IFRS Pocket Guide 2012

IFRS pocket guide
2012
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IFRS pocket guide 2012
Introduction
Introduction
This pocket guide provides a summary of the recognition and measurement
requirements of International Financial Reporting Standards (IFRS) issued up
to August 2012. It does not address in detail the disclosure requirements; these
can be found in the PwC publication IFRS disclosure checklist 2012.
The information in this guide is arranged in six sections:
Accounting piinciples.
Income stutement und ieluted notes.
Bulunce sleet und ieluted notes.
Consoliduted und sepuiute nnunciul stutements.
Otlei sub}ects.
Industiy-specinc topics.
More detailed guidance and information on these topics can be found in the
IFRS manual of accounting 2013 and other PwC publications. A list of PwCs
IFRS publications is provided on the inside front and back covers.
Contents
i
Contents
Accounting rules and principles 1
1. Introduction 1
2. Accounting principles and applicability of IFRS 1
3. Fiist-time udoption ol IFRS IFRS 1 2
4. Piesentution ol nnunciul stutements IAS 1 3
S. Accounting policies, uccounting estimutes und eiiois IAS 8 7
6. Finunciul instiuments IFRS 9, IFRS 7, IAS 32, IAS 39, IFRIC 19 8
7. Foieign cuiiencies IAS 21, IAS 29 18
8. Insuiunce contiucts IFRS 4 19
9. Revenue IAS 18, IAS 11, IAS 20 20
10. Segment iepoiting IFRS 8 23
11. Employee benents IAS 19 23
12. Sluie-bused puyment IFRS 2 26
13. Tuxution IAS 12 27
14. Euinings pei sluie IAS 33 29
Bulunce sleet und ieluted notes 30

1S. Intungible ussets IAS 38 30
16. Piopeity, plunt und equipment IAS 16 31
17. Investment piopeity IAS 40 32
18. Impuiiment ol ussets IAS 36 33
19. Leuse uccounting IAS 17 34
20. Inventoiies IAS 2 3S
21. Piovisions und contingences IAS 37 36
22. Events ultei tle iepoiting peiiod und nnunciul commitments IAS 10 38
23. Sluie cupitul und ieseives 39

Contents
ii
Consoliduted und sepuiute nnunciul stutements 41
24. Consoliduted und sepuiute nnunciul stutements IAS 27 41
24A. Consoliduted nnunciul stutements IFRS 10 42
2S. Business combinutions IFRS 3 44
26. Disposuls ol subsidiuiies, businesses und non-cuiient ussets IFRS S 46
27. Equity uccounting IAS 28 48
28. Inteiests in }oint ventuies IAS 31 49
28A. Joint uiiungements IFRS 11 S0
Otlei sub}ects 51
29. Reluted-puity disclosuies IAS 24 S1
30. Cusl ow stutements IAS 7 S2
31. Inteiim iepoits IAS 34 S3
32. Seivice concession uiiungements SIC 29, IFRIC 12 S4
33. Retiiement benent pluns IAS 26 SS
34. Fuii vulue meusuiement IFRS 13 S6
Industiy-specinc topics S7
3S. Agiicultuie IAS 41 S7
36. Extiuctive industiies IFRS 6, IFRIC 20 S8
Index by standards and interpretation 61
Accounting rules and principles
1 IFRS pocket guide 2012
1 Introduction
Tleie luve been mu}oi clunges in nnunciul iepoiting in iecent yeuis. Most
obvious is the continuing adoption of IFRS worldwide. Many territories have
been using IFRS for some years, and more are planning to come on stream
from 2012. For the latest information on countries transition to IFRS, visit
pwc.com/usifrs and see Interactive IFRS adoption by country map.
An important recent development is the extent to which IFRS is affected by
politics. The issues with Greek debt, the problems in the banking sector and
the attempts of politicians to resolve these questions have resulted in
piessuie on stunduid-setteis to umend tleii stunduids, piimuiily tlose on
nnunciul instiuments. Tlis piessuie is unlikely to disuppeui, ut leust in tle
sloit teim. Tle IASB is woiking luid to iespond to tlis; we cun tleieloie
expect a continued stream of changes to the standards in the next few months
and years.
2 Accounting principles and applicability of IFRS
Tle IASB lus tle uutloiity to set IFRSs und to uppiove inteipietutions ol
those standards.
IFRSs uie intended to be upplied by piont-oiientuted entities. Tlese entities'
nnunciul stutements give inloimution ubout peiloimunce, position und cusl
ow tlut is uselul to u iunge ol useis in muking nnunciul decisions. Tlese
users include shareholders, creditors, employees and the general public. A
complete set ol nnunciul stutements includes u:
bulunce sleet (stutement ol nnunciul position);
stutement ol compielensive income;
stutement ol cusl ows;
u desciiption ol uccounting policies; und
notes to tle nnunciul stutements.
The concepts underlying accounting practices under IFRS are set out in the
IASB's 'Conceptuul Fiumewoik loi Finunciul Repoiting' issued in Septembei
2010 (the Framework).
3 First-time adoption of IFRS IFRS 1
An entity moving from national GAAP to IFRS should apply the requirements
ol IFRS 1. It upplies to un entity's nist IFRS nnunciul stutements und tle
inteiim iepoits piesented undei IAS 34, 'Inteiim nnunciul iepoiting', tlut
uie puit ol tlut peiiod. It ulso upplies to entities undei 'iepeuted nist-time
application. The basic requirement is for full retrospective application of all
IFRSs effective at the reporting date. However, there are a number of
optional exemptions and mandatory exceptions to the requirement for
retrospective application.
Tle exemptions covei stunduids loi wlicl tle IASB consideis tlut
ietiospective upplicution could piove too dilncult oi could iesult in u cost
likely to exceed uny benents to useis. Tle exemptions uie optionul. Any, ull
or none of the exemptions may be applied. The optional exemptions relate to:
business combinutions;
deemed cost;
employee benents;
cumulutive tiunslution dilleiences;
compound nnunciul instiuments;
ussets und liubilities ol subsidiuiies, ussociutes und }oint ventuies;
designution ol pieviously iecognised nnunciul instiuments;
sluie-bused puyment tiunsuctions;
luii vulue meusuiement ol nnunciul ussets oi nnunciul liubilities ut initiul
recognition;
insuiunce contiucts;
decommissioning liubilities included in tle cost ol piopeity, plunt und
equipment;
leuses;
seivice concession uiiungements;
boiiowing costs;
investments in subsidiuiies, }ointly contiolled entities und ussociutes;
tiunsleis ol ussets liom customei;
extinguisling nnunciul liubilities witl equity instiuments;
seveie lypeiinution;
}oint uiiungements; und
stiipping costs.
The exceptions cover areas in which retrospective application of the IFRS
requirements is considered inappropriate. The following exceptions are
mandatory, not optional:
ledge uccounting;
deiecognition ol nnunciul ussets und liubilities;
estimutes;
non-contiolling inteiests;
clussincution und meusuiement ol nnunciul ussets;
embedded deiivutives; und
goveinment louns.
Comparative information is prepared and presented on the basis of IFRS.
Almost ull ud}ustments uiising liom tle nist-time upplicution ol IFRS uie
uguinst opening ietuined euinings ol tle nist peiiod tlut is piesented on un
IFRS basis.
Certain reconciliations from previous GAAP to IFRS are also required.
4 Presentation of nancial statements IAS 1
Tle ob}ective ol nnunciul stutements is to piovide inloimution tlut is uselul
in muking economic decisions. IAS 1's ob}ective is to ensuie compuiubility
ol piesentution ol tlut inloimution witl tle entity's nnunciul stutements ol
pievious peiiods und witl tle nnunciul stutements ol otlei entities.
Financial statements are prepared on a going concern basis unless
management intends either to liquidate the entity or to cease trading, or
has no realistic alternative but to do so. Management prepares its
nnunciul stutements, except loi cusl ow inloimution, undei tle ucciuul
basis of accounting.
Tleie is no piesciibed loimut loi tle nnunciul stutements. Howevei, tleie
are minimum disclosures to be made in the primary statements and the
notes. The implementation guidance to IAS 1 contains illustrative examples
of acceptable formats.
Financial statements disclose corresponding information for the preceding
period (comparatives) unless a standard or interpretation permits or
requires otherwise.
4
Statement of nancial position (balance sheet)
Tle stutement ol nnunciul position piesents un entity's nnunciul position ut u
specinc point in time. Sub}ect to meeting ceituin minimum piesentution und
disclosuie iequiiements, munugement muy use its }udgement ieguiding tle
form of presentation, such as whether to use a vertical or a horizontal format,
wlicl sub-clussincutions to piesent und wlicl inloimution to disclose in tle
primary statement or in the notes.
The following items, as a minimum, are presented on the balance sheet:
Assets piopeity, plunt und equipment; investment piopeity; intungible
ussets; nnunciul ussets; investments uccounted loi using tle equity
method; biological assets; deferred tax assets; current tax assets;
inventories; trade and other receivables; and cash and cash equivalents.
Equity issued cupitul und ieseives uttiibutuble to tle puient's owneis;
und non-contiolling inteiest.
Liubilities deleiied tux liubilities; cuiient tux liubilities; nnunciul
liabilities; provisions; and trade and other payables.
Assets und liubilities leld loi sule tle totul ol ussets clussined us leld
loi sule und ussets included in disposul gioups clussined us leld loi sule;
und liubilities included in disposul gioups clussined us leld loi sule in
uccoidunce witl IFRS S, 'Non-cuiient ussets leld loi sule und
discontinued operations.
Cuiient und non-cuiient ussets und cuiient und non-cuiient liubilities uie
piesented us sepuiute clussincutions in tle stutement unless piesentution bused
on liquidity provides information that is reliable and more relevant.
Statement of comprehensive income
The statement of comprehensive income presents an entitys performance
ovei u specinc peiiod. Entities luve u cloice ol piesenting tlis in u single
statement or as two statements. The statement of comprehensive income
undei tle single-stutement uppioucl includes ull items ol income und
expense and includes each component of other comprehensive income.
Undei tle two- stutement uppioucl, ull components ol piont oi loss uie
presented in an income statement, followed immediately by a statement of
compielensive income. Tlis begins witl tle totul piont oi loss loi tle peiiod,
displays all components of other comprehensive income and ends with total
comprehensive income for the period.
IFRS pocket guide 2012 5
Items to be presented in statement of comprehensive income
The following items, as a minimum, are presented in the statement of
comprehensive income:
ievenue;
nnunce costs;
sluie ol tle piont oi loss ol ussociutes und }oint ventuies uccounted loi
using the equity method;
tux expense;
post-tux piont oi loss ol discontinued opeiutions uggieguted, witl uny
post-tux guin oi loss iecognised on tle meusuiement to luii vulue less
costs to sell (or on the disposal) of the assets or disposal group(s)
constituting the discontinued operation;
piont oi loss loi tle peiiod;
eucl component ol otlei compielensive income clussined by nutuie;
sluie ol tle otlei compielensive income ol ussociutes und }oint ventuies
accounted for using the equity method; and
totul compielensive income.
Piont oi loss loi tle peiiod und totul compielensive income uie ullocuted in
tle stutement ol compielensive income to tle umounts uttiibutuble to non-
controlling interest and to the parents owners.
Additionul line items und sub-leudings uie piesented in tlis stutement
when such presentation is relevant to an understanding of the entitys
nnunciul peiloimunce.
Material items
The nature and amount of items of income and expense are disclosed
separately, where they are material. Disclosure may be in the statement or in
tle notes. Sucl income/expenses miglt include iestiuctuiing costs; wiite-
downs of inventories or property, plant and equipment; litigation settlements;
und guins oi losses on disposuls ol non-cuiient ussets.
Other comprehensive income
An entity presents each component of other comprehensive income in the
statement either (a) net of its related tax effects, or (b) before its related tax
effects, with the aggregate tax effect of these components shown separately.
6
Tle IASB issued 'Piesentution ol items ol otlei compielensive income
(Amendments to IAS 1)' in June 2011. Tlis iequiies items ol otlei
compielensive income to be giouped into tlose tlut will be ieclussined
subsequently to piont oi loss und tlose tlut will not be ieclussined. Tle
umendment is ellective loi unnuul peiiods beginning on oi ultei 1 July 2012.
Statement of changes in equity
The following items are presented in the statement of changes in equity:
totul compielensive income loi tle peiiod, slowing sepuiutely tle totul
umounts uttiibutuble to tle puient's owneis und to non- contiolling
interest;
loi eucl component ol equity, tle ellects ol ietiospective upplicution oi
ietiospective iestutement iecognised in uccoidunce witl IAS 8,' Accounting
policies, changes in accounting estimates, and errors; and
loi eucl component ol equity, u ieconciliution between tle cuiiying
amount at the beginning and the end of the period, separately disclosing
changes resulting from:
piont oi loss;
otlei compielensive income; und
tiunsuctions witl owneis in tleii cupucity us owneis, slowing
separately contributions by and distributions to owners and changes in
ownership interests in subsidiaries that do not result in a loss of control.
Statement of cash ows
Cash ow statements are addressed in Section 30 dealing with the
iequiiements ol IAS 7.
Notes to the nancial statements
Tle notes uie un integiul puit ol tle nnunciul stutements. Notes piovide
information additional to the amounts disclosed in the primary
statements. They include accounting policies and critical accounting
estimutes und }udgements.
5 Accounting policies, accounting estimates and errors IAS 8
An entity follows the accounting policies required by IFRS that are relevant
to the particular circumstances of the entity. However, for some situations,
standards offer a choice; there are other situations where no guidance is
given by IFRSs. In these situations, management should select appropriate
accounting policies.
Munugement uses its }udgement in developing und upplying un uccounting
policy that results in information that is relevant and reliable. Reliable
information demonstrates the following qualities: faithful representation,
substance over form, neutrality, prudence and completeness. If there is no
IFRS stunduid oi inteipietution tlut is specincully upplicuble, munugement
should consider the applicability of the requirements in IFRS on similar and
ieluted issues, und tlen tle dennitions, iecognition ciiteiiu und meusuiement
concepts for assets, liabilities, income and expenses in the Framework.
Management may also consider the most recent pronouncements of other
stunduid-setting bodies, otlei uccounting liteiutuie und uccepted industiy
practices, where these do not conict with IFRS.
Accounting policies should be applied consistently to similar transactions
and events.
Changes in accounting policies
Changes in accounting policies made on adoption of a new standard are
accounted for in accordance with the transition provisions (if any) within
tlut stunduid. Il specinc tiunsition piovisions do not exist, u clunge in policy
(whether required or voluntary) is accounted for retrospectively (that is, by
iestuting ull compuiutive nguies piesented) unless tlis is impiucticuble.
