ISSB

Objective of ISSB:

1. To develop standard for global baseline of sustainability disclosures.

2. To meet information needs of investors
3. To enable companies to provide comprehensive sustainability information to global capital
market.
4. To facilitate interoperability with jurisdiction-specific disclosures targeted at broader
stakeholder groups.

There are two sustainability standards: IFRS S1 – general requirement for disclosures of sustainability
related financial information – and IFRS S2 – climate related disclosures.

IFRS S1 requires entities to disclose information about its sustainability related risks and opportunities
that could affect cash flow, finance access or capital costs.

Disclosures of sustainability related risks and opportunities are covered under 4 headings:

- Governance: the purpose is to enable users to understand entity’s governance process used to
manage sustainability related risks and opportunities.
- Strategy: the purpose is to enable users to understand entity’s strategy used to manage
sustainability related risks and opportunities.
- Risk management: the purpose is to enable users to understand the entity’s process to asses
and monitor sustainability related risks and opportunities.
- Metrics and targets: to enable users to understand performance in relation to sustainability
related risks and opportunities.

IFRS S2 requires entities to provide information about climate related risks and opportunities that could
effect on cash flows, finance access or capital costs.

Disclosures of climate related risks and opportunities are covered under 4 headings:

- Governance: to enable users to understand the entity’s governance process used to manage
climate related risks and opportunities.
- Strategy: to enable users to understand entity’s strategy for managing climate related risks and
opportunities.
- Risk management: to enable users to understand entity’s process to assess and monitor climate
related risks.
- Metrics and targets: to enable users to understand performance in relation to climate related
risks and opportunities.

Conceptual framework

The Conceptual Framework is a document which sets out the objectives and concepts for general
purpose financial reporting.
The Framework provides the foundations for IFRS Standards, but it is not a standard itself.

These concepts are set out in a number of distinct chapters in the document.

These chapters address issues such as the overall objective of general-purpose financial reporting which
is to provide financial information which is useful to existing and potential investors, lenders and other
creditors.

A further chapter details the qualitative characteristics of useful financial information.

A key purpose of the Framework is to assist the International Accounting Standards Board in developing
and revising individual IFRS Standards which are based on consistent concepts.

Therefore, the concepts underpinning any specific IFRS Standard should generally be consistent with
those outlined in the Framework.

it does not override existing IFRS Standards. If a new standard conflicts with the Framework, the IASB
must explain the reasons in the Basis for Conclusions.

A further purpose of the Framework is to help preparers to develop consistent accounting policies for
areas which are not covered by a IFRS Standard or where there is choice of accounting policy, and to
assist all parties to understand and interpret IFRS Standards.

Ethics

You face a danger of breaching the principle of objectivity because of the way the director has linked
your complying with these instructions to your upcoming staff appraisal

You also may be breaching the fundamental ethical principle of professional competence and due care.
The treatments suggested by the FD are clearly inappropriate and not in compliance with IFRS
standards. Were you to implement them, you would be in breach of your professional duty to conduct
yourself in a competent manner

Your decision to discuss these issues with your friend, who is not employed by Delta, means that you
are in danger of breaching the fundamental ethical principle of confidentiality.

You are in danger of breaching the fundamental ethical principle of integrity. The director has suggested
that you collude in the reporting of an inflated profit figure and, as a result, share in a profit-related
bonus

IAS 1 Presentation of financial statements

The overall presentation requirements are set out in IAS 1 – presentation of financial statements.

IAS 1 requires that statement of profit or loss or other comprehensive income disclose certain elements
– for example revenue and income tax expense.
For other more detailed line items, IAS 1 states that they should be shown in a way that is relevant to
an understanding of the financial performance of the reporting entity.

IAS 1 states that operating expenses should be presented based on either their nature or their function,
whichever is provide financial information that’s more reliable and relevant.

Therefore, it’s possible that the detailed line items in the respective statement of…. and …. Could be
quite different while still in compliant with IFRS standards.

PL and OCI

As far as the allocation of items between PL or OCI, IAS 1 requires that all items of income and expenses
should be presented in profit or loss unless another IFRS standard requires or permit otherwise.

There’s no distinction between profit or loss items and OCI items. However, it’s more likely for gains
rather than losses, to be recognized in OCI.

Gains or losses recognized in PL contribute to the computation of EPS, those recognized in OCI are not.

EPS is key performance indicator for listed entities which must be disclosed in published financial
statements.

This would be therefore matter for both X and Y.

IAS 1 states that the tax relating to items of OCI is either shown as a separate line in the ‘OCI’ section of
the statement or netted off against each component of OCI and disclosed in the notes to the financial
statements.

IAS 2 - Inventory

IAS 2 states that inventories should be measured at the lower of cost and net realizable value.

IAS 2 states that the net NRV should be determined for each category of inventory rather than for
inventory as a whole.

Under IAS 2 decisions about the more relevant measurement formula for inventories are made for
categories of inventory having a similar nature and use to the entity.

Raw materials inventory would be regarded as having a different nature and use to other types of
inventory, so it is theoretically appropriate that they could be measured using the ...... formula whilst
other types of inventories are measured using the ...... formula.

IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

Accounting policies

Are: the specific principles, bases, conventions, rules and practices applied by an entity in preparing and
presenting financial statements
Under the principles of IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors –
accounting policy changes are appropriate if the new policy would result in the financial statements
providing reliable and more relevant information about the effects of transactions, other events or
conditions on the entity’s financial position, performance of cash flows.

