Disclosure non-financial assets and liabilities example

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:

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)]

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Operating cash flows under IAS 7

Operating cash flows

Cash flows must be analysed between operating, investing and financing activities.

For operating cash flows, the direct method of presentation is preferred, but the indirect method is acceptable.

Here are the differences and similarities between the direct and indirect method. Note the subtotals for operating, investing and financing activities are the same amount in both methods!

Indirect method cash flow statement

Direct method cash flow statement

Starts with:

Starts with:

  • Profit before tax
  • Adjustment for:
    • non-cash items
    • depreciation/amortization (add back to profit)
    • gain on disposal of NCA (deduct)
    • loss in disposal of NCA (add back)
    • remove impact of accruals
    • Interest expense (add back)
    • Interest income (deduct and relocate to Investing activities)
  • Movement on working capital items
    • Receivables (deduct increase, add decrease)
    • Payables (add increase, deduct decrease)
    • Inventory (deduct increase, add decrease)
    • Interest paid (deduct)
    • Taxation (including deferred tax movements) (deduct).
  • Acquisition cash flows
  • Receipts from customers
  • Less Payments to:
    • suppliers
    • employees
    • other operating expenses
    • interest charges
    • taxation

Operating cash flows

Cash Flows from Operating activities

Cash Flows from Operating activities

  • purchase of non-current assets
  • sale/disposal of non-current assets
  • acquisition cash flows
  • interest received/dividend received on investment.

Cash Flows from Investing activities

Cash Flows from Investing activities

  • purchase of (treasure) shares
  • cash from shares issued
  • dividend payments to owners
  • take loan/issue bonds
  • acquisition cash flows
  • payments under lease agreements

Cash Flows from Financing activities

Cash Flows from Financing activities

Common cash flow classification errors in practice

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Lessee accounting under IFRS 16

Lessee accounting under IFRS 16

The key objective of IFRS 16 is to ensure that lessees recognise assets and liabilities for their major leases.

1. Lessee accounting model

A lessee applies a single lease accounting model under which it recognises all leases on-balance sheet, unless it elects to apply the recognition exemptions (see recognition exemptions for lessees in the link). A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make payments. [IFRS 16.22]

[IFRS 16.47, IFRS 16.49]

IFRS 16 Balance sheet Profit or loss

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IFRS 16 Good Important Read – Lease payments

Lease payments – Lessee perspective

or what does a lessee include in its lease liability?

At the commencement date, a lessee measures the lease liability as the present value of lease payments that have not been paid at that date. In a simple lease that includes only fixed lease payments, this can be a simple calculation (IFRS 16.26).

Lease payments

Worked example – Fixed lease payments are included in lease liabilities
Lessee B enters into a five year lease of a photocopier. The lease payments are 10,000 per annum, paid at the end of each year.

Because the annual lease payments are fixed amounts, B includes the present value of the five annual payments in the initial measurement of the lease liability.

Using a discount rate (determined as B’s incremental borrowing rate) of 5%, the lease liability at the commencement date is calculated as follows:

Year

Lease payments

Discounted

1

10,000

9,524

2

10,000

9,070

3

10,000

8,638

4

10,000

8,227

5

10,000

7,835

Lease liability at commencement date

43,294

 

Categories of lease payment

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Best guide IFRS 16 Lessee modifications

Best guide IFRS 16 Lessee modifications

summarises the process surrounding changes in lease contracts that identify as lease modification.

A lessee that chooses not to apply the practical expedient (IFRS 16 option for rent concessions arising directly from the COVID-19 pandemic that are not going to be accounted for as lease modifications), or agrees changes to its lease contracts that do not qualify for the practical expedient, assesses whether there is a lease modification.

Overview

A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions meets the standard’s definition of a lease modification.

A lessee accounts for a lease modification as a separate lease if both of the following conditions exist:

  • the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
  • the consideration for the lease increases by an amount equivalent to the stand- alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a modification that is not a separate lease, at the effective date of the modification the lessee accounts for it by remeasuring the lease liability using a discount rate determined at that date and:

  • for modifications that decrease the scope of the lease: decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognising a gain or loss that reflects the proportionate decrease in scope; and
  • for all other modifications: making a corresponding adjustment to the right-of- use asset.

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Leasehold makegood and restoration provisions

Leasehold makegood and restoration provisions – Lease makegood / leasehold restoration provisions should be recognised in relation to properties held under operating leases. Such a provision may arise because many property leases contain clauses under which the lessee has to make good dilapidations or other damage which occurs to the property during the course of the lease or restore a property to a specified condition.

Overview Leasehold makegood and restoration provisions leased office

Under IAS 37 14, a provision shall be recognised when: Leasehold makegood and restoration provisions leased office

  • “An entity has a present obligation (legal or constructive) as a result of a past event;
  • It is probable that an outflow of resources embodying economic benefits will be
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Contract-based intangible assets

Contract-based intangible assets – In a Business Combinations, contract-based intangible assets –by definition– are intangible assets and are therefore recognised separately from goodwill, provided that their fair values can be measured reliably. These intangible assets meet the definition of an intangible asset because they again –by definition– arise from contractual or other legal rights and are not tangible/visible/instantly recognisable.

Self explanatory examples are:Contract-based intangible assets

  1. Licensing, royalty and standstill agreements
  2. Advertising, construction, management, service or supply contracts
  3. Lease agreements Contract-based intangible assets
  4. Construction permits Contract-based intangible assets
  5. Franchise agreements
  6. Operating and broadcasting rights Contract-based intangible assets
  7. Use rights such as drilling, water, air, mineral, timber-cutting and route authorities
  8. Servicing contracts such as mortgage servicing contracts Contract-based intangible assets
    Contracts to service financial
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