Issue of new/revised standards not yet effective
Standards are normally published in advance of the required implementation
date. In the intervening period, where a new/revised standard that is relevant
to an entity has been issued but is not yet effective, management discloses this
fact. It also provides the known or reasonably estimable information relevant
to assessing the impact that the application of the standard might have on the
entity's nnunciul stutements in tle peiiod ol initiul iecognition.
8
Changes in accounting estimates
An entity recognises prospectively changes in accounting estimates by including
tle ellects in piont oi loss in tle peiiod tlut is ullected (tle peiiod ol tle
change and future periods), except if the change in estimate gives rise
to changes in assets, liabilities or equity. In this case, it is recognised by
ud}usting tle cuiiying umount ol tle ieluted usset, liubility oi equity in tle
period of the change.
Errors
Errors may arise from mistakes and oversights or misinterpretation of
inloimution. Eiiois tlut uie discoveied in u subsequent peiiod uie piioi-peiiod
eiiois. Muteiiul piioi-peiiod eiiois uie ud}usted ietiospectively (tlut is, by
iestuting compuiutive nguies) unless tlis is impiucticuble.
6 Financial instruments IAS 32, IAS 39, IFRS 7, IFRS 9, IFRIC 19
Objectives and scope
Financial instruments are addressed in these standards:
IAS 32, 'Finunciul instiuments: Piesentution', wlicl deuls witl
distinguishing debt from equity and with netting;
IAS 39, 'Finunciul instiuments: Recognition und meusuiement;
IFRS 7, 'Finunciul instiuments: Disclosuie'; und
IFRS 9, 'Finunciul instiuments'.
Tle ob}ective ol tle stunduids is to estublisl iequiiements loi ull uspects ol
uccounting loi nnunciul instiuments, including distinguisling debt liom
equity, netting, recognition, derecognition, measurement, hedge accounting
and disclosure.
Tle stunduids' scopes uie bioud. Tle stunduids covei ull types ol nnunciul
instrument, including receivables, payables, investments in bonds and shares,
borrowings and derivatives. They also apply to certain contracts to buy or sell
non-nnunciul ussets (sucl us commodities) tlut cun be net-settled in cusl oi
unotlei nnunciul instiument.
In Novembei 2009, tle IASB publisled tle nist puit ol its tliee-stuge pio}ect
to iepluce IAS 39, in tle loim ol u new stunduid IFRS 9. Tle IASB upduted
IFRS 9 in Octobei 2010 to include guidunce on clussincution und meusuiement
ol nnunciul liubilities und on deiecognition ol nnunciul instiuments. Tlis nist
pluse deuls witl tle clussincution und meusuiement ol nnunciul ussets und
nnunciul liubilities.
In Novembei 2011, tle IASB decided to considei muking limited modincutions
to tle iequiiements in IFRS 9 loi clussilying und meusuiing nnunciul ussets
to deul witl specinc upplicution issues und tle inteiuction witl tle insuiunce
pio}ect und to tiy to uclieve conveigence witl pioposuls being developed by
tle FASB. An exposuie diult on tlese modincutions is expected to be issued in
lute 2012; tlese pioposuls uie not tleieloie cuiiently included witlin IFRS 9.
In Decembei 2011, tle Bouid umended IFRS 9 to delei tle mundutoiy
ellective dute liom 1 Junuuiy 2013 to unnuul peiiods beginning on oi ultei
1 Junuuiy 201S. Euily upplicution ol IFRS 9 will continue to be peimitted.
IFRS 9 lus not yet been endoised loi use in tle EU. Tle Bouid ulso umended
the transition provisions to provide relief from restating comparative
inloimution und intioduced new disclosuies to lelp useis ol nnunciul
stutements undeistund tle ellect ol moving to tle IFRS 9 clussincution und
measurement model.
IFRS 9 iepluces tle multiple clussincution und meusuiement models loi
nnunciul ussets in IAS 39 witl u single model tlut lus only two clussincution
cutegoiies: umoitised cost und luii vulue. Clussincution undei IFRS 9 is diiven
by tle entity's business model loi munuging tle nnunciul ussets und tle
contiuctuul cluiucteiistics ol tle nnunciul ussets.
A nnunciul usset is meusuied ut umoitised cost il two ciiteiiu uie met:
Tle ob}ective ol tle business model is to lold tle nnunciul usset loi tle
collection of the contractual cash ows; and
Tle contiuctuul cusl ows undei tle instiument solely iepiesent puyments
of principal and interest.
IFRS 9 iemoves tle iequiiement to sepuiute embedded deiivutives liom
nnunciul usset losts. It iequiies u lybiid contiuct to be clussined in its entiiety
at either amortised cost or fair value.
10
Two of the existing three fair value option criteria become obsolete under
IFRS 9, us u luii vulue diiven business model iequiies luii vulue uccounting,
und lybiid contiucts uie clussined in tleii entiiety ut luii vulue. Tle iemuining
luii vulue option condition in IAS 39 is cuiiied loiwuid to tle new stunduid
tlut is, munugement muy still designute u nnunciul usset us ut luii vulue
tliougl piont oi loss on initiul iecognition il tlis signincuntly ieduces un
uccounting mismutcl. Tle designution ut luii vulue tliougl piont oi loss will
continue to be irrevocable.
IFRS 9 piolibits ieclussincutions except in iuie ciicumstunces wlen tle entity's
business model changes.
Tleie is specinc guidunce loi contiuctuully linked instiuments tlut cieute
concentrations of credit risk, which is often the case with investment tranches
in a securitisation.
IFRS 9's clussincution piinciples indicute tlut ull equity investments slould
be measured at fair value. However, management has an option to present in
otlei compielensive income (OCI) unieulised und ieulised luii vulue guins
and losses on equity investments that are not held for trading.
IFRS 9 iemoves tle cost exemption loi unquoted equities und deiivutives on
unquoted equities but provides guidance on when cost may be an appropriate
estimate of fair value.
Tle clussincution und meusuiement ol nnunciul liubilities undei IFRS 9
iemuins tle sume us in IAS 39, except wleie un entity lus closen to meusuie
u nnunciul liubility ut luii vulue tliougl piont oi loss. Foi sucl liubilities,
changes in fair value related to changes in own credit risk are presented
sepuiutely in OCI.
Amounts in OCI ieluting to own ciedit uie not iecycled to tle income
statement even when the liability is derecognised and the amounts are
realised. However, the standard does allow transfers within equity.
Entities uie still iequiied to sepuiute deiivutives embedded in nnunciul
liabilities where they are not closely related to the host contract.
Nature and characteristics of nancial instruments
Financial instruments include a wide range of assets and liabilities, such as
tiude debtois, tiude cieditois, louns, nnunce leuse ieceivubles und deiivutives.
Tley uie iecognised und meusuied uccoiding to IAS 39's iequiiements und uie
disclosed in uccoidunce witl IFRS 7.
Financial instruments represent contractual rights or obligations to receive or
puy cusl oi otlei nnunciul ussets. Non-nnunciul items luve u moie indiiect,
non-contiuctuul ielutionslip to lutuie cusl ows.
A nnunciul usset is cusl; u contiuctuul iiglt to ieceive cusl oi unotlei nnunciul
usset; u contiuctuul iiglt to exclunge nnunciul ussets oi liubilities witl
another entity under conditions that are potentially favourable; or an equity
instrument of another entity.
A nnunciul liubility is u contiuctuul obligution to delivei cusl oi unotlei
nnunciul usset; oi to exclunge nnunciul instiuments witl unotlei entity undei
conditions that are potentially unfavourable.
An equity instrument is any contract that evidences a residual interest in the
entitys assets after deducting all of its liabilities.
A deiivutive is u nnunciul instiument tlut deiives its vulue liom un undeilying
price or index; requires little or no initial net investment; and is settled at a
future date.
Embedded derivatives in host contracts
Some nnunciul instiuments und otlei contiucts combine u deiivutive und
u non-deiivutive in u single contiuct. Tle deiivutive puit ol tle contiuct is
referred to as an embedded derivative. Its effect is that some of the contracts
cusl ows vuiy in u similui wuy to u stund-ulone deiivutive. Foi exumple, tle
principal amount of a bond may vary with changes in a stock market index. In
this case, the embedded derivative is an equity derivative on the relevant stock
market index.
Embedded derivatives that are not closely related to the rest of the contract
uie sepuiuted und uccounted loi us stund-ulone deiivutives (tlut is, meusuied
ut luii vulue, geneiully witl clunges in luii vulue iecognised in piont oi loss).
An embedded derivative is not closely related if its economic characteristics
12
und iisks uie dilleient liom tlose ol tle iest ol tle contiuct. IAS 39 sets out
many examples to help determine when this test is (and is not) met.
Analysing contracts for potential embedded derivatives is one of the more
clullenging uspects ol IAS 39.
Classication of nancial instruments
Tle wuy tlut nnunciul instiuments uie clussined undei IAS 39 diives low
they are subsequently measured and where changes in measurement are
accounted for.
Undei nnunciul instiuments uccounting, piioi to tle impuct ol IFRS 9, tleie
uie loui clusses ol nnunciul usset (undei IAS 39): luii vulue tliougl piont oi
loss, held to maturity, loans and receivables and available for sale. The factors
to tuke into uccount wlen clussilying nnunciul ussets include:
Aie tle cusl ows uiising liom tle instiument nxed oi deteiminuble? Does
tle instiument luve u mutuiity dute?
Aie tle ussets leld loi tiuding? Does munugement intend to lold tle
instiuments to mutuiity?
Is tle instiument u deiivutive, oi does it contuin un embedded deiivutive?
Is tle instiument quoted on un uctive muiket?
Hus munugement designuted tle instiument into u puiticului clussincution
ut inception?
Finunciul liubilities uie ut luii vulue tliougl piont oi loss il tley uie
designuted us sucl (sub}ect to vuiious conditions), il tley uie leld loi tiuding
oi il tley uie deiivutives (except loi u deiivutive tlut is u nnunciul guuiuntee
contract or a designated and effective hedging instrument). They are
otleiwise clussined us 'otlei liubilities'.
Financial assets and liabilities are measured either at fair value or at amortised
cost, depending on tleii clussincution. Clunges uie tuken to eitlei tle income
statement or to other comprehensive income.
Reclussincution ol nnunciul ussets liom one cutegoiy to unotlei is peimitted
under limited circumstances. Various disclosures are required where a
ieclussincution lus been mude. Deiivutives und ussets designuted us 'ut luii
vulue tliougl piont oi loss' undei tle luii vulue option uie not eligible loi
tlis ieclussincution.
Financial liabilities and equity
Tle clussincution ol u nnunciul instiument by tle issuei us eitlei u liubility
(debt) oi equity cun luve u signincunt impuct on un entity's geuiing (debt-
to-equity iutio) und iepoited euinings. It could ulso ullect tle entity's debt
covenants.
The critical feature of a liability is that under the terms of the instrument,
tle issuei is oi cun be iequiied to delivei eitlei cusl oi unotlei nnunciul
asset to the holder; it cannot avoid this obligation. For example, a debenture,
under which the issuer is required to make interest payments and redeem the
debentuie loi cusl, is u nnunciul liubility.
An instiument is clussined us equity wlen it iepiesents u iesiduul inteiest in
the issuers assets after deducting all its liabilities; or, put another way, when
the issuer has no obligation under the terms of the instrument to deliver cash
oi otlei nnunciul ussets to unotlei entity. Oidinuiy sluies oi common stock
where all the payments are at the discretion of the issuer are examples of
equity of the issuer.
In uddition, tle lollowing types ol nnunciul instiument uie uccounted loi us
equity, piovided tley luve puiticului leutuies und meet specinc conditions:
puttuble nnunciul instiuments (loi exumple, some sluies issued by co
operative entities and some partnership interests); and
instiuments oi components ol instiuments tlut impose on tle entity un
obligation to deliver to another party a pro rata share of the net assets of
the entity only on liquidation (for example, some shares issued by limited
life entities).
Tle clussincution ol tle nnunciul instiument us eitlei debt oi equity is bused
on the substance of the contractual arrangement of the instrument rather than
its legal form. This means, for example, that a redeemable preference share,
which is economically the same as a bond, is accounted for in the same way
as a bond. The redeemable preference share is therefore treated as a liability
rather than equity, even though legally it is a share of the issuer.
Otlei instiuments muy not be us stiuigltloiwuid. An unulysis ol tle teims
ol eucl instiument in tle liglt ol tle detuiled clussincution iequiiements is
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necessuiy, puiticuluily us some nnunciul instiuments contuin botl liubility und
equity features. Such instruments, for example bonds that are convertible into
u nxed numbei ol equity sluies, uie uccounted loi us sepuiute liubility und
equity (being the option to convert) components.
The treatment of interest, dividends, losses and gains in the income statement
lollows tle clussincution ol tle ieluted instiument. Il u pieleience sluie is
clussined us u liubility, its coupon is slown us inteiest (ussuming tlut coupon
is not discretionary). However, the discretionary coupon on an instrument that
is treated as equity is shown as a distribution.
Recognition
Recognition issues loi nnunciul ussets und nnunciul liubilities tend to be
stiuigltloiwuid. An entity iecognises u nnunciul usset oi u nnunciul liubility ut
the time it becomes a party to a contract.
Derecognition
Deiecognition is tle teim used loi ceusing to iecognise u nnunciul usset oi
nnunciul liubility on un entity's bulunce sleet. Tlese iules uie moie complex.
Assets
An entity tlut lolds u nnunciul usset muy iuise nnunce using tle usset us
secuiity loi tle nnunce, oi us tle piimuiy souice ol cusl ows liom wlicl
to iepuy tle nnunce. Tle deiecognition iequiiements ol IAS 39 deteimine
wletlei tle tiunsuction is u sule ol tle nnunciul ussets (und tleieloie tle
entity ceuses to iecognise tle ussets) oi wletlei nnunce lus been secuied on
the assets (and the entity recognises a liability for any proceeds received). This
evaluation might be straightforward. For example, it is clear with little or no
unulysis tlut u nnunciul usset is deiecognised in un unconditionul tiunslei ol it
to an unconsolidated third party, with no risks and rewards of the asset being
retained. Conversely, derecognition is not allowed where an asset has been
transferred but substantially all the risks and rewards of the asset have been
retained through the terms of the agreement. However, the analysis may be
more complex in other cases. Securitisation and debt factoring are examples
of more complex transactions where derecognition will need
careful consideration.
Liabilities
An entity muy only ceuse to iecognise (deiecognise) u nnunciul liubility wlen
it is extinguisled tlut is, wlen tle obligution is discluiged, cuncelled oi
expired, or when the debtor is legally released from the liability by law or by
the creditor agreeing to such a release.