Where an entity changes its accounting policies in any financial period, comparability is ensured by re-
stating prior year figures which are presented as comparatives.

The comparatives are presented as they would have been had the previous financial statements been
presented using the new accounting policy.

The difference between the opening and closing equity as previously reported and the corresponding
figures restated under the new accounting policy is reflected as an adjustment to the opening equity for
both the current and prior periods.

These adjustments are disclosed in the statement of changes in equity, along with the comparative
information, and have no impact on the reported profit or loss.

Errors

Reporting of errors of this nature is governed by IAS 8 – Accounting Policies, Changes in Accounting
Estimates and Errors.

IAS 8 states that the impact of material errors in the financial statements of previous periods should be
recognized retrospectively in the financial statements of the current period. In practice, this involves
computing the impact of the error and recognizing it by making an appropriate adjustment to opening
equity.

Accounting estimates

Accounting estimates are made in order to implement accounting policies

Changes in accounting estimates are made prospectively. This means applying the new estimates in
future financial statement preparation, without amending any previously published amounts.

IAS 10 Events after the reporting period

Events after reporting period: are those events both favorable and unfavorable that occur between the
end of the reporting period and the date on which the financial statement is authorized for issue.

IAS 10 classifies events after the reporting period into two types – adjusting and non-adjusting

Events requiring adjusting

those that provide evidence of conditions that existed at the end of the reporting period.

IAS 10 requires that the impact of adjusting events be recognized in the financial statements.

We should also make additional disclosures if this would assist the users of the financial statements.
Events not requiring adjusting

Those that are indicative of conditions that arose after the reporting period.

Non-adjusting events should not be recognized in the financial statements, but should be fully
disclosed in the notes to the financial statements if material.

The only exception to the ‘non-recognition’ rule is if the event would be likely to impact on the going
concern status of the reporting entity.

IAS 12 - Income tax

Temporary differences: are determined by comparing the carrying amount of an asset or liability with
its tax base.

The tax base of an asset is the future tax deduction which will be available when the asset generates
taxable economic benefits.

The tax base of a liability is it carrying amount less any future tax deduction which will be available
when the liability is settled.

Deferred tax asset

The deferred tax asset can be recognized since the entity expected to generate future taxable income
for foreseeable future.

Under IAS 12 the deferred tax asset is recognized regardless the fact that entity has no intention of
selling the asset on foreseeable future.

Since the revaluation gain is recognized in other comprehensive income as a part of items that will not
be subsequently reclassified to profit or loss, the related deferred tax is also recognized as part of tax
relating to other comprehensive income.

Deferred tax asset is recognized in respect of deductible temporary differences only to the extent that
is probable that taxable profit will be available against which the deductible temporary differences can
be utilized.

Deferred tax liability

The amount of income tax payable in the future periods in respect of taxable temporary differences.

is recognized on all taxable temporary differences.

Measurement

Deferred tax liabilities or assets should be measured by multiplying the relevant temporary difference by
the rate of corporate income tax. This rate should be computed with reference to legislation which has
been enacted or substantively enacted by the end of the reporting period.
Presentation

In statement of financial position deferred tax asset is netted against deferred tax liability since both
relate to the same tax jurisdiction.

The net effect on profit or loss is…..this will be shown as reduction/increase in income tax charge in
statement of profit or loss.

IAS 16 - Property plant and equipment

Initial measurement

Under IAS 16 the asset should be recognized initially at all necessarily cost to bring the asset into
working conditions and location for its intended use

capitalization

Under the principles of IAS 23 – Borrowing Costs – costs of borrowings taken out to finance the
construction (acquisition) of an asset are recognized in PPE during the period in which activities are
taking place in order to get the asset ready for use.

(‫)اول لما ااالصل يكون جاهز لالستخدام مش او ما البناء يققف‬

Provision

The Environmental damage is covered under IAS 37 – provisions, contingent liabilities and contingent
assets.

Under IAS 37 where entity have a reputation for rectifying all environmental damage it has caused, then
the entity has a constructive obligation for rectifying the damage and should recognize a provision for
this obligation.

Under IAS 37 the provision should be recognized initially at the present value of expected future
expenditure.

Under the principles of IAS 16 this recognition provision is included as part of the cost of PPE.

Under IAS 37 the provision should be unwound increasing the carrying amount of provision and presented at finance
cost subsequently.
(‫)سجل فوايد اول لما البناء يخلص مش اول لما يكون جاهز لالستخدام‬
Separate component

Under the principles of IAS 16, a single physical asset which has two or more significant components
with different useful lives is regarded as two assets for depreciation purposes.

Class by class basis

IAS 16 requires that the measurement model used (cost or fair value) for PPE should be consistent on a
class-by-class basis

A class of PPE is a grouping of assets of a similar nature and use in an entity’s operations. Based on this
definition, it is likely that property (or ‘land and buildings’) would form one distinct class of PPE and that
plant and equipment would form another class.

Therefore, it is perfectly consistent with IFRS for property to be measured under the revaluation (fair
value) model and plant and equipment to be measured under the cost model.

IAS 19 Employee benefits

Defined contribution plan

Liability of an entity is limited to the payment of contributions into the plan. Delta has no responsibility
for the adequacy of the plan or payments to the former employees.

Therefore, the contributions payable by the entity for the period of $.... will be shown as an
employment expense in the statement of profit or loss.

The current service cost is irrelevant to the financial reporting of amounts relating to a defined
contribution plan.

The benefits paid to the former employees are paid by the plan and so are not relevant to Delta. Neither
is the fair value of the plan asset.

