Leveraged buyout IFRS 3 best reporting

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Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting

1 The process and business reason

The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal … Read more

11 Best fair value measurements under IFRS 13

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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 in accordance with IFRS 9. Changes in the fair value of such investments are recognized in profit or loss in the period of change.

The IASB acknowledged that fair value information is often readily available in venture capital organizations and entities in similar industries, even for start-up and … Read more

IFRS 7 Comprehensive Risk disclosures

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IFRS 7 Comprehensive Risk disclosures – Management should disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period [IFRS 7 31]. IFRS 7 Comprehensive Risk disclosures

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 (previously the IAS 39 measurement categories). IFRS 7 Comprehensive Risk disclosures

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 … Read more

Setting the scene the Expected Credit Losses model

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Setting the scene the Expected Credit Losses model, start here to get a good understanding of ECL loss allowances or continue, you decide……

The Expected Credit Losses model (ECL) should be applied to: Setting the scene: the Expected Credit Losses model

  • investments in debt instruments measured at amortized cost;
  • investments in debt instruments measured at fair value through other comprehensive income (FVOCI);
  • all loan commitments not measured at fair value through profit or loss;
  • financial guarantee contracts to which IFRS 9 is applied and that are not accounted for at fair value through profit or loss; and
  • lease receivables that are within the scope of IFRS 16 Leases, and trade receivables or contract assets within the scope of IFRS 15 that give
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Curing of a credit-impaired financial asset

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Curing of a credit-impaired financial asset presents the explanation of what a credit-impaired financial asset is, how to account for a credit-impaired asset as long as it is credit-impaired and how to account for a credit-impaired asset that is no longer credit-impaired (i.e. curing of a credit-impaired financial asset which means the borrower has, for example, restructured its business and cash flow recovered sufficiently to return paying all interest and principal as per the original contract). Curing of a credit-impaired financial asset

Credit-impaired assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is … Read more

IFRS 9 Financial Instruments Measurement

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IFRS 9 Financial Instruments Measurement uses the following criteria for determining the classification and measurement of financial assets at Amortized Cost, Fair Value through Other Comprehensive Income (FVOCI) or Fair Value through Profit or Loss (FVPL):

IFRS 9 Financial Instruments Measurement

The critical issues for classifying and measuring financial assets are whether:

  • The objective of the entity’s business model is to hold assets only to collect cash flows, or to collect cash flows and to sell (“the Business Model test”), and

  • The contractual cash flows of an asset give rise to payments on specified dates that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding (“the SPPI test”). IFRS 9 Financial Instruments Measurement

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Actuarial terms

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Actuarial assumptions Actuarial terms

Estimates of future experience with respect to rates of mortality, disability, turnover, retirement, rate or rates of investment income, and salary increases. Decrement assumptions (rates of mortality, disability, turnover and retirement) are generally based on past experience, often modified for projected changes in conditions. Economic assumptions (salary increases and investment income) consist of an underlying rate in an inflation-free environment plus a provision for a long-term average rate of inflation.

Actuarial cost method

The actuarial cost method is used by actuaries to calculate the amount a company must pay periodically to cover its pension expenses. The two main methods used to calculate the payments are the cost approach and the benefit approach. The … Read more

Summary impairment of financial assets

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Summary impairment of financial assets is the centre text to quickly understand all IFRS aspects to recording loss allowances, when, how much, how often?

Impairment requirements

The impairment requirements are applied to: Summary impairment of financial assets

  • Financial assets measured at amortised cost (originated, purchased, reclassified or modified debt instruments incl. trade receivables),
  • Financial assets measured at fair value through other comprehensive income,
  • Loan commitments except those measured at fair value through profit or loss,
  • Financial guarantees contracts except those measured at fair value through profit or loss,
  • Lease receivables.

Impairment model

The impairment model follows a three-stage approach based on changes in expected credit losses of a financial instrument that determine:

  • The recognition of impairment, and
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Property development intercompany finances

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Property development intercompany finances Interest bearing term loan

Senior interest-bearing bank term debt

THE CASE

Parent C operates in the UK real estate sector and purchases land for development into residential units for public sale. Each potential development proposal is supported by a detailed business case which includes a due diligence report in respect of the expected Gross Development Costs (GDC) as well as an independent third party valuation of the Gross Development Value (GDV) of the completed site both of which are undertaken in order to secure bank financing. Management assesses each proposal in accordance with a number of key investment criteria, including for example, the minimum yield required on each development.

Once the proposal has … Read more

Equity investments at FVOCI

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Equity investments at FVOCI – IFRS 9 requires all equity investments to be measured at fair value. The default approach is for all changes in fair value to be recognised in profit or loss.

However, for equity investments that are neither held for trading nor contingent consideration recognised by an acquirer in a business combination, entities can make an irrevocable election at initial recognition to classify the instruments as at FVOCI, with all subsequent changes in fair value being recognised in other comprehensive income (OCI). This election is available for each separate investment. Equity investments at FVOCI

Under this new FVOCI category, fair value changes are recognised in OCI while dividends are recognised in profit or loss Read more