Measurement of nancial assets and liabilities
All nnunciul ussets und nnunciul liubilities uie meusuied initiully ut luii vulue
undei IAS 39 (plus tiunsuction costs, loi nnunciul ussets und liubilities not
ut luii vulue tliougl piont oi loss). Tle luii vulue ol u nnunciul instiument
is normally the transaction price that is, the amount of the consideration
given or received. However, in some circumstances, the transaction price may
not be indicative of fair value. In such a situation, an appropriate fair value
is determined using data from current observable transactions in the same
instrument or based on a valuation technique whose variables include only
data from observable markets.
Tle meusuiement ol nnunciul instiuments ultei initiul iecognition depends
on tleii initiul clussincution. All nnunciul ussets uie subsequently meusuied
ut luii vulue except loi louns und ieceivubles, leld-to-mutuiity ussets und,
in rare circumstances, unquoted equity instruments whose fair values
cannot be measured reliably, or derivatives linked to and that must be
settled by the delivery of such unquoted equity instruments that cannot be
measured reliably.
Louns und ieceivubles und leld-to-mutuiity investments uie meusuied ut
umoitised cost. Tle umoitised cost ol u nnunciul usset oi nnunciul liubility is
measured using the effective interest method.
Avuiluble-loi-sule nnunciul ussets uie meusuied ut luii vulue, witl clunges in
luii vulue iecognised in otlei compielensive income. Foi uvuiluble-loi-sule
debt securities, interest is recognised in income using the effective interest
metlod'. Dividends on uvuiluble-loi-sule equity secuiities uie iecognised in
piont oi loss us tle loldei becomes entitled to tlem.
Derivatives (including separated embedded derivatives) are measured at fair
vulue. All luii vulue guins und losses uie iecognised in piont oi loss except
where they qualify as hedging instruments in cash ow hedges.
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Financial liabilities are measured at amortised cost using the effective interest
metlod unless tley uie clussined ut luii vulue tliougl piont oi loss.
Finunciul ussets und nnunciul liubilities tlut uie designuted us ledged items
muy iequiie luitlei ud}ustments undei tle ledge uccounting iequiiements.
All nnunciul ussets uie sub}ect to ieview loi impuiiment, except tlose meusuied
ut luii vulue tliougl piont oi loss. Wleie tleie is ob}ective evidence tlut
sucl u nnunciul usset muy be impuiied, tle impuiiment loss is culculuted und
iecognised in piont oi loss.
Hedge accounting
'Hedging' is tle piocess ol using u nnunciul instiument (usuully u deiivutive)
to mitigate all or some of the risk of a hedged item. Hedge accounting
changes the timing of recognition of gains and losses on either the hedged
item oi tle ledging instiument so tlut botl uie iecognised in piont oi loss in
the same accounting period in order to record the economic substance of the
combination of the hedged item and instrument.
To qualify for hedge accounting, an entity must (a) formally designate
and document a hedge relationship between a qualifying hedging
instrument and a qualifying hedged item at the inception of the hedge; and
(b) both at inception and on an ongoing basis, demonstrate that the hedge
is highly effective.
There are three types of hedge relationship:
luii vulue ledge u ledge ol tle exposuie to clunges in tle luii vulue
ol u iecognised usset oi liubility, oi u nim commitment;
cusl ow ledge u ledge ol tle exposuie to vuiiubility in cusl ows
ol u iecognised usset oi liubility, u nim commitment oi u liglly piobuble
forecast transaction; and
net investment ledge u ledge ol tle loieign cuiiency iisk on u net
investment in a foreign operation.
Foi u luii vulue ledge, tle ledged item is ud}usted loi tle guin oi loss
attributable to the hedged risk. That element is included in the income
statement where it will offset the gain or loss on the hedging instrument.
For an effective cash ow hedge, gains and losses on the hedging instrument
are initially included in other comprehensive income. The amount included
in other comprehensive income is the lesser of the fair value of the hedging
instiument und ledge item. Wleie tle ledging instiument lus u luii vulue
gieutei tlun tle ledged item, tle excess is iecoided witlin piont oi loss
as ineffectiveness. Gains or losses deferred in other comprehensive income
uie ieclussined to piont oi loss wlen tle ledged item ullects tle income
stutement. Il tle ledged item is tle loiecust ucquisition ol u non-nnunciul
usset oi liubility, tle entity muy cloose un uccounting policy ol ud}usting tle
cuiiying umount ol tle non-nnunciul usset oi liubility loi tle ledging guin oi
loss at acquisition, or leaving the hedging gains or losses deferred in equity
und ieclussilying tlem to piont oi loss wlen tle ledged item ullects piont
or loss.
Hedges of a net investment in a foreign operation are accounted for similarly
to cash ow hedges.
Disclosure
Tle piesentution und disclosuie iequiiements loi nnunciul instiuments uie
set out in IAS 1, IAS 32 und IFRS 7. IAS 1 iequiies munugement to piesent
its nnunciul ussets und nnunciul liubilities us cuiient oi non-cuiient. IAS 32
piovides guidunce on ollsetting ol nnunciul ussets und tle nnunciul liubilities.
Wleie ceituin conditions uie sutisned, tle nnunciul usset und tle nnunciul
liability are presented on the balance sheet on a net basis.
IFRS 7 sets out disclosuie iequiiements tlut uie intended to enuble useis
to evuluute tle signincunce ol nnunciul instiuments loi un entity's nnunciul
position and performance, and to understand the nature and extent of risks
uiising liom tlose nnunciul instiuments to wlicl tle entity is exposed.
These risks include credit risk, liquidity risk and market risk. It also requires
disclosuie ol u tliee-level lieiuicly loi luii vulue meusuiement und some
specinc quuntitutive disclosuies loi nnunciul instiuments ut tle lowest level in
the hierarchy.
Tle disclosuie iequiiements do not }ust upply to bunks und nnunciul
institutions. All entities tlut luve nnunciul instiuments uie ullected even
simple instruments such as borrowings, accounts payable and receivable, cash
and investments.
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Financial liabilities with equity instruments IFRIC 19
IFRIC 19, 'Extinguisling nnunciul liubilities witl equity instiuments', cluiines
the accounting when an entity renegotiates the terms of its debt with the
result that the liability is extinguished by the debtor issuing its own equity
instiuments to tle cieditoi (ieleiied to us u 'debt loi equity swup'). Beloie
IFRIC 19, some iecognised tle equity instiument ut tle cuiiying umount
ol tle nnunciul liubility und did not iecognise uny guin oi loss in piont oi
loss. Otleis iecognised tle equity instiuments ut tle luii vulue ol equity
instruments issued and recognised any difference between that amount and
tle cuiiying umount ol tle nnunciul liubility in piont oi loss. As u iesult, tleie
was diversity in practice in the accounting for such transactions and the issue
became more pervasive in light of the current economic environment.
IFRIC 19, wlicl cume into ellect liom unnuul peiiods beginning on oi
ultei 1 July 2010, iequiies munugement to iecognise u guin oi loss in piont
or loss when a liability is settled through the issuance of the entitys own
equity instiuments. Tle umount ol tle guin oi loss iecognised in piont oi
loss is tle dilleience between tle cuiiying vulue ol tle nnunciul liubility
and the fair value of the equity instruments issued. If the fair value of the
equity instruments cannot be reliably measured, the fair value of the existing
nnunciul liubility is used to meusuie tle guin oi loss. Munugement is no longei
peimitted to ieclussily tle cuiiying vulue ol tle existing nnunciul liubility into
equity (witl no guin oi loss being iecognised in piont oi loss). Tle umount ol
the gain or loss should be separately disclosed on the face of the statement of
comprehensive income or in the notes
7 Foreign currencies IAS 21, IAS 29
Many entities do business with overseas suppliers or customers, or have
overseas operations. This gives rise to two main accounting issues:
Some tiunsuctions (loi exumple, tlose witl oveiseus supplieis oi
customers) may be denominated in foreign currencies. These transactions
are expressed in the entitys own currency (functional currency) for
nnunciul iepoiting puiposes.
An entity muy luve loieign opeiutions sucl us oveiseus subsidiuiies,
biuncles oi ussociutes tlut muintuin tleii uccounting iecoids in tleii
locul cuiiency. Becuuse it is not possible to combine tiunsuctions meusuied
19
in dilleient cuiiencies, tle loieign opeiution's iesults und nnunciul position
are translated into a single currency, namely that in which the groups
consoliduted nnunciul stutements uie iepoited ('piesentution cuiiency').
The methods required for each of the above circumstances are summarised
below.
Expressing foreign currency transactions in the entitys functional currency
A foreign currency transaction is expressed in the functional currency using the
exchange rate at the transaction date. Foreign currency balances representing
cash or amounts to be received or paid in cash (monetary items) are reported
at the end of the reporting period using the exchange rate on that date.
Exchange differences on such monetary items are recognised as income or
expense loi tle peiiod. Non-monetuiy bulunces tlut uie not ie-meusuied ut
fair value and are denominated in a foreign currency are expressed in the
lunctionul cuiiency using tle exclunge iute ut tle tiunsuction dute. Wleie u
non-monetuiy item is ie-meusuied ut luii vulue in tle nnunciul stutements, tle
exchange rate at the date when fair value was determined is used.
Translating functional currency nancial statements into a presentation currency
Assets and liabilities are translated from the functional currency to the
presentation currency at the closing rate at the end of the reporting period.
The income statement is translated at exchange rates at the dates of the
transactions or at the average rate if that approximates the actual rates. All
resulting exchange differences are recognised in other comprehensive income.
Tle nnunciul stutements ol u loieign opeiution tlut lus tle cuiiency ol
u lypeiinutionuiy economy us its lunctionul cuiiency uie nist iestuted
in uccoidunce witl IAS 29. All components uie tlen tiunsluted to tle
presentation currency at the closing rate at the end of the reporting period.
8 Insurance contracts IFRS 4
Insuiunce contiucts uie contiucts wleie un entity uccepts signincunt insuiunce
risk from another party (the policyholder) by agreeing to compensate the
policyholder if the insured event adversely affects the policyholder. The risk
transferred in the contract must be insurance risk, which is any risk except for
nnunciul iisk.
20
IFRS 4 applies to all issuers of insurance contracts whether or not the entity
is legally an insurance company. It does not apply to accounting for insurance
contracts by policyholders.
IFRS 4 is un inteiim stunduid pending completion ol Pluse II ol tle IASB's
pio}ect on insuiunce contiucts. It ullows entities to continue witl tleii existing
accounting policies for insurance contracts if those policies meet certain
minimum ciiteiiu. One ol tle minimum ciiteiiu is tlut tle umount ol tle
insuiunce liubility is sub}ect to u liubility udequucy test. Tlis test consideis
current estimates of all contractual and related cash ows. If the liability
udequucy test identines tlut tle insuiunce liubility is inudequute, tle entiie
denciency is iecognised in tle income stutement.
Accounting policies modelled on IAS 37, 'Piovisions, contingent liubilities
and contingent assets, are appropriate in cases where the issuer is not an
insuiunce compuny und wleie tleie is no specinc locul GAAP loi insuiunce
contracts (or the local GAAP is only directed at insurance companies).
Disclosure is particularly important for information relating to insurance
contracts, as entities can continue to use local GAAP accounting policies for
measurement. IFRS 4 has two main principles for disclosure. Entities should
disclose:
inloimution tlut identines und expluins tle umounts in its nnunciul
statements arising from insurance contracts; and
inloimution tlut enubles useis ol its nnunciul stutements to evuluute tle
nature and extent of risks arising from insurance contracts.
9 Revenue IAS 18, IAS 11 and IAS 20
Revenue is measured at the fair value of the consideration received or
ieceivuble. Wlen tle substunce ol u single tiunsuction indicutes tlut it
includes sepuiutely identinuble components, ievenue is ullocuted to tlese
components generally by reference to their fair values. It is recognised for each
component separately by applying the recognition criteria below.
For example, when a product is sold with a subsequent service, revenue is
allocated initially to the product component and the service component; it is
recognised separately thereafter when the criteria for revenue recognition are
met for each component.
Revenue IAS 18
Revenue arising from the sale of goods is recognised when an entity transfers
tle signincunt iisks und iewuids ol owneislip und gives up munugeiiul
involvement usually associated with ownership or control, if it is probable that
economic benents will ow to tle entity und tle umount ol ievenue und costs
can be measured reliably.
Revenue from the rendering of services is recognised when the outcome of the
transaction can be estimated reliably. This is done by reference to the stage of
completion of the transaction at the balance sheet date, using requirements
similar to those for construction contracts. The outcome of a transaction
can be estimated reliably when: the amount of revenue can be measured
ieliubly; it is piobuble tlut economic benents will ow to tle entity; tle stuge
of completion can be measured reliably; and the costs incurred and costs to
complete can be reliably measured.
Exumples ol tiunsuctions wleie tle entity ietuins signincunt iisks und iewuids
of ownership and revenue is not recognised are when:
tle entity ietuins un obligution loi unsutisluctoiy peiloimunce not coveied
by normal warranty provisions;
tle buyei lus tle powei to iescind tle puicluse loi u ieuson specined
in the sales contract and the entity is uncertain about the probability of
return; and
tlen tle goods uie slipped sub}ect to instullution und tlut instullution is u
signincunt puit ol tle contiuct.
Interest income is recognised using the effective interest rate method.
Royalties are recognised on an accruals basis in accordance with the substance
of the relevant agreement. Dividends are recognised when the shareholders
right to receive payment is established.
IFRIC 13, 'Customei loyulty piogiummes', cluiines tle uccounting loi uwuid
ciedits giunted to customeis wlen tley puicluse goods oi seivices loi
exumple, undei liequent-yei oi supeimuiket loyulty sclemes. Tle luii vulue
of the consideration received or receivable in respect of the initial sale is
allocated between the award credits and the other components of the sale.
IFRIC 18, 'Tiunsleis ol ussets liom customeis', cluiines tle uccounting loi
arrangements where an item of property, plant and equipment is transferred
22
by a customer in return for connection to a network and/or ongoing access to
goods oi seivices. IFRIC 18 will be most ielevunt to tle utility industiy,
but it may also apply to other transactions, such as when a customer
transfers ownership of property, plant and equipment as part of an
outsourcing agreement.
Construction contracts IAS 11
A constiuction contiuct is u contiuct specincully negotiuted loi tle
construction of an asset or combination of assets, including contracts for the
rendering of services directly related to the construction of the asset (such as
pio}ect munugeis und uiclitects seivices). Sucl contiucts uie typicully nxed-
piice oi cost-plus contiucts.
Revenue and expenses on construction contracts are recognised using the
peicentuge-ol-completion metlod. Tlis meuns tlut ievenue, expenses und
tleieloie piont uie iecognised giuduully us contiuct uctivity occuis.
