Ias

IAS 1 Presentation of Financial Statements
Overview
IAS 1 Presentation of Financial Statements sets out the overall requirements for
financial statements, including how they should be structured, the minimum re-
quirements for their content and overriding concepts such as going concern, the
accrual basis of accounting and the current/non-current distinction. The standard
requires a complete set of financial statements to comprise a statement of
financial position, a statement of profit or loss and other comprehensive income,
a statement of changes in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to annual periods beginning on
or after 1 January 2009.
History of IAS 1
Date Development Comments
March 1974 Exposure Draft E1 Disclosure

of Accounting Policies
January 1975 IAS 1 Disclosure of Accounting Operative for

Policiesissued periods beginning
on or after 1
January 1975
June 1975 Exposure Draft E5 Informa-

tion to Be Disclosed in
Financial State-
mentspublished
October 1976 IAS 5 Information to Be Operative for

Disclosed in Financial State- periods beginning
ments issued on or after 1
January 1975
July 1978 Exposure Draft E14 Current
Assets and Current Liabili-
ties published
November 1979 IAS 13 Presentation of Current Operative for

Assets and Current Liabili- periods beginning
ties issued on or after 1
January 1981
1994 IAS 1, IAS 5, and IAS 13 refor-

matted
July 1996 Exposure Draft E53 Presenta-

tion of Financial State-
ments published
August 1997 IAS 1 Presentation of Operative for

Financial Statements (1997) periods beginning
issued on or after 1 July
1998
(Supersedes IAS 1 (1975), IAS
5, and IAS 13 (1979))
18 December 2003 IAS 1 Presentation of Effective for annual

issued on or after 1
January 2005
18 August 2005 Amended by Amendment to Effective for annual

IAS 1 Capital Disclosures periods beginning
on or after 1
January 2007
16 March 2006 Exposure Draft Proposed Comment deadline
Amendments to IAS 1 A 17 July 2006
Revised Presenta-
tionpublished
22 June 2006 Exposure Draft Financial In- Comment deadline

struments Puttable at Fair 23 October 2006
Value and Obligations Arising
on Liquidation published
6 September 2007 IAS 1 Presentation of Effective for annual

issued on or after 1
January 2009
14 February 2008 Amended by Puttable Effective for annual

Financial Instruments and reporting periods
Obligations Arising on Liqui- beginning on or
dation after 1 January
2009
22 May 2008 Amended by Annual Improve- Effective for annual

ments to IFRSs 2007 (classifi- reporting periods
cation of derivatives as beginning on or
current or non-current) after 1 January
2009
16 April 2009 Amended by Improvements Effective for annual

to IFRSs 2009 (classification of periods beginning
liabilities as current) on or after 1
January 2010
6 May 2010 Amended by Improvements Effective for annual
to IFRSs 2010 (clarification of periods beginning
statement of changes in on or after 1
equity) January 2011
27 May 2010 Exposure Draft Comment deadline

ED/2010/5 Presentation of 30 September 2010
Items of Other Comprehensive
Incomepublished
16 June 2011 Amended by Presentation of Effective for annual

Items of Other Comprehensive periods beginning
Income on or after 1 July
2012
17 May 2012 Amended by Annual Improve- Effective for annual

ments 2009-2011 Cycle (com- periods beginning
parative information) on or after 1
January 2013
18 December 2014 Amended by Disclosure Initia- Effective for annual

tive (Amendments to IAS periods beginning
1) (project history) on or after 1
January 2016
Related Interpretations
o IAS 1 (2003) superseded SIC-18 Consistency - Alternative Methods
o IFRIC 17 Distributions of Non-cash Assets to Owners
o SIC-27 Evaluating the Substance of Transactions in the Legal Form of a
Lease
o SIC-29 Disclosure - Service Concession Arrangements
Amendments under consideration
o IAS 1 Disclosures about going concern
o IAS 1 Classification of liabilities
o Disclosure initiative Principles of disclosure (research project)
o Disclosure initiative Materiality (research project)
Summary of IAS 1
Objective of IAS 1
The objective of IAS 1 (2007) is to prescribe the basis for presentation of general
purpose financial statements, to ensure comparability both with the entity's
financial statements of previous periods and with the financial statements of
other entities. IAS 1 sets out the overall requirements for the presentation of
financial statements, guidelines for their structure and minimum requirements for
their content. [IAS 1.1] Standards for recognising, measuring, and disclosing
specific transactions are addressed in other Standards and Interpretations. [IAS
1.3]
Scope
IAS 1 applies to all general purpose financial statements that are prepared and
presented in accordance with International Financial Reporting Standards (IFRSs).
[IAS 1.2]
General purpose financial statements are those intended to serve users who are
not in a position to require financial reports tailored to their particular informa-
tion needs. [IAS 1.7]
Objective of financial statements
The objective of general purpose financial statements is to provide information
about the financial position, financial performance, and cash flows of an entity
that is useful to a wide range of users in making economic decisions. To meet that
objective, financial statements provide information about an entity's: [IAS 1.9]
o assets
o liabilities
o equity
o income and expenses, including gains and losses
o contributions by and distributions to owners (in their capacity as owners)
o cash flows.
That information, along with other information in the notes, assists users of
financial statements in predicting the entity's future cash flows and, in particular,
their timing and certainty.
Components of financial statements
A complete set of financial statements includes: [IAS 1.10]
o a statement of financial position (balance sheet) at the end of the period
o a statement of profit or loss and other comprehensive income for the
period (presented as a single statement, or by presenting the profit or loss
section in a separate statement of profit or loss, immediately followed by a
statement presenting comprehensive income beginning with profit or loss)
o a statement of changes in equity for the period
o a statement of cash flows for the period
o notes, comprising a summary of significant accounting policies and other
explanatory notes
o comparative information prescribed by the standard.
An entity may use titles for the statements other than those stated above. All
financial statements are required to be presented with equal prominence. [IAS
1.10]
When an entity applies an accounting policy retrospectively or makes a retrospec-
tive restatement of items in its financial statements, or when it reclassifies items
in its financial statements, it must also present a statement of financial position
(balance sheet) as at the beginning of the earliest comparative period.
Reports that are presented outside of the financial statements including
financial reviews by management, environmental reports, and value added state-
ments are outside the scope of IFRSs. [IAS 1.14]
Fair presentation and compliance with IFRSs
The financial statements must "present fairly" the financial position, financial per-
formance and cash flows of an entity. Fair presentation requires the faithful rep-
resentation of the effects of transactions, other events, and conditions in accor-
dance with the definitions and recognition criteria for assets, liabilities, income
and expenses set out in the Framework. The application of IFRSs, with additional
disclosure when necessary, is presumed to result in financial statements that
achieve a fair presentation. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an
explicit and unreserved statement of such compliance in the notes. Financial
statements cannot be described as complying with IFRSs unless they comply with
all the requirements of IFRSs (which includes International Financial Reporting
Standards, International Accounting Standards, IFRIC Interpretations and SIC In-
terpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of the
accounting policies used or by notes or explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare circumstances, management may
conclude that compliance with an IFRS requirement would be so misleading that
it would conflict with the objective of financial statements set out in the
Framework. In such a case, the entity is required to depart from the IFRS require-
ment, with detailed disclosure of the nature, reasons, and impact of the
departure. [IAS 1.19-21]
Going concern
The Conceptual Framework notes that financial statements are normally prepared
assuming the entity is a going concern and will continue in operation for the fore-
seeable future. [Conceptual Framework, paragraph 4.1]
IAS 1 requires management to make an assessment of an entity's ability to
continue as a going concern. If management has significant concerns about the
entity's ability to continue as a going concern, the uncertainties must be
disclosed. If management concludes that the entity is not a going concern, the
financial statements should not be prepared on a going concern basis, in which
case IAS 1 requires a series of disclosures. [IAS 1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow
information, using the accrual basis of accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the financial statements shall be
retained from one period to the next unless a change is justified either by a
change in circumstances or a requirement of a new IFRS. [IAS 1.45]
Materiality and aggregation
Each material class of similar items must be presented separately in the financial
statements. Dissimilar items may be aggregated only if the are individually imma-
terial. [IAS 1.29]
However, information should not be obscured by aggregating or by providing im-
material information, materiality considerations apply to the all parts of the
financial statements, and even when a standard requires a specific disclosure, ma-
teriality considerations do apply. [IAS 1.30A-31]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required
or permitted by an IFRS. [IAS 1.32]
Comparative information
IAS 1 requires that comparative information to be disclosed in respect of the
previous period for all amounts reported in the financial statements, both on the
face of the financial statements and in the notes, unless another Standard
requires otherwise. Comparative information is provided for narrative and de-
scriptive where it is relevant to understanding the financial statements of the
current period. [IAS 1.38]
An entity is required to present at least two of each of the following primary
financial statements: [IAS 1.38A]
o statement of financial position*
o statement of profit or loss and other comprehensive income
o separate statements of profit or loss (where presented)
o statement of cash flows
o statement of changes in equity
o related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity
retrospectively applies an accounting policy, restates items, or reclassifies items,
and those adjustments had a material effect on the information in the statement
of financial position at the beginning of the comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified, various disclosures are
required. [IAS 1.41]
Structure and content of financial statements in general
IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
o the financial statements, which must be distinguished from other informa-
tion in a published document
o each financial statement and the notes to the financial statements.
In addition, the following information must be displayed prominently, and
repeated as necessary: [IAS 1.51]
o the name of the reporting entity and any change in the name
o whether the financial statements are a group of entities or an individual
entity
o information about the reporting period
o the presentation currency (as defined by IAS 21 The Effects of Changes in
Foreign Exchange Rates)
o the level of rounding used (e.g. thousands, millions).
Reporting period
There is a presumption that financial statements will be prepared at least
annually. If the annual reporting period changes and financial statements are
prepared for a different period, the entity must disclose the reason for the change
and state that amounts are not entirely comparable. [IAS 1.36]
Statement of financial position (balance sheet)
Current and non-current classification
An entity must normally present a classified statement of financial position, sepa-
rating current and non-current assets and liabilities, unless presentation based on
liquidity provides information that is reliable. [IAS 1.60] In either case, if an asset
(liability) category combines amounts that will be received (settled) after 12
months with assets (liabilities) that will be received (settled) within 12 months,
note disclosure is required that separates the longer-term amounts from the 12-
month amounts. [IAS 1.61]
Current assetsare assets that are: [IAS 1.66]
o expected to be realised in the entity's normal operating cycle
o held primarily for the purpose of trading
o expected to be realised within 12 months after the reporting period
o cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilitiesare those: [IAS 1.69]
o expected to be settled within the entity's normal operating cycle
o held for purpose of trading
o due to be settled within 12 months
o for which the entity does not have an unconditional right to defer settle-
ment beyond 12 months (settlement by the issue of equity instruments
does not impact classification).
Other liabilities are non-current.
When a long-term debt is expected to be refinanced under an existing loan

facility, and the entity has the discretion to do so, the debt is classified as non-cur-
rent, even if the liability would otherwise be due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an
undertaking under a long-term loan agreement on or before the reporting date,
the liability is current, even if the lender has agreed, after the reporting date and
before the authorisation of the financial statements for issue, not to demand
payment as a consequence of the breach. [IAS 1.74] However, the liability is clas-
sified as non-current if the lender agreed by the reporting date to provide a
period of grace ending at least 12 months after the end of the reporting period,
within which the entity can rectify the breach and during which the lender cannot
demand immediate repayment. [IAS 1.75]
Line items
The line items to be included on the face of the statement of financial position
are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m)financial liabilities (excluding amounts shown under (k) and (l))
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the
entity's financial position. [IAS 1.55]
When an entity presents subtotals, those subtotals shall be comprised of line
items made up of amounts recognised and measured in accordance with IFRS; be
presented and labelled in a clear and understandable manner; be consistent from
period to period; and not be displayed with more prominence than the required
subtotals and totals. [IAS 1.55A]*
Further sub-classifications of line items presented are made in the statement or in
the notes, for example: [IAS 1.77-78]:
o classes of property, plant and equipment
o disaggregation of receivables
o disaggregation of inventories in accordance with IAS 2 Inventories
o disaggregation of provisions into employee benefits and other items
o classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement of financial position. Assets
can be presented current then non-current, or vice versa, and liabilities and
equity can be presented current then non-current then equity, or vice versa. A net
asset presentation (assets minus liabilities) is allowed. The long-term financing
approach used in UK and elsewhere fixed assets + current assets - short term
payables = long-term debt plus equity is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the following disclosures are
required: [IAS 1.79]
o numbers of shares authorised, issued and fully paid, and issued but not
fully paid
o par value (or that shares do not have a par value)
o a reconciliation of the number of shares outstanding at the beginning and
the end of the period
o description of rights, preferences, and restrictions
o treasury shares, including shares held by subsidiaries and associates
o shares reserved for issuance under options and contracts
o a description of the nature and purpose of each reserve within equity.
Additional disclosures are required in respect of entities without share capital and
where an entity has reclassified puttable financial instruments. [IAS 1.80-80A]
Statement of profit or loss and other comprehensive income
Concepts of profit or loss and comprehensive income
Profit or loss is defined as "the total of income less expenses, excluding the com-
ponents of other comprehensive income". Other comprehensive income is
defined as comprising "items of income and expense (including reclassification
adjustments) that are not recognised in profit or loss as required or permitted by
other IFRSs". Total comprehensive income is defined as "the change in equity
during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners". [IAS
1.7]
Comprehensive income = Profit + Other
for the period or loss comprehensive income
All items of income and expense recognised in a period must be included in profit
or loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some
IFRSs require or permit that some components to be excluded from profit or loss
and instead to be included in other comprehensive income.
Examples of items recognised outside of profit or loss
o Changes in revaluation surplus where the revaluation method is used

