Module 4:

Accounting for assets and

liabilities (P2)
 What you will learn?

 Fair value measurement – IFRS 13

 Financial Instruments: Presentation – IAS 32,
Recognition and measurement – IFRS 9 and
Disclosure – IFRS 7
 Provisions, contingent liabilities and contingent
assets – IAS 37
 Events after the reporting period – IAS 10
 Employee benefits – IAS 19
 Income taxes – IAS 12
 Shared-based payment – IFRS 2
 Agriculture – IAS 41
IFRS 13: Fair value measurement
Definition

Fair value
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
IFRS 13: Fair value measurement
Measurement

In order to measure fair value the entity must

determine:

1. Asset or liability

2. Valuation premise that is appropriate for the

measurement (non-financial asset)

3. Principal market or most advantageous

market

4. Valuation technique
 IFRS 13: Fair value measurement
1. Asset or liability

the characteristics of the asset or liability should be

considered

Example:
Greenfield Co owns land that is subject to a legal right for an
electricity company to run power lines across it. The land
could be sold for $3million without these lines and
$2.7million with them.
The legal right would be transferred to a purchaser of the
land and therefore it must be taken into account when
determining fair value.
Fair value is $2.7million.
 IFRS 13: Fair value measurement
2. Highest and best use

 The fair value of a non-financial asset

 Highest and best use: physically possible, legally
permissible, financially feasible

Example:
Redletter Co owns land that is currently used for industrial
purposes. It could be sold for $1.5million on this basis.
Nearby sites have been developed as residential sites and
there is no legal restriction to prohibit Redletter Co from
selling the land for this purpose. Such a sale would achieve a
price of $1.8million.
The fair value is $1.8 million, based on the highest and best
use.
IFRS 13: Fair value measurement
3. Principal or most advantageous market

Most advantageous
Principle market
market

market with the most market maximises the

volume of activity for amount that would be
the asset or liability received to sell an asset

Fair value is determined

 Based on the principal market;
 No principal market, based on the most advantageous
market
IFRS 13: Fair value measurement
3. Principal or most advantageous market

Example

China France

Price $40 $38

Transaction cost $1/item $3/item

Transport $8/item $5/item

IF France - the principal market: fair value of Bluebell Co's

product would be $33 ($38 less $5 transport costs)

Advantageous market
China: net proceeds per item = $31 ($40 - $1 - $8)
France: net proceeds per item = $30 ($38 - $3 - $5)
 China – most advantageous market
Fair value = $32 ($40 - $8)
IFRS 13: Fair value measurement
4. Valuation technique

Three valuation approaches

Market Valuations based on recent sales

approaches prices

Valuations based on replacement

Cost approaches
cost

Income valuations based on financial

approaches forecasts
IFRS 13: Fair value measurement
4. Valuation technique

Inputs used to measure fair value

Quoted prices for identical assets in

Level 1
active markets

Observable inputs other than those

Level 2
classified as level 1

Level 3 Unobservable inputs

 IFRS 13: Fair value measurement
4. Valuation technique

Example
Baklava has an investment property that is measured at fair
value. This property is rented out on short-term leases.
The directors wish to fair value the property by estimating
the present value of the net cash flows that the property will
generate for Baklava. They argue that this best reflects the
way in which the building will generate economic benefits
for Baklava. The building is unique, although there have
been many sales of similar buildings in the local area.
Discuss whether the valuation technique suggested by the
directors complies with International Financial Reporting
Standards.
IFRS 13: Fair value measurement
4. Valuation technique

Example

Valuation technique fair value the property by

suggested by the estimating the present value of
directors the net cash flows – LEVEL 3

LEVEL 2 – there are observable

More reliable inputs (there have been many
technique sales of similar building in the
area)
IFRS 13: Fair value measurement
Disclosure

Assets and liabilities that are measured at fair value

the valuation techniques and inputs used to develop

those measurements

Measurements using significant unobservable inputs

The effect of the measurements on profit or loss or other

comprehensive income for the period
 Financial Instruments

IAS 32: Financial Instruments - Presentation

IFRS 7: Financial Instruments - Disclosure

IFRS 9: Financial Instrument - Recognition and

measurement
 IAS 32: Presentation
Definitions

A contract gives rise to

Financial  a financial asset of one entity &
instrument  a financial liability/equity instrument
of another entity