Wlen tle outcome ol tle contiuct cunnot be estimuted ieliubly, ievenue
is recognised only to the extent of costs incurred that it is probable will be
iecoveied; contiuct costs uie iecognised us un expense us incuiied. Wlen it
is probable that total contract costs will exceed total contract revenue, the
expected loss is recognised as an expense immediately.
IFRIC 1S, 'Agieements loi constiuction ol ieul estute', cluiines wlicl stunduid
(IAS 18, 'Revenue', oi IAS 11, 'Constiuction contiucts') slould be upplied to
particular transactions.
Government grants IAS 20
Government grants are recognised when there is reasonable assurance that the
entity will comply with the conditions related to them and that the grants will
be received.
Giunts ieluted to income uie iecognised in piont oi loss ovei tle peiiods
necessary to match them with the related costs that they are intended to
compensate. They are either offset against the related expense or presented as
sepuiute income. Tle timing ol sucl iecognition in piont oi loss will depend
on tle lulnllment ol uny conditions oi obligutions uttucling to tle giunt.
Grants related to assets are either offset against the carrying amount of the
ielevunt usset oi piesented us deleiied income in tle bulunce sleet. Piont oi
loss will be affected either by a reduced depreciation charge or by deferred
income being recognised as income systematically over the useful life of the
related asset.
10 Segment reporting IFRS 8
Only ceituin entities uie iequiied to disclose segment inloimution. Tlese uie
entities with listed or quoted equity or debt instruments or entities that are in
the process of obtaining a listing or quotation of debt or equity instruments in
a public market.
Opeiuting segments uie components ol un entity, identined bused on inteinul
reports on each segment that are regularly used by the entitys chief
opeiuting decision-mukei (CODM) to ullocute iesouices to tle segment und
to assess its performance.
Opeiuting segments uie sepuiutely iepoited il tley meet tle dennition ol u
reportable segment. A reportable segment is an operating segment or group
of operating segments that exceed the quantitative thresholds set out in the
standard. However, an entity may disclose any additional operating segment
if it chooses to do so.
For all reportable segments, the entity is required to provide a measure of
piont oi loss in tle loimut viewed by tle CODM, us well us disclosuie ol u
measure of assets and liabilities if such amounts are regularly provided to
tle CODM. Otlei segment disclosuies include tle ievenue liom customeis
for each group of similar products and services, revenue by geography and
dependence on mu}oi customeis. Otlei detuiled disclosuies ol peiloimunce
und iesouices uie iequiied il tle CODM ieviews tlese umounts. A
ieconciliution ol tle totuls ol ievenue, piont und loss, ussets und liubilities
und otlei muteiiul items ieviewed by tle CODM to tle piimuiy nnunciul
statements is required.
11 Employee benets IAS 19
Employee benents uie ull loims ol consideiution given oi piomised by un
entity in exclunge loi seivices iendeied by its employees. Tlese benents
24
include suluiy-ieluted benents (sucl us wuges, piont-sluiing, bonuses
und compensuted ubsences, sucl us puid loliduy und long-seivice leuve),
teiminution benents (sucl us seveiunce und iedunduncy puy) und post-
employment benents (sucl us ietiiement benent pluns). Sluie-bused puyments
are addressed in IFRS 2 (See Section 12).
Post-employment benents include pensions, post-employment lile insuiunce
und medicul cuie. Pensions uie piovided to employees eitlei tliougl denned
contiibution pluns oi denned benent pluns.
Recognition und meusuiement loi sloit-teim benents is stiuiglt-loiwuid,
because actuarial assumptions are not required and the obligations are not
discounted. Howevei, long-teim benents, puiticuluily post-employment
benents, give iise to moie complicuted meusuiement issues.
Dened contribution plans
Accounting loi denned contiibution pluns is stiuiglt-loiwuid: tle cost ol
denned contiibution pluns is tle contiibution puyuble by tle employei loi
that accounting period.
Dened benet plans
Accounting loi denned benent pluns is complex becuuse uctuuiiul
assumptions and valuation methods are required to measure the balance
sheet obligation and the expense. The expense recognised is not necessarily
the contributions made in the period.
Tle umount iecognised on tle bulunce sleet is tle denned benent
obligution less plun ussets ud}usted loi uctuuiiul guins und losses (see
corridor approach below).
To culculute tle denned benent obligution, estimutes (uctuuiiul ussumptions)
about demographic variables (such as employee turnover and mortality) and
nnunciul vuiiubles (sucl us lutuie incieuses in suluiies und medicul costs) uie
input into u vuluution model. Tle benent is tlen discounted to piesent vulue.
This normally requires the expertise of an actuary.
Wleie denned benent pluns uie lunded, tle plun ussets uie meusuied ut luii
value using discounted cash ow estimates if market prices are not available.
Plun ussets uie tigltly denned, und only ussets tlut meet tle dennition ol plun
ussets muy be ollset uguinst tle plun's denned benent obligutions tlut is, tle
net suiplus oi dencit is slown on tle bulunce sleet.
Tle ie-meusuiement ut eucl bulunce sleet dute ol tle plun ussets und tle
denned benent obligution gives iise to uctuuiiul guins und losses. Tleie uie
tliee peimissible metlods undei IAS 19 loi iecognising uctuuiiul guins und
losses:
Undei tle 'otlei compielensive income' (OCI) uppioucl, uctuuiiul guins
and losses are recognised immediately in other comprehensive income.
Undei tle 'coiiidoi uppioucl', uny uctuuiiul guins und losses tlut lull
outside tle liglei ol 10 pei cent ol tle piesent vulue ol tle denned benent
obligation or 10 per cent of the fair value of the plan assets (if any) are
amortised over no more than the remaining working life of the employees.
Undei tle income stutement uppioucl, uctuuiiul guins und losses uie
iecognised immediutely in piont oi loss.
IAS 19 unulyses tle clunges in tle plun ussets und liubilities into vuiious
components, the net total of which is recognised as an expense or income in
the income statement. These components include:
cuiient-seivice cost (tle piesent vulue ol tle benents euined by uctive
employees in the current period);
inteiest cost (tle unwinding ol tle discount on tle denned benent
obligation);
expected ietuin on uny plun ussets (expected inteiest, dividends und
capital growth of plan assets);
uctuuiiul guins und losses, to tle extent tley uie iecognised in tle income
statement (see above); and
pust-seivice costs (tle clunge in tle piesent vulue ol tle plun liubilities
ieluting to employee seivice in piioi peiiods uiising liom clunges to post-
employment benents).
Pust-seivice costs uie iecognised us un expense on u stiuiglt-line busis ovei
tle uveiuge peiiod until tle benents become vested. Il tle benents uie ulieudy
vested, tle pust-seivice cost is iecognised us un expense immediutely. Guins
und losses on tle cuituilment oi settlement ol u denned benent plun uie
iecognised in piont und loss wlen tle cuituilment oi settlement occuis.
Wlen plun ussets exceed tle denned benent obligution cieuting u net suiplus,
IFRIC 14, 'IAS 19 Tle limit on u denned benent usset, minimum lunding
26
requirements and their interaction, provides guidance on assessing the amount
that can be recognised as an asset. It also explains how the pension asset
or liability may be affected by a statutory or contractual minimum funding
requirement.
Tle IASB issued u ievised veision ol IAS 19, 'Employee benents', in June
2011. Tle ievised veision contuins signincunt clunges to tle iecognition und
meusuiement ol denned benent pension expense und teiminution benents,
und to tle disclosuies loi ull employee benents. Tle clunges will ullect most
entities tlut upply IAS 19. Tle umendments could signincuntly clunge u
numbei ol peiloimunce indicutois und miglt ulso signincuntly incieuse tle
volume of disclosures. The new standard is effective for annual periods starting
on oi ultei 1 Junuuiy 2013. Euiliei upplicution is peimitted.
12 Share-based payment IFRS 2
IFRS 2 upplies to ull sluie-bused puyment uiiungements. A sluie-bused
puyment uiiungement is denned us: an agreement between the entity (or
another group entity or any shareholder of any group entity) and another party
(including an employee) that entitles the other party to receive:
(a) cash or other assets of the entity for amounts that are based on the price (or
value) of equity instruments (including shares or share options) of the entity
or another group entity, or
(b) equity instruments (including shares or share options) of the entity or another
group entity.
The most common application is to employee share schemes, such as share
option schemes. However, entities sometimes also pay for other expenses
sucl us piolessionul lees und loi tle puicluse ol ussets by meuns ol sluie-
based payment.
The accounting treatment under IFRS 2 is based on the fair value of the
instiuments. Botl tle vuluution ol und tle uccounting loi uwuids cun be
dilncult, due to tle complex models tlut need to be used to culculute tle luii
value of options, and also due to the variety and complexity of schemes. In
addition, the standard requires extensive disclosures. The result generally is
ieduced iepoited pionts, especiully in entities tlut use sluie-bused puyment
extensively as part of their remuneration strategy.
27
All tiunsuctions involving sluie-bused puyment uie iecognised us expenses oi
assets over any vesting period.
Equity-settled sluie-bused puyment tiunsuctions uie meusuied ut tle giunt
dute luii vulue loi employee seivices; und, loi non-employee tiunsuctions, ut
the fair value of the goods or services received at the date on which the entity
recognises the goods or services. If the fair value of the goods or services
cunnot be estimuted ieliubly sucl us employee seivices und ciicumstunces in
wlicl tle goods oi seivices cunnot be specincully identined tle entity uses
the fair value of the equity instruments granted. Additionally, management
needs to considei il tleie uie uny unidentinuble goods oi seivices ieceived oi
to be received by the entity, as these also have to be recognised and measured
in uccoidunce witl IFRS 2. Equity-settled sluie-bused puyment tiunsuctions
uie not ie-meusuied once tle giunt dute luii vulue lus been deteimined.
Tle tieutment is dilleient loi cusl-settled sluie-bused puyment tiunsuctions:
cusl-settled uwuids uie meusuied ut tle luii vulue ol tle liubility. Tle liubility
is ie-meusuied ut eucl bulunce sleet dute und ut tle dute ol settlement, witl
changes in fair value recognised in the income statement.
13 Taxation IAS 12
IAS 12 only deals with taxes on income, comprising current and deferred
tax. Current tax expense for a period is based on the taxable and deductible
amounts that will be shown on the tax return for the current year. An entity
recognises a liability in the balance sheet in respect of current tax expense for
the current and prior periods to the extent unpaid. It recognises an asset if
current tax has been overpaid.
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be paid to (recovered from) the taxation
authorities, using the tax rates and tax laws that have been enacted or
substantively enacted by the balance sheet date.
Tux puyuble bused on tuxuble piont seldom mutcles tle tux expense tlut
miglt be expected bused on pie-tux uccounting piont. Tle mismutcl cun
occur because IFRS recognition criteria for items of income and expense are
different from the treatment of items under tax law.
28
Deferred tax accounting seeks to deal with this mismatch. It is based on
the temporary differences between the tax base of an asset or liability and
its cuiiying umount in tle nnunciul stutements. Foi exumple, u piopeity is
revalued upwards but not sold, the revaluation creates a temporary difference
(tle cuiiying umount ol tle usset in tle nnunciul stutements is gieutei tlun tle
tax base of the asset), and the tax consequence is a deferred tax liability.
Deferred tax is provided in full for all temporary differences arising between
tle tux buses ol ussets und liubilities und tleii cuiiying umounts in tle nnunciul
statements, except when the temporary difference arises from:
initiul iecognition ol goodwill (loi deleiied tux liubilities only);
initiul iecognition ol un usset oi liubility in u tiunsuction tlut is not u
business combinution und tlut ullects neitlei uccounting piont noi tuxuble
piont; und
investments in subsidiuiies, biuncles, ussociutes und }oint ventuies, but
only where certain criteria apply.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the balance sheet date. The discounting of deferred
tax assets and liabilities is not permitted.
The measurement of deferred tax liabilities and deferred tax assets reects
the tax consequences that would follow from the manner in which the entity
expects, at the balance sheet date, to recover (that is, through use or through
sale or through a combination of both) the carrying amount of its assets
und liubilities. Tle expected munnei ol iecoveiy loi non-depieciuble ussets
measured using the revaluation model in IAS 16 is always through sale; there is
a rebuttable presumption that the expected manner of recovery for investment
property that is measured using the fair value model in IAS 40 is through sale.
Management only recognises a deferred tax asset for deductible temporary
dilleiences to tle extent tlut it is piobuble tlut tuxuble piont will be uvuiluble
against which the deductible temporary difference can be utilised. This also
applies to deferred tax assets for unused tax losses carried forward.
Cuiient und deleiied tux is iecognised in piont oi loss loi tle peiiod, unless
the tax arises from a business combination or a transaction or event that is
iecognised outside piont oi loss, eitlei in otlei compielensive income oi
29
directly in equity in the same or different period. The tax consequences that
accompany, for example, a change in tax rates or tax laws, a reassessment of
the recoverability of deferred tax assets or a change in the expected manner of
iecoveiy ol un usset uie iecognised in piont oi loss, except to tle extent tlut
tley ielute to items pieviously cluiged oi ciedited outside piont oi loss.
14 Earnings per share IAS 33
Euinings pei sluie (EPS) is u iutio tlut is widely used by nnunciul unulysts,
investois und otleis to guuge un entity's piontubility und to vulue its sluies.
EPS is normally calculated in the context of ordinary shares of the entity.
Earnings attributable to ordinary shareholders are therefore determined by
deducting from net income the earnings attributable to holders of more senior
equity instruments.
An entity whose ordinary shares are listed on a recognised stock exchange or
are otherwise publicly traded is required to disclose both basic and diluted
EPS witl equul piominence in its sepuiute oi individuul nnunciul stutements,
oi in its consoliduted nnunciul stutements il it is u puient. Fuitleimoie,
entities tlut nle oi uie in tle piocess ol nling nnunciul stutements witl u
securities commission or other regulatory body for the purposes of issuing
ordinary shares (that is, not a private placement) are also required to comply
with IAS 33.
Busic EPS is culculuted by dividing tle piont oi loss loi tle peiiod uttiibutuble
to the equity holders of the parent by the weighted average number of
oidinuiy sluies outstunding (including ud}ustments loi bonus und iiglts
issues).
Diluted EPS is culculuted by ud}usting tle piont oi loss und tle weiglted
average number of ordinary shares by taking into account the conversion of
any dilutive potential ordinary shares. Potential ordinary shares are those
nnunciul instiuments und contiucts tlut muy iesult in issuing oidinuiy sluies
such as convertible bonds and options (including employee share options).
Busic und diluted EPS loi botl continuing und totul opeiutions uie piesented
witl equul piominence in tle stutement ol compielensive income oi in tle
sepuiute income stutement wleie one is piesented loi eucl cluss ol oidinuiy
sluies. Sepuiute EPS nguies loi discontinued opeiutions uie disclosed in tle
same statements or in the notes.