under IAS 16Property, Plant and Equipment and IAS 38 Intangible
Assets
o Remeasurements of a net defined benefit liability or asset recognised
in accordance withIAS 19 Employee Benefits (2011)
o Exchange differences from translating functional currencies into pre-
sentation currency in accordance with IAS 21 The Effects of Changes in
Foreign Exchange Rates
o Gains and losses on remeasuring available-for-sale financial assets in
accordance withIAS 39 Financial Instruments: Recognition and Mea-
surement
o The effective portion of gains and losses on hedging instruments in a
cash flow hedge under IAS 39 or IFRS 9 Financial Instruments
o Gains and losses on remeasuring an investment in equity instruments
where the entity has elected to present them in other comprehensive
income in accordance with IFRS 9
o The effects of changes in the credit risk of a financial liability desig-
nated as at fair value through profit and loss under IFRS 9.
In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors requires the correction of errors and the effect of changes in accounting
policies to be recognised outside profit or loss for the current period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
o a single statement of profit or loss and other comprehensive income, with
profit or loss and other comprehensive income presented in two sections,
or
o two statements:
o a separate statement of profit or loss
o a statement of comprehensive income, immediately following the
statement of profit or loss and beginning with profit or loss [IAS
1.10A]
The statement(s) must present: [IAS 1.81A]
o profit or loss
o total other comprehensive income
o comprehensive income for the period
o an allocation of profit or loss and comprehensive income for the period
between non-controlling interests and owners of the parent.
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section
(or separate statement of profit or loss, if presented): [IAS 1.82-82A]
o revenue
o gains and losses from the derecognition of financial assets measured at
amortised cost
o finance costs
o share of the profit or loss of associates and joint ventures accounted for
using the equity method
o certain gains or losses associated with the reclassification of financial assets
o tax expense
o a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw
materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling,
administrative, etc). [IAS 1.99] If an entity categorises by function, then additional
information on the nature of expenses at a minimum depreciation, amortisation
and employee benefits expense must be disclosed. [IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required to present line items which
are classified by their nature, and grouped between those items that will or will
not be reclassified to profit and loss in subsequent periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted associates and joint ventures is
presented in aggregate as single line items based on whether or not it will subse-
quently be reclassified to profit or loss. [IAS 1.82A]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January
2016.
When an entity presents subtotals, those subtotals shall be comprised of line
items made up of amounts recognised and measured in accordance with IFRS; be
presented and labelled in a clear and understandable manner; be consistent from
period to period; not be displayed with more prominence than the required
subtotals and totals; and reconciled with the subtotals or totals required in IFRS.
[IAS 1.85A-85B]*
Other requirements
Additional line items may be needed to fairly present the entity's results of opera-
tions. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or
in the notes. [IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehen-
sive income or in the notes, if material, including: [IAS 1.98]
o write-downs of inventories to net realisable value or of property, plant and
equipment to recoverable amount, as well as reversals of such write-downs
o restructurings of the activities of an entity and reversals of any provisions
for the costs of restructuring
o disposals of items of property, plant and equipment
o disposals of investments
o discontinuing operations
o litigation settlements
o other reversals of provisions
Statement of cash flows
Rather than setting out separate requirements for presentation of the statement
of cash flows, IAS 1.111 refers to IAS 7 Statement of Cash Flows.
Statement of changes in equity
IAS 1 requires an entity to present a separate statement of changes in equity. The
statement must show: [IAS 1.106]
o total comprehensive income for the period, showing separately amounts
attributable to owners of the parent and to non-controlling interests
o the effects of any retrospective application of accounting policies or re-
statements made in accordance with IAS 8, separately for each component
of other comprehensive income
o reconciliations between the carrying amounts at the beginning and the end
of the period for each component of equity, separately disclosing:
o profit or loss
o other comprehensive income*
o transactions with owners, showing separately contributions by and
distributions to owners and changes in ownership interests in sub-
sidiaries that do not result in a loss of control
* An analysis of other comprehensive income by item is required to be presented
either in the statement or in the notes. [IAS 1.106A]
The following amounts may also be presented on the face of the statement of
changes in equity, or they may be presented in the notes: [IAS 1.107]
o amount of dividends recognised as distributions
o the related amount per share.
Notes to the financial statements
The notes must: [IAS 1.112]
o present information about the basis of preparation of the financial state-
ments and the specific accounting policies used
o disclose any information required by IFRSs that is not presented elsewhere
in the financial statements and
o provide additional information that is not presented elsewhere in the
financial statements but is relevant to an understanding of any of them
Notes are presented in a systematic manner and cross-referenced from the face
of the financial statements to the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be presented in the following
order:*
o a statement of compliance with IFRSs
o a summary of significant accounting policies applied, including: [IAS 1.117]
o the measurement basis (or bases) used in preparing the financial
statements
o the other accounting policies used that are relevant to an under-
standing of the financial statements
o supporting information for items presented on the face of the statement of
financial position (balance sheet), statement(s) of profit or loss and other
comprehensive income, statement of changes in equity and statement of
cash flows, in the order in which each statement and each line item is
presented
o other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognised contractual com-
mitments
o non-financial disclosures, such as the entity's financial risk manage-
ment objectives and policies (see IFRS 7 Financial Instruments: Disclo-
sures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies
this order just to be an example of how notes can be ordered and adds additional
examples of possible ways of ordering the notes to clarify that understandability
and comparability should be considered when determining the order of the notes.
Other disclosures
Judgements and key assumptions
An entity must disclose, in the summary of significant accounting policies or other
notes, the judgements, apart from those involving estimations, that management
has made in the process of applying the entity's accounting policies that have the
most significant effect on the amounts recognised in the financial statements.
[IAS 1.122]
Examples cited in IAS 1.123 include management's judgements in determining:
o when substantially all the significant risks and rewards of ownership of
financial assets and lease assets are transferred to other entities
o whether, in substance, particular sales of goods are financing arrangements
and therefore do not give rise to revenue.
An entity must also disclose, in the notes, information about the key assumptions
concerning the future, and other key sources of estimation uncertainty at the end
of the reporting period, that have a significant risk of causing a material adjust-
ment to the carrying amounts of assets and liabilities within the next financial
year. [IAS 1.125] These disclosures do not involve disclosing budgets or forecasts.
[IAS 1.130]
Dividends
In addition to the distributions information in the statement of changes in equity
(see above), the following must be disclosed in the notes: [IAS 1.137]
o the amount of dividends proposed or declared before the financial state-
ments were authorised for issue but which were not recognised as a distrib-
ution to owners during the period, and the related amount per share
o the amount of any cumulative preference dividends not recognised.
Capital disclosures
An entity discloses information about its objectives, policies and processes for
managing capital. [IAS 1.134] To comply with this, the disclosures include: [IAS
1.135]
o qualitative information about the entity's objectives, policies and processes
for managing capital, including>
o description of capital it manages
o nature of external capital requirements, if any
o how it is meeting its objectives
o quantitative data about what the entity regards as capital
o changes from one period to another
o whether the entity has complied with any external capital requirements
and
o if it has not complied, the consequences of such non-compliance.
Puttable financial instruments
IAS 1.136A requires the following additional disclosures if an entity has a puttable
instrument that is classified as an equity instrument:
o summary quantitative data about the amount classified as equity
o the entity's objectives, policies and processes for managing its obligation to
repurchase or redeem the instruments when required to do so by the in-
strument holders, including any changes from the previous period
o the expected cash outflow on redemption or repurchase of that class of
financial instruments and
o information about how the expected cash outflow on redemption or repur-
chase was determined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed
elsewhere in information published with the financial statements: [IAS 1.138]
o domicile and legal form of the entity
o country of incorporation
o address of registered office or principal place of business
o description of the entity's operations and principal activities
o if it is part of a group, the name of its parent and the ultimate parent of the
group
o if it is a limited life entity, information regarding the length of the life
Terminology
The 2007 comprehensive revision to IAS 1 introduced some new terminology.
Consequential amendments were made at that time to all of the other existing
IFRSs, and the new terminology has been used in subsequent IFRSs including
amendments. IAS 1.8 states: "Although this Standard uses the terms 'other com-
prehensive income', 'profit or loss' and 'total comprehensive income', an entity
may use other terms to describe the totals as long as the meaning is clear. For
example, an entity may use the term 'net income' to describe profit or loss." Also,
IAS 1.57(b) states: "The descriptions used and the ordering of items or aggrega-
tion of similar items may be amended according to the nature of the entity and its
transactions, to provide information that is relevant to an understanding of the
entity's financial position."
Term before 2007 revision of Term as amended by IAS 1 (2007)

IAS 1
balance sheet statement of financial position
cash flow statement statement of cash flows
income statement statement of comprehensive income

(income statement is retained in case of a
two-statement approach)
recognised in the income recognised in profit or loss

statement
recognised [directly] in equity recognised in other comprehensive

(only for OCI components) income
recognised [directly] in equity recognised outside profit or loss (either in

(for recognition both in OCI OCI or equity)
and equity)
removed from equity and reclassified from equity to profit or loss as

recognised in profit or loss a reclassification adjustment
('recycling')
Standard or/and Interpreta- IFRSs

tion
on the face of in
equity holders owners (exception for 'ordinary equity
holders')
balance sheet date end of the reporting period
reporting date end of the reporting period
after the balance sheet date after the reporting period

IAS 2 Inventories
Overview
IAS 2 Inventories contains the requirements on how to account for most types of inventory. The
standard requires inventories to be measured at the lower of cost and net realisable value (NRV) and
outlines acceptable methods of determining cost, including specific identification (in some cases), first-in
first-out (FIFO) and weighted average cost.
A revised version of IAS 2 was issued in December 2003 and applies to annual periods beginning on or
after 1 January 2005.
History of IAS 2
September 1974 Exposure Draft E2 Valuation and

Presentation of Inventories in the Context
of the Historical Cost System published
October 1975 IAS 2 Valuation and Presentation of

Inventories in the Context of the Historical
Cost System issued
August 1991 Exposure Draft E38 Inventories published
December 1993 IAS 9 (1993) Inventories issued Operative for annual

financial statements
covering periods beginning
on or after 1 January 1995
18 December 2003 IAS 2 Inventories issued Effective for annual

periods beginning on or
after 1 January 2005
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
SIC-1 Consistency - Different Cost Formulas for Inventories. SIC-1 was superseded by and
incorporated into IAS 2 (Revised 2003).
Summary of IAS 2
Objective of IAS 2
The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for
determining the cost of inventories and for subsequently recognising an expense, including any write-
down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs
to inventories.
Scope
Inventories include assets held for sale in the ordinary course of business (finished goods), assets in the
production process for sale in the ordinary course of business (work in process), and materials and
supplies that are consumed in production (raw materials). [IAS 2.6]
However, IAS 2 excludes certain inventories from its scope: [IAS 2.2]
work in process arising under construction contracts (see IAS 11 Construction Contracts)
financial instruments (see IAS 39 Financial Instruments: Recognition and Measurement)
biological assets related to agricultural activity and agricultural produce at the point of harvest
(see IAS 41 Agriculture).
Also, while the following are within the scope of the standard, IAS 2 does not apply to the measurement
of inventories held by: [IAS 2.3]
producers of agricultural and forest products, agricultural produce after harvest, and minerals
and mineral products, to the extent that they are measured at net realisable value (above or
below cost) in accordance with well-established practices in those industries. When such
inventories are measured at net realisable value, changes in that value are recognised in profit
or loss in the period of the change
commodity brokers and dealers who measure their inventories at fair value less costs to sell.
When such inventories are measured at fair value less costs to sell, changes in fair value less
costs to sell are recognised in profit or loss in the period of the change.
Fundamental principle of IAS 2
Inventories are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]
Measurement of inventories
Cost should include all: [IAS 2.10]
costs of purchase (including taxes, transport, and handling) net of trade discounts received
costs of conversion (including fixed and variable manufacturing overheads) and
other costs incurred in bringing the inventories to their present location and condition
IAS 23 Borrowing Costs identifies some limited circumstances where borrowing costs (interest) can be
included in cost of inventories that meet the definition of a qualifying asset. [IAS 2.17 and IAS 23.4]
Inventory cost should not include: [IAS 2.16 and 2.18]
abnormal waste
storage costs
administrative overheads unrelated to production
selling costs
foreign exchange differences arising directly on the recent acquisition of inventories invoiced in
a foreign currency
interest cost when inventories are purchased with deferred settlement terms.
The standard cost and retail methods may be used for the measurement of cost, provided that the
results approximate actual cost. [IAS 2.21-22]
For inventory items that are not interchangeable, specific costs are attributed to the specific individual
items of inventory. [IAS 2.23]
For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost formulas. [IAS 2.25]
The LIFO formula, which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed.
The same cost formula should be used for all inventories with similar characteristics as to their nature
and use to the entity. For groups of inventories that have different characteristics, different cost
formulas may be justified. [IAS 2.25]
Write-down to net realisable value
NRV is the estimated selling price in the ordinary course of business, less the estimated cost of
completion and the estimated costs necessary to make the sale. [IAS 2.6] Any write-down to NRV should
be recognised as an expense in the period in which the write-down occurs. Any reversal should be
recognised in the income statement in the period in which the reversal occurs. [IAS 2.34]
Expense recognition
IAS 18 Revenue addresses revenue recognition for the sale of goods. When inventories are sold and
revenue is recognised, the carrying amount of those inventories is recognised as an expense (often
called cost-of-goods-sold). Any write-down to NRV and any inventory losses are also recognised as an
expense when they occur. [IAS 2.34]
Disclosure
Required disclosures: [IAS 2.36]
accounting policy for inventories
carrying amount, generally classified as merchandise, supplies, materials, work in progress, and
finished goods. The classifications depend on what is appropriate for the entity
carrying amount of any inventories carried at fair value less costs to sell
amount of any write-down of inventories recognised as an expense in the period
amount of any reversal of a write-down to NRV and the circumstances that led to such reversal
carrying amount of inventories pledged as security for liabilities
cost of inventories recognised as expense (cost of goods sold).
IAS 2 acknowledges that some enterprises classify income statement expenses by nature (materials,
labour, and so on) rather than by function (cost of goods sold, selling expense, and so on). Accordingly,
as an alternative to disclosing cost of goods sold expense, IAS 2 allows an entity to disclose operating
costs recognised during the period by nature of the cost (raw materials and consumables, labour costs,
other operating costs) and the amount of the net change in inventories for the period). [IAS 2.39] This is
consistent with IAS 1 Presentation of Financial Statements, which allows presentation of expenses by
function or nature.
IAS 7 Statement of Cash Flows
Overview
IAS 7 Statement of Cash Flows requires an entity to present a statement of cash flows as an integral part
of its primary financial statements. Cash flows are classified and presented into operating activities
(either using the 'direct' or 'indirect' method), investing activities or financing activities, with the latter
two categories generally presented on a gross basis.
IAS 7 was reissued in December 1992, retitled in September 2007, and is operative for financial state-
ments covering periods beginning on or after 1 January 1994.
History of IAS 7
June 1976 Exposure Draft E7 Statement of Source and Application of Funds
October 1977 IAS 7 Statement of Changes in Financial Position
July 1991 Exposure Draft E36 Cash Flow Statements
December 1992 IAS 7 (1992) Cash Flow Statements
1 January 1994 Effective date of IAS 7 (1992)
6 September 2007 Retitled from Cash Flow Statements to Statement of Cash Flows as a conse-
quential amendment resulting from revisions to IAS 1
16 April 2009 IAS 7 amended by Annual Improvements to IFRSs 2009 with respect to ex-
penditures that do not result in a recognised asset.
1 July 2009 Effective date for amendments from IAS 27(2008) relating to changes in
ownership of a subsidiary
1 January 2010 Effective date of the April 2009 revisions to IAS 7
o None
Amendments under consideration by the IASB
o Disclosure initiative Reconciliation of liabilities from financing activities
o Disclosure initiative Principles of disclosure (research project)

