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EBITDA – 1 Best complete read

12/04/2023 by 75385885

EBITDA – Earnings before interest taxes depreciation and amortisation

– is a measure of a company’s overall financial performance and is used as an alternative to simple earnings or net income in some circumstances. Earnings before interest, taxes, depreciation and amortisation, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.

This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings. Nonetheless, it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions. EBITDA

Simply put, Earnings before interest, taxes, depreciation and amortisation is a measure of profitability. While there is no legal requirement for companies to disclose their EBITDA (here also written as EBIT-DA), according to the U.S. generally accepted accounting principles (US GAAP) or International Financial Reporting Standards (IFRS), it can be worked out and reported using information found in a company’s financial statements.

The earnings, tax, and interest figures are found on the income statement, while the depreciation and amortisation figures are normally found in the notes to operating profit or on the cash flow statement. The usual shortcut to calculate EBITDA is to start with operating profit, also called earnings before interest and tax (EBIT) and then add back depreciation and amortisation.

https://www.merriam-webster.com/dictionary/EBITDA

Origins of EBITDA

Fair value measurement and pandemics under IFRS 13

30/09/2021 by 75385885

Fair value measurement and pandemics

The context

The virus has significantly impacted the world economy. Many countries have imposed travel bans on millions of people and more people in more locations are subject to quarantine measures. Businesses are dealing with lost revenue and disrupted supply chains. While some countries have started to ease the lockdown, the relaxation has been gradual and, as a result of the disruption to businesses, millions of workers have lost their jobs. The pandemic has also resulted in significant volatility in the financial and commodities markets worldwide. Various governments have announced measures to provide both financial and non-financial assistance to the disrupted industry sectors and the affected business organisations.

The issues discussed are by no means exhaustive and their applicability depends on the facts and circumstances of each entity.

Fair value measurement and pandemics

The objective of fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., to estimate an exit price). The impact on fair value measurement (FVM) arising from the coronavirus pandemic and the ensuing economic and market disruptions varies across countries, markets and industries.

Initial measurement financial instruments

10/09/2021 by 75385885

Initial measurement Financial instruments

IFRS 9 requires an entity to recognise a financial asset or liability on its balance sheet only when it becomes a party to the contractual provisions of the instrument.

Under IFRS 9 the requirements, on initial recognition, are that financial assets and financial liabilities are measured at (IFRS 9.5.1.1):

IFRS 9 classes	Fair value	Fair value plus eligible transaction costs
*Amortised cost*		√
*Fair value through other comprehensive income*		√
*Fair value though profit or loss*	√

IFRS 9 retained the guidance from IAS 39 that – the best evidence of fair value at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received for the financial instrument. (IFRS 9.5.1.1A, IFRS 9.B5.1.2A)

However, if this is not the case, any difference is accounted for in accordance with the substance of the transaction. If there is a difference between the entity’s estimate of fair value at initial recognition and the transaction price, then:

if the estimate of fair value uses only data from observable markets, then the difference is recognised in profit or loss; or
in all other cases, the difference is deferred as an adjustment to the carrying amount of the financial instrument.

The ‘which’ and ‘how’ of fair value measurement

Fair value employee share options in IFRS 2

26/07/202108/07/2021 by 75385885

Share options give the holder the right to buy the underlying shares at a set price, called the ‘exercise price’, over or at the end of an agreed period. If the share price exceeds the option’s exercise price when the option is exercised, then the holder of the option profits by the amount of the excess of the share price over the exercise price. Benefit is derived from the right under the option to buy a share for less than its value.

The holder’s cost is the exercise price, whereas the value is the share price. It is not necessary for the holder to sell the share for this profit to exist. Sale only results in realisation of the profit. Because an option holder’s profit increases as the underlying share price increases, share options are used to incentivise employees to contribute to an increase in the price of the underlying shares.

Employee options are typically call options, which give holders the right but not the obligation to buy shares. However, other types of options are also traded in markets. For example, put options give holders the right to sell the underlying shares at an agreed price for a set period.

Given that holders of put options profit when share prices fall below the exercise price, such options are not viewed as aligning the interests of employees and shareholders. All references in this section to ‘share options’ are to employee call options.