Bulunce sleet und ieluted notes
30
Balance sheet and related notes
15 Intangible assets IAS 38
An intungible usset is un identinuble non-monetuiy usset witlout plysicul
substunce. Tle identinuble ciiteiion is met wlen tle intungible usset is
separable (that is, when it can be sold, transferred or licensed) or where it
arises from contractual or other legal rights.
Separately acquired intangible assets
Separately acquired intangible assets are recognised initially at cost. Cost
compiises tle puicluse piice, including impoit duties und non-ielunduble
purchase taxes, and any directly attributable costs of preparing the asset for
its intended use. The purchase price of a separately acquired intangible asset
incoipoiutes ussumptions ubout tle piobuble economic lutuie benents tlut
may be generated by the asset.
Internally generated intangible assets
The process of generating an intangible asset is divided into a research phase
and a development phase. No intangible assets arising from the research
phase may be recognised. Intangible assets arising from the development
phase are recognised when the entity can demonstrate:
its teclnicul leusibility;
its intention to complete tle developments;
its ubility to use oi sell tle intungible usset;
low tle intungible usset will geneiute piobuble lutuie economic benents
(for example, the existence of a market for the output of the intangible
asset or for the intangible asset itself);
tle uvuilubility ol iesouices to complete tle development; und
its ubility to meusuie tle uttiibutuble expendituie ieliubly.
Any expenditure written off during the research or development phase
cunnot be cupitulised il tle pio}ect meets tle ciiteiiu loi iecognition ut u lutei
date. The costs relating to many internally generated intangible items cannot
be cupitulised und uie expensed us incuiied. Tlis includes ieseuicl, stuit-up
and advertising costs. Expenditure on internally generated brands, mastheads,
customer lists, publishing titles and goodwill are not recognised as intangible
assets.
31
Intangible assets acquired in a business combination
If an intangible asset is acquired in a business combination, both the probability
and measurement criterion are always considered to be met. An intangible asset
will therefore always be recognised, regardless of whether it has been previously
iecognised in tle ucquiiee's nnunciul stutements.
Subsequent measurement
Intungible ussets uie umoitised unless tley luve un indennite uselul lile.
Amortisation is carried out on a systematic basis over the useful life of the
intungible usset. An intungible usset lus un indennite uselul lile wlen, bused on
an analysis of all the relevant factors, there is no foreseeable limit to the period
over which the asset is expected to generate net cash inows for the entity.
Intungible ussets witl nnite uselul lives uie consideied loi impuiiment wlen
there is an indication that the asset has been impaired. Intangible assets with
indennite uselul lives und intungible ussets not yet in use uie tested unnuully
for impairment and whenever there is an indication of impairment.
16 Property, plant and equipment IAS 16
Property, plant and equipment (PPE) is recognised when the cost of an asset
can be reliably measured and it is probable that the entity will obtain future
economic benents liom tle usset.
PPE is measured initially at cost. Cost includes the fair value of the
consideration given to acquire the asset (net of discounts and rebates) and
any directly attributable cost of bringing the asset to working condition for its
intended use (inclusive ol impoit duties und non-ielunduble puicluse tuxes).
Directly attributable costs include the cost of site preparation, delivery,
installation costs, relevant professional fees and the estimated cost of
dismantling and removing the asset and restoring the site (to the extent that
such a cost is recognised as a provision). Classes of PPE are carried at historical
cost less accumulated depreciation and any accumulated impairment losses
(the cost model), or at a revalued amount less any accumulated depreciation
and subsequent accumulated impairment losses (the revaluation model). The
depreciable amount of PPE (being the gross carrying value less the estimated
residual value) is depreciated on a systematic basis over its useful life.
32
Subsequent expenditure relating to an item of PPE is capitalised if it meets the
recognition criteria.
PPE may comprise parts with different useful lives. Depreciation is calculated
based on each individual parts life. In case of replacement of one part, the
new part is capitalised to the extent that it meets the recognition criteria of an
asset, and the carrying amount of the parts replaced is derecognised.
Tle cost ol u mu}oi inspection oi oveiluul ol un item occuiiing ut iegului
intervals over the useful life of the item is capitalised to the extent that it
meets the recognition criteria of an asset. The carrying amounts of the parts
replaced are derecognised.
IFRIC 18 cluiines tle uccounting loi uiiungements wleie un item ol PPE tlut
is provided by the customer is used to provide an ongoing service.
Borrowing costs
Under IAS 23, costs are directly attributable to the acquisition, construction or
production of a qualifying asset to be capitalised.
17 Investment property IAS 40
Ceituin piopeities uie clussined us investment piopeities loi nnunciul iepoiting
purposes in accordance with IAS 40 as the characteristics of these properties
dillei signincuntly liom ownei-occupied piopeities. It is tle cuiient vulue
of such properties and changes to those values that are relevant to users of
nnunciul stutements.
Investment property is property (land or a building, or part of a building or
both) held by an entity to earn rentals and/or for capital appreciation. This
category includes such property in the course of construction or development.
Any other properties are accounted for as property, plant and equipment (PPE)
in accordance with:
IAS 16 il tley uie leld loi use in tle pioduction oi supply ol goods oi
services; or
IAS 2 us inventoiy, il tley uie leld loi sule in tle oidinuiy couise ol
business. Ownei-occupied piopeity does not meet tle dennition ol
investment property.
33
Initial measurement of an investment property is the fair value of its purchase
consideration plus any directly attributable costs. Subsequent to initial
measurement, management may choose as its accounting policy either to
carry investment properties at fair value or at cost. The policy chosen is
applied consistently to all the investment properties that the entity owns.
If the fair value option is chosen, investment properties in the course of
construction or development are measured at fair value if this can be reliably
measured; otherwise, they are measured at cost.
Under IAS 40, fair value is the price at which the property could be
exchanged between knowledgeable, willing parties in an arms length
transaction. Under IFRS 13, which is effective from annual periods beginning
on oi ultei 1 Junuuiy 2013, luii vulue is denned us 'tle piice tlut would be
received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Changes in fair value
uie iecognised in piont oi loss in tle peiiod in wlicl tley uiise.
The cost model requires investment properties to be carried at cost less
accumulated depreciation and any accumulated impairment losses consistent
with the treatment of PPE; the fair values of these properties is disclosed in the
notes.
18 Impairment of assets IAS 36
Neuily ull ussets cuiient und non-cuiient uie sub}ect to un impuiiment
test to ensure that they are not overstated on balance sheets.
The basic principle of impairment is that an asset may not be carried on the
bulunce sleet ut ubove its iecoveiuble umount. Recoveiuble umount is denned
as the higher of the assets fair value less costs to sell and its value in use. Fair
value less costs to sell is the amount obtainable from a sale of an asset in an
arms length transaction between knowledgeable, willing parties, less costs
of disposal. Value in use requires management to estimate the future cash
ows to be deiived liom tle usset und discount tlem using u pie-tux muiket
rate that reects current assessments of the time value of money and the risks
specinc to tle usset.
All ussets sub}ect to tle impuiiment guidunce uie tested loi impuiiment wleie
there is an indication that the asset may be impaired. Certain assets (goodwill,
34
indennite lived intungible ussets und intungible ussets tlut uie not yet
available for use) are also tested for impairment annually even if there is no
impairment indicator.
Wlen consideiing wletlei un usset is impuiied, botl exteinul indicutois (loi
exumple, signincunt udveise clunges in tle teclnologicul, muiket, economic
or legal environment or increases in market interest rates) and internal
indicators (for example, evidence of obsolescence or physical damage of an
asset or evidence from internal reporting that the economic performance of an
asset is, or will be, worse than expected) are considered.
Recoverable amount is calculated at the individual asset level. However, an
asset seldom generates cash ows independently of other assets, and most
ussets uie tested loi impuiiment in gioups ol ussets desciibed us cusl-
geneiuting units (CGUs). A CGU is tle smullest identinuble gioup ol ussets
that generates inows that are largely independent from the cash ows from
other CGUs.
The carrying value of an asset is compared to the recoverable amount (being
the higher of value in use or fair value less costs to sell). An asset or CGU
is impaired when its carrying amount exceeds its recoverable amount. Any
impairment is allocated to the asset or assets of the CGU, with the impairment
loss iecognised in piont oi loss.
Goodwill acquired in a business combination is allocated to the acquirers
CGUs oi gioups ol CGUs tlut uie expected to benent liom tle syneigies ol
the business combination. However, the largest group of CGUs permitted for
goodwill impairment testing is the lowest level of operating segment before
aggregation.
19 Lease accounting IAS 17
A lease gives one party (the lessee) the right to use an asset over an agreed
peiiod ol time in ietuin loi puyment to tle lessoi. Leusing is un impoitunt
souice ol medium- und long-teim nnuncing; uccounting loi leuses cun luve u
signincunt impuct on lessees' und lessois' nnunciul stutements.
Leuses uie clussined us nnunce oi opeiuting leuses ut inception, depending on
whether substantially all the risks and rewards of ownership transfer to the
lessee. Undei u nnunce leuse, tle lessee lus substuntiully ull ol tle iisks und
35
iewuid ol owneislip. All otlei leuses uie opeiuting leuses. Leuses ol lund und
buildings are considered separately under IFRS.
Undei u nnunce leuse, tle lessee iecognises un usset leld undei u nnunce leuse
and a corresponding obligation to pay rentals. The lessee depreciates
the asset.
The lessor recognises the leased asset as a receivable. The receivable is
meusuied ut tle 'net investment' in tle leuse tle minimum leuse puyments
receivable, discounted at the internal rate of return of the lease, plus the
unguaranteed residual which accrues to the lessor.
Under an operating lease, the lessee does not recognise an asset and lease
obligation. The lessor continues to recognise the leased asset and depreciates
it. The rentals paid are normally charged to the income statement of the lessee
und ciedited to tlut ol tle lessoi on u stiuiglt-line busis.
Linked tiunsuctions witl tle legul loim ol u leuse uie uccounted loi on tle
busis ol tleii substunce loi exumple, u sule und leusebuck wleie tle sellei
is committed to repurchase the asset may not be a lease in substance if the
seller retains the risks and rewards of ownership and substantially the same
rights of use as before the transaction.
Equally, some transactions that do not have the legal form of a lease are in
substance leases if they are dependent on a particular asset that the purchaser
can control physically or economically.
20 Inventories IAS 2
Inventories are initially recognised at cost. Inventory costs include import
duties, non-ielunduble tuxes, tiunspoit und lundling costs, und uny otlei
directly attributable costs less trade discounts, rebates and similar items.
Inventories are valued at the lower of cost and net realisable value (NRV).
NRV is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and estimated selling expenses.
IAS 2, Inventories, requires the cost of items that are not interchangeable
oi tlut luve been segieguted loi specinc contiucts to be deteimined on un
individuul-item busis. Tle cost ol otlei items ol inventoiy used is ussigned
36
by using eitlei tle nist-in, nist-out (FIFO) oi weiglted uveiuge cost loimulu.
Lust-in, nist-out (LIFO) is not peimitted. An entity uses tle sume cost loimulu
for all inventories that have a similar nature and use to the entity. A different
cost loimulu muy be }ustined wleie inventoiies luve u dilleient nutuie oi use.
The cost formula used is applied on a consistent basis from period to period.
21 Provisions and contingencies IAS 37
A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outow from the entity of
iesouices embodying economic benents'. A piovision lulls witlin tle cutegoiy
ol liubilities und is denned us 'u liubility ol unceituin timing oi umount'
Recognition and initial measurement
A provision is recognised when: the entity has a present obligation to transfer
economic benents us u iesult ol pust events; it is piobuble (moie likely tlun
not) that such a transfer will be required to settle the obligation; and a reliable
estimate of the amount of the obligation can be made.
The amount recognised as a provision is the best estimate of the expenditure
required to settle the obligation at the balance sheet date, measured at the
expected cash ows discounted for the time value of money. Provisions are not
recognised for future operating losses.
A present obligation arises from an obligating event and may take the form
of either a legal obligation or a constructive obligation. An obligating event
leaves the entity no realistic alternative to settling the obligation. If the
entity can avoid the future expenditure by its future actions, it has no present
obligation, and no provision is required. For example, an entity cannot
recognise a provision based solely on the intent to incur expenditure at some
future date or the expectation of future operating losses (unless these losses
relate to an onerous contract).
An obligation does not generally have to take the form of a legal obligation
before a provision is recognised. An entity may have an established pattern
of past practice that indicates to other parties that it will accept certain
responsibilities and as a result has created a valid expectation on the part of
those other parties that it will discharge those responsibilities (that is, the
entity is under a constructive obligation).
37
If an entity has an onerous contract (the unavoidable costs of meeting the
obligutions undei tle contiuct exceed tle economic benents expected to be
received under it), the present obligation under the contract is recognised as a
provision. Impairments of any assets dedicated to the contract are recognised
before making a provision.
Restructuring provisions
Tleie uie specinc iequiiements loi iestiuctuiing piovisions. A piovision is
recognised when there is: (a) a detailed formal plan identifying the main
features of the restructuring; and (b) a valid expectation in those affected that
the entity will carry out the restructuring by starting to implement the plan or
by announcing its main features to those affected.
A restructuring plan does not create a present obligation at the balance
sheet date if it is announced after that date, even if it is announced before
tle nnunciul stutements uie uppioved. No obligution uiises loi tle sule ol un
operation until the entity is committed to the sale (that is, there is a binding
sale agreement).
The provision includes only incremental costs resulting from the restructuring
and not those associated with the entitys ongoing activities. Any expected
gains on the sale of assets are not considered in measuring a restructuring
provision.
Reimbursements
An obligation and any anticipated recovery are presented separately as a
liability and an asset respectively; however, an asset can only be recognised
if it is virtually certain that settlement of the obligation will result in a
reimbursement, and the amount recognised for the reimbursement should
not exceed the amount of the provision. The amount of any expected
reimbursement is disclosed. Net presentation is permitted only in the
income statement.
Subsequent measurement
Management performs an exercise at each balance sheet date to identify the
best estimate of the discounted expenditure required to settle the present
obligation at the balance sheet date. The increase in provision due to the
passage of time (that is, as a consequence of the discount rate) is recognised
as interest expense.
38
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be
connimed only on tle occuiience oi non-occuiience ol unceituin lutuie
events outside the entitys control, or present obligations that are not
iecognised becuuse: (u) it is not piobuble tlut un outow ol economic benents
will be required to settle the obligation; or (b) the amount cannot
be measured reliably.
Contingent liabilities are not recognised but are disclosed and described in
tle notes to tle nnunciul stutements, including un estimute ol tleii potentiul
nnunciul ellect und unceituinties ieluting to tle umount oi timing ol uny
outow, unless the possibility of settlement is remote.
