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Customer relationships valuation

References:

Customer contracts and the related customer relationships
Non-contractual customer relationships
Order or production backlog

Introduction

Here a valuation model is presented to value customer contracts and the related customer relationship and the non-contractual customer relationships, as per IFRS 3 Business Combinations.

What are the inputs?

Revenue – represents revenue from existing customer relationships for existing products. Includes contractual and non-contractual relationships (even those without current backlog or commitments). Separate valuation of a backlog revenue intangible asset can be considered if and when such backlog exists.… Read more

Classification of financial assets

IFRS 9 presents three principal measurement categories for financial assets:

A financial asset is classified into a measurement category at inception and is reclassified only in rare circumstances.

The assessment as to how an asset should be classified is made on the basis of both the entity’s business model for managing the financial asset (see the business model tests) and the contractual cash flow characteristics of the financial asset (the SPPI tests, see Solely Payments of Read more

IFRS 3 Redefinition of a business

In summary:IFRS 3 Redefinition of a business

  • The IASB issued narrow-scope amendments to IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not.
  • The amendments clarify the minimum requirements to be a business, remove the assessment of a market participant’s ability to replace missing elements, and narrow the definition of outputs.
  • The amendments add guidance to assess whether an acquired process is substantive and add illustrative examples.
  • The amendments introduce an optional concentration test to permit a simplified assessment.
  • The amendments are effective for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. Earlier application is permitted.

Introduction IFRS 3 Redefinition of a businessRead more

Retirement Benefit Plans

The objective of IAS 26 is to specify measurement and disclosure principles for the reports of retirement benefit plans. All plans should include in their reports a statement of changes in net assets available for benefits, a summary of significant accounting policies and a description of the plan and the effect of any changes in the plan during the period.

Retirement benefit plans are normally described as either defined contribution plans or defined benefit plans, each having their own distinctive characteristics. Occasionally plans exist that contain characteristics of both. Such hybrid plans are considered to be defined benefit plans for the purposes of IAS 26.

For defined contribution plans, the objective of reporting is to provide information about Read more

What are related parties?

Related parties are relationships in which one party has the ability to control or significantly influence the economic and operating decisions of another. Transactions with related parties are a common feature of business. Typically related party relationships include the following:

  • Enterprises controlled or controlling one another, such as subsidiaries and joint venturesConstruction contract modifications Construction contract modifications
  • Individuals having an interest in the enterprise that gives them significant influence over the enterprise, such as majority owners
  • Key management personnel responsible for planning, directing and controlling the activities of the reporting enterprise, including close members of families of these individuals

Parties are considered related when one of the parties has control over the other or is able to exert considerable influence over the other party in … Read more

Market consistent measurement of options and guarantees

IFRS 17 will require stochastic modelling of financial options and guarantees (such as a guaranteed maturity value), which might not be a common practice in certain territories, as discussed in ‘Example – Stochastic and deterministic modelling. Options and guarantees should be recognised and measured on a current, market consistent basis. All cash flows, including fixed, guaranteed and cash flows variable with underlying items, should be measured on a probability-weighted basis using market variables, where relevant, and considering all possible scenarios. The measurement of options and guarantees will, in many cases, involve stochastic modelling or using a deterministic model, run multiple times, to reflect a range of scenarios because of the non-symmetric distribution of outcomes for Read more