Share options granted by entities often cannot be valued with reference to market prices. Many entities, even those whose shares are quoted publicly, do not have options traded on their shares. Options that trade on recognised exchanges such as the Chicago Board Options Exchange are created by market participants and are not issued by entities directly.

Even when there are exchange-traded options on an entity’s shares for which prices are available, the terms and conditions of these options are generally different from the terms and conditions of options issued by entities in share-based payments and, as a result, the prices of such traded options cannot be used directly to value share options issued in a share-based payment.

Employee cash-settled share-based payments in IFRS 2

07/07/2021 by 75385885

In short – For employee cash-settled share-based payments, an entity recognises a cost and a corresponding liability. The liability is remeasured, until settlement date, for subsequent changes in fair value.

Overview

Employee services received in a cash-settled share-based payment are measured indirectly at the fair value of the liability at grant date.
Market and non-vesting conditions are taken into account in determining the fair value of the liability.
Service and non-market performance conditions are taken into account in estimating the number of awards that are expected to vest, with a true-up to the number ultimately satisfied.
The grant-date fair value of the liability is recognised over the vesting period.
The grant-date fair value of the liability is capitalised if the services received qualify for asset recognition.
The liability is remeasured at each reporting date and at settlement date so that the ultimate liability equals the cash payment on settlement date.
Remeasurements during the vesting period are recognised immediately to the extent that they relate to past services, and recognised over the remaining vesting period to the extent that they relate to future services. Remeasurements after the vesting period are recognised immediately.
Remeasurements of the liability are recognised in profit or loss.

Basic principles of accounting for cash-settled share-based payment transactions with employees

Initial measurement

Disclosure non-financial assets and liabilities example

05/07/2021 by 75385885

Disclosure non-financial assets and liabilities example

The guidance for this disclosure example is provided here.

8 Non-financial assets and liabilities

This note provides information about the group’s non-financial assets and liabilities, including:

specific information about each type of non-financial asset and non-financial liability
- property, plant and equipment (note 8(a))
- leases (note 8(b))
- investment properties (note 8(c))
- intangible assets (note 8(d))
- deferred tax balances (note 8(e))
- inventories (note 8(f))
- other assets, including assets classified as held for sale (note 8(g))
- employee benefit obligations (note 8(h))
- provisions (note 8(i))
accounting policies
information about determining the fair value of the assets and liabilities, including judgements and estimation uncertainty involved (note 8(j)).

8(a) Property, plant and equipment

Amounts in CU’000	Freehold land	Buildings	Furniture, fittings and equipment	Machinery and vehicles	Assets under construction	Total
At 1 January 2019
Cost or fair value	11,350	28,050	27,510	70,860	–	137,770
Accumulated depreciation	–	–	-7,600	-37,025	–	-44,625
Net carrying amount	11,350	28,050	19,910	33,835	–	93,145

Movements in 2019
Exchange differences	–	–	-43	-150	–	-193
Revaluation surplus	2,700	3,140	–	–	–	5,840
Additions	2,874	1,490	2,940	4,198	3,100	14,602
Assets classified as held for sale and other disposals	-424	–	-525	-2,215	–	3,164
Depreciation charge	–	-1,540	-2,030	-4,580	–	8,150
Closing net carrying amount	16,500	31,140	20,252	31,088	3,100	102,080

At 31 December 2019
Cost or fair value	16,500	31,140	29,882	72,693	3,100	153,315
Accumulated depreciation	–	–	-9,630	-41,605	–	-51,235
Net carrying amount	16,500	31,140	20,252	31,088	3,100	102,080

Movements in 2020
Exchange differences	–	–	-230	-570	–	-800
Revaluation surplus	3,320	3,923	–	–	–	7,243
Acquisition of subsidiary	800	3,400	1,890	5,720	–	11,810
Additions	2,500	2,682	5,313	11,972	3,450	25,917
Assets classified as held for sale and other disposals	-550	–	-5,985	-1,680	–	-8,215
Transfers	–	–	950	2,150	-3,100	–
Depreciation charge	–	-1,750	-2,340	-4,380	–	-8,470
Impairment loss (ii)	–	-465	-30	-180	–	-675
Closing net carrying amount	22,570	38,930	19,820	44,120	3,450	128,890

At 31 December 2020
Cost or fair value	22,570	38,930	31,790	90,285	3,450	187,025
Accumulated depreciation	–	–	-11,970	-46,165	–	-58,135
Net carrying amount	22,570	38,930	19,820	44,120	3,450	128,890

(i) Non-current assets pledged as security

Refer to note 24 for information on non-current assets pledged as security by the group.