Contingent assets
Contingent ussets uie possible ussets wlose existence will be connimed only
on tle occuiience oi non-occuiience ol unceituin lutuie events outside tle
entity's contiol. Contingent ussets uie not iecognised. Wlen tle ieulisution
of income is virtually certain, the related asset is not a contingent asset; it is
recognised as an asset.
Contingent ussets uie disclosed und desciibed in tle notes to tle nnunciul
stutements, including un estimute ol tleii potentiul nnunciul ellect il tle
inow ol economic benents is piobuble.
22 Events after the reporting period and nancial
commitments IAS 10
It is not geneiully piucticuble loi piepuieis to nnulise nnunciul stutements
without a period of time elapsing between the balance sheet date and the
dute on wlicl tle nnunciul stutements uie uutloiised loi issue. Tle question
therefore arises as to the extent to which events occurring between the
balance sheet date and the date of approval (that is, events after the
iepoiting peiiod') slould be ieected in tle nnunciul stutements.
Events ultei tle iepoiting peiiod uie eitlei ud}usting events oi non-ud}usting
events. Ad}usting events piovide luitlei evidence ol conditions tlut existed
ut tle bulunce sleet dute loi exumple, deteimining ultei tle yeui end
tle consideiution loi ussets sold beloie tle yeui end. Non-ud}usting events
39
ielute to conditions tlut uiose ultei tle bulunce sleet dute loi exumple,
announcing a plan to discontinue an operation after the year end.
The carrying amounts of assets and liabilities at the balance sheet date are
ud}usted only loi ud}usting events oi events tlut indicute tlut tle going-
concern assumption in relation to the whole entity is not appropriate.
Signincunt non-ud}usting post-bulunce-sleet events, sucl us tle issue ol
sluies oi mu}oi business combinutions, uie disclosed.
Dividends proposed or declared after the balance sheet date but before
tle nnunciul stutements luve been uutloiised loi issue uie not iecognised
as a liability at the balance sheet date. However, details of these dividends
are disclosed.
An entity discloses tle dute on wlicl tle nnunciul stutements weie uutloiised
for issue and the persons authorising the issue and, where necessary, the
luct tlut tle owneis oi otlei peisons luve tle ubility to umend tle nnunciul
statements after issue.
23 Share capital and reserves
Equity, along with assets and liabilities, is one of the three elements used
to poitiuy un entity's nnunciul position. Equity is denned in tle IASB's
Framework as the residual interest in the entitys assets after deducting all
its liabilities. The term equity is often used to encompass an entitys equity
instiuments und ieseives. Equity is given vuiious desciiptions in tle nnunciul
statements. Corporate entities may refer to it as owners equity, shareholders
equity, capital and reserves, shareholders funds and proprietorship. Equity
includes various components with different characteristics.
Determining what constitutes an equity instrument for the purpose of IFRS
und low it slould be uccounted loi lulls witlin tle scope ol tle nnunciul
instrument standard IAS 32.
Different classes of share capital may be treated as either debt or equity,
or a compound instrument with both debt and equity components. Equity
instiuments (loi exumple, issued, non-iedeemuble oidinuiy sluies) uie
generally recorded at the proceeds of issue net of transaction costs. Equity
instiuments uie not ie-meusuied ultei initiul iecognition.
40
Reserves include retained earnings, together with fair value reserves, hedging
reserves, asset revaluation reserves and foreign currency translation reserves
and other statutory reserves.
Treasury shares
Treasury shares are deducted from equity. No gain or loss is recognised in
piont oi loss on tle puicluse, sule, issue oi cuncellution ol un entity's own
equity instruments.
Non-controlling interests
Non-contiolling inteiests (pieviously teimed 'minoiity inteiests') in
consoliduted nnunciul stutements uie piesented us u component ol equity,
separately from the parent shareholders equity.
Disclosures
IAS 1, 'Piesentution ol nnunciul stutements', iequiies vuiious disclosuies. Tlese
include the total issued share capital and reserves, presentation of a statement
of changes in equity, capital management policies and dividend information.
Consoliduted und sepuiute nnunciul stutements
41
Consolidated and separate nancial statements
24 Consolidated and separate nancial statements IAS 27
IAS 27 iequiies consoliduted nnunciul stutements to be piepuied in
iespect ol u gioup, sub}ect to ceituin exceptions. All subsidiuiies slould
be consolidated. A subsidiary is an entity that is controlled by the parent.
Contiol is tle powei to govein tle nnunciul und opeiuting policies ol un
entity so us to obtuin benents liom its uctivities.
It is presumed to exist when the investor directly or indirectly holds more
than 50 per cent of the investees voting power; this presumption may be
rebutted if there is clear evidence to the contrary. Control may also exist
where less than 50 per cent of the investees voting power is held and the
parent has the power to control through, for example, control of the board
of directors.
Consolidation of a subsidiary takes place from the date of acquisition; this
is the date on which control of the acquirees net assets and operations is
ellectively tiunsleiied to tle ucquiiei. A consoliduted nnunciul stutement is
prepared to show the effect as if the parent and all the subsidiaries were one
entity. Transactions within the group (for example, sales from one subsidiary
to another) are eliminated.
An entity with one or more subsidiaries (a parent) presents consolidated
nnunciul stutements, unless ull tle lollowing conditions uie met:
It is itsell u subsidiuiy (sub}ect to no ob}ection liom uny sluieloldei).
Its debt oi equity uie not publicly tiuded.
It is not in tle piocess ol issuing secuiities to tle public.
Tle ultimute oi inteimediute puient ol tle entity publisles IFRS
consoliduted nnunciul stutements.
There are no exemptions if the group is small or if certain subsidiaries are in
a different line of business.
From the date of acquisition, the parent (the acquirer) incorporates into the
consoliduted stutement ol compielensive income tle nnunciul peiloimunce
of the acquiree and recognises in the consolidated balance sheet the
acquired assets and liabilities (at fair value), including any goodwill arising
on tle ucquisition (see Section 2S, 'Business combinutions IFRS 3').
42
In tle sepuiute nnunciul stutements ol u puient entity, tle investments in
subsidiuiies, }ointly contiolled entities und ussociutes slould be cuiiied ut cost
oi us nnunciul ussets in uccoidunce witl IAS 39.
A parent entity recognises dividends received from its subsidiary as income in
its sepuiute nnunciul stutements wlen it lus u iiglt to ieceive tle dividend.
Tleie is no need to ussess wletlei tle dividend wus puid out ol pie- oi
post-ucquisition pionts ol tle subsidiuiy. Tle ieceipt ol u dividend liom u
subsidiary may be an internal indicator that the related investment could be
impaired.
Fiist-time udopteis uie uble to meusuie tleii initiul cost ol investments in
subsidiuiies, }ointly contiolled entities und ussociutes in tle sepuiute nnunciul
statements at deemed cost. Deemed cost is either fair value at the date of
transition to IFRS or the carrying amount under previous
accounting practice.
Consolidation of special purpose entities
A special purpose entity (SPE) is an entity created to accomplish a narrow,
well-denned ob}ective. It muy opeiute in u pie-deteimined wuy so tlut no
otlei puity lus explicit decision-muking uutloiity ovei its uctivities ultei
formation. An entity should consolidate an SPE when the substance of
the relationship between the entity and the SPE indicates that the SPE is
contiolled by tle entity. Contiol muy uiise ut tle outset tliougl tle pie-
determination of the activities of the SPE or otherwise. An entity may be
deemed to contiol un SPE il it is exposed to tle mu}oiity ol iisks und iewuids
incidental to its activities or its assets.
24A Consolidated nancial statements IFRS 10
New piinciples conceining consoliduted nnunciul stutements uie set out in
IFRS 10, wlicl wus issued by tle IASB in Muy 2011. IFRS 10 is tle mu}oi
output ol tle IASB's consolidution pio}ect, iesulting in u single dennition ol
control. It supersedes the principles of control and consolidation in current
IAS 27 und SIC-12.
At tle sume time, tle IASB publisled IFRS 11, IFRS 12, IAS 27 (ievised) und
IAS 28 (ievised).
43
IFRS 10's ob}ective is to estublisl piinciples loi piesenting und piepuiing
consoliduted nnunciul stutements wlen un entity contiols one oi moie
entities. IFRS 10 sets out the requirements for when an entity should
piepuie consoliduted nnunciul stutements, dennes tle piinciples ol contiol,
explains how to apply the principles of control and explains the accounting
iequiiements loi piepuiing consoliduted nnunciul stutements.
The key principle in the new standard is that control exists, and consolidation
is required only if the investor possesses power over the investee, has exposure
to variable returns from its involvement with the investee and has the ability
to use its power over the investee to affect its returns.
Undei cuiient IAS 27, contiol is deteimined tliougl tle powei to govein un
entity; undei SIC-12 it is tliougl tle level ol exposuie to iisks und iewuids.
IFRS 10 biings tlese two concepts togetlei witl u new dennition ol contiol
and the concept of exposure to variable returns. The core principle that a
consolidated entity presents a parent and its subsidiaries as if they are a single
economic entity remains unchanged, as do the mechanics of consolidation.
IFRS 10 provides guidance on the following issues when determining who has
control:
ussessment ol tle puipose und design ol un investee;
nutuie ol iiglts wletlei substuntive oi meiely piotective in nutuie;
impuct ol exposuie to vuiiuble ietuins;
ussessment ol voting iiglts und potentiul voting iiglts;
wletlei un investoi is u piincipul oi un ugent wlen exeicising its
controlling power;
ielutionslips between investois und low tley ullect contiol; und
existence ol powei ovei specined ussets only.
The new standard will affect some entities more than others. The
consolidation conclusion is not expected to change for most straightforward
entities. However, changes can result where there are complex group
structures or where structured entities are involved in a transaction. Entities
that are most likely to be affected potentially include investors in the
following entities:
entities witl u dominunt investoi tlut does not possess u mu}oiity
voting inteiest, wleie tle iemuining votes uie leld by widely-dispeised
shareholders (de facto control);
44
stiuctuied entities, ulso known us speciul puipose entities;
entities tlut issue oi lold signincunt potentiul voting iiglts; und
usset munugement entities.
In dilncult situutions, tle piecise lucts und ciicumstunces will ullect
the analysis under IFRS 10. IFRS 10 does not provide bright lines and
requires consideration of many factors, such as the existence of contractual
arrangements and rights held by other parties, in order to assess control.
The new standard is available for early adoption, with mandatory application
iequiied liom 1 Junuuiy 2013. Tle stunduid still lus to be endoised by tle
EU for use by European companies.
IFRS 10 does not contain any disclosure requirements; these are included
within IFRS 12. IFRS 12 has greatly increased the amount of disclosures
required. Reporting entities should plan for, and implement, the processes
and controls that will be required to gather the additional information. This
may involve a preliminary consideration of IFRS 12 issues, such as the level
of disaggregation required.
Tle IASB is continuing to woik on u pio}ect tlut pioposes clunges to low
investment entities account for entities they control. It issued an exposure
draft of its proposals in September 2011.
25 Business combinations IFRS 3
A business combination is a transaction or event in which an acquirer obtains
contiol ol one oi moie businesses ('ucquiiee(s)'). Contiol is denned in
IAS 27 us tle powei to govein tle nnunciul und opeiuting policies ol un entity
oi business so us to obtuin benents liom its uctivities. (Undei IFRS 10, un
investor controls an investee when the investor is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee.) A number of factors
may inuence which entity has control, including equity shareholding, control
of the board and control agreements. There is a presumption of control if an
entity owns more than 50% of the equity shareholding in another entity.
45
Business combinutions occui in u vuiiety ol stiuctuies. IFRS 3 locuses on tle
substance of the transaction, rather than the legal form. The overall result
of a series of transactions is considered if there are a number of transactions
among the parties involved. For example, any transaction contingent on the
completion ol unotlei tiunsuction muy be consideied linked. Judgement is
required to determine when transactions should be linked.
All business combinations, excluding those involving businesses under
common control, are accounted for using the acquisition method. The
acquisition method can be summarised in the following steps:
Identily tle ucquiiei.
Deteimine tle ucquisition dute.
Recognise und meusuie tle identinuble ussets ucquiied, liubilities ussumed
und uny non-contiolling inteiest in tle ucquiiee.
Recognise und meusuie tle consideiution tiunsleiied loi tle ucquiiee.
Recognise und meusuie goodwill oi u guin liom u buiguin puicluse.
The acquisition method looks at a business combination from the perspective
ol tle ucquiiei tlut is, tle entity tlut obtuins contiol ovei unotlei
business. It nist involves identilying tle ucquiiei. Tle ucquiiei meusuies
the consideration, fair value of assets and liabilities acquired, goodwill and
uny non-contiolling inteiests us ol tle ucquisition dute (tle dute on wlicl it
obtains control over the net assets of the acquiree).
Tle ucquiiee's identinuble ussets (including intungible ussets not pieviously
recognised), liabilities and contingent liabilities are generally recognised
at their fair value. Fair value is determined by reference to an arms length
transaction; the intention of the acquirer is not relevant. If the acquisition
is loi less tlun 100% ol tle ucquiiee, tleie is u non-contiolling inteiest.
Tle non-contiolling inteiest iepiesents tle equity in u subsidiuiy tlut is
not attributable, directly or indirectly to the parent. The parent can elect to
meusuie tle non-contiolling inteiest ut its luii vulue oi ut its piopoitionute
sluie ol tle identinuble net ussets.
The consideration for the combination includes cash and cash equivalents and
tle luii vulue ol uny non-cusl consideiution given. Any equity instiuments
issued as part of the consideration are fair valued. If any of the consideration
is deferred, it is discounted to reect its present value at the acquisition date,
if the effect of discounting is material. Consideration includes only those
46
amounts paid to the seller in exchange for control of the entity. Consideration
excludes umounts puid to settle pie-existing ielutionslips, puyments tlut uie
contingent on lutuie employee seivices und ucquisition-ieluted costs.
A portion of the consideration may be contingent on the outcome of future
events or the acquired entitys performance (contingent consideration).
Contingent consideration is also recognised at its fair value at the date of
acquisition. The accounting for contingent consideration after the date of
ucquisition depends on wletlei it is clussined us u liubility (to be
ie-meusuied to luii vulue eucl iepoiting peiiod tliougl piont und loss) oi
equity (no ie-meusuiement), using tle guidunce in IAS 32.
Goodwill is iecognised loi tle lutuie economic benents uiising liom ussets
ucquiied tlut uie not individuully identined und sepuiutely iecognised.
Goodwill is the difference between the consideration transferred, the amount
ol uny non-contiolling inteiest in tle ucquiiee und tle ucquisition-dute luii
value of any previous equity interest in the acquiree over the fair value of the
identinuble net ussets ucquiied. Il tle non-contiolling inteiest is meusuied ut
its luii vulue, goodwill includes umounts uttiibutuble to tle non-contiolling
inteiest. Il tle non-contiolling inteiest is meusuied ut its piopoitionute sluie
ol identinuble net ussets, goodwill includes only umounts uttiibutuble to tle
contiolling inteiest tlut is, tle puient.
