Weather derivative accounting

Weather derivative accounting – The weather has an enormous impact on business activities of many kinds and varies both geographically and seasonally. Sellers of weather derivatives use the instruments to hedge their own risks and to make trading profits. Just as a firm can manage its currency exposure, so it can hedge its weather exposure.

Contract concepts

A weather derivative is a contract between two parties that stipulates how payment will be exchanged between the parties, depending on certain meteorological conditions during the contract period. Weather derivatives are usually structured as swaps, futures and call or put options based on different underlying weather indices. Weather derivative accounting

Weather derivatives have one major difference from traditional derivatives. In contrast to traditional … Read more

The 2 essential types of share-based payments

The 2 essential types of share-based payments – Snapshot

Share-based payments are classified based on whether the entity’s obligation is to deliver its own equity instruments (equity-settled) or cash or other assets (cash-settled).

1. Equity-settled share-based payments

For equity-settled transactions, an entity recognises a cost and a corresponding entry in equity.

Measurement is based on the grant-date fair value of the equity instruments granted.

Market and non-vesting conditions are reflected in the initial measurement of fair value, with no subsequent true-up for differences between expected and actual outcome.

The estimate of the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied is revised during the vesting period such that the cumulative amount Read more

Cash flow hedge reserve

Change in fair value attributable to spot’ is recognised in other comprehensive income (and in the cash flow hedge reserve in equity) as the hedged risk

Repurchase options and residual value guarantees

Repurchase options and residual value guarantees – Original Equipment Manufacturers (OEMs) may have a right or obligation to repurchase vehicles as part of a contract with a customer or may provide residual value guarantees to certain customers. Examples include repurchase options on sales of fleet vehicles or residual value guarantees to fleet customers or third-party purchasers of vehicles (e.g., finance companies). While the economics of a repurchase agreement and a residual value guarantee may be similar, the accounting outcome could be quite different under IFRS 15.

Repurchase agreements Repurchase options and residual value guarantees

Some agreements include repurchase provisions, either as part of the original sales contract or as a separate contract that relates to the original sales contract. … Read more

Equity instrument

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities, also called shares

Derivative

IFRS 9 Definition of derivative: A financial instrument or other contract within the scope of IFRS 9 with all three of the following characteristics.......

Share-based payment

In share-based payment transactions, an entity receives goods or services from a counterparty and grants equity instruments (equity-settled share-based payment transactions) or incurs a liability to deliver cash or other assets for amounts that are based on the price (or value) of equity instruments (cash-settled share-based payment transactions) as consideration.

The following transactions are not in the scope of IFRS 2:

  • transactions with counterparties acting as shareholders rather than as suppliers of goods or services;
  • transactions in which a share-based payment is made in exchange for control of a business; and
  • transactions in which contracts to acquire non-financial items in exchange for a share-based payment are in the scope of the financial instruments standards.

A ‘counterparty’ can be … Read more

Earnings per share

Earnings per share – The objective of IAS 33 Earnings per share is prescribing principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity.

Earnings per share is mostly used in the consolidated financial statements of a group with a parent:

  1. whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
  2. that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing ordinary shares
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