1. 1 International Financial Reporting Standards IFRS for SMEs IFRS Foundation-World Bank 18–20 October 2011 Sarajevo, Bosnia and Herzegovina Copyright © 2010 IFRS Foundation. All rights reserved.

2. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 2 The IFRS for SMEs Topic 2.2(b) Quiz and Discussion Section 12 Other Financial Inst. Issues Section 22 Liabilities and Equity Michael Wells

3. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 3 Section 12 – Quiz and discussion Question 9: Which of the following is within the scope of Section 12? a.Bank loan payable, interest at LIBOR + 2% b.Financial instrument that is designated as a hedging instrument under IFRS for SMEs c.Quoted fixed-interest bond d.Obligation to pay employees 20% of profits each year, payment 6 mos. after year-end e.Obligation under a finance lease to pay lessor fixed amount for 10-year lease term

4. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 4 Section 12 – Quiz and discussion Question 9: Which is within scope of Section 12? a.Bank loan payable, interest at LIBOR + 2% b.Financial instrument that is designated as a hedging instrument under IFRS for SMEs c.Quoted fixed-interest bond d.Obligation to pay employees 20% of profits each year, payment 6 mos. after year-end e.Obligation under a finance lease to pay lessor fixed amount for 10-year lease term

5. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 5 Section 12 – Quiz and discussion Question 10: Which of the following are within the scope of Section 12 (must measure at FTVPL)? a.Trade receivables b.5% holding in non-puttable ordinary shares of another entity c.30% holding in non-puttable ordinary shares of an entity over which we have significant influence d.Contract to purchase 100,000 US dollars four months from now at fixed price of 3.5 Ringgit (our functional currency is the Ringgit)

6. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 6 Section 12 – Quiz and discussion Question 10: Which of the following are within the scope of Section 12 (must measure at FTVPL)? a.Trade receivables b.5% holding in non-puttable ordinary shares of another entity c.30% holding in non-puttable ordinary shares of an entity over which we have significant influence d.Contract to purchase 100,000 US dollars four months from now at fixed price of 3.5 Ringgit (functional currency is Ringgit)

7. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 7 Section 12 – Quiz and discussion Question 11: Which of the following contracts are within the scope of Section 12? a.Contract to buy a property in UK in 6 months that provides for additional payment of 10% of the purchase price if the CPI in UK increases by 1% in the 6 month period b.Contract to buy a property in UK in 6 months that provides for additional payment of 1% of the purchase price if the CPI in UK increases by 1% in the 6 month period Two more choices on next slide...

8. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 8 Section 12 – Quiz and discussion Question 11: Two more choices... c.Contract to sell a property in 6 months that could result in a loss to the seller if the buyer defaults due to financial difficulties d.Contract to sell a property in 6 months to an overseas buyer for 1,000,000 that could result in a loss to the buyer if the currency in the buyer's jurisdiction depreciates against CU during the 6 month period

9. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 9 Section 12 – Quiz and discussion Question 11: Which of the following contracts are within the scope of Section 12? a.Contract to buy a property in UK in 6 months that provides for additional payment of 10% of the purchase price if the CPI in UK increases by 1% in the 6 month period This contract imposes a leveraged (ie speculative) inflation risk on the buyer (note contrast with choice b).

10. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 10 Section 12 – Quiz and discussion Question 12: 1/1/X0 SME buys 100 share options for 2,000 cash. The options permit SME to buy shares in a listed entity XYZ for 50 per share at any time during the next 2 years. Bank charges a fee of 20. On 1/1/X0 XYZ's share price is 44. At what amount should SME initially measure the options? a.1,900 b.1,980 c.2,000 d.2,020 e.4,040

11. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 11 Section 12 – Quiz and discussion Question 12: At what amount should SME initially measure the options? a.1,900 b.1,980 c.2,000 Initially measure at FV which is usually the transaction price (¶12.7). 20 fee is expensed because will measure at FVTPL. d.2,020 e.4,040

12. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 12 Section 12 – Quiz and discussion Question 13: Same facts as Q12. At 31/12/X0 SME has not yet exercised the option; XYZ share price is 47; fair value of option is 2,500. At what amount should SME measure the options at 31/12/X0? a.1,980 b.2,000 c.2,020 d.2,500 e.4,700

13. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 13 Section 12 – Quiz and discussion Question 13: Same facts as Q11. At 31/12/X0 SME has not yet exercised the option; XYZ share price is 47; fair value of option is 2,500. At what amount should SME measure the options at 31/12/X0? a.1,980 b.2,000 c.2,020 d.2,500 Subsequent measurement at fair value (¶12.8) e.4,700

14. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 14 Section 12 – Quiz and discussion Question 14: Which of following risks is not eligible for hedge accounting under IFRS for SMEs? a.Interest rate risk in debt instrument measured at amortised cost b.FX risk in debt instrument measured at amortised cost c.FX risk in a firm commitment d.Interest rate risk in a firm commitment e.FX risk in a net investment in a foreign operation

15. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 15 Section 12 – Quiz and discussion Question 14: Which of following risks is not eligible for hedge accounting under IFRS for SMEs? a.Interest rate risk in debt instrument measured at amortised cost b.FX risk in debt instrument measured at amortised cost. FX gain/loss hits P&L under ¶30.10. Derivative hedging instrument is also FVTPL. c.FX risk in a firm commitment d.Interest rate risk in a firm commitment e.FX risk in a net investment in a foreign operation

16. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 16 Section 12 – Quiz and discussion Ques. 15: SME has inventory it plans to sell in 3 months. SME is worried about price decline during the 3 months and so enters into forward contract to hedge price risk of its inventory. Relationship meets conditions for hedge accounting and SME documents the hedge. What is the accounting? a.Recognise forward contract as an asset or liability at FV and change in FV in P&L. Recognise the change in FV of the inventory in P&L and as an adjustment to the carrying amount of the inventory. More choices next slide...

17. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 17 Section 12 – Quiz and discussion Question 15: Answer choices, continued... b.Recognise forward contract as an asset or liability at FV and change in FV in OCI. Recognise the change in FV of the inventory in OCI and as an adjustment to the carrying amount of the inventory. c.Recognise forward contract as an asset or liability at FV and the change in the FV of the forward contract in OCI. Do not recognise the change in the FV of the inventory as inventory is measured at cost.

18. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 18 Section 12 – Quiz and discussion Ques. 15: What is the accounting? a.Recognise forward contract as an asset or liability at FV and change in FV in P&L. Recognise the change in FV of the inventory in P&L and as an adjustment to the carrying amount of the inventory. Note that the inventory is adjusted even though its carrying amount is historical cost.

19. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 19 Section 22 – Quiz and discussion Question 16: A financial instrument that is designated as a hedging instrument is always measured at Fair Value Through Profit or Loss under Section 12? a.True b.False

20. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 20 Section 22 – Quiz and discussion Question 16: A financial instrument that is designated as a hedging instrument is always measured at Fair Value Through Profit or Loss under Section 12? a.True b.False. If it is a hedge of interest in a recognised financial instrument, or hedge of firm commitment or forecast transaction, hedging instrument is measured at FV through OCI, with subsequent recycling.

21. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 21 Section 22 – Quiz and discussion Question 17: An entity measures equity instruments it has issued at: a.Cost b.Market value of a similar instrument c.Fair value of the cash or other resources received or receivable

22. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 22 Section 22 – Quiz and discussion Question 17: An entity measures equity instruments it has issued at: a.Cost b.Market value of a similar instrument c.Fair value of the cash or other resources received or receivable

23. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 23 Section 22 – Quiz and discussion Question 18: On the balance sheet, an entity presents non-controlling interest in consolidated subsidiaries: a.Within equity b.Within liabilities c.Between liabilities and equity d.Accounting policy choice of (a) or (c) above (choice must be applied consistently from year to year)

24. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 24 Section 22 – Quiz and discussion Question 18: On the balance sheet, an entity presents non-controlling interest in consolidated subsidiaries: a.Within equity b.Within liabilities c.Between liabilities and equity d.Accounting policy choice of (a) or (c) above (choice must be applied consistently from year to year)

25. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 25 Section 22 – Quiz and discussion Question 19: On 20/12/X4, SME A voted to split its ordinary shares, two-for-one as of 15/1/X5. The equity of SME a will... a.Increase on 20/12/X4 b.Increase on 15/1/X5 c.Decrease on 20/12/X4 d.Decrease on 15/1/X5 e.Remain unchanged as a result of the stock split

26. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 26 Section 22 – Quiz and discussion Question 19: On 20/12/X4, SME A voted to split the ordinary shares of A two-for-one as of 15/1/X5. The equity of SME a will... a.Increase on 20/12/X4 b.Increase on 15/1/X5 c.Decrease on 20/12/X4 d.Decrease on 15/1/X5 e.Remain unchanged as a result of the stock split

27. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 27 Section 22 – Quiz and discussion Question 20: SME A issued 100 shares to Shareholder X in 20X2 for 50 per share. SME A repurchased those shares from X for 45 each in Sept. 20X4. Which of the following is true? a.SME A’s equity will increase as a result of the share repurchase b.SME A’s equity will decrease as a result of the share repurchase c.SME A recognises a 500 gain in P&L in Sept 20X4 d.SME A defers the 500 gain and recognise it in P&L only if and when the shares are resold

28. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 28 Section 22 – Quiz and discussion Question 20: SME A issued 100 shares 50 per share and later repurchased those shares for 45 each. Which of the following is true? a.SME A’s equity will increase as a result of the share repurchase b.SME A’s equity will decrease as a result of the share repurchase c.SME A recognises a 500 gain in P&L in Sept 20X4 d.SME A defers the 500 gain and recognise it in P&L only if and when the shares are resold

29. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 29 Section 22 – Quiz and discussion Question 21: In 20X6 SME A bought 80% of shares of X for 600,000. Prepared consolidated F/S for 20X6, X7, and X8. A sold 1/4 th of its holding in X in 20X9 for 250,000 (so now owns 60%). Which is true? a.SME A recognises a gain of 100,000 on sale. b.SME A revalues its remaining holding to FV (250,000 /.25 x 3/4ths = 750,000) and recognises gain (750,000 - 450,000 = 300,000) in P&L. c.Same as (b) but recognise gain in OCI. d.No gain, only an adjustment to equity.

30. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 30 Section 22 – Quiz and discussion Question 21: Which is true? a.SME A recognises a gain of 100,000 on sale. b.SME A revalues its remaining holding to FV (250,000 /.25 x 3/4ths = 750,000) and recognises gain (750,000 - 450,000 = 300,000) in P&L. c.Same as (b) but recognise gain in OCI. d.No gain, only an adjustment to equity.

31. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 31 Section 22 – Quiz and discussion Question 22: In 20X6 SME A bought 40% of shares of X for 500,000. Used cost method. In 20X9 SME A distributes those shares as a dividend to its shareholders pro rata. At that time: FV of the shares in X is 1,200,000. If SME A had used the equity method, the carrying amount would have been 800,000. Which is true? Choices on next slide...

32. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 32 Section 22 – Quiz and discussion Question 22: Answer choices... a.SME A recognises a gain of 300,000 on the distribution. b.SME A recognises a gain of 700,000 on the distribution. c.SME A recognises a gain of 280,000 on the distribution. d.The distribution is an equity transaction with shareholders and no gain or loss is recognised.

33. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 33 Section 22 – Quiz and discussion Question 22: Answer choices... a.SME A recognises a gain of 300,000 on the distribution. b.SME A recognises a gain of 700,000 on the distribution. Dividend will be measured at FV of asset distributed = 1,200,000. c.SME A recognises a gain of 280,000 on the distribution. d.The distribution is an equity transaction with shareholders and no gain or loss is recognised.

34. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 34 Section 22 – Quiz and discussion Question 23: 1/1/X1 SME A issues at par a 5% ten- year convertible bond. Par and maturity amount = 100,000. If no conversion feature, SME A would have paid 12%. Which is true? a.The bond liability at 31/12/X1 shown in the balance sheet will be 100,000 b.The bond liability at 31/12/X1 shown in the balance sheet will be greater than 100,000 c.Interest expense for X1 will be greater than 5,000 d.Interest expense for X1 will be less than 5,000 e.Interest expense for X1 will be exactly 5,000

35. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 35 Section 22 – Quiz and discussion Question 23: Which is true? a.The bond liability at 31/12/X1 shown in the balance sheet will be 100,000 b.The bond liability at 31/12/X1 shown in the balance sheet will be greater than 100,000 c.Interest expense for X1 will be greater than 5,000. Interest expense will be 5% x 100,000 plus amortisation of discount using effective interest method. d.Interest expense for X1 will be less than 5,000 e.Interest expense for X1 will be exactly 5,000

36. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org 36 Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

37. © 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org 37 This presentation may be modified from time to time. The latest version may be downloaded from: http://www.ifrs.org/IFRS+for+SMEs/SME+Workshops.htm The accounting requirements applicable to small and medium ‑ sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July 2009. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.