Goodwill is recognised as an asset and tested annually for impairment, or
more frequently if there is an indication of impairment.
In iuie situutions loi exumple, u buiguin puicluse us u iesult ol u distiessed
sule it is possible tlut no goodwill will iesult liom tle tiunsuction. Rutlei, u
gain will be recognised.
26 Disposal of subsidiaries, businesses and non-current assets
IFRS 5
IFRS S is ielevunt wlen uny disposul occuis oi is plunned. Tle leld-loi-sule
ciiteiiu in IFRS S upply to non-cuiient ussets (oi disposul gioups) wlose vulue
will be recovered principally through sale rather than through continuing use.
The criteria do not apply to assets that are being scrapped, wound down
or abandoned.
47
IFRS S dennes u disposul gioup us u gioup ol ussets to be disposed ol, by sule
or otherwise, together as a group in a single transaction, and liabilities directly
associated with those assets that will be transferred in the transaction.
Tle non-cuiient usset (oi disposul gioup) is clussined us 'leld loi sule' il it is
available for its immediate sale in its present condition and its sale is highly
probable. A sale is highly probable where: there is evidence of management
commitment; there is an active programme to locate a buyer and complete
the plan; the asset is actively marketed for sale at a reasonable price
compared to its fair value; the sale is expected to be completed within
12 montls ol tle dute ol clussincution; und uctions iequiied to complete tle
plun indicute tlut it is unlikely tlut tleie will be signincunt clunges to tle
plan or that it will be withdrawn.
Non-cuiient ussets (oi disposul gioups) clussined us leld loi sule uie:
cuiiied ut tle lowei ol tle cuiiying umount und luii vulue less costs to sell;
not depieciuted oi umoitised; und
piesented sepuiutely in tle bulunce sleet (ussets und liubilities slould not
be offset).
A discontinued operation is a component of an entity that can be
distinguisled opeiutionully und nnunciully loi nnunciul iepoiting puiposes
from the rest of the entity and:
iepiesents u sepuiute mu}oi line ol business oi mu}oi geogiuplicul uieu ol
operation;
is puit ol u single co-oidinuted plun to dispose ol u sepuiute mu}oi line ol
business or geographical area of operation; or
is u subsidiuiy ucquiied exclusively witl u view loi iesule.
An opeiution is clussined us discontinued only ut tle dute on wlicl tle
opeiution meets tle ciiteiiu to be clussined us leld loi sule oi wlen tle
entity has disposed of the operation. Although balance sheet information is
neither restated nor remeasured for discontinued operations, the statement
of comprehensive income information does have to be restated for the
comparative period.
Discontinued operations are presented separately in the income statement
and the cash ow statement. There are additional disclosure requirements in
relation to discontinued operations.
48
The date of disposal of a subsidiary or disposal group is the date on which
control passes. The consolidated income statement includes the results of
a subsidiary or disposal group up to the date of disposal; the gain or loss
on disposal is the difference between (a) the carrying amount of the net
assets plus any attributable goodwill and amounts accumulated in other
compielensive income (loi exumple, loieign tiunslution ud}ustments und
uvuiluble-loi-sule ieseives); und (b) tle pioceeds ol sule.
27 Equity accounting IAS 28
An ussociute is un entity in wlicl tle investoi lus signincunt inuence, but
wlicl is neitlei u subsidiuiy noi u }oint ventuie ol tle investoi. Signincunt
inuence is tle powei to puiticipute in tle nnunciul und opeiuting policy
decisions of the investee, but not to control those policies. It is presumed to
exist when the investor holds at least 20% of the investees voting power. It is
presumed not to exist when less than 20% is held. These presumptions may be
rebutted.
Associates are accounted for using the equity method unless they meet the
ciiteiiu to be clussined us 'leld loi sule' undei IFRS S. Undei tle equity
method, the investment in the associate is initially carried at cost. It is
incieused oi decieused to iecognise tle investoi's sluie ol tle piont oi loss
of the associate after the date of acquisition.
Investments in ussociutes uie clussined us non-cuiient ussets und piesented us
one line item in the balance sheet (inclusive of notional goodwill arising on
acquisition). Investments in associates are tested for impairment in
accordance with IAS 36, Impairment of assets, as single assets if there are
impuiiment indicutois undei IAS 39.
If an investors share of its associates losses exceeds the carrying amount
of the investment, the carrying amount of the investment is reduced to nil.
Recognition of further losses are discontinued, unless the investor has an
obligation to fund the associate or the investor has guaranteed to support
the associate.
49
In tle sepuiute (non-consoliduted) nnunciul stutements ol tle investoi,
tle investments in ussociutes uie cuiiied ut cost oi us nnunciul ussets in
uccoidunce witl IAS 39.
IAS 28 lus been umended und now includes tle iequiiements loi }oint
ventures, as well as associates, to be equity accounted.
28 Interests in joint ventures IAS 31
A }oint ventuie is u contiuctuul uiiungement wleieby two oi moie puities
(tle ventuieis) undeituke un economic uctivity tlut is sub}ect to }oint contiol.
Joint contiol is denned us tle contiuctuully ugieed sluiing ol contiol ol un
economic activity.
Joint ventuies lull into tliee cutegoiies: }ointly contiolled entities, }ointly
contiolled opeiutions und }ointly contiolled ussets. Tle uccounting tieutment
depends on tle type ol }oint ventuie.
A }ointly contiolled entity involves tle estublislment ol u sepuiute entity,
wlicl muy be, loi exumple, u coipoiution oi puitneislip. Jointly contiolled
entities are accounted for under IAS 31 using either proportionate
consolidution oi equity uccounting. SIC-13 uddiesses non-monetuiy
contiibutions to u }ointly contiolled entity in exclunge loi un equity inteiest.
Jointly contiolled opeiutions und }ointly contiolled ussets do not involve tle
cieution ol un entity tlut is sepuiute liom tle ventuieis tlemselves. In u }oint
operation, each venturer uses its own resources and carries out its own part
ol u }oint opeiution sepuiutely liom tle uctivities ol tle otlei ventuiei(s).
Eucl ventuiei owns und contiols its own iesouices tlut it uses in tle }oint
opeiution. Jointly contiolled ussets involve tle }oint owneislip ol one oi
more assets.
Wleie un entity lus un inteiest in }ointly contiolled opeiutions oi }ointly
controlled assets, it accounts for its share of the assets, liabilities, income
and expenses and cash ows under the arrangement using the proportionate
consolidation method or the equity method.
50
28A Joint arrangements IFRS 11
Tle IASB issued IFRS 11 in Muy 2011 to iepluce IAS 31. A }oint uiiungement
is a contractual arrangement in which at least two parties agree to share
control over the activities of the arrangement. Unanimous consent over
decisions ubout ielevunt uctivities is iequiied in oidei to meet tle dennition ol
}oint contiol.
Joint uiiungements cun be }oint opeiutions oi }oint ventuies. Tle clussincution
is piinciple-bused und depends on tle puities' exposuie to tle uiiungement.
Wlen tle puities' exposuie to tle uiiungement only extends to net ussets ol
tle uiiungement, tle uiiungement is u }oint ventuie.
Joint opeiutions uie olten not stiuctuied tliougl sepuiute velicles. Eucl
operator has rights to assets and obligations to liabilities, which is not limited
to their capital contribution.
Wlen u }oint uiiungement is disconnected liom tle puities und included in
u sepuiute entity, it cun be eitlei u }oint opeiution oi u }oint ventuie. In sucl
cases, further analysis is required of the legal form of the separate entity, the
terms and conditions included in the contractual agreement and, sometimes,
other facts and circumstances. This is because, in practice, the latter two can
override the principles derived from the legal form of the separate vehicle.
Joint opeiutois uccount loi tleii iiglts to ussets und obligutions loi
liubilities. Joint ventuieis uccount loi tleii inteiest by using tle equity
method of accounting.
The new standard is effective for annual periods starting on or after
1 Junuuiy 2013. It muy be euily-udopted togetlei witl IFRS 10, IFRS 12,
IAS 27 und IAS 28; it is sub}ect to EU endoisement.
Otlei sub}ects
51
Other subjects
29 Related-party disclosures IAS 24
IAS 24 requires entities to disclose transactions with related parties. Related
parties include:
puients;
subsidiuiies;
lellow subsidiuiies;
ussociutes ol tle entity und otlei membeis ol tle gioup;
}oint ventuies ol tle entity und otlei membeis ol tle gioup;
membeis ol key munugement peisonnel ol tle entity oi ol u puient ol tle
entity (and close members of their families);
peisons witl contiol, }oint contiol oi signincunt inuence ovei tle entity
(and close members of their families); and
post-employment benent pluns.
Finance providers are not related parties simply because of their normal
dealings with the entity.
Management discloses the name of the entitys parent and, if different, the
ultimate controlling party (which could be a person). Relationships between
a parent and its subsidiaries are disclosed irrespective of whether there have
been transactions with them.
Wleie tleie luve been ieluted-puity tiunsuctions duiing tle peiiod,
management discloses the nature of the relationship and information about
the transactions and outstanding balances including commitments
necessary for users to understand the potential impact of the relationship on
tle nnunciul stutements. Disclosuie is mude by cutegoiy ol ieluted puity und
by mu}oi type ol tiunsuction. Items ol u similui nutuie muy be disclosed in
aggregate, except when separate disclosure is necessary for an understanding
ol tle ellects ol ieluted-puity tiunsuctions on tle entity's nnunciul stutements.
Munugement only discloses tlut ieluted-puity tiunsuctions weie mude on
terms equivalent to those that prevail in arms length transactions if such
terms can be substantiated.
An entity is exempt from the disclosure of transactions (and outstanding
balances) with a related party that is either a government that has control,
Otlei sub}ects
52
}oint contiol oi signincunt inuence ovei tle entity, oi is unotlei entity
tlut is undei tle contiol, }oint contiol oi signincunt inuence ol tle sume
goveinment us tle entity. Wleie tle entity upplies tle exemption, it discloses
the name of the government and the nature of its relationship with the
entity. It ulso discloses tle nutuie und umount ol eucl individuully signincunt
transaction and the qualitative or quantitative extent of any collectively
signincunt tiunsuctions.
30 Cash ow statements IAS 7
Tle cusl ow stutement is one ol tle piimuiy stutements in nnunciul iepoiting
(along with the statement of comprehensive income, the balance sheet and
the statement of changes in equity). It presents the generation and use of cash
und cusl equivulents' by cutegoiy (opeiuting, investing und nnunce) ovei
u specinc peiiod ol time. It piovides useis witl u busis to ussess tle entity's
ability to generate and utilise its cash.
Opeiuting uctivities uie tle entity's ievenue-pioducing uctivities. Investing
uctivities uie tle ucquisition und disposul ol long-teim ussets (including
business combinations) and investments that are not cash equivalents.
Financing activities are changes in equity and borrowings.
Management may present operating cash ows by using either the direct
metlod (gioss cusl ieceipts/puyments) oi tle indiiect metlod (ud}usting net
piont oi loss loi non-opeiuting und non-cusl tiunsuctions, und loi clunges in
working capital).
Cusl ows liom investing und nnuncing uctivities uie iepoited sepuiutely
gross (that is, gross cash receipts and gross cash payments) unless they meet
ceituin specined ciiteiiu.
The cash ows arising from dividends and interest receipts and payments are
clussined on u consistent busis und uie sepuiutely disclosed undei tle uctivity
appropriate to their nature. Cash ows relating to taxation on income are
clussined und sepuiutely disclosed undei opeiuting uctivities unless tley cun
be specincully uttiibuted to investing oi nnuncing uctivities.
Tle totul tlut summuiises tle ellect ol tle opeiuting, investing und nnuncing
cash ows is the movement in the balance of cash and cash equivalents for
the period.
Otlei sub}ects
53
Sepuiute disclosuie is mude ol signincunt non-cusl tiunsuctions (sucl us tle
issue of equity for the acquisition of a subsidiary or the acquisition of an asset
tliougl u nnunce leuse). Non-cusl tiunsuctions include impuiiment losses/
reversals; depreciation; amortisation; fair value gains/losses; and income
statement charges for provisions.
31 Interim nancial reporting IAS 34
Tleie is no IFRS iequiiement loi un entity to publisl inteiim nnunciul
statements. However, a number of countries either require or recommend
their publication, in particular for public companies.
IAS 34 upplies wleie un entity publisles un inteiim nnunciul iepoit in
accordance with IFRS. IAS 34 sets out the minimum content that an interim
nnunciul iepoit slould contuin und tle piinciples tlut slould be used in
recognising and measuring the transactions and balances included in that
report.
Entities muy eitlei piepuie lull IFRS nnunciul stutements (conloiming to tle
iequiiements ol IAS 1) oi condensed nnunciul stutements.
As u minimum, cuiient peiiod und compuiutive nguies (condensed oi
complete) are disclosed as follows:
bulunce sleet (stutement ol nnunciul position) us ol tle cuiient inteiim
period end with comparatives for the immediately preceding year end;
stutement ol compielensive income (und, il piesented sepuiutely,
income stutement) cuiient inteiim peiiod, nnunciul yeui to dute und
comparatives for the same preceding periods (interim and year to date);
stutement ol clunges in equity und stutement ol cusl ow nnunciul
year to date with comparatives for the same year to date period of the
preceding year; and
explunutoiy notes.
An entity generally uses the same accounting policies for recognising
and measuring assets, liabilities, revenues, expenses, and gains and
losses ut inteiim dutes us tlose to be used in tle cuiient-yeui unnuul
nnunciul stutements.
There are special measurement requirements for certain costs that can only
be determined on an annual basis (for example, items such as tax that is
Otlei sub}ects
54
culculuted bused on un estimuted lull-yeui ellective iute), und tle use ol
estimutes in tle inteiim nnunciul stutements. An impuiiment loss iecognised
in a previous interim period in respect of goodwill, or an investment in either
un equity instiument oi u nnunciul usset cuiiied ut cost, is not ieveised.
IAS 34 sets out some criteria to determine what information should be
disclosed in tle inteiim nnunciul stutements. Tlese include:
muteiiulity to tle oveiull inteiim nnunciul stutements;
unusuul oi iiiegului items;
clunges since pievious iepoiting peiiods tlut luve u signincunt ellect on
tle inteiim nnunciul stutements (ol tle cuiient oi pievious iepoiting
nnunciul yeui); und
ielevunce to tle undeistunding ol estimutes used in tle inteiim nnunciul
statements.