Financial instrument

Financial Financial Equity

asset liability instrument

Debt Example: Bond holder

instruments Financial asset
Bonds
Bond issuer
Equity Financial liability
instruments Share holder
Financial asset
Shares
Share issuer
Equity instrument
 IAS 32: Presentation
Definitions

 cash
Financial
 an equity instrument of another entity
asset
 a contractual right to receive cash

Financial a contractual obligation or another asset

liability to another entity

contracts that evidences a residual

Equity interest in the assets of an entity after
deducting all of its liabilities
 IAS 32: Presentation
Financial asset or financial liability: Recognition

"An entity shall recognise a financial asset or

financial liability when the entity becomes a party
to the contractual provisions of the instrument."
 IAS 32: Presentation
Equity and liability

Financial Instruments used to raised funds must be classified as

either equity or liability

No contractual
Ordinary
evidence to Equity
shares
pay dividend

Redeemable Financial liability

Preference Financial liability

(obligation to
shares deliver cash)
Irredeemable
Equity
(no obligation to
deliver cash)
 IAS 32: Presentation
Equity and liability

Convertible
instruments

Two components Accounted separately

calculated as the present value of

Liability
the repayments

the difference between the cash

proceeds from the issue of the
Equity
instrument and the value of the
liability component
 IAS 32: Presentation
Nominal interest rate and Market interest rate

Nominal interest rate Market interest rate

Rates of interest paid on

Stated interest rate of a bond
deposits and other
or loan, which signifies the
investment, determined by
actual monetary price
the interaction of the supply
borrowers pay lenders to use
of and demand for funds in
their money
the money market
 IAS 32: Presentation
Equity and liability
Example

On 1 Jan 20X0, an entity issues convertible loan notes for $500,000.

Interest is payable annually in arrears at 6%. The market rate of
interest for similar loan notes with no conversion rights attached is
7%. The loan notes are redeemable on 31 December 20X3.
The liability component is initially measured at:

Date Cash Flow Discount factor Present value

31.12.X0 (30,000) 1/1.07 $28,037

31.12.X1 (30,000) 1/1.072 $26,203

31.12.X2 (30,000) 1/1.073 $24,489

31.12.X3 (530,000) 1/1.074 $404,334

Equity component $483,063

$500,000 - $483,063 = $16,937 (Liability)

DR Cash $500,000
CR Financial liability $483,063 Liability - SOFP
CR Equity $16,937 Other equity - SOFP
 IAS 32: Presentation
Equity and liability
Example

Amortised cost calculating financial liability

Date BF Interest Payment CF

X0 483,063 33,814 (30,000) 486,877

X1 486,877 34,081 (30,000) 491,958

X2 491,958 34,437 (30,000) 496,395

X3 496,395 34,747 (30,000) 500,000

DR Finance Expense $33,814 Expense - SOPL

CR Cash $30,000
CR Liability $3,814 Liability - SOFP
 IFRS 7: Disclosure
Main categories

An entity must group its financial instruments into

classes of similar instruments

Two main categories of disclosures required

Information about the

Information about the
nature and extent of
significance of
risks arising from
financial instruments
financial instruments
IFRS 9: Recognition and measurement
Financial assets: Recognition

Financial assets

Fair value through Fair value through

Amorised cost OCI profit or loss
(FVTOCI) (FVTPL)

Asset is held
Asset is held within
within a business
a business for Do not meet
model for which
which the criteria of neither
the objective is to
objective is to amortised cost
collect contractual
collect contractual nor FVTOCI
cash flows and sell
cash flows
financial assets

contractual terms of the asset give rise to To avoid

cash flows on specific dates
accounting
(solely payments of principal and interest
– SPPI) mismatch
IFRS 9: Recognition and measurement
Financial assets: Initial Measurement

Initial measurement

Amortised cost FVTOCI FVTPL

Fair value Fair value

Fair value only
+ + (transaction cost is
expensed in P&L)
Transaction cost Transaction cost
IFRS 9: Recognition and measurement
Financial assets: Subsequent measurement

Subsequent measurement

Amortised cost FVTOCI FVTPL

+ Interest
income charged
to P&L (using
effective of Change in FV Change in FV
interest), and
recognized in recognized in
- nominal
interest receipt OCI P&L
(similar to
example in slide
22)
IFRS 9: Recognition and measurement
Example