Defined benefit plan

The difference between the present value of the obligation and the fair value of the plan assets is
reflected in the statement of financial position of Delta as a net liability or a net asset.

Therefore, the statement of financial position of Delta will record a net liability of $..... This will be
shown as a non-current liability.

Since, Delta has a constructive obligation to fund any deficits, it is appropriate to recognize a net interest
cost in SOPL. This is the net of the interest cost on the liability and the interest income on the assets.

The benefits paid to the former employees are paid by the plan and so are not relevant to Delta

This liability or asset would be adjusted for any remeasurements by the actuary, and gain or loss will be
recognized in OCI.

Remeasurements are not reclassified to profit or loss in future period. Such gain or loss is referred to in
IAS 19 as actuarial gain or loss

Prepayment
The difference of $2·1 million between the amount lent and the financial asset will be regarded as an
employee benefit under IAS 19 Employee Benefits, and recognized as an expense over the two-year
period.

Therefore, an employment expense of $.... would be recognized in the statement of profit or loss

The residual difference of $..... would be recognized as a deferred employee compensation prepayment
in the statement of financial position. The prepayment will be shown as a current (non-current) asset

IAS 21 - The Effects of Changes in Foreign Exchange Rates

Foreign currency transaction is covered under IAS 21 – the effects of changes in foreign exchange rates.

PPE (inventory) should be measured initially with its associated liability using exchange rate at the date
of transaction is recognized.

Liability should be remeasured using spot rate (closing rate) at the payment date (reporting date), the
liability is settled at…., this will cause exchange gain or loss for..... recognized in profit or loss as
operating expense

PPE is measured using revaluation model, the closing carrying amount will be its fair value using
crowns translated into $.

Exchange difference depends on where the underlying revaluation difference would be recognized
under the relevant IFRS Accounting Standards. If this is in other comprehensive income, then the
exchange component of the revaluation would also be in other comprehensive income

Because PPE is a non-monetary item which is measured under the cost model, its carrying amount will
not be affected by future currency fluctuations.

Inventory is non-monetary item so it will not be retranslated, however under IAS 2 the inventory should
be measured using the lower of cost or NRV

A monetary item is one which is realizable or payable for a fixed or determinable monetary amount.

IAS 24 - Related party disclosures

The relevant standard for this scenario is IAS 24 – related party disclosures. IAS 24 requires disclosure of
related party transactions and outstanding balances in consolidated financial statement.

IAS 24 states that a director of an entity is a member of the key management personnel (KMP) of that
entity. Key management personnel are automatically related parties.

IAS 24 further states that close family members of the related parties of an entity are themselves related
parties.
Disclosures

Disclosures required relating to Gower in the consolidated financial statements would be the nature of
the related party relationship, the amounts of transactions in the period, and the amount of any
outstanding balances with Gower (The related party) at the year end.

Despite, the transactions with Gower are not quite significant to Omega, transaction might need to be
disclosed in the consolidated financial statements of Omega to enable the users to assess their
significance. (IAS 24 regards related party relationships as material by their nature so the fact that the
transaction is financially insignificant and ordinary to the entity is not relevant in terms of requiring the
disclosure.)

(Dixon is not a related party of Omega, so disclosure of transactions and balances would only be
necessary if this was considered relevant to the overall understanding of the consolidated financial
statements)

IAS 28 - Investment in associates and joint ventures

Under the principles of IAS 28 – Investments in Associates and Joint Ventures – the 40% shareholding in
Sandy, being greater than 20%, would be presumed to give us significant influence over the operating
and financial policies of Sandy.

Given the fact that we are able to appoint four of the ten members of Sandy’s board of directors, and
there is no evidence that the other shareholders or board members are acting in concert to prevent us
from exercising this influence, then the presumption of significant influence would appear to be
appropriate in this case.

IAS 28 requires investor to account for investment in associated under equity method in his
consolidated financial statements

Under equity method, investment in associate is shown at cost plus share of post-acquisition change in
net asset of the associate.

The post-acquisition increase in the carrying amount of investment is shown in profit or loss and other
comprehensive income.

The increase in the carrying amount of Omega’s investment in Newco implies that, since acquisition, the
net assets of Newco have increased by $ and Newco’s share of this increase is $

This means that the carrying amount of $million for the investment in Newco is not necessarily the value
of the shares at the year end. This value will be determined by market forces

Intra group transaction

If there are transactions between the associate and the investor, then any profits made by either party
are eliminated to the extent of the investor’s share in the associate.
Impairment of goodwill

If, at the year end, the investment in the associate has suffered impairment, then the investment should
be written down to its recoverable amount.

IAS 36 - Impairment losses

IAS 36 requires that assets are reviewed for impairment whenever indicators of impairment are present.

An impairment review involves comparing the carrying amount of an asset with its recoverable amount.
The recoverable amount of an asset is the higher of its value in use and its fair value less costs of
disposal.

Impairment of goodwill

IAS 36 – impairment of assets – requires that goodwill is tested annually for impairment as part of cash
generating unit (CGU)

Where non-controlling interest is initially measured using proportionate share of net asset, IAS 36
requires goodwill is notionally grossed up for impairment testing purpose.

In this case, the goodwill will be grossed up to $...., and the carrying amount of CGU is $....

Because the goodwill used in impairment calculation was notionally grossed up, only share of the group
of this loss need to be recognized.

IAS 37 - Provisions Contingent Liabilities and Contingent Assets

Initial measurement of provision

IAS 37 further states that, when a provision is recognized, it is measured at the amount the entity would
pay to settle the obligation at the end of the reporting period.