Tle oveiiiding ob}ective is to ensuie tlut un inteiim nnunciul iepoit includes
ull inloimution tlut is ielevunt to undeistunding un entity's nnunciul position
and performance during the interim period.
32 Service concession arrangements SIC 29 and IFRIC 12
Tleie is no specinc IFRS tlut upplies to public-to-piivute seivice concession
arrangements for delivery of public services. IFRIC 12, Service concession
arrangements, interprets various standards in setting out the accounting
iequiiements loi seivice concession uiiungements; SIC-29 contuins
disclosure requirements.
IFRIC 12 upplies to public-to-piivute seivice concession uiiungements in
which the public sector body (the grantor) controls and/or regulates the
services provided with the infrastructure by the private sector entity (the
operator). The interpretation also addresses to whom the operator should
piovide tle seivices und ut wlut piice. Tle giuntoi contiols uny signincunt
residual interest in the infrastructure.
As the infrastructure is controlled by the grantor, the operator does not
recognise the infrastructure as its property, plant and equipment; nor does
tle opeiutoi iecognise u nnunce leuse ieceivuble loi leusing tle public seivice
infrastructure to the grantor, regardless of the extent to which the operator
bears the risk and rewards incidental to ownership of the assets.
Otlei sub}ects
55
Tle opeiutoi iecognises u nnunciul usset to tle extent tlut it lus un
unconditional contractual right to receive cash irrespective of the usage of
the infrastructure.
The operator recognises an intangible asset to the extent that it receives a
right (a licence) to charge users of the public service.
Undei botl tle nnunciul usset und tle intungible usset models, tle opeiutoi
accounts for revenue and costs relating to construction or upgrade services in
accordance with IAS 11. The operator recognises revenue and costs relating
to opeiution seivices in uccoidunce witl IAS 18. Any contiuctuul obligution to
maintain or restore infrastructure, except for upgrade services, is recognised
in uccoidunce witl IAS 37.
33 Retirement benet plans IAS 26
Finunciul stutements loi ietiiement benent pluns piepuied in uccoidunce witl
IFRS should comply with IAS 26, Accounting and reporting by retirement
benent pluns'. All otlei stunduids upply to tle nnunciul stutements ol
ietiiement benent pluns to tle extent tlut tley uie not supeiseded by IAS 26.
IAS 26 iequiies tle iepoit loi u denned contiibution plun to include:
u stutement ol net ussets uvuiluble loi benents;
u stutement ol clunges in net ussets uvuiluble loi benents;
u summuiy ol signincunt uccounting policies;
u desciiption ol tle plun und tle ellect ol uny clunges in tle plun duiing
the period; and
u desciiption ol tle lunding policy.
IAS 26 iequiies tle iepoit loi u denned benent plun to include:
eitlei u stutement tlut slows tle net ussets uvuiluble loi benents, tle
uctuuiiul piesent vulue ol piomised ietiiement benents und tle iesulting
excess oi dencit, oi u ieleience to tlis inloimution in un uccompunying
actuarial report;
u stutement ol clunges in net ussets uvuiluble loi benents;
u summuiy ol signincunt uccounting policies; und
u desciiption ol tle plun und tle ellect ol uny clunges in tle plun duiing
the period.
Otlei sub}ects
56
The report also explains the relationship between the actuarial present
vulue ol piomised ietiiement benents, tle net ussets uvuiluble loi benents
und tle policy loi tle lunding ol piomised benents. Investments leld by ull
ietiiement pluns (wletlei denned benent oi denned contiibution) uie
carried at fair value.
34 Fair value measurement IFRS 13
Tle IASB issued IFRS 13 us u common liumewoik loi meusuiing luii vulue
wlen iequiied oi peimitted by unotlei IFRS. IFRS 13 dennes luii vulue us
The price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date. The key principle is that fair value is the exit price from the perspective
of market participants who hold the asset or owe the liability at the
measurement date. It is based on the perspective of market participants rather
tlun }ust tle entity itsell, so luii vulue is not ullected by un entity's intentions
towards the asset, liability or equity item that is being fair valued.
A fair value measurement requires management to determine four things: the
puiticului usset oi liubility tlut is tle sub}ect ol tle meusuiement (consistent
witl its unit ol uccount); tle liglest und best use loi u non-nnunciul usset; tle
principal (or most advantageous) market; and the valuation technique.
In our view, IFRS 13 is largely consistent with valuation practices that already
operate today. IFRS 13 is therefore unlikely to result in substantial change in
many cases. However, it introduces a few changes:
tle intioduction ol u luii vulue lieiuicly loi non-nnunciul ussets und
liubilities, similui to wlut IFRS 7 cuiiently piesciibes loi nnunciul
instruments;
u iequiiement loi tle luii vulue ol ull liubilities, including deiivutive
liabilities, to be determined based on the assumption that the liability
will be transferred to another party rather than otherwise settled or
extinguished;
tle iemovul ol tle iequiiement to use bid und usk piices loi uctively-
quoted nnunciul ussets und nnunciul liubilities iespectively. Insteud, tle
most iepiesentutive piice witlin tle bid-usk spieud slould be used; und
tle intioduction ol udditionul disclosuies ieluted to luii vulue.
IFRS 13 addresses how to measure fair value but does not stipulate when fair
value can or should be used.
Industiy-specinc topics
S7
Industry-specic topics
35 Agriculture IAS 41
Agiicultuiul uctivity is denned us tle munuged biologicul tiunsloimution und
harvest of biological assets (living animals and plants) for sale or for
conversion into agricultural produce (harvested product of biological assets)
or into additional biological assets.
All biological assets are measured at fair value less costs to sell, with the
clunge in tle cuiiying umount iepoited us puit ol piont oi loss liom opeiuting
activities. Agricultural produce harvested from an entitys biological assets is
measured at fair value less costs to sell at the point of harvest.
Costs to sell include commissions to brokers and dealers, levies by regulatory
agencies and commodity exchanges and transfer taxes and duties. Costs to sell
exclude transport and other costs necessary to get assets to market, as these
are generally reected in the fair value measurement.
The fair value is measured using an appropriate quoted price where available.
If an active market does not exist for biological assets or harvested
agricultural produce, the following may be used in determining fair value: the
most iecent tiunsuction piice (piovided tlut tleie lus not been u signincunt
change in economic circumstances between the date of that transaction and
tle bulunce sleet dute); muiket piices loi similui ussets, witl ud}ustments to
reect differences; and sector benchmarks, such as the value of an orchard
expressed per export tray, bushel or hectare and the value of cattle expressed
pei kilogium ol meut. Wlen uny ol tlis inloimution is not uvuiluble, tle entity
uses the present value of the expected net cash ows from the asset
discounted ut u cuiient muiket-deteimined iute.
One ol tle most signincunt clunges expected witl ieguid to tle luii vulue
measurement of biological assets as a result of IFRS 13 is the market to
which the entity should look when measuring fair value. IAS 41 currently
iequiies tle use ol entity-specinc meusuies wlen meusuiing luii vulue,
while IFRS 13 looks to the principal market for the asset. The fair value
measurement should represent the price in that market (whether that price
is directly observable or estimated using another valuation technique), even
S8
if the price in a different market is potentially more advantageous at the
measurement date. In the absence of a principal market, the entity should
use the price in the most advantageous market for the relevant asset.
36 Extractive industries IFRS 6, IFRIC 20
IFRS 6 uddiesses tle nnunciul iepoiting loi tle exploiution loi und evuluution
of mineral resources. It does not address other aspects of accounting by
entities engaged in the exploration for and evaluation of mineral reserves
(such as activities before an entity has acquired the legal right to explore or
after the technical feasibility and commercial viability to extract resources
have been demonstrated).
Activities outside the scope of IFRS 6 are accounted for according to the
upplicuble stunduids (sucl us IAS 16, IAS 37 und IAS 38.)
The accounting policy adopted for the recognition of exploration and
evaluation assets should result in information that is relevant and reliable.
As u concession, ceituin luitlei iules in IAS 8, need not be upplied. Tlis
permits companies in this sector to continue, for the time being, to apply
policies that were followed under national GAAP that would not comply with
the requirements of IFRS. The accounting policy may be changed only if the
clunge mukes tle nnunciul stutements moie ielevunt und no less ieliuble, oi
moie ieliuble und no less ielevunt in otlei woids, il tle new uccounting
policy tukes it closei to tle iequiiements in tle IASB's Fiumewoik.
Exploration and evaluation assets are initially measured at cost. They are
clussined us tungible oi intungible ussets, uccoiding to tle nutuie ol tle
ussets ucquiied. Munugement upplies tlut clussincution consistently. Altei
recognition, management applies either the cost model or the revaluation
model to the exploration and evaluation assets, based on IAS 16 or
IAS 38, uccoiding to nutuie ol tle ussets. As soon us teclnicul leusibility und
commeiciul viubility uie deteimined, tle ussets uie no longei clussined us
exploration and evaluation assets.
The exploration and evaluation assets are tested for impairment when facts
and circumstances suggest that the carrying amounts may not be recovered.
S9
Tle ussets uie ulso tested loi impuiiment beloie ieclussincution out ol
exploration and evaluation. The impairment is measured, presented and
disclosed according to IAS 36 except that exploration and evaluation assets are
ullocuted to cusl-geneiuting units oi gioups ol cusl-geneiuting units no luigei
than a segment. Management discloses the accounting policy adopted, as well
as the amount of assets, liabilities, income and expense and investing cash
ows arising from the exploration and evaluation of mineral resources.
Stripping costs in the production phase of a surface mine
IFRIC 20 sets out the accounting for overburden waste removal (stripping)
costs in the production phase of a mine. The interpretation may require
mining entities reporting under IFRS to write off existing stripping assets to
opening ietuined euinings il tle ussets cunnot be uttiibuted to un identinuble
component of an ore body.
The interpretation applies to all stripping activity as of the effective date of
1 Junuuiy 2013. An entity tlut lus been expensing ull pioduction peiiod
stripping will begin capitalising from the date of adoption of the interpretation.
IFRC 20 ulso umends IFRS 1. Fiist-time udopteis will be ullowed to upply tle
transition provisions with an effective date of the later
ol 1 Junuuiy 2013 oi tle tiunsition dute.
Stiipping costs incuiied once u mine is in pioduction olten piovide benents loi
current production and access to future production. The challenge has always
been low to ullocute tle benents und tlen deteimine wlut peiiod costs uie
veisus un usset tlut will benent lutuie peiiods. Tle IFRIC wus developed to
uddiess cuiient diveisity in piuctice. Some entities luve }udged ull stiipping
costs as a cost of production, and some entities capitalise some or all stripping
costs as an asset.
IFRIC 20 applies only to stripping costs that are incurred in surface mining
activity during the production phase of the mine. It does not address
undeigiound mining uctivity oi oil und nutuiul gus uctivity. Oil sunds, wleie
extraction activity is seen by many as closer to that of mining than traditional
oil and gas extraction, are also outside the scope of the interpretation.
60
Tle tiunsition iequiiements ol tle inteipietution muy luve u signincunt
impact on a mining entity that has been using a general capitalisation ratio
to record deferred stripping. Existing asset balances that cannot be attributed
to un identinuble component ol tle oie body will need to be wiitten oll to
retained earnings.
Index
61
Index by standard and interpretation
Standards Page
IFRS 1 Fiist-time udoption ol Inteinutionul Finunciul Repoiting Stunduids 2
IFRS 2 Sluie-bused puyment 26
IFRS 3 Business combinutions 44
IFRS 4 Insuiunce contiucts 19
IFRS S Non-cuiient ussets leld loi sule und discontinued opeiutions 46
IFRS 6 Exploiution loi und evuluution ol mineiul iesouices S8
IFRS 7 Finunciul instiuments: Disclosuies 9
IFRS 8 Opeiuting segments 23
IFRS 9 Finunciul instiuments 9
IFRS 10 Consoliduted nnunciul stutements 42
IFRS 11 Joint uiiungements S0
IFRS 12 Disclosure of interests in other entities 42
IFRS 13 Fair value measurement 56
IAS 1 Piesentution ol nnunciul stutements 3
IAS 2 Inventories 35
IAS 7 Cusl ow stutements S2
IAS 8 Accounting policies, clunges in uccounting estimutes und eiiois 7
IAS 10 Events ultei tle bulunce sleet dute 38
IAS 11 Construction contracts 22
IAS 12 Income tuxes 27
IAS 16 Property, plant and equipment 31
IAS 17 Leuses 34
IAS 18 Revenue 20
IAS 19 Employee benents 23
IAS 20 Accounting for government grants and disclosure of government assistance 20
IAS 21 Tle ellects ol clunges in loieign exclunge iutes 18
Index
62
Page
IAS 23 Boiiowing costs 32
IAS 24 Reluted-puity disclosuies S1
IAS 26 Accounting und iepoiting by ietiiement benent pluns SS
IAS 27 Consoliduted und sepuiute nnunciul stutements 41
IAS 28 Investment in ussociutes 48
IAS 29 Finunciul iepoiting in lypeiinutionuiy economies 18
IAS 31 Inteiests in }oint ventuies 49
IAS 32 Finunciul instiuments: piesentution 8
IAS 33 Euinings pei sluie 29
IAS 34 Inteiim nnunciul iepoiting S3
IAS 36 Impairment of assets 33
IAS 37 Piovisions, contingent liubilities und contingent ussets 36
IAS 38 Intungible ussets 30
IAS 39 Finunciul instiuments: Recognition und meusuiement 8
IAS 40 Investment property 32
IAS 41 Agiicultuie S7
Interpretations
IFRIC 12 Service concession arrangements 54
IFRIC 13 Customer loyalty programmes 21
IFRIC 14 IAS 19 Tle limit on u denned benent usset, minimum lunding
requirements and their interaction 25
IFRIC 15 Agreements for the construction of real estate 22
IFRIC 18 Tiunslei ol ussets liom customeis 21, 32
IFRIC 19 Extinguisling nnunciul liubilities witl equity instiuments 18
IFRIC 20 Stiipping costs in tle pioduction pluse ol u suiluce mine S9
Index by standard and interpretation (continued)
Index
63
IFRS pocket guide 2012 is designed for the information of readers. While every effort has been made to
ensure accuracy, information contained in this publication may not be comprehensive or may have been
omitted which may be relevant to a particular reader. In particular, this booklet is not intended as a study of
all aspects of International Financial Reporting Standards and does not address the disclosure requirements
for each standard. The booklet is not a substitute for reading the Standards when dealing with points of
doubt or difculty. No responsibility for loss to any person acting or refraining from acting as a result of any
material in this publication can be accepted by PricewaterhouseCoopers LLP. Recipients should not act on
the basis of this publication without seeking professional advice.
2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to
PricewaterhouseCoopers LLP, which is a member rm of PricewaterhouseCoopers International Limited,
each member rm of which is a separate legal entity.

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