Presentation on theme: "ANTONIO CARONAN CO HUANG PEDRO. Scope › Equity Settled - transactions where goods and services are acquired as consideration for equity instruments."— Presentation transcript:
Scope › Equity Settled - transactions where goods and services are acquired as consideration for equity instruments › Cash Settled- transactions where goods or services are acquired by incurring liabilities to the supplier for amounts that are based on the price (or value) of the entity’s shares or other equity instruments
IFRS for SMEsFull IFRS RecognitionRecognized when the entity obtains the goods or as services are received. Same as IFRS for SMEs Measurement – equity settled share-based Transactions WITH NON- EMPLOYEES Measured at fair value of the goods or services received. If the entity cannot estimate reliably these fair values, at the fair value of the equity instruments granted, ignoring any service or non-market vesting conditions. Same as IFRS for SMEs
IFRS for SMEsFull IFRS Measurement – equity settled share-based Transactions WITH EMPLOYEES Measured at the fair value of the instruments granted, ignoring any service or non- market vesting conditions. To measure FV of equity instrument: 1.Use of observable market prices. 2.Use of specific observable market data 3.Use of a generally accepted valuation technique Measured at grant date Measured at the fair value of the instruments granted, ignoring any service or non-market vesting conditions. To measure FV of equity instrument: 1.Available market prices 2.Use valuation technique Measured at grant date
IFRS for SMEsFull IFRS Measurement – cash settled share-based transactions Measured at the fair value of the liability. Liability is re-measured at each reporting date and at the date of final settlement, with any changes in fair value recognized in profit or loss. Same as IFRS for SMEs
Impairment - occurs when the carrying amount of an asset exceeds its recoverable amount.
IFRS for SMEsFull IFRS ScopeAssets not subject to impairment according to IFRS for SMEs: 1.Deferred tax assets 2.Employee benefit assets 3.Financial assets 4.Investment property carried at FV 5.Biological Assets carried at FV less estimated cost to sell In addition to those stated in the IFRS for SMEs, assets not subject to impairment according to IAS 36: 1.Inventories 2.Deferred acquisition costs 3.Intangibles arising from contractual rights under insurance contracts 4.Non-current assets classified as held for sale in accordance with IFRS5 *compared with IAS 36
IFRS for SMEsFull IFRS Impairment formula The recoverable amount of an asset is less than its carrying amount, the entity shall reduce the carrying amount of the asset to its recoverable amount. If it is not possible, an entity shall estimate the recoverable amount of the cash-generating unit to which the asset belongs. Same as IFRS for SMEs
The impairment loss shall be allocated to reduce the carrying amount of the assets in the following order: 1. Reduce the goodwill of the CGU 2. Then, to the other assets of the CGU pro rata on the basis of the carrying amount of each asset
HOWEVER, an entity shall not reduce the carrying amount of any asset in the CGU below the highest of: 1.FV les cost to sell, if determinable 2.Value in use, if determinable 3.Zero ANY EXCESS is allocated to the other assets of the CGU pro rata based on the carrying amount.
IFRS for SMEsFull IFRS Impairment losses An impairment loss is recognized immediately in the profit or loss. A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment, an investment property, or an intangible asset at, or before, the date of transition to this IFRS as its deemed cost at the revaluation date. Same as IFRS for SMEs, unless the asset is carried at revalued amount in accordance with another standard. In this case, the impairment loss is treated as a revaluation decrease in accordance with that other standard.
IFRS for SMEsFull IFRS Annual assessment of indicators Assets (including goodwill) are tested for impairment when there is an indication that the asset may be impaired. The existence of impairment indicators is assessed at each reporting date. The following assets are tested for impairment irrespective of whether there is indication of impairment: 1.Intangible assets with an indefinite useful life or an intangible asset not yet available for use. 2.Goodwill. All other assets: same as IFRS for SMEs.
IFRS for SMEsFull IFRS Indicators of Impairment EXTERNAL INDICATORS 1.Market value has declined significantly 2.Significant changes with an adverse effect on the entity 3.market rates of return on investments have increased 4.The carrying amount of the net assets of the entity is more than the estimated fair value of the entity as a whole Same as IFRS for SMEs. An additional indicator exists when the entity’s net asset value is above its market capitalization.