Where there is uncertainty regarding the exact amount of the outflow of economic benefits and there
are a finite number of discrete possibilities, IAS 37 requires that the individual most likely outcome be
recognized as a provision.

How to distinguish potential liability from other liability

IAS 37 defines liability as a present obligation arising from past event, the settlement of which is
expected to result in an outflow from entity’s resources embodying economic benefits. Provision is a
liability of uncertain timing and amount.

So, the uncertainty distinguishes provision (potential liability) from trade payable and loans.

Is the debit side is always goes to profit or loss

Where a provision is recognized, the debit entry is not always to profit or loss. For example, when a new
mine is opened with an associated obligation for future environmental clean-up, then the associated
provision is shown as part of the cost of the relevant asset

Contingent liability

A potential liability which is not recognized, either because the potential obligation is possible, but not
probable, or because the potential outflow of economic benefits is possible, but not probable, is known
as a contingent liability.

Details of contingent liabilities are disclosed in the notes to the financial statements. This would not
apply if the possibility of an outflow of economic benefits was remote, in which case no disclosure is
required.

Legal case

Provisions are covered by IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 states
that for a provision to be recognized, an obligating event must have incurred before the year end. In this
case, both customer A and B were sold the product before the year end so an obligating event has
occurred.

IAS 37 further states that a provision is only recognized when there is a probable outflow of economic
benefits. IAS 37 interprets ‘probable’ to be 50% or more. This is only the case with the supply to
customer A, so it is correct to only recognize a provision for customer A’s claim.

IAS 37 also states that any provision should be measured based on the best estimate of the likely
outflow of economic benefits. In this case, this amount is $...

Any liability arising from the legal case brought by customer B would be regarded as a contingent
liability because there is only a possible (rather than a probable) chance of an outflow of economic
benefits. In this case, it is dealt with by disclosure, rather than provision.

In addition to the recognition of a provision in the case of customer A’s claim, it is also necessary to
disclose key facts relating to the case in the notes to the financial statements.

The possible recovery of funds from the insurance company would be regarded as a contingent asset.
This would always be the case for possible assets unless it is virtually certain (rather than highly
probable) that there will be an inflow of economic benefits. Where there is a probability of an inflow of
funds relating to a contingent asset, then this is dealt with by disclosure under IAS 37.

IAS 38 - Intangible assets

Research and development

IAS 38 does not allow any expenditure on a research and development project to be recognized as an
asset until the technical feasibility and commercial viability of the project has been established.
After the technical feasibility and commercial viability of the project has been established, expenditure
which has previously been shown as an expense in profit or loss cannot be restated as an intangible asset.

Recognition of intangible asset

The accounting treatment of intangible assets is regulated by IAS 38 – Intangible Assets.

Under IAS 38, the accounting treatment of intangible assets depends on how they arose

The intangible assets of acquired subsidiaries were acquired as a result of a business combination and
the initial recognition requirements are contained in IFRS® 3 – Business Combinations.

When a new subsidiary is acquired, the purchase consideration needs to be allocated to the identifiable
assets and liabilities of the acquired subsidiary.

A brand name (or any other intangible asset for that matter) is regarded as identifiable if it is separable
(can be sold without selling the whole business) or arises from contractual or other legal rights.

Identifiable intangible assets associated with an acquired subsidiary can be recognized separately in the
consolidated financial statements provided their fair value can be reliably estimated.

brand is an internally developed brand.

IAS 38 does not allow the recognition of internally developed brands because of the inherent difficulties
involved in identifying and measuring them.

This explains why the Omega brand is treated differently compared to the brands of acquired
subsidiaries

Fair value measurement

The use of the fair value model for intangible non-current assets is restricted to those assets which are
traded in an active market. This is relatively uncommon in the case of intangibles. It is most unlikely that
brand names would be traded in such a market, so the fair value model is unlikely to be available here.

IAS 40 – Investment Properties

In the specific case of properties, fair values could be estimated based on the market prices of similar
properties which had recently been sold on the open market in the same location.

This estimate would need to reflect alternative uses to which the property could be put compared with
its current usage.

This is because IFRS 13 requires us to base fair value measurement on the highest and best use to
which the property could be put and which ‘market participants’ would consider in making a decision to
acquire the property.
IAS 41 - Agriculture

The intermediate carrying amount of the herd before the year-end revaluation will be $....

The carrying amount of the herd at 31 March 20X5 after revaluation will be $...

The change in the carrying amount of the herd due to the year-end revaluation of $.....will be shown as
an expense in the statement of profit or loss.

The herd will be shown as a non-current asset in the statement of financial position and disclosed
separately.

The milk held by at the year-end will be regarded as harvested produce.

Under the principles of IAS 41, harvested produce is recognized in inventory at an initial carrying amount
of fair value less costs to sell at the point of harvesting.

In this case, the initially recognized amount will be $.... This will be the ‘cost’ of the inventory which will
henceforth be accounted for under IAS 2 – Inventory

The inventory of milk will be shown as a current asset in the statement of financial position of Delta. The
market price of milk is not expected to decline in the near future so there is no need for a write-down to
net realizable value.

Recognition criteria

Biological asset is recognized when:

- Asset is controlled by the entity as a result from past events

- It's probable that the future economic benefits will flow to the entity
- Fair value or cost can be measured reliably

Initial and subsequent measurement of biological asset

Under IAS 41 biological assets are initially measured at fair value less cost to sale, however the
difference between cost of purchasing and fair value less cost to sell is charged to profit or loss.