Summary of IAS 7
Objective of IAS 7
The objective of IAS 7 is to require the presentation of information about the historical changes in cash
and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows
during the period according to operating, investing, and financing activities.
Fundamental principle in IAS 7
All entities that prepare financial statements in conformity with IFRSs are required to present a
statement of cash flows. [IAS 7.1]
The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash and
cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid
investments that are readily convertible to a known amount of cash, and that are subject to an insignifi-
cant risk of changes in value. Guidance notes indicate that an investment normally meets the definition
of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Equity
investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares
acquired within three months of their specified redemption date). Bank overdrafts which are repayable
on demand and which form an integral part of an entity's cash management are also included as a
component of cash and cash equivalents. [IAS 7.7-8]
Presentation of the Statement of Cash Flows
Cash flows must be analysed between operating, investing and financing activities. [IAS 7.10]
Key principles specified by IAS 7 for the preparation of a statement of cash flows are as follows:
o operating activities are the main revenue-producing activities of the entity that are not
investing or financing activities, so operating cash flows include cash received from customers
and cash paid to suppliers and employees [IAS 7.14]
o investing activities are the acquisition and disposal of long-term assets and other investments
that are not considered to be cash equivalents [IAS 7.6]
o financing activities are activities that alter the equity capital and borrowing structure of the
entity [IAS 7.6]
o interest and dividends received and paid may be classified as operating, investing, or financing
cash flows, provided that they are classified consistently from period to period [IAS 7.31]
o cash flows arising from taxes on income are normally classified as operating, unless they can be
specifically identified with financing or investing activities [IAS 7.35]
o for operating cash flows, the direct method of presentation is encouraged, but the indirect
method is acceptable [IAS 7.18]
The direct method shows each major class of gross cash receipts and gross cash payments. The
operating cash flows section of the statement of cash flows under the direct method would
appear something like this:
Cash receipts from customers xx,xxx
Cash paid to suppliers xx,xxx
Cash paid to employees xx,xxx
Cash paid for other operating expenses xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx
o The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transac-
tions. The operating cash flows section of the statement of cash flows under the indirect
method would appear something like this:
Profit before interest and income taxes xx,xxx
Add back depreciation xx,xxx
Add back impairment of assets xx,xxx
Increase in receivables xx,xxx
Decrease in inventories xx,xxx
Increase in trade payables xx,xxx
Interest expense xx,xxx
Less Interest accrued but not yet paid xx,xxx
Interest paid xx,xxx

Income taxes paid xx,xxx
Net cash from operating activities xx,xxx
o the exchange rate used for translation of transactions denominated in a foreign currency should
be the rate in effect at the date of the cash flows [IAS 7.25]
o cash flows of foreign subsidiaries should be translated at the exchange rates prevailing when the
cash flows took place [IAS 7.26]
o as regards the cash flows of associates and joint ventures, where the equity method is used, the
statement of cash flows should report only cash flows between the investor and the investee;
where proportionate consolidation is used, the cash flow statement should include the
venturer's share of the cash flows of the investee [IAS 7.37-38]
o aggregate cash flows relating to acquisitions and disposals of subsidiaries and other business
units should be presented separately and classified as investing activities, with specified addi-
tional disclosures. [IAS 7.39] The aggregate cash paid or received as consideration should be
reported net of cash and cash equivalents acquired or disposed of [IAS 7.42]
o cash flows from investing and financing activities should be reported gross by major class of
cash receipts and major class of cash payments except for the following cases, which may be
reported on a net basis: [IAS 7.22-24]
o cash receipts and payments on behalf of customers (for example, receipt and
repayment of demand deposits by banks, and receipts collected on behalf of and paid
over to the owner of a property)
o cash receipts and payments for items in which the turnover is quick, the amounts are
large, and the maturities are short, generally less than three months (for example,
charges and collections from credit card customers, and purchase and sale of invest-
ments)
o cash receipts and payments relating to deposits by financial institutions
o cash advances and loans made to customers and repayments thereof
o investing and financing transactions which do not require the use of cash should be excluded
from the statement of cash flows, but they should be separately disclosed elsewhere in the
financial statements [IAS 7.43]
o the components of cash and cash equivalents should be disclosed, and a reconciliation
presented to amounts reported in the statement of financial position [IAS 7.45]
o the amount of cash and cash equivalents held by the entity that is not available for use by the
group should be disclosed, together with a commentary by management [IAS 7.48]
You will find sample IFRS statements of cash flows in our Model IFRS financial statements.
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors
Overview
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and
applying accounting policies, accounting for changes in estimates and reflecting corrections of prior
period errors.
The standard requires compliance with any specific IFRS applying to a transaction, event or condition,
and provides guidance on developing accounting policies for other items that result in relevant and
reliable information. Changes in accounting policies and corrections of errors are generally retrospec-
tively accounted for, whereas changes in accounting estimates are generally accounted for on a
prospective basis.
IAS 8 was reissued in December 2005 and applies to annual periods beginning on or after 1 January
2005.
History of IAS 8
October 1976 Exposure Draft E8 The Treatment in the Income Statement of Unusual
Items and Changes in Accounting Estimates and Accounting Policies
February 1978 IAS 8 Unusual and Prior Period Items and Changes in Accounting Policies
July 1992 Exposure Draft E46 Extraordinary Items, Fundamental Errors and Changes
in Accounting Policies
December 1993 IAS 8 (1993) Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies (revised as part of the 'Comparability of
Financial Statements' project)
18 December 2003 Revised version of IAS 8 issued by the IASB
o IAS 8(2003) supersedes SIC-2 Consistency - Capitalisation of Borrowing Costs
o IAS 8(2003) supersedes SIC-18 Consistency - Alternative Methods.

o Disclosure initiative Principles of disclosure
o Disclosure initiative Materiality
o Disclosure initiative Changes in accounting policies and estimates
Summary of IAS 8
Key definitions [IAS 8.5]
o Accounting policies are the specific principles, bases, conventions, rules and practices applied
by an entity in preparing and presenting financial statements.
o A change in accounting estimate is an adjustment of the carrying amount of an asset or liability,

or related expense, resulting from reassessing the expected future benefits and obligations as-
sociated with that asset or liability.
o International Financial Reporting Standardsare standards and interpretations adopted by the

International Accounting Standards Board (IASB). They comprise:
o International Financial Reporting Standards (IFRSs)
o International Accounting Standards (IASs)
o Interpretations developed by the International Financial Reporting Interpretations

Committee (IFRIC) or the former Standing Interpretations Committee (SIC) and
approved by the IASB.
o Materiality. Omissions or misstatements of items are material if they could, by their size or
nature, individually or collectively, influence the economic decisions of users taken on the basis
of the financial statements.
o Prior period errors are omissions from, and misstatements in, an entity's financial statements
for one or more prior periods arising from a failure to use, or misuse of, reliable information that
was available and could reasonably be expected to have been obtained and taken into account
in preparing those statements. Such errors result from mathematical mistakes, mistakes in
applying accounting policies, oversights or misinterpretations of facts, and fraud.
Selection and application of accounting policies
When a Standard or an Interpretation specifically applies to a transaction, other event or condition, the
accounting policy or policies applied to that item must be determined by applying the Standard or Inter-
pretation and considering any relevant Implementation Guidance issued by the IASB for the Standard or
Interpretation. [IAS 8.7]
In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or
condition, management must use its judgement in developing and applying an accounting policy that
results in information that is relevant and reliable. [IAS 8.10]. In making that judgement, management
must refer to, and consider the applicability of, the following sources in descending order:
o the requirements and guidance in IASB standards and interpretations dealing with similar and
related issues; and
o the definitions, recognition criteria and measurement concepts for assets, liabilities, income and
expenses in the Framework. [IAS 8.11]
Management may also consider the most recent pronouncements of other standard-setting bodies that
use a similar conceptual framework to develop accounting standards, other accounting literature and
accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11.
[IAS 8.12]
Consistency of accounting policies
An entity shall select and apply its accounting policies consistently for similar transactions, other events
and conditions, unless a Standard or an Interpretation specifically requires or permits categorisation of
items for which different policies may be appropriate. If a Standard or an Interpretation requires or
permits such categorisation, an appropriate accounting policy shall be selected and applied consistently
to each category. [IAS 8.13]
Changes in accounting policies
An entity is permitted to change an accounting policy only if the change:
o is required by a standard or interpretation; or
o results 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, financial
performance, or cash flows. [IAS 8.14]
Note that changes in accounting policies do not include applying an accounting policy to a kind of trans-
action or event that did not occur previously or were immaterial. [IAS 8.16]
If a change in accounting policy is required by a new IASB standard or interpretation, the change is
accounted for as required by that new pronouncement or, if the new pronouncement does not include
specific transition provisions, then the change in accounting policy is applied retrospectively. [IAS 8.19]
Retrospective application means adjusting the opening balance of each affected component of equity
for the earliest prior period presented and the other comparative amounts disclosed for each prior
period presented as if the new accounting policy had always been applied. [IAS 8.22]
o However, if it is impracticable to determine either the period-specific effects or the cumulative

effect of the change for one or more prior periods presented, the entity shall apply the new
accounting policy to the carrying amounts of assets and liabilities as at the beginning of the
earliest period for which retrospective application is practicable, which may be the current
period, and shall make a corresponding adjustment to the opening balance of each affected
component of equity for that period. [IAS 8.24]
o Also, if it is impracticable to determine the cumulative effect, at the beginning of the current
period, of applying a new accounting policy to all prior periods, the entity shall adjust the com-
parative information to apply the new accounting policy prospectively from the earliest date
practicable. [IAS 8.25]
Disclosures relating to changes in accounting policies
Disclosures relating to changes in accounting policy caused by a new standard or interpretation include:
[IAS 8.28]
o the title of the standard or interpretation causing the change
o the nature of the change in accounting policy
o a description of the transitional provisions, including those that might have an effect on future
periods
o for the current period and each prior period presented, to the extent practicable, the amount of
the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
o the amount of the adjustment relating to periods before those presented, to the extent practi-
cable
o if retrospective application is impracticable, an explanation and description of how the change

in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
o the nature of the change in accounting policy
o the reasons why applying the new accounting policy provides reliable and more relevant infor-
mation
o for the current period and each prior period presented, to the extent practicable, the amount of
the adjustment:
o the amount of the adjustment relating to periods before those presented, to the extent practi-
cable
o if retrospective application is impracticable, an explanation and description of how the change

in accounting policy was applied.

If an entity has not applied a new standard or interpretation that has been issued but is not yet
effective, the entity must disclose that fact and any and known or reasonably estimable information
relevant to assessing the possible impact that the new pronouncement will have in the year it is applied.
[IAS 8.30]
Changes in accounting estimates
The effect of a change in an accounting estimate shall be recognised prospectively by including it in

profit or loss in: [IAS 8.36]
o the period of the change, if the change affects that period only, or
o the period of the change and future periods, if the change affects both.
However, to the extent that a change in an accounting estimate gives rise to changes in assets and liabil-
ities, or relates to an item of equity, it is recognised by adjusting the carrying amount of the related
asset, liability, or equity item in the period of the change. [IAS 8.37]
Disclosures relating to changes in accounting estimates
Disclose:
o the nature and amount of a change in an accounting estimate that has an effect in the current
period or is expected to have an effect in future periods
o if the amount of the effect in future periods is not disclosed because estimating it is impractica-
ble, an entity shall disclose that fact. [IAS 8.39-40]
Errors
The general principle in IAS 8 is that an entity must correct all material prior period errors retrospec-
tively in the first set of financial statements authorised for issue after their discovery by: [IAS 8.42]
o restating the comparative amounts for the prior period(s) presented in which the error
occurred; or
o if the error occurred before the earliest prior period presented, restating the opening balances
of assets, liabilities and equity for the earliest prior period presented.
However, if it is impracticable to determine the period-specific effects of an error on comparative infor-

mation for one or more prior periods presented, the entity must restate the opening balances of assets,
liabilities, and equity for the earliest period for which retrospective restatement is practicable (which
may be the current period). [IAS 8.44]
Further, if it is impracticable to determine the cumulative effect, at the beginning of the current period,
of an error on all prior periods, the entity must restate the comparative information to correct the error
prospectively from the earliest date practicable. [IAS 8.45]
Disclosures relating to prior period errors
Disclosures relating to prior period errors include: [IAS 8.49]

o the nature of the prior period error
o for each prior period presented, to the extent practicable, the amount of the correction:
o the amount of the correction at the beginning of the earliest prior period presented
o if retrospective restatement is impracticable, an explanation and description of how the error

has been corrected.

IAS 10 Events After the Reporting Period
Overview
IAS 10 Events After The Reporting Period contains requirements for when events after the end of the
reporting period should be adjusted in the financial statements. Adjusting events are those providing
evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are in-
dicative of conditions arising after the reporting period (the latter being disclosed where material).
2005.
History of IAS 10
July 1977 Exposure Draft E10 Contingencies and Events Occurring After the Balance
Sheet Date
October 1978 IAS 10 Contingencies and Events Occurring After the Balance Sheet
Dateeffective 1 January 1980
1994 IAS 10 (1978) was reformatted
August 1997 Exposure Draft E59 Provisions, Contingent Liabilities and Contingent Assets
September 1998 IAS 37 Provisions, Contingent Liabilities and Contingent Assets
1 July 1999 Effective date of IAS 37, which superseded those portions of IAS 10 (1978)
dealing with contingencies
November 1998 Exposure Draft E63 Events After the Balance Sheet Date
May 1999 IAS 10 (1999) Events After the Balance Sheet Date superseded those
portions of IAS 10 (1978) dealing with events after the balance sheet date
1 January 2005 Effective date of IAS 10 (Revised 2003)

6 September 2007 Retitled Events after the Reporting Period as a consequential amendment
resulting from revisions to IAS 1
o None
Summary of IAS 10
Key definitions
Event after the reporting period: An event, which could be favourable or unfavourable, that occurs
between the end of the reporting period and the date that the financial statements are authorised for
issue. [IAS 10.3]
Adjusting event: An event after the reporting period that provides further evidence of conditions that
existed at the end of the reporting period, including an event that indicates that the going concern as-
sumption in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]
Non-adjusting event: An event after the reporting period that is indicative of a condition that arose
after the end of the reporting period. [IAS 10.3]
Accounting
o Adjust financial statements for adjusting events - events after the balance sheet date that
provide further evidence of conditions that existed at the end of the reporting period, including
events that indicate that the going concern assumption in relation to the whole or part of the
enterprise is not appropriate. [IAS 10.8]
o Do not adjust for non-adjusting events - events or conditions that arose after the end of the
reporting period. [IAS 10.10]
o If an entity declares dividends after the reporting period, the entity shall not recognise those
dividends as a liability at the end of the reporting period. That is a non-adjusting event. [IAS
10.12]
Going concern issues arising after end of the reporting period
An entity shall not prepare its financial statements on a going concern basis if management determines
after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or
that it has no realistic alternative but to do so. [IAS 10.14]
Disclosure
Non-adjusting events should be disclosed if they are of such importance that non-disclosure would
affect the ability of users to make proper evaluations and decisions. The required disclosure is (a) the
nature of the event and (b) an estimate of its financial effect or a statement that a reasonable estimate
of the effect cannot be made. [IAS 10.21]
A company should update disclosures that relate to conditions that existed at the end of the reporting
period to reflect any new information that it receives after the reporting period about those conditions.
[IAS 10.19]
Companies must disclose the date when the financial statements were authorised for issue and who
gave that authorisation. If the enterprise's owners or others have the power to amend the financial
statements after issuance, the enterprise must disclose that fact. [IAS 10.17]
IAS 11 Construction Contracts
Overview
IAS 11 Construction Contracts provides requirements on the allocation of contract revenue and contract
costs to accounting periods in which construction work is performed. Contract revenues and expenses
are recognised by reference to the stage of completion of contract activity where the outcome of the
construction contract can be estimated reliably, otherwise revenue is recognised only to the extent of
recoverable contract costs incurred.
IAS 11 was reissued in December 1993 and is applicable for periods beginning on or after 1 January
1995.
History of IAS 11
December 1977 Exposure Draft E11 Accounting for Construction Contracts
March 1979 IAS 11 Accounting for Construction Contracts
1 January 1980 Effective date of IAS 11
May 1992 Exposure Draft E42 Construction Contracts
December 1993 IAS 11 (1993) Construction Contracts (revised as part of the 'Comparability of
1 January 2017 IAS 11 will be superseded by IFRS 15 Revenue from Contracts with Customers
o IFRIC 15 Agreements for the Construction of Real Estate
o IFRIC 12 Service Concession Arrangements
Summary of IAS 11
Objective of IAS 11
The objective of IAS 11 is to prescribe the accounting treatment of revenue and costs associated with
construction contracts.
What is a construction contract?