IFRS for SMEsFull IFRS Indicators of Impairment INTERNAL INDICATORS 1.Evidence is available of obsolescence or physical damage of an asset. 2.Significant changes with an adverse effect on the entity 3.Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. Same as IFRS for SMEs
IFRS for SMEsFull IFRS Recoverable Amount Recoverable amount is the higher of an asset’s (or CGU’s) fair value less costs to sell and its value in use. If either exceeds the carrying amount, it is not necessary to estimate the other amount. Same as IFRS for SMEs
IFRS for SMEsFull IFRS Value in useThe value in use is defined as the present value of the future cash flows expected to be derived from an asset or CGU. Future cash flows are estimated for the asset in its current condition. Cash inflows or outflows from financing activities and income tax receipts or payments are not included. Same as IFRS for SMEs, but more extensive guidance about future cash flows estimation.
The computation fro value in use shall not include: 1. Cash flows from financing activities 2. Income tax receipts and payments Cash flows measured based on current condition, so the following are not considered 1. Future restructuring 2. Enhancements and Improvements
The discount rate should be: 1. Pretax and reflects the time value 2. Reflects the risks specific to the asset
IFRS for SMEsFull IFRS Fair value less costs to sell The fair value less costs to sell based on a hierarchy: 1.A price in a binding sale agreement in an arm’s length or market price in an active market, less costs of disposal. 2.Best available information to reflect the amount that an entity could obtain at the reporting date from disposal of the asset in an arm’s length transaction less costs of disposal. Same as IFRS for SMEs
IFRS for SMEsFull IFRS Allocation of goodwill Goodwill is allocated to the CGUs that are expected to benefit from the synergies of the combination. If such allocation is not possible and the reporting entity has not integrated the acquired business, the acquired entity is measured as a whole when testing goodwill impairment. If the acquired business is integrated, the entire group of entities is considered when testing goodwill impairment. Same as IFRS for SMEs Note: ‘integrated’ means that the acquired business has been restructured or dissolved into the reporting entity or other subsidiaries
IFRS for SMEsFull IFRS Reversal of Impairment At each reporting date after recognition of the impairment loss, an entity assesses whether there is any indication that an impairment loss may have decreased or may no longer exist. The impairment loss is reversed if the recoverable amount of an asset (CGU) exceeds its carrying amount. The amount of the reversal is subject to certain limitations. Goodwill impairment can never be reversed. Similar to IFRS for SMEs; However, includes more detailed guidance and distinction of reversal of impairment for an individual asset, a CGU and goodwill.
Limitation for reversal of impairment for an individual asset: The reversal shall not increase the carrying amount above what it would have been, after depreciation and amortization, had no impairment loss been recognized in the previous periods.
For a CGU: Reversal shall not increase the carrying amount of any asset above the lower of: 1. Its recoverable amount 2. The carrying amount that would have been determined, after depreciation and amortization, had no impairment loss been recognized in the previous periods
IFRS for SMEsFull IFRS Employee benefits Employee benefits are all forms of consideration given by an entity in exchange for services rendered by its employees. Short-term employee benefits (such as wages, salaries, profit- sharing and bonuses). Termination benefits (such as severance and redundancy pay). Post-employment benefits (such as retirement benefit plans). Other long-term employee benefits (such as long-term service leave and jubilee benefits). Same as IFRS for SMEs.
IFRS for SMEsFull IFRS Short-term employee benefits The costs of short-term employee benefits are recognised as a liability after deducting the amounts that have been paid to the employees in the period in which the employees have rendered their service. The amounts recognised are measured at the undiscounted amount of benefits expected to be paid in exchange for that service. Similar to IFRS for SMEs.
IFRS for SMEsFull IFRS Post- employment benefits Post-employment benefits are provided to employees either through defined contribution plans or defined benefit plans. Similar to IFRS for SMEs.
IFRS for SMEsFull IFRS Distinction between defined contribution (DC) plans and defined benefit (DB) plans A DC plan is a post- employment plan under which the reporting entity pays fixed contribution into a separate entity. The reporting entity has no legal or constructive obligation to pay further contributions if the plan does not hold sufficient assets to pay all employees the benefits relating to employee service in the current or prior periods. A DB plan is a post- employment plan that is not a DC plan. Similar to IFRS for SMEs.
IFRS for SMEsFull IFRS Measurement of defined contribution plans The contribution payable for a period by the employer to the fund is recognised as a liability for a DC plan after deducting any amount already paid. Similar to IFRS for SMEs; however, if the contributions to a DC plan do not fall due wholly within 12 months after the end of the period, the future contributions are discounted.
IFRS for SMEsFull IFRS Defined benefit plans An entity recognises a liability for its obligation under DB plans net of plan assets; it recognises the net change in that liability during the period as the cost of its DB plans during the period. Actuarial gains or losses can be recognised immediately or deferred using the ‘corridor’ method(whereby gains and losses are amortised into profit or loss over the expected remaining lives of participating employees). Past-service costs are recognised in profit or loss on a straight-line basis over the average period until the plan amendments vest.