Biological assets should be subsequently measured at fair value less cost, and the difference between
fair value is recognized at profit or loss.

Died and newly born biological assets

The died biological asset should be derecognized with its cost and debt this amount to profit or loss.

Newly born biological asset is measured at fair value less cost to sell and credit this amount to profit or
loss.

If the fair value cannot be measured reliably, the cost model can be used then.

Agriculture produces
Agriculture produces are measured at point of harvest at fair value less cost to sell and to be credit to
profit or loss, agriculture produce will then be presented and treated under IAS 2 inventory.

IFRS 2 Share-based payment

Market and non-market conditions

A market based vesting condition is taken into account by reflecting it in the measurement of the fair
value of the option. It does not need to be considered subsequently as to do so would result in double-
counting.

A non-market condition is taken into account by reflecting it in the calculation of the number of options
ultimately expected to vest.

Equity-settled

Under IFRS 2 – share-based payment - the arrangement is equity-settled share-based payment, since it
potentially involves issue of equity instrument.

Where the award depends on future actions of employee, then the award is subject to vesting
conditions.

The cost of award should be recognized in profit or loss over vesting period based on best available
estimate of number of equity instrument expected to vest.

The cost of award should be measured using the fair value of equity instrument granted at the grant
date.

The modification to the terms of the arrangement which takes place on 1 April 20X5 will be an additional
cost which will be recognized over the remaining vesting period. This additional cost will be based on the
increase in the fair value of an option caused by the modification.

in this case additional expected cost is $..... The cost to be recognized in profit or loss for the year ended
30-Sep-15 is $....and so the total charge to profit or loss for the year ended 30 September 20X5 in
respect of the arrangement will be $.....

The cumulative total costs recognized to date will be shown in the equity section of the statement of
financial position at…...

Cash-settled

The remuneration expense and corresponding liability is recognized over vesting period based on number of shares
expected to vest on vesting date. cash-settled share based-payment entity should recognize remuneration expense
with a corresponding increase in liability based on fair value of liability at the year end.
the cumulative amount recognized in profit or loss up to $…..in respect of the original arrangement
will be…. and the actual amount recognized for the year ended $…. will be $….
The cumulative total costs recognized to date will be shown in the equity section of the statement of
financial position at….

)‫(خلي بالك من التواريخ خصوصا التعديالت‬

Share-based payment with choice of settlement

Compound financial instrument should be split into debt component and equity component.

Equity component is computed by deducting fair value of share alternative from fair value of cash
alternative both at the grant date leaving residual fair value for equity component.

The fair value of equity settled as part of transaction is $...

Once debt component and equity component have been established, the accounting treatment for each
follows that for a cash settled scheme and equity settled scheme respectively.

Equity settled transaction should be recognized as remuneration expense over the three years vesting
period based on fair value at the grant date and number of shares expected to vest at vesting period

Therefore, for equity settled transaction, a remuneration expense is recognized for $.... The credit will
be increase in equity and presented in statement of financial position this will not be remeasured.

The remuneration expense associated with liability component of the arrangement is also recognized
over vesting period based on number of shares expected to vest at vesting date and fair value of liability
component at reporting date

Therefore, the total remuneration expense recognized

The corresponding credit side of $.....is presented in statement of financial position as non-current
liability.

IFRS 3 Business combinations

The subsidiary was acquired as a business combination. Accounting for business combinations is dealt
with by IFRS 3 – Business Combinations.

IFRS 3 requires the difference between fair value consideration transferred and fair value of net asset
acquired is recognized as goodwill arising on acquisition.

(the goodwill on acquisition of subsidiary X is the sum of the purchase consideration plus the non-
controlling interest less the fair value of the identifiable net assets at the date of acquisition.)

IFRS 3 requires that the assets and liabilities of a newly acquired subsidiary are separately identified and
measured at fair value.

Therefore, the brand name can be measured reliably at fair value. Brand name of (name of subsidiary)
should be recognized in consolidated financial statements of (name of Parent).

The carrying amount of Bern’s property, plant and equipment in the consolidated financial statements
of Omega would be based on its fair value at the date of acquisition by Omega.
Goodwill at acquisition

Under IFRS 3 – business combinations – the goodwill on acquisition is the sum of fair value of
consideration transferred and non-controlling interest less net asset at acquisition date.

Non-controlling interest is measured using proportionate share of net asset under IFRS 3, this means
that non-controlling interest at acquisition is $...

IFRS 5 Non-current Assets Held for sale and Discontinued operations

Held for sale

Under the principles of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations – the
asset would be classified as ‘held-for-sale’ from ... This is because the asset is available for immediate
sale in its current condition, is being actively marketed at a reasonable price, and a sale is expected in
less than 12 months.

The asset is removed from non-current assets (PPE) and separately classified as a current asset on the
statement of financial position as a ‘held for sale’ asset

When an asset is classified as held-for-sale, it is measured at the lower of its current carrying amount
and its fair value less costs to sell. Held-for-sale assets are not depreciated after classification.

Disposal of subsidiary

Under the principles of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations –
Subsidiary A will be regarded as a discontinued operation by the Gamma group.

This is because subsidiary A is a component of the group which has been disposed of during the period
and which represents a separate major line of the business for the group

IFRS 5 requires that the Gamma group discloses a single amount in the statement of profit or loss and
other comprehensive income comprising the post-tax profit or loss of subsidiary A for the period up to
the date of disposal and the post-tax profit or loss on the disposal of subsidiary A.