A construction contract is a contract specifically negotiated for the construction of an asset or a group of
interrelated assets. [IAS 11.3]
Under IAS 11, if a contract covers two or more assets, the construction of each asset should be
accounted for separately if (a) separate proposals were submitted for each asset, (b) portions of the
contract relating to each asset were negotiated separately, and (c) costs and revenues of each asset can
be measured. Otherwise, the contract should be accounted for in its entirety. [IAS 11.8]
Two or more contracts should be accounted for as a single contract if they were negotiated together
and the work is interrelated. [IAS 11.9]
If a contract gives the customer an option to order one or more additional assets, construction of each
additional asset should be accounted for as a separate contract if either (a) the additional asset differs
significantly from the original asset(s) or (b) the price of the additional asset is separately negotiated.
[IAS 11.10]
What is included in contract revenue and costs?
Contract revenue should include the amount agreed in the initial contract, plus revenue from alterna-
tions in the original contract work, plus claims and incentive payments that (a) are expected to be
collected and (b) that can be measured reliably. [IAS 11.11]
Contract costs should include costs that relate directly to the specific contract, plus costs that are attrib-
utable to the contractor's general contracting activity to the extent that they can be reasonably
allocated to the contract, plus such other costs that can be specifically charged to the customer under
the terms of the contract. [IAS 11.16]
Accounting
If the outcome of a construction contract can be estimated reliably, revenue and costs should be recog-
nised in proportion to the stage of completion of contract activity. This is known as the percentage of
completion method of accounting. [IAS 11.22]
To be able to estimate the outcome of a contract reliably, the entity must be able to make a reliable
estimate of total contract revenue, the stage of completion, and the costs to complete the contract. [IAS
11.23-24]
If the outcome cannot be estimated reliably, no profit should be recognised. Instead, contract revenue
should be recognised only to the extent that contract costs incurred are expected to be recoverable and
contract costs should be expensed as incurred. [IAS 11.32]
The stage of completion of a contract can be determined in a variety of ways - including the proportion
that contract costs incurred for work performed to date bear to the estimated total contract costs,
surveys of work performed, or completion of a physical proportion of the contract work. [IAS 11.30]
An expected loss on a construction contract should be recognised as an expense as soon as such loss is
probable. [IAS 11.22 and 11.36]
Disclosure
o amount of contract revenue recognised; [IAS 11.39(a)]

o method used to determine revenue; [IAS 11.39(b)]
o method used to determine stage of completion; [IAS 11.39(c)] and
o for contracts in progress at balance sheet date: [IAS 11.40]
o aggregate costs incurred and recognised profit
o amount of advances received
o amount of retentions
Presentation
The gross amount due from customers for contract work should be shown as an asset. [IAS 11.42]
The gross amount due to customers for contract work should be shown as a liability. [IAS 11.42]
IAS 12 Income Taxes
Overview
IAS 12 Income Taxes implements a so-called 'comprehensive balance sheet method' of accounting for
income taxes which recognises both the current tax consequences of transactions and events and the
future tax consequences of the future recovery or settlement of the carrying amount of an entity's
assets and liabilities. Differences between the carrying amount and tax base of assets and liabilities, and
carried forward tax losses and credits, are recognised, with limited exceptions, as deferred tax liabilities
or deferred tax assets, with the latter also being subject to a 'probable profits' test.
IAS 12 was reissued in October 1996 and is applicable to annual periods beginning on or after 1 January
1998.
History of IAS 12
April 1978 Exposure Draft E13 Accounting for Taxes

on Income published
July 1979 IAS 12 Accounting for Taxes on

Incomeissued
January 1989 Exposure Draft E33 Accounting for Taxes

on Income published
October 1994 Exposure Draft E49 Income

Taxespublished
October 1996 IAS 12 Income Taxes issued Operative for financial

statements covering
October 2000 Limited Revisions to IAS 12 published Operative for financial

(tax consequences of dividends) statements covering
31 March 2009 Exposure Draft ED/2009/2 Income Comment deadline 31 July
Taxpublished 2009
(proposals were not
finalised)
10 September 2010 Exposure Draft ED/2010/11 Deferred Comment deadline 9

Tax: Recovery of Underlying Assets November 2010
(Proposed amendments to IAS
12)published
20 December 2010 Amended by Deferred Tax: Recovery of Effective for annual

Underlying Assets periods beginning on or
o IFRIC 7 Applying the Restatement Approach under IAS 29 'Financial Reporting in Hyperinflation-
ary Economies'
o SIC-21 Income Taxes Recovery of Revalued Non-Depreciable Assets (SIC-21 was incorporated
into IAS 12 and withdrawn by the December 2010 amendments made by Deferred Tax: Recovery
of Underlying Assets)
o SIC-25 Income Taxes Changes in the Tax Status of an Enterprise or its Shareholders
o IAS 12 Recognition of deferred tax assets for unrealised losses
o IAS 12 Accounting for uncertainties in income taxes
o Research project Income taxes (longer term)
Summary of IAS 12
Objective of IAS 12
The objective of IAS 12 (1996) is to prescribe the accounting treatment for income taxes.
In meeting this objective, IAS 12 notes the following:
o It is inherent in the recognition of an asset or liability that that asset or liability will be recovered
or settled, and this recovery or settlement may give rise to future tax consequences which
should be recognised at the same time as the asset or liability
o An entity should account for the tax consequences of transactions and other events in the same
way it accounts for the transactions or other events themselves.
Key definitions
[IAS 12.5]
Tax base The tax base of an asset or liability is the amount attributed to that asset
or liability for tax purposes
Temporary differ- Differences between the carrying amount of an asset or liability in the
ences statement of financial position and its tax bases
Taxable Temporary differences that will result in taxable amounts in determining

temporary differ- taxable profit (tax loss) of future periods when the carrying amount of the
ences asset or liability is recovered or settled
Deductible Temporary differences that will result in amounts that are deductible in
temporary differ- determining taxable profit (tax loss) of future periods when the carrying
ences amount of the asset or liability is recovered or settled
Deferred tax lia- The amounts of income taxes payable in future periods in respect of
bilities taxable temporary differences
Deferred tax The amounts of income taxes recoverable in future periods in respect of:
assets
a. deductible temporary differences
b. the carryforward of unused tax losses, and
c. the carryforward of unused tax credits
Current tax
Current tax for the current and prior periods is recognised as a liability to the extent that it has not yet
been settled, and as an asset to the extent that the amounts already paid exceed the amount due.
[IAS 12.12] The benefit of a tax loss which can be carried back to recover current tax of a prior period is
recognised as an asset. [IAS 12.13]
Current tax assets and liabilities are measured at the amount expected to be paid to (recovered from)
taxation authorities, using the rates/laws that have been enacted or substantively enacted by the
balance sheet date. [IAS 12.46]
Calculation of deferred taxes
Formulae
Deferred tax assets and deferred tax liabilities can be calculated using the following formulae:
Temporary difference = Carrying amount - Tax base
Deferred tax asset or liability = Temporary difference x Tax rate
The following formula can be used in the calculation of deferred taxes arising from unused tax losses or
unused tax credits:
Deferred tax asset = Unused tax loss or unused tax credits x Tax rate
Tax bases
The tax base of an item is crucial in determining the amount of any temporary difference, and effectively
represents the amount at which the asset or liability would be recorded in a tax-based balance sheet.
IAS 12 provides the following guidance on determining tax bases:
o Assets. The tax base of an asset is the amount that will be deductible against taxable economic
benefits from recovering the carrying amount of the asset. Where recovery of an asset will have
no tax consequences, the tax base is equal to the carrying amount. [IAS 12.7]
o Revenue received in advance. The tax base of the recognised liability is its carrying amount, less
revenue that will not be taxable in future periods [IAS 12.8]
o Other liabilities. The tax base of a liability is its carrying amount, less any amount that will be
deductible for tax purposes in respect of that liability in future periods [IAS 12.8]
o Unrecognised items. If items have a tax base but are not recognised in the statement of
financial position, the carrying amount is nil [IAS 12.9]
o Tax bases not immediately apparent. If the tax base of an item is not immediately apparent, the
tax base should effectively be determined in such as manner to ensure the future tax conse-
quences of recovery or settlement of the item is recognised as a deferred tax amount [IAS
12.10]
o Consolidated financial statements. In consolidated financial statements, the carrying amounts

in the consolidated financial statements are used, and the tax bases determined by reference to
any consolidated tax return (or otherwise from the tax returns of each entity in the group). [IAS
12.11]
Examples
The determination of the tax base will depend on the applicable tax laws and the entity's expecta-
tions as to recovery and settlement of its assets and liabilities. The following are some basic
examples:
o Property, plant and equipment. The tax base of property, plant and equipment that is de-
preciable for tax purposes that is used in the entity's operations is the unclaimed tax de-
preciation permitted as deduction in future periods
o Receivables. If receiving payment of the receivable has no tax consequences, its tax base is
equal to its carrying amount
o Goodwill. If goodwill is not recognised for tax purposes, its tax base is nil (no deductions
are available)
o Revenue in advance. If the revenue is taxed on receipt but deferred for accounting
purposes, the tax base of the liability is equal to its carrying amount (as there are no future
taxable amounts). Conversely, if the revenue is recognised for tax purposes when the
goods or services are received, the tax base will be equal to nil
o Loans. If there are no tax consequences from repayment of the loan, the tax base of the
loan is equal to its carrying amount. If the repayment has tax consequences (e.g. taxable
amounts or deductions on repayments of foreign currency loans recognised for tax
purposes at the exchange rate on the date the loan was drawn down), the tax conse-
quence of repayment at carrying amount is adjusted against the carrying amount to
determine the tax base (which in the case of the aforementioned foreign currency loan
would result in the tax base of the loan being determined by reference to the exchange
rate on the draw down date).
Recognition and measurement of deferred taxes
Recognition of deferred tax liabilities
The general principle in IAS 12 is that a deferred tax liability is recognised for all taxable temporary dif-
ferences. There are three exceptions to the requirement to recognise a deferred tax liability, as follows:
o liabilities arising from initial recognition of goodwill [IAS 12.15(a)]
o liabilities arising from the initial recognition of an asset/liability other than in a business combi-
nation which, at the time of the transaction, does not affect either the accounting or the taxable
profit [IAS 12.15(b)]
o liabilities arising from temporary differences associated with investments in subsidiaries,

branches, and associates, and interests in joint arrangements, but only to the extent that the
entity is able to control the timing of the reversal of the differences and it is probable that the
reversal will not occur in the foreseeable future. [IAS 12.39]
Example
An entity undertaken a business combination which results in the recognition of goodwill in accor-
dance with IFRS 3 Business Combinations. The goodwill is not tax depreciable or otherwise recog-
nised for tax purposes.
As no future tax deductions are available in respect of the goodwill, the tax base is nil. Accordingly,
a taxable temporary difference arises in respect of the entire carrying amount of the goodwill.
However, the taxable temporary difference does not result in the recognition of a deferred tax
liability because of the recognition exception for deferred tax liabilities arising from goodwill.
Recognition of deferred tax assets
A deferred tax asset is recognised for deductible temporary differences, unused tax losses and unused
tax credits to the extent that it is probable that taxable profit will be available against which the de-
ductible temporary differences can be utilised, unless the deferred tax asset arises from: [IAS 12.24]
o the initial recognition of an asset or liability other than in a business combination which, at the
time of the transaction, does not affect accounting profit or taxable profit.
Deferred tax assets for deductible temporary differences arising from investments in subsidiaries,
branches and associates, and interests in joint arrangements, are only recognised to the extent that it is
probable that the temporary difference will reverse in the foreseeable future and that taxable profit will
be available against which the temporary difference will be utilised. [IAS 12.44]
The carrying amount of deferred tax assets are reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow
the benefit of part or all of that deferred tax asset to be utilised. Any such reduction is subsequently
reversed to the extent that it becomes probable that sufficient taxable profit will be available.
[IAS 12.37]
A deferred tax asset is recognised for an unused tax loss carryforward or unused tax credit if, and only if,
it is considered probable that there will be sufficient future taxable profit against which the loss or credit
carryforward can be utilised. [IAS 12.34]
Measurement of deferred tax
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or
substantively enacted by the end of the reporting period. [IAS 12.47] The measurement reflects the
entity's expectations, at the end of the reporting period, as to the manner in which the carrying amount
of its assets and liabilities will be recovered or settled. [IAS 12.51]
IAS 12 provides the following guidance on measuring deferred taxes:

o Where the tax rate or tax base is impacted by the manner in which the entity recovers its assets
or settles its liabilities (e.g. whether an asset is sold or used), the measurement of deferred
taxes is consistent with the way in which an asset is recovered or liability settled [IAS 12.51A]
o Where deferred taxes arise from revalued non-depreciable assets (e.g. revalued land), deferred
taxes reflect the tax consequences of selling the asset [IAS 12.51B]
o Deferred taxes arising from investment property measured at fair value under IAS 40 Investment
Property reflect the rebuttable presumption that the investment property will be recovered
through sale [IAS 12.51C-51D]
o If dividends are paid to shareholders, and this causes income taxes to be payable at a higher or
lower rate, or the entity pays additional taxes or receives a refund, deferred taxes are measured
using the tax rate applicable to undistributed profits [IAS 12.52A]
Deferred tax assets and liabilities cannot be discounted. [IAS 12.53]
Recognition of tax amounts for the period
Amount of income tax to recognise
The following formula summarises the amount of tax to be recognised in an accounting period:
Tax to recognise for the = Current tax for the + Movement in deferred tax balances for
period period the period
Where to recognise income tax for the period
Consistent with the principles underlying IAS 12, the tax consequences of transactions and other events
are recognised in the same way as the items giving rise to those tax consequences. Accordingly, current
and deferred tax is recognised as income or expense and included in profit or loss for the period, except
to the extent that the tax arises from: [IAS 12.58]
o transactions or events that are recognised outside of profit or loss (other comprehensive income
or equity) - in which case the related tax amount is also recognised outside of profit or loss [IAS
12.61A]
o a business combination - in which case the tax amounts are recognised as identifiable assets or
liabilities at the acquisition date, and accordingly effectively taken into account in the determi-
nation of goodwill when applying IFRS 3 Business Combinations. [IAS 12.66]
Example
An entity undertakes a capital raising and incurs incremental costs directly attributable to the
equity transaction, including regulatory fees, legal costs and stamp duties. In accordance with the
requirements of IAS 32 Financial Instruments: Presentation, the costs are accounted for as a
deduction from equity.
Assume that the costs incurred are immediately deductible for tax purposes, reducing the amount
of current tax payable for the period. When the tax benefit of the deductions is recognised, the
current tax amount associated with the costs of the equity transaction is recognised directly in
equity, consistent with the treatment of the costs themselves.
IAS 12 provides the following additional guidance on the recognition of income tax for the period:
o Where it is difficult to determine the amount of current and deferred tax relating to items
recognised outside of profit or loss (e.g. where there are graduated rates or tax), the amount of
income tax recognised outside of profit or loss is determined on a reasonable pro-rata alloca-
tion, or using another more appropriate method [IAS 12.63]
o In the circumstances where the payment of dividends impacts the tax rate or results in taxable
amounts or refunds, the income tax consequences of dividends are considered to be more
directly linked to past transactions or events and so are recognised in profit or loss unless the
past transactions or events were recognised outside of profit or loss [IAS 12.52B]
o The impact of business combinations on the recognition of pre-combination deferred tax assets
are not included in the determination of goodwill as part of the business combination, but are
separately recognised [IAS 12.68]
o The recognition of acquired deferred tax benefits subsequent to a business combination are
treated as 'measurement period' adjustments (see IFRS 3 Business Combinations) if they qualify
for that treatment, or otherwise are recognised in profit or loss [IAS 12.68]
o Tax benefits of equity settled share based payment transactions that exceed the tax effected
cumulative remuneration expense are considered to relate to an equity item and are recognised
directly in equity. [IAS 12.68C]
Presentation
Current tax assets and current tax liabilities can only be offset in the statement of financial position if
the entity has the legal right and the intention to settle on a net basis. [IAS 12.71]
Deferred tax assets and deferred tax liabilities can only be offset in the statement of financial position if
the entity has the legal right to settle current tax amounts on a net basis and the deferred tax amounts
are levied by the same taxing authority on the same entity or different entities that intend to realise the
asset and settle the liability at the same time. [IAS 12.74]
The amount of tax expense (or income) related to profit or loss is required to be presented in the
statement(s) of profit or loss and other comprehensive income. [IAS 12.77]
The tax effects of items included in other comprehensive income can either be shown net for each item,
or the items can be shown before tax effects with an aggregate amount of income tax for groups of
items (allocated between items that will and will not be reclassified to profit or loss in subsequent
periods). [IAS 1.91]
Disclosure
IAS 12.80 requires the following disclosures:
o major components of tax expense (tax income) [IAS 12.79] Examples include:
o current tax expense (income)
o any adjustments of taxes of prior periods
o amount of deferred tax expense (income) relating to the origination and reversal of
temporary differences
o amount of deferred tax expense (income) relating to changes in tax rates or the imposi-
tion of new taxes
o amount of the benefit arising from a previously unrecognised tax loss, tax credit or
temporary difference of a prior period
o write down, or reversal of a previous write down, of a deferred tax asset
o amount of tax expense (income) relating to changes in accounting policies and correc-
tions of errors.
IAS 12.81 requires the following disclosures:
o aggregate current and deferred tax relating to items recognised directly in equity
o tax relating to each component of other comprehensive income
o explanation of the relationship between tax expense (income) and the tax that would be
expected by applying the current tax rate to accounting profit or loss (this can be presented as a
reconciliation of amounts of tax or a reconciliation of the rate of tax)
o changes in tax rates
o amounts and other details of deductible temporary differences, unused tax losses, and unused
tax credits
o temporary differences associated with investments in subsidiaries, branches and associates, and
interests in joint arrangements
o for each type of temporary difference and unused tax loss and credit, the amount of deferred
tax assets or liabilities recognised in the statement of financial position and the amount of
deferred tax income or expense recognised in profit or loss
o tax relating to discontinued operations
o tax consequences of dividends declared after the end of the reporting period
o information about the impacts of business combinations on an acquirer's deferred tax assets
o recognition of deferred tax assets of an acquiree after the acquisition date.

Other required disclosures:
o details of deferred tax assets [IAS 12.82]
o tax consequences of future dividend payments. [IAS 12.82A]
In addition to the disclosures required by IAS 12, some disclosures relating to income taxes are required
by IAS 1 Presentation of Financial Statements, as follows:
o Disclosure on the face of the statement of financial position about current tax assets, current tax
liabilities, deferred tax assets, and deferred tax liabilities [IAS 1.54(n) and (o)]
o Disclosure of tax expense (tax income) in the profit or loss section of the statement of profit or
loss and other comprehensive income (or separate statement if presented). [IAS 1.82(d)]
IAS 14 Segment Reporting (Superseded)
Overview
IAS 14 Segment Reporting requires reporting of financial information by business or geographical area. It
requires disclosures for 'primary' and 'secondary' segment reporting formats, with the primary format
based on whether the entity's risks and returns are affected predominantly by the products and services
it produces or by the fact that it operates in different geographical areas.
IAS 14 was issued in August 1997, was applicable to annual periods beginning on or after 1 July 1998,
and was superseded by IFRS 8 Operating Segments with effect from annual periods beginning on or
History of IAS 14
March 1980 Exposure Draft E15 Reporting Financial Information by Segment
August 1981 IAS 14 Reporting Financial Information by Segment
December 1995 Exposure Draft E51 Reporting Financial Information by Segment
August 1997 IAS 14 Segment Reporting
1 July 1998 Effective date of IAS 14 (1997)
30 November 2006 IAS 14 is superseded by IFRS 8 Operating Segments effective for annual
periods beginning 1 January 2009
o None
Summary of IAS 14
Objective of IAS 14
The objective of IAS 14 (Revised 1997) is to establish principles for reporting financial information by line
of business and by geographical area. It applies to entities whose equity or debt securities are publicly
traded and to entities in the process of issuing securities to the public. In addition, any entity voluntarily
providing segment information should comply with the requirements of the Standard.
Applicability
IAS 14 must be applied by entities whose debt or equity securities are publicly traded and those in the
process of issuing such securities in public securities markets. [IAS 14.3]
If an entity that is not publicly traded chooses to report segment information and claims that its financial
statements conform to IFRSs, then it must follow IAS 14 in full. [IAS 14.5]
Segment information need not be presented in the separate financial statements of a (a) parent, (b)
subsidiary, (c) equity method associate, or (d) equity method joint venture that are presented in the
same report as the consolidated statements. [IAS 14.6-7]
Key definitions
Business segment: a component of an entity that (a) provides a single product or service or a group of
related products and services and (b) that is subject to risks and returns that are different from those of
other business segments. [IAS 14.9]
Geographical segment: a component of an entity that (a) provides products and services within a partic-
ular economic environment and (b) that is subject to risks and returns that are different from those of
components operating in other economic environments. [IAS 14.9]
Reportable segment: a business segment or geographical segment for which IAS 14 requires segment
information to be reported. [IAS 14.9]
Segment revenue: revenue, including intersegment revenue, that is directly attributable or reasonably
allocable to a segment. Includes interest and dividend income and related securities gains only if the
segment is a financial segment (bank, insurance company, etc.). [IAS 14.16]
Segment expenses: expenses, including expenses relating to intersegment transactions, that (a) result
from operating activities and (b) are directly attributable or reasonably allocable to a segment. Includes
interest expense and related securities losses only if the segment is a financial segment (bank, insurance
company, etc.). Segment expenses do not include:
o interest
o losses on sales of investments or debt extinguishments
o losses on investments accounted for by the equity method
o income taxes
o general corporate administrative and head-office expenses that relate to the entity as a whole
[IAS 14.16]
Segment result: segment revenue minus segment expenses, before deducting minority interest. [IAS
14.16]
Segment assets and segment liabilities: those operating assets (liabilities) that are directly attributable
or reasonably allocable to a segment. [IAS 14.16]
Identifying business and geographical segments

An entity must look to its organisational structure and internal reporting system to identify reportable
segments. In particular, IAS 14 presumes that segmentation in internal financial reports prepared for the
board of directors and chief executive officer should normally determine segments for external financial
reporting purposes. Only if internal segments are not along either product/service or geographical lines
is further disaggregation appropriate. [IAS 14.26]
Geographical segments may be based either on where the entity's assets are located or on where its
customers are located. [IAS 14.14] Whichever basis is used, several items of data must be presented on
the other basis if significantly different. [IAS 14.71-72]
Primary and secondary segments
For most entities one basis of segmentation is primary and the other is secondary, with considerably less
disclosure required for secondary segments. The entity should determine whether business or geo-
graphical segments are to be used for its primary segment reporting format based on whether the
entity's risks and returns are affected predominantly by the products and services it produces or by the
fact that it operates in different geographical areas. The basis for identification of the predominant
source and nature of risks and differing rates of return facing the entity will usually be the entity's
internal organisational and management structure and its system of internal financial reporting to senior
management. [IAS 14.26-27]
Which segments are reportable?
The entity's reportable segments are its business and geographical segments for which a majority of
their revenue is earned from sales to external customers and for which: [IAS 14.35]
o revenue from sales to external customers and from transactions with other segments is 10% or
more of the total revenue, external and internal, of all segments; or
o segment result, whether profit or loss, is 10% or more the combined result of all segments in
profit or the combined result of all segments in loss, whichever is greater in absolute amount; or
o assets are 10% or more of the total assets of all segments.
Segments deemed too small for separate reporting may be combined with each other, if related, but
they may not be combined with other significant segments for which information is reported internally.
Alternatively, they may be separately reported. If neither combined nor separately reported, they must
be included as an unallocated reconciling item. [IAS 14.36]
If total external revenue attributable to reportable segments identified using the 10% thresholds
outlined above is less than 75% of the total consolidated or entity revenue, additional segments should
be identified as reportable segments until at least 75% of total consolidated or entity revenue is
included in reportable segments. [IAS 14.37]
Vertically integrated segments (those that earn a majority of their revenue from intersegment transac-
tions) may be, but need not be, reportable segments. [IAS 14.39] If not separately reported, the selling
segment is combined with the buying segment. [IAS 14.41]
IAS 14.42-43 contain special rules for identifying reportable segments in the years in which a segment
reaches or loses 10% significance.
What accounting policies should a segment follow?
Segment accounting policies must be the same as those used in the consolidated financial statements.
[IAS 14.44]
If assets used jointly by two or more segments are allocated to segments, the related revenue and
expenses must also be allocated. [IAS 14.47]
What must be disclosed?
IAS 14 has detailed guidance as to which items of revenue and expense are included in segment revenue
and segment expense. All companies will report a standardised measure of segment result basically
operating profit before interest, taxes, and head office expenses. For an entity's primary segments,
revised IAS 14 requires disclosure of: [IAS 14.51-67]
o sales revenue (distinguishing between external and intersegment)
o result
o assets
o the basis of intersegment pricing
o liabilities
o capital additions
o depreciation and amortisation
o significant unusual items
o non-cash expenses other than depreciation
o equity method income
Segment revenue includes "sales" from one segment to another. Under IAS 14, these intersegment
transfers must be measured on the basis that the entity actually used to price the transfers. [IAS 14.75]
For secondary segments, disclose: [IAS 14.69-72]
o revenue
o assets
o capital additions
Other disclosure matters addressed in IAS 14:
o Disclosure is required of external revenue for a segment that is not deemed a reportable
segment because a majority of its sales are intersegment sales but nonetheless its external sales
are 10% or more of consolidated revenue. [IAS 14.74]
o Special disclosures are required for changes in segment accounting policies. [IAS 14.76]
o Where there has been a change in the identification of segments, prior year information should
be restated. If this is not practicable, segment data should be reported for both the old and new
bases of segmentation in the year of change. [IAS 14.76]
o Disclosure is required of the types of products and services included in each reported business
segment and of the composition of each reported geographical segment, both primary and
secondary. [IAS 14.81]
An entity must present a reconciliation between information reported for segments and consolidated
information. At a minimum: [IAS 14.67]
o segment revenue should be reconciled to consolidated revenue
o segment result should be reconciled to a comparable measure of consolidated operating profit

or loss and consolidated net profit or loss
o segment assets should be reconciled to entity assets
o segment liabilities should be reconciled to entity liabilities.