(ii) Impairment loss and compensation

The impairment loss relates to assets that were damaged by a fire – refer to note 4(b) for details. The whole amount was recognised as administrative expense in profit or loss, as there was no amount included in the asset revaluation surplus relating to the relevant assets. [IAS 36.130(a)]

11 Best fair value measurements under IFRS 13

29/06/202126/03/2020 by 75385885

11 Best fair value measurements under IFRS 13

Several IFRS standards provide guidance regarding the scope and application of the fair value option for assets and liabilities. Here they are from 1 to 11…….

1 Investments in associates and joint ventures

Investments held by venture capital organizations and the like are exempt from IAS 28’s requirements only when they are measured at fair value through profit or loss (FVPL) in accordance with IFRS 9. Changes in the fair value (FV) of such investments are recognized in profit or loss in the period of change.

The IASB acknowledged that FV information is often readily available in venture capital organizations and entities in similar industries, even for start-up and non-listed entities, as the methods and basis for fair value measurement are well established. The IASB also confirmed that the reference to well-established practice is to emphasize that the exemption applies generally to those investments for which fair value is readily available.

2 Intangible assets

Subsequent to initial recognition of intangible assets, an entity may adopt either the cost model or the revaluation model as its accounting policy. The policy should be applied to the whole of a class of intangible assets and not merely to individual assets within a class, unless there is no active market for an individual asset.

The revaluation model may only be adopted if the intangible assets are traded in an active market; hence it is not frequently used. Further, the revaluation model may not be applied to intangible assets that have not previously been recognized as assets. For example, over the years an entity might have accumulated for nominal consideration a number of licenses of a kind that are traded on an active market. 11 Best fair value measurements under IFRS 13

The entity may not have recognized an intangible asset as the licenses were individually immaterial when acquired. If market prices for such licenses significantly increased, the value of the licenses held by the entity would substantially increase. In this case, the entity would be prohibited by IAS 38 from applying the revaluation model to the licenses, because they were not previously recognized as an asset.

Accounting Policies to First IFRS FS

18/06/202126/06/2019 by 75385885

Accounting Policies to First IFRS FS – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.

[IFRS 1, paras 7 – 9]

Note that:

An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.

Mandatory Exceptions to Retrospective Application and Optional Exemptions from … Read more

Estimating fair value

18/06/202126/04/2019 by 75385885

Estimating fair value – To start this narrative on fair value measurement three things to keep in mind!!!!

Fair value measurement is an estimation process, not a scientific method: Uncertainty is key, what are the expected cash flows, what type of industry is concerned, at what stage of the Business Life Cycle is the business valued. Some (groups of) assets (and liabilities) or (business) units will therefore always have more precise estimates of fair value than others.
Bias will always mystify fair value estimates: Much as we pay lip service to the notion that we can estimate fair value objectively, bias will find its way into fair value estimates. Honesty about the bias is all that we can

Goodwill or bargain on acquisition

17/06/202116/06/2021 by 75385885

Goodwill or bargain on acquisition – in short

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed.

If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

Business combinations

Business combinations are accounted for using the acquisition method. Cost of an acquisition is measured at the fair value of the assets given and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities assumed in a business combination (including contingent liabilities) are measured initially at their fair values at the acquisition date. There are no non-controlling interest in the Group’s subsidiaries.

The Dorolco acquisition – On xx October 202x Dorco Loan PLC acquired 100% of the Dorolco operations, by acquiring 100% of all voting shares in the legal entities now part of this Group.

Assets acquired and liabilities assumed – Because the holding companies established in structuring the Dorolco acquisition have been incorporated on behalf of this transaction, the opening balance sheet as at xx October 202x shown in the Consolidated Financial Statements as comparatives to the balance sheet as at 31 December 202x is the balance sheet at incorporation date. Shares issued were paid on acquisition date, except for the share option plan shares issued at closing date (1,000,000 shares issued, of which as at 31 December 202x 155,000 were not yet granted and paid up).