financial picture of a company. … Read more

Intrinsic value

Intrinsic value – The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of CU15, on a share with a fair value of CU20, has an intrinsic value of CU5.

In finance, intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value. It is also frequently called fundamental value. It is ordinarily calculated by summing the discounted future income generated by … Read more

Fundamental Principles of Value Creation

Fundamental Principles of Value Creation Fundamental Principles of Value Creation – Companies create value by investing capital to generate future cash flows at rates of return that exceed their cost of capital. The faster they can grow and deploy more capital at attractive rates of return, the more value they create. The mix of growth and return on invested capital (ROIC) relative to the cost of capital is what drives the creation of value. A corollary of this principle is the conservation of value: any action that doesn’t increase cash flows doesn’t create value. Fundamental Principles of Value Creation

The principles imply that a company’s primary task is to generate cash flows at rates of return on invested capital greater than the cost of capital.… Read more