This single amount is required to be analyzed in further detail but this analysis can be shown in the
notes to the financial statements

The post-tax profit or loss of subsidiary for the year to the date of disposal will be $.....

Given that subsidiary A was a 75% subsidiary, $... of this amount will be attributed to the non-controlling
interests in subsidiary A.

The consolidated post-tax profit on disposal will be $.....

The total amount to be shown as a discontinued operation will be $......

IFRS 6 - Exploration for and Evaluation of Mineral Resources

The relevant standard for this scenario is IFRS 6 – Exploration and for Evaluation of Mineral Resources.

IFRS 6 only applies to exploration and evaluation expenditure relating to a specific period. IFRS 6
identifies this period as being the period after legal rights have been obtained to explore a specific area
but before the technical feasibility and commercial viability of the relevant mineral resource is
demonstrated.

IFRS 6 allows entities to determine their own accounting policy specifying which types of exploration
and evaluation expenditures should be treated as expenses and which as assets and apply the policy
consistently.

Any exploration and evaluation assets should be classified as tangible or intangible, depending on their
nature. They are initially recognized at cost. They can then be measured using either the cost model or
the revaluation model.

IAS 38 requires research costs to be treated as expenses in profit or loss but requires development costs
which satisfy certain criteria be treated as intangible assets in the financial statements. You could argue
that the exploration and evaluation costs covered by IFRS 6 would more generally be described as
‘research costs’. As we have already stated, IFRS 6 allows entities to develop their own policies for the
treatment of such costs relating to this specific area. Once a particular ‘exploration and evaluation
project’ reaches the stage where the technical feasibility and commercial viability of the project has
been demonstrated, then any assets which had been recognized at this date would be assessed for
reclassification under the principles of IAS 38 or IAS 16 after assessing them for impairment.

IFRS 8 Operating segment

The relevant standard for this scenario is IFRS 8 – operating segment. IFRS 8 requires entities to which it
applies to provide segmental disclosures based on its operating segment.

IFRS 8 is only compulsory for listed entities. Unlisted entities may choose to provide segmental
disclosures but if they do so, these disclosures must be made in accordance with requirements of IFRS
8.

Operating segment is a business component for which discrete financial information is available and
whose operating results are regularly reviewed by chief operating decision maker.

Chief operating decision maker is a person (or persons) that allocates resources and assess
performance.

IFSR 8 requires all entities to provide details of revenue by geographical area and by product type and
non-current asset by geographical area.
However, geographical disclosures are not required if the information available could be made on
excessive cost. This fact, however must be disclosed.

Criteria

Given that NewSub is now part of the Omega group, then disclosures relating to its operating segments
would be required in theory in the consolidated financial statements of Omega.

the operating segments of…… would need to meet the criteria for them to be reportable in the
consolidated financial statements.

These criteria are that the operating segments would be regularly reviewed by the chief operating
decision maker and they are material in the context of the Omega group.

In this context, ‘material’ means that the reported revenues, profits or assets of the segment are 10% or
more of the combined reported revenues, profits or assets of all of the operating segments of the
Omega group

Notwithstanding the quantitative thresholds, however, IFRS 8 permits entities to disclose information
about operating segments if, in the judgement of management, such information would be useful to
users

IFRS 9 financial instrument

Amortized cost

IFRS 9 state that financial asset should be measured initially at fair value.

The financial asset therefore is recognized initially at $....

Since the cash flows expected from the loan asset are known in timing and amount and Delta expects to
retain the asset to collect cash flow as they fall down. The financial asset should be measured at
amortized cost

This means that Delta should recognize finance income for $...... at profit or loss

The carrying amount of financial asset is $…… recognized in statement of financial position

This amount will be shown as current (non-current) assets

Convertible debt

Under IAS 32 convertible debt should be spilt into liability component and equity component by
computing the liability element and deriving the equity element as the balancing figure.

Debt component is computed by discounting the amount payable in the future using market rate.

Transaction costs should be deducted from both equity component and debt component in proportion to their
carrying amount before such deduction.
The equity component for $…… will be unchanged from 1 October 20X4 and will be presented in equity section in
statement of financial position as other component of equity.
The closing balance for debt component is $...... presented in statement of financial position as non-current liability.
Trading shares

Under IFRS 9 – financial instrument – the trading portfolio is a financial asset and should be measured at
fair value through profit or loss.

Under principal IFRS 13 – fair value measurement – the fair value measured would be the price where
Kappa could sell its shares. (bed price)

the shares will be remeasured using its fair value for $...... the difference between fair value on initial
measurement and subsequent measurement for $...... is recognized in statement of profit or loss
Cash flow hedge

IFRS 9 -financial instruments – the forward exchange contract is a derivative financial instrument and so
will be classified at fair value through profit or loss.

This normally means that gain or loss on remeasurement is recognized in profit or loss.

However, where the derivative contract is designated as cash flow hedge of future firm commitment,
IFRS 9 allows the effective portion of in the change in fair value to be recognized in other comprehensive
income. They will be presented as gains which may be subsequently reclassified to profit or loss.

Because the hedge is 100% effective then in this case the whole change in fair value of the derivative will
be recognized in other comprehensive income.

Under principal IFRS 9 given that hedge accounting is used, the cumulative gains on re-measurement of
the derivative recognized in other comprehensive income up to 30-June-14 would be included in the
carrying amount of property plant and equipment

This means that $160,000 will be debited to the cash flow hedge reserve and credited to PPE.