In February 20X8 Bonce Co purchased 20,000 $1 listed equity

shares at a price of $4 per share. Transaction costs were $2,000. At
the year end of 31 December 20X8, these shares were trading at
$5.50. A dividend of $20c per share was received on 30 September
20X8.
Show the financial statement extracts of Bonce Co at 31 December
20X8 relating to this investment on the basis that:
a. The shares were brought for trading (conditions for FVTOCI
have not been met)
b. Conditions for FVTOCI have been met
IFRS 9: Recognition and measurement
Example
a) FVPL $

SOPL
Investment income (20,000 x (5.5 – 4.0)) 30,000

Dividend income (20,000 x 20c) 4,000

Transaction costs (2,000)

SOFP
Investments in equity instruments (20,000 x 5.5) 110,000

b) FVOCI $

SOPL
Dividend income 4,000

Other comprehensive income

Gain on investment in equity instruments
(20,000 x 5.5) – ((20,000 x 4) + 2,000) 28,000

SOFP
Investments in equity instruments (20,000 x 5.5) 110,000

Would be the same (b) if an irrevocable election for FVTOCI had been made
IFRS 9: Recognition and measurement
Interest, Dividend, Gain or Loss

Financial assets

Interest and dividend revenue on all financial assets is

recognised in profit or loss

Impairment losses on all financial assets are recognised in

profit or loss

Debt investment OCI (but reclassified to profit or loss on

at FVTOCI disposal of the investment)

Equity investment OCI (but not reclassified to profit or loss

at FVTOCI on disposal of the investment)

FVTPL Profit or loss

IFRS 9: Recognition and measurement
Financial liabilities: Recognition

Financial liabilities

Those held for trading

Any other financial
or designated at fair
liability
value through profit or
(Amortised cost)
loss (FVTPL)
IFRS 9: Recognition and measurement
Financial liabilities: Initial Measurement

Initial measurement

FVTPL Amortised costs

Fair value Fair value

(transaction cost is
expensed in P&L)
-
Transaction cost
IFRS 9: Recognition and measurement
Interest, dividends, Gain or Loss

Interest, dividends, losses and gains relating to a

financial instrument classified as a financial liability
should be recognised as income or expense in profit
or loss.
IFRS 9: Recognition and measurement
Financial liabilities: Subsequent measurement

Subsequent measurement

Held for trading or Any other financial

designated at FVTPL liabilities

Change in FV Remeasure at each

recognized in P&L reporting date

Interest charge
Interest paid
to P&L
(using nominal
(using effective
interest rate)
interest rate)
IFRS 9: Recognition and measurement
Impairment of financial assets: Measurement

At initial recognition, 12 month expected credit losses are

recognised

Beyond this, a 3 stage approach is taken:

If credit risk has not increased significantly since

Stage 1 initial recognition, recognise 12 month expected
credit losses
If credit risk has increased significantly since
Stage 2 initial recognition, recognise lifetime expected
credit losses, calculate interest on gross asset

Exist evidence of impairment at the reporting

Stage 3 date, recognise lifetime expected credit losses,
calculate interest on asset net of impairment
IFRS 9: Recognition and measurement
Example

Example
January 20X4, Barkers Co purchased a debt investment,
measuring it at par of $500,000. There is a 3% probability that
the borrower will default, resulting in a 100% loss.
31 December 20X4 it is expected that the borrower will
breach loan covenants and there is a 30% probability of them
defaulting over the remainder of the term.
IFRS 9: Recognition and measurement
Example

At 1 January 20X4 an impairment allowance of

3% x $500,000 = $15,000 is recognised (12 month credit
losses).
31 December 20X4, there is a significant increase in the risk of
default -> the impairment allowance is based on lifetime
credit losses. It is increased to 30% x $500,000 = $150,000.
Interest revenue would have been calculated based on:
$500,000 - $150,000 = $350,000
IAS 37: Provisions and Contingencies
Definitions: Provisions

Provision A liability of uncertain timing or amount

Present obligation as a result of past events

Liability
Settlement is expected to result in an outflow of
resources

Probable more likely than not to occur

Legal an obligation that the entity must follow because of

obligation law enforcement

obligation that derives from an entity's actions where

Constructive the entity has created a valid expectation on the part
obligation of those other parties that it has accept certain
responsibilities and will discharge those responsibilities

a contract in which the unavoidable costs of meeting

Onerous
the obligations under the contract exceed the
contract economic benefits expected to be received under it
IAS 37: Provisions and Contingencies
Recognition and measurement: Provisions