IAS 15 Information Reflecting the Effects of Changing Prices
(Withdrawn)
History of IAS 15
January 1976 Exposure Draft E6 Accounting Treatment of Changing Prices
June 1977 IAS 6 Accounting Responses to Changing Prices
1 January 1978 Effective date of IAS 6
August 1980 Exposure Draft E17 Information Reflecting the Effects of Changing Prices
November 1981 IAS 15 Information Reflecting the Effects of Changing Prices superseded IAS 6
October 1989 IASC Board voted to make the IAS 15 disclosures optional and added a
statement to that effect at the front of IAS 15
1994 Reformatted
2001 IASB tentatively decided to withdraw IAS 15
December 2003 Withdrawn effective 1 January 2005
Summary of IAS 15
In October 1989 IAS 15 Was Made Optional
In October 1989, the IASC issued a Board Statement making IAS 15 optional, not mandatory. IASC
granted that exemption because of the failure to reach an international consensus on the disclo-
sure of information reflecting the effects of changing prices. However, enterprises are encouraged
to disclose information reflecting the effects of changing prices and, where they do so, to disclose
the items required by IAS 15.
In December 2003, the IASB withdrew IAS 15 as part of its Improvements Project, effective 1
January 2005.
Objective of IAS 15
The objective of IAS 15 is to specify disclosures reflecting the effects of changing prices on the measure-
ments used in the determination of an enterprise's results of operations and its financial position.
Applicability
IAS 15 applies to enterprises whose levels of revenue, profit, assets or employment are significant in the
economic environment in which they operate. When both parent and consolidated financial statements
are presented, the information specified by IAS 15 need be presented only on a consolidated basis. [IAS
15.3]
Method for reflecting changing prices
The enterprise must select one of two broad accounting methods for reflecting the effects of changing
prices: [IAS 15.8]
o General purchasing power approach. Restate financial statements for changes in the general
price level.
o Current cost approach. Measure balance sheet items at replacement cost. IAS 15 allows a
variety of methods of adjusting income under the current cost approach.
What should be disclosed
The following items should be disclosed, at a minimum, based on the chosen method for reflecting the
effects of changing prices: [IAS 15.21-23]
o Adjustment to depreciation
o Adjustment to cost of sales
o Adjustments relating to monetary items
o The overall effect on net income of the above three items
o Current cost of property, plant and equipment and of inventories, if the current cost approach is
used
o Description of the methods used to compute the above adjustments
The disclosures can be made on a supplementary basis or in the primary financial statements. [IAS
15.24]
IAS 16 Property, Plant and Equipment
Overview
IAS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property,
plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently
measured either using a cost or revaluation model, and depreciated so that its depreciable amount is
allocated on a systematic basis over its useful life.
2005.
History of IAS 16
August 1980 Exposure Draft E18 Accounting for Property,

Plant and Equipment in the Context of the
Historical Cost Systempublished
March 1982 IAS 16 Accounting for Property, Plant and Operative for financial
Equipment issued statements covering
1 January 1992 Exposure Draft E43 Property, Plant and

Equipment published
December 1993 IAS 16 Property, Plant and Equipmentissued Operative for financial
(revised as part of the 'Comparability of statements covering
Financial Statements' project) periods beginning on or
April and July 1998 Amended to be consistent with IAS 22, IAS Operative for annual
36 and IAS 37 financial statements
covering periods
beginning on or after 1
July 1999
18 December 2003 IAS 16 Property, Plant and Equipmentissued Effective for annual
22 May 2008 Amended by Improvements to Effective for annual
IFRSs(routine sales of assets held for rental) periods beginning on or
17 May 2012 Amended by Annual Improvements 2009- Effective for annual

2011 Cycle (classification of servicing periods beginning on or
equipment) after 1 January 2013
12 December 2013 Amended by Annual Improvements to IFRSs Effective for annual

20102012 Cycle (proportionate restate- periods beginning on or
ment of accumulated depreciation under after 1 July 2014
the revaluation method)
12 May 2014 Amended by Clarification of Acceptable Effective for annual

Methods of Depreciation and Amortisation periods beginning on or
(Amendments to IAS 16 and IAS 38) after 1 January 2016
30 June 2014 Amended by Agriculture: Bearer Plants Effective for annual

(Amendments to IAS 16 and IAS 41) periods beginning on or
o IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
o SIC-6 Costs of Modifying Existing Software. SIC-6 was superseded by and incorporated into IAS
16 (2003).
o SIC-14 Property, Plant and Equipment Compensation for the Impairment or Loss of Items.SIC-
14 was superseded by and incorporated into IAS 16 (2003).
o SIC-23 Property, Plant and Equipment - Major Inspection or Overhaul Costs. SIC-23 was super-
seded by and incorporated into IAS 16 (2003).
o none
Summary of IAS 16
Objective of IAS 16
The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The
principal issues are the recognition of assets, the determination of their carrying amounts, and the de-
preciation charges and impairment losses to be recognised in relation to them.
Scope
IAS 16 applies to the accounting for property, plant and equipment, except where another standards
requires or permits differing accounting treatments, for example:
o assets classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
o biological assets related to agricultural activity accounted for under IAS 41 Agriculture
o exploration and evaluation assets recognised in accordance with IFRS 6 Exploration for and Eval-
uation of Mineral Resources
o mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative
resources.
The standard does apply to property, plant, and equipment used to develop or maintain the last three
categories of assets. [IAS 16.3]
The cost model in IAS 16 also applies to investment property accounted for using the cost model
under IAS 40 Investment Property. [IAS 16.5]
The standard does apply to bearer plants but it does not apply to the produce on bearer plants. [IAS
16.3]
Note: Bearer plants were brought into the scope of IAS 16 by Agriculture: Bearer Plants (Amendments to
IAS 16 and IAS 41), which applies to annual periods beginning on or after 1 January 2016.
Recognition
Items of property, plant, and equipment should be recognised as assets when it is probable that: [IAS
16.7]
o it is probable that the future economic benefits associated with the asset will flow to the entity,
and
o the cost of the asset can be measured reliably.
This recognition principle is applied to all property, plant, and equipment costs at the time they are
incurred. These costs include costs incurred initially to acquire or construct an item of property, plant
and equipment and costs incurred subsequently to add to, replace part of, or service it.
IAS 16 does not prescribe the unit of measure for recognition what constitutes an item of property,
plant, and equipment. [IAS 16.9] Note, however, that if the cost model is used (see below) each part of
an item of property, plant, and equipment with a cost that is significant in relation to the total cost of
the item must be depreciated separately. [IAS 16.43]
IAS 16 recognises that parts of some items of property, plant, and equipment may require replacement
at regular intervals. The carrying amount of an item of property, plant, and equipment will include the
cost of replacing the part of such an item when that cost is incurred if the recognition criteria (future
benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is
derecognised in accordance with the derecognition provisions of IAS 16.67-72. [IAS 16.13]
Also, continued operation of an item of property, plant, and equipment (for example, an aircraft) may
require regular major inspections for faults regardless of whether parts of the item are replaced. When
each major inspection is performed, its cost is recognised in the carrying amount of the item of
property, plant, and equipment as a replacement if the recognition criteria are satisfied. If necessary,
the estimated cost of a future similar inspection may be used as an indication of what the cost of the
existing inspection component was when the item was acquired or constructed. [IAS 16.14]
Initial measurement
An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes
all costs necessary to bring the asset to working condition for its intended use. This would include not
only its original purchase price but also costs of site preparation, delivery and handling, installation,
related professional fees for architects and engineers, and the estimated cost of dismantling and
removing the asset and restoring the site (see IAS 37 Provisions, Contingent Liabilities and Contingent
Assets). [IAS 16.16-17]
If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be
recognised or imputed. [IAS 16.23]
If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost
will be measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b)
the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired
item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [IAS
16.24]
Measurement subsequent to initial recognition
IAS 16 permits two accounting models:
o Cost model. The asset is carried at cost less accumulated depreciation and impairment. [IAS
16.30]
o Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of
revaluation less subsequent depreciation and impairment, provided that fair value can be
measured reliably. [IAS 16.31]
The revaluation model
Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount
of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]
If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS
16.36]
Revalued assets are depreciated in the same way as under the cost model (see below).
If a revaluation results in an increase in value, it should be credited to other comprehensive income and
accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a
revaluation decrease of the same asset previously recognised as an expense, in which case it should be
recognised in profit or loss. [IAS 16.39]
A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it
exceeds any amount previously credited to the revaluation surplus relating to the same asset. [IAS
16.40]
When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained
earnings, or it may be left in equity under the heading revaluation surplus. The transfer to retained
earnings should not be made through profit or loss. [IAS 16.41]
Depreciation (cost and revaluation models)
For all depreciable assets:
The depreciable amount (cost less residual value) should be allocated on a systematic basis over the
asset's useful life [IAS 16.50].
The residual value and the useful life of an asset should be reviewed at least at each financial year-end
and, if expectations differ from previous estimates, any change is accounted for prospectively as a
change in estimate under IAS 8. [IAS 16.51]
The depreciation method used should reflect the pattern in which the asset's economic benefits are
consumed by the entity [IAS 16.60]; a depreciation method that is based on revenue that is generated
by an activity that includes the use of an asset is not appropriate. [IAS 16.62A]
Note: The clarification regarding the revenue-based depreciation method was introduced by Clarifica-
tion of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning
on or after 1 January 2016.
The depreciation method should be reviewed at least annually and, if the pattern of consumption of
benefits has changed, the depreciation method should be changed prospectively as a change in estimate
under IAS 8. [IAS 16.61] Expected future reductions in selling prices could be indicative of a higher rate
of consumption of the future economic benefits embodied in an asset. [IAS 16.56]
Note: The guidance on expected future reductions in selling prices was introduced by Clarification of Ac-
ceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or
Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another
asset [IAS 16.48].
Depreciation begins when the asset is available for use and continues until the asset is derecognised,
even if it is idle. [IAS 16.55]
Recoverability of the carrying amount
IAS 16 Property, Plant and Equipment requires impairment testing and, if necessary, recognition for
property, plant, and equipment. An item of property, plant, or equipment shall not be carried at more
than recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and
its value in use.
Any claim for compensation from third parties for impairment is included in profit or loss when the
claim becomes receivable. [IAS 16.65]
Derecognition (retirements and disposals)
An asset should be removed from the statement of financial position on disposal or when it is
withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on
disposal is the difference between the proceeds and the carrying amount and should be recognised in
profit and loss. [IAS 16.67-71]
If an entity rents some assets and then ceases to rent them, the assets should be transferred to invento-
ries at their carrying amounts as they become held for sale in the ordinary course of business. [IAS
16.68A]
Disclosure
Information about each class of property, plant and equipment
For each class of property, plant, and equipment, disclose: [IAS 16.73]
o basis for measuring carrying amount
o depreciation method(s) used
o useful lives or depreciation rates
o gross carrying amount and accumulated depreciation and impairment losses
o reconciliation of the carrying amount at the beginning and the end of the period, showing:
o additions
o disposals
o acquisitions through business combinations
o revaluation increases or decreases
o impairment losses
o reversals of impairment losses
o depreciation
o net foreign exchange differences on translation
o other movements
Additional disclosures
The following disclosures are also required: [IAS 16.74]
o restrictions on title and items pledged as security for liabilities
o expenditures to construct property, plant, and equipment during the period

o contractual commitments to acquire property, plant, and equipment
o compensation from third parties for items of property, plant, and equipment that were
impaired, lost or given up that is included in profit or loss.
IAS 16 also encourages, but does not require, a number of additional disclosures. [IAS 16.79]
Revalued property, plant and equipment
If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are
required: [IAS 16.77]
o the effective date of the revaluation
o whether an independent valuer was involved
o for each revalued class of property, the carrying amount that would have been recognised had
the assets been carried under the cost model
o the revaluation surplus, including changes during the period and any restrictions on the distribu-
tion of the balance to shareholders.
Entities with property, plant and equipment stated at revalued amounts are also required to make dis-
closures under IFRS 13 Fair Value Measurement.
IAS 17 Leases
Overview
IAS 17 Leases prescribes the accounting policies and disclosures applicable to leases, both for lessees
and lessors. Leases are required to be classified as either finance leases (which transfer substantially all
the risks and rewards of ownership, and give rise to asset and liability recognition by the lessee and a
receivable by the lessor) and operating leases (which result in expense recognition by the lessee, with
the asset remaining recognised by the lessor).
2005.
History of IAS 17
October 1980 Exposure Draft E19 Accounting for Leases
September 1982 IAS 17 Accounting for Leases
April 1997 Exposure Draft E56, Leases
December 1997 IAS 17 Leases
1 January 1999 Effective date of IAS 17 (1997) Leases
16 April 2009 IAS 17 amended for Annual Improvements to IFRSs 2009 about classifica-
tion of land leases
1 January 2010 Effective date of the April 2009 revisions to IAS 17, with early application
permitted (with disclosure)
o IFRIC 4 Determining Whether an Arrangement Contains a Lease