Inconsistency

IFRS 9 allows entities to irrevocably designate at the date of initial recognition any financial asset at fair
value through profit or loss to reduce a measurement inconsistency.

IFRS 10 Consolidated financial statements

Uniform accounting polices

According to IFRS 10 – Consolidated Financial Statements – consolidated financial statements should be

prepared using uniform accounting policies. If individual group entities prepare their financial
statements using accounting policies which differ from those of the parent, then appropriate
adjustments should be made when reflecting their assets, liabilities, profits and losses in the
consolidated financial statements.

Different reporting dates

FRS 10 states that the financial information relating to any subsidiary entity should normally be
prepared to the same reporting date as the reporting date of the parent entity.

Where a subsidiary has a reporting date which differs from that of the parent, then it is normally
necessary to prepare additional financial information relating to that subsidiary as of the same date as
the reporting date of the parent.

If this is not practicable, then IFRS 10 allows the parent to prepare consolidated financial statements
which incorporate financial information for the subsidiary drawn up to the most recent reporting date of
the subsidiary.

In such circumstances, IFRS 10 requires adjustments to be made for ‘significant’ transactions which
occur between the reporting date of the subsidiary and the reporting date of the parent.

The above facility is only possible where the reporting dates of the subsidiary and the parent differ by
three months or less

Therefore, it would be possible to use the financial statements of NewSub for the year ended ….to
prepare the consolidated financial statements of Omega for the year ended…..

there is no requirement for NewSub to change its year end following its acquisition by Omega but this
might make the consolidation process more straightforward in the future

IFRS 11 joint arrangements

The financial reporting treatment of this arrangement is governed by IFRS 11 – Joint Arrangements. IFRS
11 states that a joint arrangement is one of which two or more parties have joint control.

The arrangement between Delta and Drax is a joint arrangement because all the decisions relating to
the product must be agreed by both parties, so they have joint control.

Joint operation

An arrangement is a joint operation when the parties to the arrangement have rights to the assets and
obligations for the liabilities of the arrangement. This is the type of arrangement which Delta and Drax
have entered into.

When accounting for a joint operation, each operator includes its share of the assets, liabilities,
revenues and expenses of the operation.

This means that Delta will recognize the following amounts in the statement of profit or loss for the year
ended:

Delta will recognize the following amounts under current assets in the statement of financial position at:
Difference between joint operation and joint venture

The distinction between joint operation and joint control depends on whether the investor has direct
right and obligations connected with separate assets and liabilities of the arrangement or whether they
have interest in net assets of joint arrangement.

IFRS 13 - fair value measurement

fair value is an exit measure rather than an entry measure.

In the case of shares in a listed entity, for which a ‘buy’ and a ‘sell’ price is quoted, it is the ‘sell price’
which is relevant for fair value measurement.

fair value should be based on observable market prices.

If there is more than one ‘market’ on which the asset is traded, then fair value measurement should be
based on the principal market in which the asset is traded

Where no specific market prices are available for an individual asset, then IFRS 13 requires that fair
values are estimated using a range of possible approaches.

Non-financial assets

Under the principles of IFRS 13, the fair value of a non-financial asset is based on the highest and best
use for a potential purchaser, irrespective of the use to which the asset is being put by the use

IFRS 15 - Revenue from contract with customer

Sale with a right of return

(Under the principles of IFRS 15, revenue cannot be recognized on 1 April 20X7 because at that date the
consideration is variable, and the amount of the variable consideration cannot be reliably estimated)

To determine the timing and amount of revenue to be recognized, entity must identify the contract with
customer and identify the separate performance obligations.

Entity then should determine the transaction price. since the contract gives the customer right of return,
the transaction price contains a variable element.

Since the variable element can be reliably measured, then it is taken into account in measuring the
transaction price.

Transaction price should be allocated over separate performance obligation

(Entity shouldn't recognize revenue for goods expected to be returned, and recognize refund liability for
this amount)
Delta then needs to recognize the revenue as the performance obligation is satisfied. Since the
performance obligation is to supply the items to the customer, then the revenue is recognized in full on
1 March 20X5 when the items are delivered

Trade receivable is recognized for $.....

$..... is recognized as refund liability

The total cost of the goods sold is $.... This amount will be removed from inventory

Only $..... of the above amount will be recognized in cost of sales. The other $......will be shown as a right
of return asset under current assets.

The return of the six items during March 20X5 does not affect the initial recognition of revenue or cost
of sales since the original estimate of the total returns is still considered valid.

If the right has not been exercised the entity will derecognize the right of return asset and transfer it to
cost of sales. Additionally, it will derecognize the refund liability and transfer it to revenue

(If the entity cannot reliably estimate the revenue should not be recognized on that date, and
recognize only right of return)

Onerous contract

Since the future expected repair costs to the machine are $......and the future revenue to be recognized
under the repair and maintenance service is $......., then under the principles of IAS 37 – Provisions,
Contingent Liabilities and Contingent Assets – the contract has become an onerous contract.

Under the principles of IAS 37, Delta needs to make a provision on 30 September 20X5 for the net cost
of fulfilling the service. The net cost of fulfilling the service is $......

Financing component

The contract includes financing component since there's difference between the amount of promised
consideration and the selling price

The entity should recognize revenue and its related liability (at the amount of cash selling price/present
value of the amount received in future)

Interest income on the receivables should then be recognized under IFRS 9 Financial instrument.

Contract cost

IFRS 15 requires that the costs of fulfilling a contract should initially be recognized as assets and taken
to profit or loss on a systematic basis as goods or services are transferred to the customer.