There is a present obligation as a

result of a past event

A provision
It will result in a probable outflow of
can only be economics benefits
recognised if

A reliable estimate can be made on

the obligation
IAS 37: Provisions and Contingencies
Recognition and measurement: Provisions

The best estimate of a provision will be:

the most likely amount payable for a single obligation

an expected value for a large population of items

IAS 37: Provisions and Contingencies
Example 1: Provisions

Store Co operates clothes shops in a country where laws

require that goods can be returned by customers for a refund
within 30 days of purchase. Store Co's advertising slogan is
'Satisfaction guaranteed, but 90 days to return if not’.
Shoud any provisions is made in this case?
IAS 37: Provisions and Contingencies
Example 1: Provisions

Store Co has a liability of uncertain timing and amount: at any

given date it may have refund goods sold in the previous 90 days.

A legal obligation exists to refund goods sold in the previous 30

days and a constructive obligation exists in respect of the other
60 days.

Related past events are sales to customers. Assuming that

customer refunds are probable and a reliable estimate can be
made of the amount (based on past experience).

A provision should be made

IAS 37: Provisions and Contingencies
Example 2: Provisions

A customer has brought a lawsuit against Bone Co and is

claiming $800,000 in damages. Bone Co’s legal advisors have
assessed the probability of Bone Co losing and having to pay
the damages at 80%.

There is single obligation and provision is measured at the

single most likely outcome $800,000

The provision is not measured at 80% x $800,000 = $640,000

because there is not a large population of items
IAS 37: Provisions and Contingencies
Example 3: Provisions

Parker Co sells goods with a warranty under which customers

are covered for the cost of repairs of any manufacturing
defect that becomes apparent within the first six months of
purchase. The company's past experience and future
expectations indicate the following pattern of likely repairs.
Cost of repairs if all items
% of goods sold Defects
from these defects

$m

75 None -

20 Minor 1.0

5 Major 4.0

Provision required
Cost is found using “expected value”
(75% x $nil) + (20% x $1.0m) + (5% x $4.0m) = $400,000
IAS 37: Provisions and Contingencies
Possible provisions

Warranty

Guarantees

Possible Not future

Onerous contract
provisions operating losses

Environmental
provisions

Restructuring
provisions

Note:
Future operating losses/ future repairs are not provision because
they arise in the future and can be avoided – no obligtion exists
IAS 37: Provisions and Contingencies
Recognition and measurement: Provisions

If a provision is increased or corresponding entry is

decreased made to profit or loss

Expenditure to settle a
Reimbursement is
provision may be recoverable
recognised as an asset
from a third party
IAS 37: Provisions and Contingencies
Example 4: Provisions

Oil Co constructed an oil platform in 20X2 at a cost of $12

million. The company is also legally required to decommission
the platform at the end of its useful life at a cost with present
value of $2million. The company is also legally required to
restore the seabed at this time. This is gradually eroded as oil
extracted. Restoration costs are estimated at $10 per barrel
extracted. At 31 December 20X2, 50,000 barrels had been
extracted.
A provision is recognised at the time of construction for
$2 million – Total cost of the oil platform is $14 million
Additional provision is made as barrels of oil are extracted.
At 31 Dec 20X2, it amounts to $10 x 50,000 = $500,000
IAS 37: Provisions and Contingencies
Definition: Contingencies

Possible obligation depending on certainty of

Contingent future event occurs, or
liability
Present obligation that is not probable or
cannot be measured reliably

Possible asset that arises from past events

Contingent
asset Whose existence will be confirmed only by the
(non)occurrence of uncertain future events
IAS 37: Provisions and Contingencies
Recognition: Contingencies

Degree of
Outflow Inflow
probability

Virtually certain Recognise

Recognise asset
(≥ 90%) liability

Probable Recognise Disclose

(50% ≤ X < 90%) provision contingent asset

Possible Disclose
(5% ≤ X < 50%) contingent Ignore
liability

Remote
Ignore Ignore
(X < 5%)
IAS 37: Provisions and Contingencies
Restructuring provisions

'A restructuring is a programme that is planned and controlled

by management, and materially changes either:

 the scope of a business undertaken by an entity, or

 the manner in which that business is conducted

provision may only be made if:

a detailed, formal and approved plan exists, and

the plan has been announced to those affected.