o SIC-15 Operating Leases Incentives
o SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease
o Leases Comprehensive project
Summary of IAS 17
Objective of IAS 17
The objective of IAS 17 (1997) is to prescribe, for lessees and lessors, the appropriate accounting policies
and disclosures to apply in relation to finance and operating leases.
Scope
IAS 17 applies to all leases other than lease agreements for minerals, oil, natural gas, and similar regen-
erative resources and licensing agreements for films, videos, plays, manuscripts, patents, copyrights,
and similar items. [IAS 17.2]
However, IAS 17 does not apply as the basis of measurement for the following leased assets: [IAS 17.2]
o property held by lessees that is accounted for as investment property for which the lessee uses
the fair value model set out in IAS 40
o investment property provided by lessors under operating leases (see IAS 40)
o biological assets held by lessees under finance leases (see IAS 41)
o biological assets provided by lessors under operating leases (see IAS 41)
Classification of leases
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to
ownership. All other leases are classified as operating leases. Classification is made at the inception of
the lease. [IAS 17.4]
Whether a lease is a finance lease or an operating lease depends on the substance of the transaction
rather than the form. Situations that would normally lead to a lease being classified as a finance lease
include the following: [IAS 17.10]
o the lease transfers ownership of the asset to the lessee by the end of the lease term
o the lessee has the option to purchase the asset at a price which is expected to be sufficiently
lower than fair value at the date the option becomes exercisable that, at the inception of the
lease, it is reasonably certain that the option will be exercised
o the lease term is for the major part of the economic life of the asset, even if title is not trans-
ferred
o at the inception of the lease, the present value of the minimum lease payments amounts to at
least substantially all of the fair value of the leased asset
o the lease assets are of a specialised nature such that only the lessee can use them without major
modifications being made
Other situations that might also lead to classification as a finance lease are: [IAS 17.11]
o if the lessee is entitled to cancel the lease, the lessor's losses associated with the cancellation
are borne by the lessee
o gains or losses from fluctuations in the fair value of the residual fall to the lessee (for example,
by means of a rebate of lease payments)
o the lessee has the ability to continue to lease for a secondary period at a rent that is substan-
tially lower than market rent
When a lease includes both land and buildings elements, an entity assesses the classification of each
element as a finance or an operating lease separately. In determining whether the land element is an
operating or a finance lease, an important consideration is that land normally has an indefinite
economic life [IAS 17.15A]. Whenever necessary in order to classify and account for a lease of land and
buildings, the minimum lease payments (including any lump-sum upfront payments) are allocated
between the land and the buildings elements in proportion to the relative fair values of the leasehold
interests in the land element and buildings element of the lease at the inception of the lease. [IAS 17.16]
For a lease of land and buildings in which the amount that would initially be recognised for the land
element is immaterial, the land and buildings may be treated as a single unit for the purpose of lease
classification and classified as a finance or operating lease. [IAS 17.17] However, separate measurement
of the land and buildings elements is not required if the lessee's interest in both land and buildings is
classified as an investment property in accordance with IAS 40 and the fair value model is adopted. [IAS
17.18]
Accounting by lessees
The following principles should be applied in the financial statements of lessees:
o at commencement of the lease term, finance leases should be recorded as an asset and a
liability at the lower of the fair value of the asset and the present value of the minimum lease
payments (discounted at the interest rate implicit in the lease, if practicable, or else at the
entity's incremental borrowing rate) [IAS 17.20]
o finance lease payments should be apportioned between the finance charge and the reduction of
the outstanding liability (the finance charge to be allocated so as to produce a constant periodic
rate of interest on the remaining balance of the liability) [IAS 17.25]
o the depreciation policy for assets held under finance leases should be consistent with that for
owned assets. If there is no reasonable certainty that the lessee will obtain ownership at the end
of the lease the asset should be depreciated over the shorter of the lease term or the life of
the asset [IAS 17.27]
o for operating leases, the lease payments should be recognised as an expense in the income
statement over the lease term on a straight-line basis, unless another systematic basis is more
representative of the time pattern of the user's benefit [IAS 17.33]
Incentives for the agreement of a new or renewed operating lease should be recognised by the lessee as
a reduction of the rental expense over the lease term, irrespective of the incentive's nature or form, or
the timing of payments. [SIC-15]
Accounting by lessors
The following principles should be applied in the financial statements of lessors:
o at commencement of the lease term, the lessor should record a finance lease in the balance
sheet as a receivable, at an amount equal to the net investment in the lease [IAS 17.36]
o the lessor should recognise finance income based on a pattern reflecting a constant periodic
rate of return on the lessor's net investment outstanding in respect of the finance lease [IAS
17.39]
o assets held for operating leases should be presented in the balance sheet of the lessor according
to the nature of the asset. [IAS 17.49] Lease income should be recognised over the lease term
on a straight-line basis, unless another systematic basis is more representative of the time
pattern in which use benefit is derived from the leased asset is diminished [IAS 17.50]
Incentives for the agreement of a new or renewed operating lease should be recognised by the lessor as
a reduction of the rental income over the lease term, irrespective of the incentive's nature or form, or
the timing of payments. [SIC-15]
Manufacturers or dealer lessors should include selling profit or loss in the same period as they would for
an outright sale. If artificially low rates of interest are charged, selling profit should be restricted to that
which would apply if a commercial rate of interest were charged. [IAS 17.42]
Under the 2003 revisions to IAS 17, initial direct and incremental costs incurred by lessors in negotiating
leases must be recognised over the lease term. They may no longer be charged to expense when
incurred. This treatment does not apply to manufacturer or dealer lessors where such cost recognition is
as an expense when the selling profit is recognised.
Sale and leaseback transactions
For a sale and leaseback transaction that results in a finance lease, any excess of proceeds over the
carrying amount is deferred and amortised over the lease term. [IAS 17.59]
For a transaction that results in an operating lease: [IAS 17.61]
o if the transaction is clearly carried out at fair value - the profit or loss should be recognised im-
mediately
o if the sale price is below fair value - profit or loss should be recognised immediately, except if a
loss is compensated for by future rentals at below market price, the loss it should be amortised
over the period of use
o if the sale price is above fair value - the excess over fair value should be deferred and amortised
over the period of use
o if the fair value at the time of the transaction is less than the carrying amount a loss equal to
the difference should be recognised immediately [IAS 17.63]
Disclosure: lessees finance leases [IAS 17.31]
o carrying amount of asset
o reconciliation between total minimum lease payments and their present value
o amounts of minimum lease payments at balance sheet date and the present value thereof, for:
o the next year
o years 2 through 5 combined
o beyond five years
o contingent rent recognised as an expense
o total future minimum sublease income under noncancellable subleases
o general description of significant leasing arrangements, including contingent rent provisions,

renewal or purchase options, and restrictions imposed on dividends, borrowings, or further
leasing
Disclosure: lessees operating leases [IAS 17.35]
o amounts of minimum lease payments at balance sheet date under noncancellable operating
leases for:
o the next year
o beyond five years
o total future minimum sublease income under noncancellable subleases
o lease and sublease payments recognised in income for the period
o contingent rent recognised as an expense
o general description of significant leasing arrangements, including contingent rent provisions,

renewal or purchase options, and restrictions imposed on dividends, borrowings, or further
leasing
Disclosure: lessors finance leases [IAS 17.47]
o reconciliation between gross investment in the lease and the present value of minimum lease
payments;
o gross investment and present value of minimum lease payments receivable for:
o the next year

o beyond five years
o unearned finance income
o unguaranteed residual values
o accumulated allowance for uncollectible lease payments receivable
o contingent rent recognised in income
o general description of significant leasing arrangements
Disclosure: lessors operating leases [IAS 17.56]
o amounts of minimum lease payments at balance sheet date under noncancellable operating
leases in the aggregate and for:
o the next year
o beyond five years
o contingent rent recognised as in income
o general description of significant leasing arrangements

IAS 18 Revenue
Overview
IAS 18 Revenue outlines the accounting requirements for when to recognise revenue from the sale of
goods, rendering of services, and for interest, royalties and dividends. Revenue is measured at the fair
value of the consideration received or receivable and recognised when prescribed conditions are met,
which depend on the nature of the revenue.
IAS 18 was reissued in December 1993 and is operative for periods beginning on or after 1 January 1995.
History of IAS 18
April 1981 Exposure Draft E20 Revenue Recognition
December 1982 IAS 18 Revenue Recognition
May 1992 E41 Revenue Recognition
December 1993 IAS 18 Revenue Recognition (revised as part of the 'Comparability of Financial
Statements' project)
1 January 1995 Effective date of IAS 18 (1993) Revenue Recognition
December 1998 Amended by IAS 39 Financial Instruments: Recognition and Measurement,

effective 1 January 2001
16 April 2009 Appendix to IAS 18 amended for Annual Improvements to IFRSs 2009. It now
provides guidance for determining whether an entity is acting as a principal
or as an agent.
1 January 2017 IAS 18 will be superseded by IFRS 15 Revenue from Contracts with Customers
o IFRIC 18 Transfers of Assets from Customers
o IFRIC 15 Agreements for the Construction of Real Estate
o IFRIC 13 Customer Loyalty Programmes

o SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease
o SIC-31 Revenue Barter Transactions Involving Advertising Services
Summary of IAS 18
Objective of IAS 18
The objective of IAS 18 is to prescribe the accounting treatment for revenue arising from certain types of
transactions and events.
Key definition
Revenue: the gross inflow of economic benefits (cash, receivables, other assets) arising from the
ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and
dividends). [IAS 18.7]
Measurement of revenue
Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] An
exchange for goods or services of a similar nature and value is not regarded as a transaction that
generates revenue. However, exchanges for dissimilar items are regarded as generating revenue. [IAS
18.12]
If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less
than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate.
This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a
below-market rate of interest. Interest must be imputed based on market rates. [IAS 18.11]
Recognition of revenue
Recognition, as defined in the IASB Framework, means incorporating an item that meets the definition
of revenue (above) in the income statement when it meets the following criteria:
o it is probable that any future economic benefit associated with the item of revenue will flow to
the entity, and
o the amount of revenue can be measured with reliability
IAS 18 provides guidance for recognising the following specific categories of revenue:
Sale of goods
Revenue arising from the sale of goods should be recognised when all of the following criteria have been
satisfied: [IAS 18.14]
o the seller has transferred to the buyer the significant risks and rewards of ownership
o the seller retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold
o the amount of revenue can be measured reliably

o it is probable that the economic benefits associated with the transaction will flow to the seller,
and
o the costs incurred or to be incurred in respect of the transaction can be measured reliably
Rendering of services
For revenue arising from the rendering of services, provided that all of the following criteria are met,
revenue should be recognised by reference to the stage of completion of the transaction at the balance
sheet date (the percentage-of-completion method): [IAS 18.20]
o the amount of revenue can be measured reliably;
o it is probable that the economic benefits will flow to the seller;
o the stage of completion at the balance sheet date can be measured reliably; and
o the costs incurred, or to be incurred, in respect of the transaction can be measured reliably.
When the above criteria are not met, revenue arising from the rendering of services should be recog-
nised only to the extent of the expenses recognised that are recoverable (a "cost-recovery approach".
[IAS 18.26]
Interest, royalties, and dividends
For interest, royalties and dividends, provided that it is probable that the economic benefits will flow to
the enterprise and the amount of revenue can be measured reliably, revenue should be recognised as
follows: [IAS 18.29-30]
o interest: using the effective interest method as set out in IAS 39
o royalties: on an accruals basis in accordance with the substance of the relevant agreement
o dividends: when the shareholder's right to receive payment is established
Disclosure [IAS 18.35]
o accounting policy for recognising revenue
o amount of each of the following types of revenue:
o sale of goods
o rendering of services
o interest
o royalties
o dividends
o within each of the above categories, the amount of revenue from exchanges of goods or
services
Implementation guidance
Appendix A to IAS 18 provides illustrative examples of how the above principles apply to certain transac-
tions.
IAS 19 Employee Benefits (2011)
Overview
IAS 19 Employee Benefits (amended 2011) outlines the accounting requirements for employee benefits,
including short-term benefits (e.g. wages and salaries, annual leave), post-employment benefits such as
retirement benefits, other long-term benefits (e.g. long service leave) and termination benefits. The
standard establishes the principle that the cost of providing employee benefits should be recognised in
the period in which the benefit is earned by the employee, rather than when it is paid or payable, and
outlines how each category of employee benefits are measured, providing detailed guidance in particu-
lar about post-employment benefits.
IAS 19 (2011) was issued in 2011, supersedes IAS 19 Employee Benefits (1998), and is applicable to
annual periods beginning on or after 1 January 2013.
History of IAS 19
April 1980 Exposure Draft E16 Accounting for Retire-

ment Benefits in Financial Statements of
Employers published
January 1983 IAS 19 Accounting for Retirement Benefits in Operative for financial
Financial Statements of Employers issued statements covering
December 1992 E47 Retirement Benefit Costs published
December 1993 IAS 19 Retirement Benefit Costs issued Operative for financial
statements covering
October 1996 E54 Employee Benefits published Comment deadline 31

January 1997
February 1998 IAS 19 Employee Benefits issued Operative for financial

statements covering
July 2000 E67 Pension Plan Assets published
October 2000 Amended to change the definition of plan Operative for annual
assets and to introduce recognition, mea- financial statements
surement and disclosure requirements for covering periods
reimbursements beginning on or after 1
January 2001
May 2002 Amended to prevent the recognition of Operative for annual

gains solely as a result of actuarial losses or financial statements
past service cost and the recognition of covering periods ending
losses solely as a result of actuarial gains on or after 31 May 2002
5 December 2002 ED 2 Share-based Payment published, Comment deadline 7

proposing to replace the equity compensa- March 2003
tion benefits requirements of IAS 19
February 2004 Equity compensation benefits requirements Effective for annual

replaced by IFRS 2 Share-based Payment reporting periods
January 2005
29 April 2004 Exposure Draft Proposed Amendments to Comment deadline 31

IAS 19 Employee Benefits: Actuarial Gains July 2004
and Losses, Group Plans and Disclo-
surespublished
19 December 2004 Actuarial Gains and Losses, Group Plans and Effective for annual
Disclosures issued periods beginning on or
22 May 2008 Amended by Annual Improvements to Effective for annual

IFRSs (negative past service costs and cur- periods beginning on or
tailments) after 1 January 2009
20 August 2009 ED/2009/10 Discount Rate for Employee Comment deadline 30

Benefits (Proposed amendments to September 2009
IAS 19)published (proposals were not
finalised)
29 April 2010 ED/2010/3 Defined Benefit Plans (Proposed Comment deadline 6
amendments to IAS 19) published September 2010
16 June 2011 IAS 19 Employee Benefits (amended 2011) Effective for annual
issued periods beginning on or
25 March 2013 ED/2013/4 Defined Benefit Plans: Employee Comment deadline 25

Contributions (Proposed amendments to July 2013
IAS 19) published
21 November 2013 Defined Benefit Plans: Employee Contribu- Effective for annual
tions (Amendments to IAS 19) issued periods beginning on or
after 1 July 2014
25 September Amended by Improvements to IFRSs Effective for annual

2014 2014(discount rate: regional market issue) periods beginning on or
o IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction
o IAS 19/IFRIC 14 Remeasurement at a plan amendment, curtailment or settlement / Availabil-

ity of a refund of a surplus from a defined benefit plan
o Research project Discount rates
o Post-employment Benefits Comprehensive reconsideration of IAS 19 (longer term project)
In addition, the IASB has signalled an intention to conduct a post-implementation review, commencing
in 2015.
Summary of IAS 19 (2011)
Amended version of IAS 19 issued in 2011
IAS 19 Employee Benefits (2011) is an amended version of, and supersedes, IAS 19 Employee
Benefits (1998), effective for annual periods beginning on or after 1 January 2013. The summary
that follows refers to IAS 19 (2011). Readers interested in the requirements of IAS 19 Employee
Benefits (1998) should refer to our summary of IAS 19 (1998).
Changes introduced by IAS 19 (2011) as compared to IAS 19 (1998) include:
o Introducing a requirement to fully recognise changes in the net defined benefit liability
(asset) including immediate recognition of defined benefit costs, and require disaggrega-
tion of the overall defined benefit cost into components and requiring the recognition of
remeasurements in other comprehensive income (eliminating the 'corridor' approach)
o Introducing enhanced disclosures about defined benefit plans
o Modifications to the accounting for termination benefits, including distinguishing between

benefits provided in exchange for service and benefits provided in exchange for the termi-
nation of employment, and changing the recognition and measurement of termination
benefits
o Clarification of miscellaneous issues, including the classification of employee benefits,