IFRS for SMEsFull IFRS Defined benefit liability The DB liability is the net total of: The present value of the DB obligation at the end of the reporting period; Less the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly. The DB liability is the net total of: The present value of the DB obligation at the end of the reporting period; Plus any actuarial gains (less any actuarial losses) not recognised due to the corridor method; Minus any unrecognised past service costs; Minus the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.
IFRS for SMEsFull IFRS Actuarial valuation method The use of an accrued benefit valuation method is required if the information that is needed to make such a calculation is already available, or can be obtained without undue cost or effort. If not, an alternative method is permitted in which future salary progression, future service and possible mortality during an employee’s period of service are not considered. The use of an accrued benefit valuation method is required for calculating DB obligations.
IFRS for SMEsFull IFRS Expected return on plan assets No distinction between expected and actual return on plan assets. All changes in the fair value of plan assets are recorded in profit or loss. The expected return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the related obligation. It reflects changes in the fair value of plan assets as a result of actual contributions and benefits paid. The difference between actual and expected returns on plan assets is an actuarial gain or loss.
IFRS for SMEsFull IFRS Components of the cost of a defined benefit plans Defined benefit plan expense includes: Current-service cost. Interest cost. The actual return on plan assets. Actuarial gains and losses (on liabilities) arising in the period The effect of a new plan or changes to an existing plan during the period. The effect of any curtailments or settlements. Similar to IFRS for SMEs; except that the return on plan assets is split between the expected return and an actuarial gain/loss.
IFRS for SMEsFull IFRS Actuarial gains and losses Actuarial gains and losses on liabilities are recognised in full in profit or loss or in other comprehensive income (without recycling) in the period in which they occur. Actuarial gains and losses arise on both assets and liabilities. They may be recognised immediately (either in profit or loss or in other comprehensive income) or amortised into profit or loss over a period not exceeding the expected remaining working lives of participating employees.
IFRS for SMEsFull IFRS Past-service costs Past-service costs are recognised in full in profit or loss in the period in which they occur. Past-service costs are recognised as an expense on a straight-line basis over the average period until the plan amendments vest. To the extent that benefits are vested as of the date of the plan amendment, the cost of those benefits is recognised immediately in profit or loss.
IFRS for SMEsFull IFRS Curtailments and settlements Gains and losses on the curtailment or settlement of a defined benefit plan are recognised in profit or loss when the curtailment or settlement occurs. Similar to IFRS for SMEs. However, full IFRS includes more detailed guidance in clarifying the term ‘curtailment’ and ‘settlement’. Full IFRS also requires the acceleration of related unrecognised gains/losses.
IFRS for SMEsFull IFRS Termination benefits Termination benefits are recorded when management is demonstrably committed to the reduction in workforce. Management is demonstrably committed to a termination when it has a detailed formal plan for the termination and is without realistic possibility of withdrawal. Full IFRS includes further guidance on the minimum requirement of a detailed plan.
Areas covered in IFRS but not in IFRS for SMEs include: Defined benefit plans that share risks between various entities under common control. Asset ceiling test. Detailed guidance on the measurement of defined benefit obligation.
True or False Liabilities arising from cash settled share based transactions are re-measured at each reporting date but not on the date of final settlement.
FALSE Re-measured at each reporting date and at the date of final settlement. IFRS for SMEs 26.14
True or False The full IFRS, like the IFRS for SMEs, provides a three tier hierarchy for measuring the fair value of the equity instrument.
False Only in the IFRS for SMEs IFRS for SMEs 26.9 to 26.10
The following are indicators of impairment for SMEs except: a) Significant decline in an asset’s market value b) Entity’s net asset value is above its market capitalization c) Increases in market interest rates d) Obsolescence
b. Entity’s net asset value is above its market capitalization Only for Full IFRS. IAS 36.12
True or False In the IFRS for SMEs, goodwill is tested for impairment irrespective of whether there is an indicator.
False Assets (including goodwill) are tested for impairment when there is an indication at each reporting date that the asset may be impaired. IFRS for SMEs 27.7
True or False The defined benefit liability of SMEs is the net total of the present value of the DB obligation at the end of the reporting period less the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.
True or False For both full IFRS and IFRS for SMEs, actuarial gains and losses on liabilities are recognised in full in profit or loss or in other comprehensive income (without recycling) in the period in which they occur.