The provision should

Include Exclude
Direct expenditure arising Costs associated with
from restructuring ongoing activities
IAS 37: Provisions and Contingencies
Example: Restructuring provisions

On 14 June 20X5 a decision was made by the board of an

entity to close down a division. The decision was not
communicated at that time to any of those affected and no
other steps were taken to implement the decision by the year
end of 30 June 20X5. The division was closed in September
20X5.
Should a provision be made at 30 June 20X5 for the cost of
closing down the division?

 No constructive obligation exists

 This is a board decision, which can be reversed
 No provision can be made
IAS 10: Events after reporting period
Definitions

Events, both favourable and unfavourable, that occur

between the end of the reporting period and the date on
which the financial statements are authorised for issue

Reporting
FSs issued
date

Events after repoting date

IAS 10: Events after reporting period
Definitions

Two types of events that occur after the reporting date

Adjusting events Non-adjusting events

Provide the information

Provide information on
on conditions that
conditions that arose
existed at the reporting
after the reporting date
date

 Do not adjust the

Adjust the financial
financial statements
statements
 Disclose if material
IAS 10: Events after reporting period
Adjusting events

Examples

The subsequent determination of the purchase price or the

proceeds of sale of assets purchased or sold before the year
end.

A valuation which provides evidence of a permanent

diminution in value

The settlement of a court case that confirms a present

obligation at the reporting date

The discovery of fraud or errors meaning the financial

statements are incorrect
IAS 10: Events after reporting period
Non-adjusting events

Examples

Acquisition or disposal of subsidiaries

Announcement of plan to close a division

Purchases or disposals of asset

 Non-adjusting
If dividends on ordinary
 Should not be recognised
shares are declared after
as liabilities
the reporting date
 Should be disclosed
 IAS 19: Employee Benefits
Definition

Employee benefits

All forms of consideration given by an entity in

exchange for services rendered or for the termination
of the employment
 IAS 19: Employee Benefits
Types of employee benefits

Short-term employee benefits

Termination benefits
Employee
benefits
Post-employment benefits (Pensions)

Other long-term benefits

 IAS 19: Employee Benefits
Short-term employee benefits

Include bonus, sick pay, holiday pay and meternity leave

are recognised

Expenses Liability
When the employee To the extent they are
provides benefit paid
 IAS 19: Employee Benefits
Termination benefits

Are recognised as liability and expense at the earlier of

When the entity can no longer withdraw from the offer of

termination benefits and

When the entity recognises costs for restructuring in line

with IAS 37
 IAS 19: Employee Benefits
Post-employment benefits (Pensions)

Employer (sometimes employee) contribute to a pension plan

throughout the employee’s working life. Employee retires –
entitled to a pension

Defined contribution Defined benefit

Employer contributions Employer contributions

into the pension plan are into the pension plan are
fixed variable

Pensions paid out are Pensions paid out are a

variable guaranteed amount
 IAS 19: Employee Benefits
Post-employment benefits (Pensions)

Defined Contributions are recognised as an

contribution expense in the period they are
plans
payable

The fair value of the pension plan

Defined
benefits plans assets at the reporting date
(net defined
benefit pension the difference between
asset/ liability
The present value of the defined
recognised in
SoFP) benefit obligation at the reporting
date
 IAS 19: Employee Benefits
Post-employment benefits (Pensions)
Plan PV of
Journal
assets obligation

At the start of
X X
year

Debit: Plan assets

Contributions X
Credit: Cash

Paid out as Debit: Obligation

(X) (X)
pensions Credit: Plan assets

Current service Debit: Profit/Loss

X
cost Credit: Obligation

Debit: Plan assets

Net interest X X Credit: Obligation
Debit/Credit: P/L

Remeasurement Debit/Credit: Plan assets

(balancing X/(X) X/(X) Debit/Credit: Obligation
figure) Debit/Credit: OCI

At the end of
X X
year
 IAS 19: Employee Benefits
Post-employment benefits (Pensions)

Net interest is calculated on the value of the assets and

obligation at the start of the year.
It represents

The expected return on the investments that form the

plan assets

The unwinding of the discount on the obligation

 IAS 19: Employee Benefits
Post-employment benefits (Pensions)

Remeasurements – the difference between: calculated

plan assets and defined benefit obligation
Represent:

The difference between the actual and expected return

on plan assets

The effect of changes in actuarial assumptions in the case

of obligation

These are never reclassified to profit or loss

 IAS 19: Employee Benefits
Example: Pensions

The following information is relevant to an entity’s defined

benefit pension scheme:
 The net deficit reported at the start of the year was
$2.4million
 The net deficit reported at the end of the year as advised
by actuaries was $2.25million
 Company contributions in the year were $2million and the
current service cost was $1.3million
 The relevant interest rate is 10%
What amounts are recognised in the SoPL in relation to the
scheme in the year?
 IAS 19: Employee Benefits
Example: Pensions

$000

Net deficit at start of year (2,400)

Company contribution 2,000

Current service cost (1,300)

Net interest (10% x 2.4m) (240)

Remeasurement (balancing figure) (310)

Net deficit at end of year 2,250

The company contribution is not recognised in profit or loss

DR Pension scheme
CR Bank

Remeasurements are recognised in OCI. In this case there is a

measurement loss
 IAS 19: Employee Benefits
Other long-term benefits

Other long-term benefits are recognised in the same way as

post-employee benefits however all amounts are recognised in
profit or loss, including measurements
 IAS 12: Income taxes
Definition

Net profit or loss for a period before

Accounting profit
deducting tax expense

The profit (loss) for a period,

determined in accordance with the
Taxable profit
rules established by the taxation
(tax loss) authorities, upon which income taxes
are payable (recoverable)

The aggregate amount included in the

Tax expense determination of net profit or loss
(tax income) for the period in respect of current tax
and deferred tax

Current tax Deferred tax

Tax expense
expense expense
(tax income)
(income) (income)
 IAS 12: Income taxes
Definition

Deferred tax

Deferred tax is an accounting adjustment to take

account of the future tax impact of an asset or
liability currently recognised in the statement of
financial position
 IAS 12: Income taxes
Definition

Deferred tax
Two approaches

Income approach Balance sheet approach

Take difference between Take difference between

accounting profit and the tax base and carrying
taxable profit amount
 IAS 12: Income taxes
Calculation

Determine the tax base of the asset or liability

The difference between this amount and the carrying

amount is a temporary difference

The temporary difference is either

Taxable Deductable

Apply tax rate to give Apply tax rate to give

deffered tax liability defferred tax asset
 IAS 12: Income taxes
Tax base

Tax base

the amount that is attributed to an asset or liability

for tax purposes

In the case of asset In the case of liability

the amount that will usually the carrying

be deductible for tax amount less any
purposes in the future amount that will be
deductible for tax
purpose in the future
 IAS 12: Income taxes
Calculation

Taxable temporary arise where the carrying amount of

differences an item exceeds its tax base

Deductible
arise where the carrying amount of
temporary
an item is less than its tax base
differences

is that which is expected to apply

The applicable tax
when the carrying amount of the
rate
item is recovered
 IAS 12: Income taxes
Example

Luella Co buys an item of plant on 1 January 20X7 at a cost of

$400,000. The plant has a useful life of 10 years and benefits
form a 20% writing down allowance (on a reducing balance
basis) for tax purposes. Luella has a year end of 31 December
and pays tax at a rate of 30%.
There is no deferred tax impact on acquisition of the asset
because carrying amount is equal to tax base at $400,000.
 IAS 12: Income taxes
Example

At 31 December 20X7:
 The carrying amount of the asset is
9/10 x $400,000 = $360,000
 The tax base of the asset is 80% x $400,000 = $320,000
 There is therefore a temporary difference of $40,000
 This is a taxable temporary difference because carrying
amount exceeds tax base
 It results in a deferred tax liability of
30% x $40,000 = $12,000
 IAS 12: Income taxes
Accounting for deferred taxes

DEBIT Tax charge in profit or loss $12,000

CREDIT Deferred tax liability $12,000

The deferred tax impact of a revaluation is recognised

in OCI

The deferred tax impact of dividends is recognised in

profit or loss
 IAS 12: Income taxes
Example: Accounting for deferred taxes

Zebra Co owns a property which has a carrying amount at

the beginning of 20X9 of $1,500,000. At the year end it has

revalued the property as $1,800,000. The tax rate is 30%.

How will this be shown in financial statements?

