Contract modifications and variable consideration

IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

A contract modification arises when the parties approve a change in the scope and/or the price of a contract (eg a change order). In IFRS 15 this exercise is part of step 1 Identify the contract. The … Read more

The way to IFRS 9 Financial Instruments

In July 2014 the International Accounting Standards Board (IASB) published the 4th and final version of IFRS 9 Financial Instruments.

This was the conclusion of a major project started in 2002 as part of the Norwalk Agreement (WIKI) between the IASB and US Financial Accounting Standards Board (FASB) as a long term reform of financial instrument accounting.… Read more

Interest-free term loan – No bank debt

Parent A advances an unsecured loan for €1m to Subsidiary B on 1 January 2018 with the following terms:

  • 0% interest (assume that a market rate of interest for a similar loan is estimated at 7%);
  • €1m repayable in 5 years – December 2022.

Initial recognition of an interest-free term loan Interest-free term loan – No bank debt

IFRS 9 contains the same initial recognition requirements for financial assets as IAS 39. This means that, in contrast to demand loans, there are specific requirements which state that the initial fair value of an interest-free term loan is equal to the present value of future cash receipts discounted at an appropriate market rate of interest for a similar loan at Read more

Asset accumulation valuation example

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach. Here is an example of the asset accumulation method:

A valuation expert has been retained to estimate the fair market value of the total equity of Brown Client Company (“Brown”) as of December 31, 2016. Let’s assume that Brown is a family-owned construction contractor company.

The valuation expert decided to use the asset-based valuation approach and the asset accumulation valuation method.

The Brown GAAP-basis balance sheet for December 31, 2016, is presented on Exhibit 1. All financial data are presented in $000s.

On this GAAP-basis balance sheet, tangible assets are recorded at historical cost less … Read more

IFRS 13 Asset accumulation method

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach.

The asset accumulation method is well suited for business and security valuations performed for transaction, taxation, and controversy purposes. All business valuation approaches and methods can indicate the defined value of the subject business entity. IFRS 13 Asset accumulation method

In addition, the asset accumulation method also helps to explain the concluded value—by specifically identifying the value impact of each category of the subject entity assets and liabilities.

This informational content of the asset accumulation method is particularly useful in a transaction, taxation, or controversy context when the particular analysis is used to identify:

  1. which asset
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