In this case, it would appear that the costs incurred to date $..... of fulfilling the repair service should be
shown as a cost in profit or loss rather than as an asset in the statement of financial position
Timing of recognition

The timing of recognition of revenue under IFRS 15 – revenue from contracts with customers – depends
on the type of performance obligation the entity has under the contract with the customer.

Performance obligation is a distinct promise to transfer goods or services to customer.

IFRS 15 requires that revenue should be recognized when or as performance obligation is satisfied.

In many cases performance obligation is satisfied at a point in time (e.g. sale of goods in an orderly
transaction). in such cases revenue is recognized at the point control of the goods is transferred to
customer.

In some cases, performance obligations are satisfied over period of time (e.g. contract to construct
asset for use by customer). In such cases, proportion of total revenue is recognized in proportion of the
performance obligation which has been satisfied by the reporting date.

Measurement

Measurement of revenue depends on transaction price. Transaction price is the amount of

consideration entity expect to be entitled in exchange for promised goods or services to the customer.

In many cases, where the consideration for the transaction is fixed and payable immediately after the
revenue has been recognized (e.g. most sales of goods), the transaction price is the invoiced amount
less any sales taxes collected on behalf of third parties.

Where the due date for payment of the invoiced price is ‘significantly different’ (certainly more than 12
months) from the date of recognition of the revenue, then the time value of money should be taken into
account when measuring the transaction price. This means that the revenue recognized on the sale of
goods with deferred payment terms would be split into a ‘sale of goods’ component and a financing
component.

Where the total consideration due from the customer contains variable elements, then the transaction
price should be based on the best estimate of the total amount receivable from the customer as a result
of the contract

Sale with a volume discount

Transaction price contains a variable consideration as it depends on the volume of sales in the (number
of years) period

However, the entity can reliably estimate the outcome and that the volume discount threshold will not
be exceeded.

During the year ended 30 September 20X7, actual sales volumes and estimates change such that the
cumulative revenue should now be booked at $... per unit.

The revenue which will be recognized is $.... million for the year ended 30 September 2017 on profit or
loss

Output and input method

Output method: proportion of total value of contract complete

Input method: proportion of total expected costs of the contract incurred

The performance obligation would be regarded as being 52·9% satisfied

insufficient costs

IFRS 15 states that costs which were not originally envisaged when the contract was planned, and are
caused by inefficiencies or similar issues, should be charged to profit or loss as incurred rather than
being included as a ‘contract cost’. The same applies to any general or administrative overheads.

IFRS 16 Leases

IFRS 16 – Leases – requires a lessee to recognize a right-of-use asset in all circumstances other than for
very short leases (of one year or less) or for low value assets. A warehouse lease for five years is neither
of these, so recognition of a non-current asset will be required in our financial statements

Sale and lease back

Under IFRS 16 lessee de-recognizes the factory and recognizes right of use asset and lease liability.

The right of use asset is recognized at proportion of previous carrying amount of the asset related to the right of use
retained by the lessee. This proportion will be the ratio of the present value of the lease payments
compared with the fair value of the asset at the date of sale

The net result of derecognizing the factory and recognizing the right of use asset and lease liability is that Delta will
profit on sale for
Lessee accounting

IFRS 16 requires lease to be measured initially at the present value of lease payment discounted at the
interest rate implicit.

Lease liability subsequently increased by interest charges and reduced by lease payment

Interest expense is charged to the statement of profit or loss as finance cost.

Lease liability is presented separately in the statement of financial position as current liability for….. and
non-current liability for…..

Right of use asset is measured initially at cost which includes: present value of lease payment, any
payment made at/before the commencement date less any lease incentive, initial direct cost incurred
for arranging the lease, and dismantling cost.

Right of use asset is depreciated over the shorter of its useful life or lease term, however if the asset is
expected to be transferred at the end of lease term it should be depreciated over its useful life.

Right of use asset is presented separately at the statement of financial position as non-current asset.
Lessor accounting

Under IFRS 16 the lease of an asset by Delta to Epsilon is a finance lease because risks and rewards have
been transferred to Epsilon. Evidence of this includes the lease is for whole life of the life of asset and
Epsilon being responsible for repair and maintenance.

Since the lease is finance lease and Delta is the lessor then Delta will recognize financial asset ‘net
investment in lease’. The amount recognized will be the purchase cost of asset for $.... and the initial
direct cost for $..... resulted at total amount for $.... (the present value of minimum lease payment
which is $....)

Net investment is increased by finance income and decrease by annual payment received.

IFRS for SMEs

The ability to use the SMEs standards does not depend on the size of company but on whether or not
the entity is publicly accountable. It would appear that Minor is not publicly accountable.

Entities which are not publicly accountable have the right, but not the obligation, to use the SMEs Standard rather
than full IFRS standards. This could explain why Minor is using the SMEs Standard but Tiny is not.
The SMEs Standard contains less detailed reporting requirements than full IFRS standards and provides for more
straightforward accounting treatments in certain cases
A specific example of the above is that under the SMEs Standard, all research and development costs are charged
as an expense in the statement of profit or loss in all circumstances.
Even though Newby is now part of a group which will use full IFRS in its consolidated financial statements, Newby
would still be able to use the IFRS for SMEs in its own individual financial statements. Adjustments would of course
be required at consolidation level to make the consolidated financial statements fully IFRS standard compliant.
In future periods it might be beneficial to require Minor to use full IFRS standards in the preparation of its individual
financial statements to make the consolidation process more straightforward as no adjustments would be required.