 IAS 12: Income taxes
Example: Accounting for deferred taxes
Statement of profit or loss and other comprehensive income (extract)
$000

Profit for the year X

Other comprehensive income:

Gains on property revaluation 300

Income tax relating to components of OCI (300 x 30%) (90)

Other comprehensive income for the year net of tax 210

Debit Credit

$’000 $’000

Property, plant and equipment 300 -

Deferred tax 90

Revaluation surplus 210

The deferred tax has been deducted from revaluation surplus rather than being
charged to profit or loss
IFRS 2: Share-Based Payment
Definition

Share-based payment occurs when an entity buys

goods or services from other parties and:

settles the amounts payable by issuing shares or

share options or

incurs liabilities for cash payments based on its

share price
 IFRS 2: Share-Based Payment
Definition

Equity-settled the entity acquires goods or

share-based services in exchange for equity
payments instruments of the entity

the entity acquires goods or

Cash-settled
services in exchange for amounts
share-based
of cash measured by reference to
payments
the entity’s share price
 IFRS 2: Share-Based Payment
Equity-settled share-based payments

DEBIT Expense/Asset

CREDIT Equity

The entry to equity is normally reported in other components

of equity

Share capital is not affected until the share-based payment

has 'vested'.
 IFRS 2: Share-Based Payment
Equity-settled share-based payments

Is the transaction with employees or others providing similar

services?
Yes No

Measure at the fair Can the fair value of the

value of the equity goods and services
instruments granted at received be measured
grant date reliably?
Yes No

Measure at the fair Measure at the fair

value of the goods and value of the equity
services received at the instruments granted at
date they were received grant date
 IFRS 2: Share-Based Payment
Example

A company grants three directors 200 share options on

[Link].20X6, and these vest (i.e. the director becomes entitled to
them) after two years, providing that the director still works for
the company. This is expected to be the case. Each option has a
fair value of $3 at the grant date.

The total expense to be recognised is $1,800

(3 directors x 200 options x $3). This is spread over the two year
vesting period giving an expense of $900 in each year.

At the end of year 1 the balance in equity is $900; at the end of

year two it is $1,800. Assuming that the options are exercised,
the equity balance is transferred to the share capital account.
 IFRS 2: Share-Based Payment
Equity-settled share-based payments

The measurement of equity-settled share-based payments

must take into account the number of instruments expected to
vest (become an entitlement).
 IFRS 2: Share-Based Payment
Cash-settled share-based payments

DEBIT Expense/asset

CREDIT Liability

The fair value of the liability is re-measured at each reporting

date as the amount of cash expected to be paid
 IFRS 2: Share-Based Payment
Example

On 1 January 20X4 a company grants a director share

appreciation rights whereby she is entitled to cash equivalent
to 1,000 shares on 31 December 20X5, assuming she remains
in employment. The share price is $3.40 on 31 December 20X4
and $4.05 on 31 December 20X5.

Recognition:
 At 31 December 20X4 a liability and expense are
recognised of $1,700 (1,000 x $3.40 x 1/2 years).
 At 31 December 20X5 the total liability is $4,050
(1,000 x $4.05).
Therefore the year 2 expense is $2,350 ($4,050 - $1,700).
 IFRS 2: Share-Based Payment
Share-based payments with a choice of settlement

Where the counterparty - choice of settlement, the entity is

deemed to have granted a compound instrument and a
separate equity and liability component are recognised

Where the entity - choice of settlement, the whole transaction

is treated as either equity-settled or cashsettled depending on
whether the entity has an obligation to settle in cash
 IAS 41: Agriculture
Definition

Biological assets living plants and animals

the produce harvested from

Agricultural the biological assets
produce (thereafter it becomes
inventory)

incremental costs directly

attributable to the disposal of
Costs to sell
an asset excluding finance
costs and taxation
 IAS 41: Agriculture
Recognition

An entity should recognise a biological asset or

agricultural produce only when the entity

controls the asset

as a result of past events

It is probable that future economic inflows will result

the asset and inflows are capable of reliable

measurement
 IAS 41: Agriculture
Initial Measurement

estimated costs to
fair value
− sell

Gains and losses may arise in profit or loss when a

biological asset is first recognised
 IAS 41: Agriculture
Subsequent Measurement

At each reporting date, biological assets are revalued to

fair value less costs to sell

Gains and losses arising from changes in fair value are

recognised in profit or loss for the period in which they
arise

Biological assets are presented separately on the face of

the statement of financial position within non-current
assets