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2010 Q2 Margie Question

settled in cash
mkt (mkt value) + non mkt condition (settle anytime)
trickiest part - no physical delivery (turning point)
hedging strategy - IFRS 9
transaction - purchased an asset or incurred an expense
easily caught if just mention ifrs 2
solution should mention concept of ifrs2
why ifrs 9 is contextual to this question

trans is not settled and the co. does not intend to take a physical delivery of wheat
this is hedging strategy which shud b covrd under ifrs 9 - Fin Inst
(revisit in next lecture)

why not ifrs 2

cz the co. does not intend to acquire the assets which means no trans. Has taken place but
mkt conditions depepndent on mkt value of shares which are exercisable anytime - no ves
hence, treatment of the co. to treat the trans in ifrs 2 is inapt and consequently should
be accounted for


Margie acquired 100% sh. Cap of antalya on 1 dec 2009

Margie Parent, Antalya Subsidiary
ques- does that come under share based payments
will be covered under acquisition cost as bus combination.

1 how to answer - why not ifrs 2 ( cz co. has been aquired by margie and no obligation on
its part to fulfil antalya SBP scheme, will be part of acq cost accounted under infrs 10 - bus
2 the F.V of antalya's SBP 20M has to be replaced with new scheme of margie havin a FV of $
The difference has to be a part of bus combination cost.
The SBP scheme of subsidiary has been replaced by scheme of Parent
And no post combination services required which make no SBP scheme for new s


existing sh holders, dont provide any services. So not under IFRS 2 SBP
normal shareholders
not paying any service
buying a building frm Grief
equity settled sh based payment
so under IFRS 2


no of options


Total shares

$ 400,000.00

Total cost on 1 dec 07

Total provision for SBP for 4 ye
Cost per year



Market Condition
SP reaching $15
Non market Condition
employee remaining in service
vesting pd.

4 years

Market condition fulfiled

$15 30-Nov-10 in 3 years
non mkt condition fulfiled as no info on employee leaving
Extracts from the FS
St. of PnL

1 hr 26 min
1 hr 28 min - Leases

Y1 2007
Y2 2008
Y3 2009
Total cost paid

livery of wheat

ns. Has taken place but only hedging strategy

sable anytime - no vesting pd.

onsequently should

and no obligation on
ed under infrs 10 - bus combination)
margie havin a FV of $22m.

BP scheme for new structure.

2 out of 4

remaining 2

st on 1 dec 07
ovision for SBP for 4 years




IAS 17
owner (lessor )
Lease term - non cancellable period
when entered into
if cancel, then penalty
Minimum lease payment - exclude contingent rent, taxes etc.

Operating Lease
A lease other than finance lease is
an operating lease

Finance Lease

a lease that transferes substantially all risks nd rewards of

lease transfers ownership of asset to lessee at e
lessee has the option to purchase asset at a low
at the date of option.
lease term is for major part of economic life of a
not transf.
at inception of lease the present value of min. l
payment amounts to at least substantially all of
the leased asset.
specialized that only you can use it

Accounting for operating lease in books of lessor

Lease rental is considered as incime for the lessor
dep. Expense is available to lessor
asset is shown as PPE less dep. (or as per reval method)
Accounting for operating lease in books of lesee
Dr Lessor
Cr Expense
Accounting for Finance lease
in books of lessee as he owns it
(owning in substance, not on papers)
responsible for dep

income from lessee P&L

deferred income in liability
dep cz I use

amt to be debited for asset is lower of PV of min lease payment and FV of Asset

ly all risks nd rewards of ownership

hip of asset to lessee at end of lease term

o purchase asset at a lower price than FV

part of economic life of asset even if title

e present value of min. lease

t least substantially all of the FV of

ou can use it

m lessee P&L
ome in liability

Q21 Revision Kit


1 Constituents of IAS 17
Mention the pros and cons
For understanding

Conceptual Flaws in lease

Risk and Rewards on leases
Five indicators for FL

Lease is a method of financing but the indicators for a FL and OL might be diffi
OL and FL have a specialized nature of accounting treatment and it mjght be
OL may be accounted for under an FL
Per the scenario, this does not appear to be a FL cz of...
However there are no guarantees for the value at the end of the term which w
to come up with the FV

Consequently we say its OL

OL will only let lessee pay the lease rentals however, there are economic bene
Consequently the topic seems to be conc. Flawed cz the facts stated above m
however it is not treated as an Asset
hence its should be in SOFP, whereas in OL, no asset is shown in SOFP


Mention why this is a liab, not shown in SOFP for lessee

Hence seems to be conceptually flawed
cannot get a benefit of Depreciation
no rebate in Tax liabilities
One scenario could be understood as an OL and FL at the same time.
No clear demarcation btwn the concepts and the treatments

From FL perspective, asset is shown and liab is created, however, no cah goes
Dep is charged resulting in less tax
Brilliant Point

Assets that are very specialized in nature.

It becomes difficult to come up with the FV of an asset which might makes the
of FL misleading , and accounted for in the books of accounts

L and OL might be difficult to identify practically

tment and it mjght be possible that an

nd of the term which will nt enable

ere are economic benefits flowing to the Lessee

e facts stated above make it an asset

shown in SOFP

he same time.

however, no cah goes out of entity to purchase that asset

which might makes the identification