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

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

Relationship of Growth ROIC and Cash Flow

Relationship of Growth ROIC and Cash Flow – Disaggregating cash flow into revenue growth and ROIC helps illuminate the underlying drivers of a company’s performance. Say a company’s cash flow was $100 last year and will be $150 next year. This doesn’t tell us much about its economic performance, since the $50 increase in cash flow could come from many sources, including revenue growth, a reduction in capital spending, or a reduction in marketing expenditures.

But if we told you that the company was generating revenue growth of 7 percent per year and would earn a return on invested capital of 15 percent, then you would be able to evaluate its performance. You could, for instance, compare the company’s growth … Read more

Economic resource

An economic resource is a right by the reporting entity that has the potential to produce economic benefits.

An economic resource in general has the form of an asset. This information is provided in the financial position.

Potential to produce economic benefits – Within an economic resource, a feature that already exists and will produce economic benefits in at least one circumstance.

Factors of production

Land, labor, capital, and entrepreneurial ability which are used in the production of goods and services. They are economic resources because they are scarce (limited in supply and desired). Also called the factors of production.

What Is Scarcity?

Scarcity refers to the basic economic problem, the gap between limited – that is, scarce

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Measurement basis

Measurement basis – An identified feature of an item being measured (for example, historical cost, fair value or fulfilment value). OR

The result of measuring an asset, a liability or equity, or an item of income or expense, on a specified measurement basis. OR

The process of quantifying, in monetary terms, information about an entity’s assets, liabilities, equity, income and expenses.

Measurement basis describes various measurement bases, the information they provide and factors to consider when selecting a measurement basis. The 2010 Conceptual Framework did not include much guidance on measurement.

In developing the revised Conceptual Framework, the Board considered whether a single measurement basis should be mandated. However, it concluded that different measurement bases could provide useful information to … Read more

Going concern assumption

Going concern assumption – Going concern is one the fundamental assumptions in accounting on the basis of which financial statements are prepared.

IAS 1 states “When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern” (IAS Read more

Calculating the value of an acquisition

Calculating the value of an acquisition – This is a detailed example of calculating the fair value of an acquisition, using a logical step by step approach and realistic assumptions and determinations based on transaction and market data. Identifying and valuing intangible asset(s) is a broad endeavor and requires careful consideration of; factors specific to each business, the transaction structure, identifying the primary income generating asset, determining the discount rates, estimating the useful lives for identified intangibles. Examples of such intangibles include customer contracts, trademarks, brands, etc.


The DealFortune, Inc. acquired M&P Company on January 1, 2017. Consideration was $30 million cash plus additional contingent consideration, as follows:


  • Below 1 million: Nil Calculating the value of an
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Disclosure innovations in financial reporting

Disclosure innovations in financial reporting – This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

In the Netherlands formal legislation concerning financial reporting was introduced rather late in the early 1970s. The lack of formal legislation was a stimulants to applying innovative financial reporting disclosures, bluntly said ‘anything was possible’ there were no legal minimum levels.

This part is based on a research overview by Camfferman (1996) in his paper ‘Voluntary annual report disclosure by listed Dutch companies, 1945 – 1983’. Camfferman’s work identifies 9 disclosure items. The nine disclosure innovations are discussed in here.

(1) Disclosure of Sales Disclosure innovations in financial reporting

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Discount rates for intangible assets

Discount rates for intangible assets – An important event in accounting for an acquisition in a Business Combination has become the recognition and measurement of intangible assets, other than goodwill.

In the past the difference between the consideration transferred (transaction, purchase or acquisition price) and the fair value of net assets acquired was simply goodwill in many countries.

With increasing transaction prices for acquiring – not so increased – values of net assets, goodwill as a percentage of the transaction price went sky high. Especially during the internet bubble in the late nineteen-nineties goodwill allocations went through the roof.

In the US long time accounting standards in respect of intangible assets (other than goodwill) exist from the early 1970-ies (see … Read more