current estimates of mortality rates, tax and administration costs and risk-sharing and con-
ditional indexation features
o Incorporating other matters submitted to the IFRS Interpretations Committee.
Objective of IAS 19 (2011)
The objective of IAS 19 is to prescribe the accounting and disclosure for employee benefits, requiring an
entity to recognise a liability where an employee has provided service and an expense when the entity
consumes the economic benefits of employee service. [IAS 19(2011).2]
Scope
IAS 19 applies to (among other kinds of employee benefits):
o wages and salaries
o compensated absences (paid vacation and sick leave)
o profit sharing and bonuses
o medical and life insurance benefits during employment
o non-monetary benefits such as houses, cars, and free or subsidised goods or services
o retirement benefits, including pensions and lump sum payments
o post-employment medical and life insurance benefits
o long-service or sabbatical leave
o 'jubilee' benefits
o deferred compensation programmes
o termination benefits.
IAS 19 (2011) does not apply to employee benefits within the scope of IFRS 2 Share-based Paymentor
the reporting by employee benefit plans (see IAS 26 Accounting and Reporting by Retirement Benefit
Plans).
Short-term employee benefits
Short-term employee benefits are those expected to be settled wholly before twelve months after the
end of the annual reporting period during which employee services are rendered, but do not include ter-
mination benefits.[IAS 19(2011).8] Examples include wages, salaries, profit-sharing and bonuses and
non-monetary benefits paid to current employees.
The undiscounted amount of the benefits expected to be paid in respect of service rendered by
employees in an accounting period is recognised in that period. [IAS 19(2011).11] The expected cost of
short-term compensated absences is recognised as the employees render service that increases their
entitlement or, in the case of non-accumulating absences, when the absences occur, and includes any
additional amounts an entity expects to pay as a result of unused entitlements at the end of the period.
[IAS 19(2011).13-16]
Profit-sharing and bonus payments
An entity recognises the expected cost of profit-sharing and bonus payments when, and only when, it
has a legal or constructive obligation to make such payments as a result of past events and a reliable
estimate of the expected obligation can be made. [IAS 19.19]
Types of post-employment benefit plans
Post-employment benefit plans are informal or formal arrangements where an entity provides post-em-
ployment benefits to one or more employees, e.g. retirement benefits (pensions or lump sum
payments), life insurance and medical care.
The accounting treatment for a post-employment benefit plan depends on the economic substance of
the plan and results in the plan being classified as either a defined contribution plan or a defined benefit
plan:
o Defined contribution plans. Under a defined contribution plan, the entity pays fixed contribu-
tions into a fund but has no legal or constructive obligation to make further payments if the
fund does not have sufficient assets to pay all of the employees' entitlements to post-employ-
ment benefits. The entity's obligation is therefore effectively limited to the amount it agrees to
contribute to the fund and effectively place actuarial and investment risk on the employee
o Defined benefit plans These are post-employment benefit plans other than a defined contribu-
tion plans. These plans create an obligation on the entity to provide agreed benefits to current
and past employees and effectively places actuarial and investment risk on the entity.
Defined contribution plans
For defined contribution plans, the amount recognised in the period is the contribution payable in
exchange for service rendered by employees during the period. [IAS 19(2011).51]
Contributions to a defined contribution plan which are not expected to be wholly settled within 12
months after the end of the annual reporting period in which the employee renders the related service
are discounted to their present value. [IAS 19.52]
Defined benefit plans
Basic requirements
An entity is required to recognise the net defined benefit liability or asset in its statement of financial
position. [IAS 19(2011).63] However, the measurement of a net defined benefit asset is the lower of any
surplus in the fund and the 'asset ceiling' (i.e. the present value of any economic benefits available in the
form of refunds from the plan or reductions in future contributions to the plan). [IAS 19(2011).64]
Measurement
The measurement of a net defined benefit liability or assets requires the application of an actuarial
valuation method, the attribution of benefits to periods of service, and the use of actuarial assumptions.
[IAS 19(2011).66] The fair value of any plan assets is deducted from the present value of the defined
benefit obligation in determining the net deficit or surplus. [IAS 19(2011).113]
The determination of the net defined benefit liability (or asset) is carried out with sufficient regularity
such that the amounts recognised in the financial statements do not differ materially from those that
would be determined at end of the reporting period. [IAS 19(2011).58]
The present value of an entity's defined benefit obligations and related service costs is determined using
the 'projected unit credit method', which sees each period of service as giving rise to an additional unit
of benefit entitlement and measures each unit separately in building up the final obligation.
[IAS 19(2011).67-68] This requires an entity to attribute benefit to the current period (to determine
current service cost) and the current and prior periods (to determine the present value of defined
benefit obligations). Benefit is attributed to periods of service using the plan's benefit formula, unless an
employee's service in later years will lead to a materially higher of benefit than in earlier years, in which
case a straight-line basis is used [IAS 19(2011).70]
Actuarial assumptions used in measurement
The overall actuarial assumptions used must be unbiased and mutually compatible, and represent the
best estimate of the variables determining the ultimate post-employment benefit cost.
[IAS 19(2011).75-76]:
o Financial assumptions must be based on market expectations at the end of the reporting period
[IAS 19(2011).80]
o Mortality assumptions are determined by reference to the best estimate of the mortality of plan
members during and after employment [IAS 19(2011).81]
o The discount rate used is determined by reference to market yields at the end of the reporting
period on high quality corporate bonds, or where there is no deep market in such bonds, by
reference to market yields on government bonds. Currencies and terms of bond yields used
must be consistent with the currency and estimated term of the obligation being discounted
[IAS 19(2011).83]
o Assumptions about expected salaries and benefits reflect the terms of the plan, future salary
increases, any limits on the employer's share of cost, contributions from employees or third
parties*, and estimated future changes in state benefits that impact benefits payable
[IAS 19(2011).87]
o Medical cost assumptions incorporate future changes resulting from inflation and specific
changes in medical costs [IAS 19(2011).96]
* Defined Benefit Plans: Employee Contributions (Amendments to IAS 19 Employee Benefits) amends
IAS 19(2011) to clarify the requirements that relate to how contributions from employees or third
parties that are linked to service should be attributed to periods of service. In addition, it permits a
practical expedient if the amount of the contributions is independent of the number of years of service,
in that contributions, can, but are not required, to be recognised as a reduction in the service cost in the
period in which the related service is rendered. These amendments are effective for annual periods
beginning on or after 1 July 2014.
Past service costs
Past service cost is the term used to describe the change in a defined benefit obligation for employee
service in prior periods, arising as a result of changes to plan arrangements in the current period (i.e.
plan amendments introducing or changing benefits payable, or curtailments which significantly reduce
the number of covered employees) .
Past service cost may be either positive (where benefits are introduced or improved) or negative (where
existing benefits are reduced). Past service cost is recognised as an expense at the earlier of the date
when a plan amendment or curtailment occurs and the date when an entity recognises any termination
benefits, or related restructuring costs under IAS 37 Provisions, Contingent Liabilities and Contingent
Assets. [IAS 19(2011).103]
Gains or losses on the settlement of a defined benefit plan are recognised when the settlement occurs.
[IAS 19(2011).110]
Before past service costs are determined, or a gain or loss on settlement is recognised, the net defined
benefit liability or asset is required to be remeasured, however an entity is not required to distinguish
between past service costs resulting from curtailments and gains and losses on settlement where these
transactions occur together. [IAS 19(2011).99-100]
Recognition of defined benefit costs
The components of defined benefit cost is recognised as follows: [IAS 19(2011).120-130]
Component Recognition
Service cost attributable to the current and past periods Profit or loss
Net interest on the net defined benefit liability or asset, deter- Profit or loss
mined using the discount rate at the beginning of the period
Remeasurements of the net defined benefit liability or asset, Other comprehensive

comprising: income
(Not reclassified to profit or
o actuarial gains and losses
loss in a subsequent period)
o return on plan assets
o some changes in the effect of the asset ceiling
Other guidance
IAS 19 also provides guidance in relation to:
o when an entity should recognise a reimbursement of expenditure to settle a defined benefit

obligation [IAS 19(2011).116-119]
o when it is appropriate to offset an asset relating to one plan against a liability relating to another
plan [IAS 19(2011).131-132]
o accounting for multi-employer plans by individual employers [IAS 19(2011).32-39]
o defined benefit plans sharing risks between entities under common control [IAS 19.40-42]
o entities participating in state plans [IAS 19(2011).43-45]
o insurance premiums paid to fund post-employment benefit plans [IAS 19(2011).46-49]
Disclosures about defined benefit plans
IAS 19(2011) sets the following disclosure objectives in relation to defined benefit plans
[IAS 19(2011).135]:
o an explanation of the characteristics of an entity's defined benefit plans, and the associated risks
o identification and explanation of the amounts arising in the financial statements from defined
benefit plans
o a description of how defined benefit plans may affect the amount, timing and uncertainty of the
entity's future cash flows.
Extensive specific disclosures in relation to meeting each the above objectives are specified, e.g. a rec-
onciliation from the opening balance to the closing balance of the net defined benefit liability or asset,
disaggregation of the fair value of plan assets into classes, and sensitivity analysis of each significant
actuarial assumption. [IAS 19(2011).136-147]
Additional disclosures are required in relation to multi-employer plans and defined benefit plans sharing
risk between entities under common control. [IAS 19(2011).148-150].
Other long-term benefits
IAS 19 (2011) prescribes a modified application of the post-employment benefit model described above
for other long-term employee benefits: [IAS 19(2011).153-154]
o the recognition and measurement of a surplus or deficit in an other long-term employee benefit
plan is consistent with the requirements outlined above
o service cost, net interest and remeasurements are all recognised in profit or loss (unless recog-
nised in the cost of an asset under another IFRS), i.e. when compared to accounting for defined
benefit plans, the effects of remeasurements are not recognised in other comprehensive
income.
Termination benefits
A termination benefit liability is recognised at the earlier of the following dates: [IAS 19.165-168]
o when the entity can no longer withdraw the offer of those benefits - additional guidance is
provided on when this date occurs in relation to an employee's decision to accept an offer of
benefits on termination, and as a result of an entity's decision to terminate an employee's em-
ployment
o when the entity recognises costs for a restructuring under IAS 37 Provisions, Contingent Liabili-
ties and Contingent Assets which involves the payment of termination benefits.
Termination benefits are measured in accordance with the nature of employee benefit, i.e. as an en-
hancement of other post-employment benefits, or otherwise as a short-term employee benefit or other
long-term employee benefit. [IAS 19(2011).169]
IAS 19 Employee Benefits (1998) (superseded)
Overview
IAS 19 Employee Benefits (1998) outlines the accounting requirements for employee benefits, including
short-term benefits (e.g. wages and salaries, annual leave), post-employment benefits such as retire-
ment benefits, other long-term benefits (e.g. long service leave) and termination benefits. The standard
establishes the principle that the cost of providing employee benefits should be recognised in the period
in which the benefit is earned by the employee, rather than when it is paid or payable, and outlines how
each category of employee benefits are measured, providing detailed guidance in particular about post-
employment benefits.
IAS 19 (1998) is superseded by an amended version, IAS 19 Employee Benefits (2011), effective for
History of IAS 19
April 1980 Exposure Draft E16 Accounting for Retire-

ment Benefits in Financial Statements of
Employers published
January 1983 IAS 19 Accounting for Retirement Benefits in Operative for financial
Financial Statements of Employers issued statements covering
December 1992 E47 Retirement Benefit Costs published
December 1993 IAS 19 Retirement Benefit Costs issued Operative for financial
statements covering
October 1996 E54 Employee Benefits published Comment deadline 31

January 1997
February 1998 IAS 19 Employee Benefits issued Operative for financial

statements covering
July 2000 E67 Pension Plan Assets published
October 2000 Amended to change the definition of plan Operative for annual
assets and to introduce recognition, mea- financial statements
surement and disclosure requirements for covering periods
reimbursements beginning on or after 1
January 2001
May 2002 Amended to prevent the recognition of Operative for annual

gains solely as a result of actuarial losses or financial statements
past service cost and the recognition of covering periods ending
losses solely as a result of actuarial gains on or after 31 May 2002
5 December 2002 ED 2 Share-based Payment published, Comment deadline 7

proposing to replace the equity compensa- March 2003
tion benefits requirements of IAS 19
February 2004 Equity compensation benefits requirements Effective for annual

replaced by IFRS 2 Share-based Payment reporting periods
January 2005
29 April 2004 Exposure Draft Proposed Amendments to Comment deadline 31

IAS 19 Employee Benefits: Actuarial Gains July 2004
and Losses, Group Plans and Disclo-
surespublished
19 December 2004 Actuarial Gains and Losses, Group Plans and Effective for annual
Disclosures issued periods beginning on or
22 May 2008 Amended by Annual Improvements to Effective for annual

IFRSs (negative past service costs and cur- periods beginning on or
tailments) after 1 January 2009
20 August 2009 ED/2009/10 Discount Rate for Employee Comment deadline 30

Benefits (Proposed amendments to IAS September 2009
19)published (proposals were not
finalised)
29 April 2010 ED/2010/3 Defined Benefit Plans (Proposed Comment deadline 6
amendments to IAS 19) published September 2010
16 June 2011 Superseded by IAS 19 Employee Effective for annual

Benefits(amended 2011) periods beginning on or
o IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction
Summary of IAS 19 (1998)
IAS 19 Employee Benefits (1998) is superseded by an amended version, IAS 19 Employee

Benefits (2011), effective for annual periods beginning on or after 1 January 2013. The summary
that follows refers to IAS 19 (1998). Readers interested in the requirements of IAS 19 Employee
Benefits (2011) should refer to our summary of IAS 19 (2011).
Objective of IAS 19
The objective of IAS 19 (1998) is to prescribe the accounting and disclosure for employee benefits (that
is, all forms of consideration given by an entity in exchange for service rendered by employees). The
principle underlying all of the detailed requirements of the Standard is that the cost of providing
employee benefits should be recognised in the period in which the benefit is earned by the employee,
rather than when it is paid or payable.
Scope
IAS 19 (1998) applies to (among other kinds of employee benefits):
o wages and salaries
o compensated absences (paid vacation and sick leave)
o profit sharing plans
o bonuses
o medical and life insurance benefits during employment
o housing benefits
o free or subsidised goods or services given to employees
o pension benefits
o post-employment medical and life insurance benefits
o long-service or sabbatical leave

o 'jubilee' benefits
o deferred compensation programmes
o termination benefits.
IAS 19 (1998) does not apply to employee benefits within the scope of IFRS 2 Share-based Paymentor
the reporting by employee benefit plans (see IAS 26 Accounting and Reporting by Retirement Benefit
Plans).
Basic principle of IAS 19 (1998)
The cost of providing employee benefits should be recognised in the period in which the benefit is
earned by the employee, rather than when it is paid or payable.
Short-term employee benefits
For short-term employee benefits (those payable within 12 months after service is rendered, such as
wages, paid vacation and sick leave, bonuses, and non-monetary benefits such as medical care and
housing), the undiscounted amount of the benefits expected to be paid in respect of service rendered by
employees in a period should be recognised in that period. [IAS 19(1998).10] The expected cost of short-
term compensated absences should be recognised as the employees render service that increases their
entitlement or, in the case of non-accumulating absences, when the absences occur. [IAS 19(1998).11]
Profit-sharing and bonus payments
The entity should recognise the expected cost of profit-sharing and bonus payments when, and only
when, it has a legal or constructive obligation to make such payments as a result of past events and a
reliable estimate of the expected cost can be made. [IAS 19(1998).17]
Types of post-employment benefit plans
The accounting treatment for a post-employment benefit plan depends on whether the plan is a defined
contribution plan or a defined benefit plan:
o Under a defined contribution plan, the entity pays fixed contributions into a fund but has no
legal or constructive obligation to make further payments if the fund does not have sufficient
assets to pay all of the employees' entitlements to post-employment benefits
o A defined benefit plan is a post-employment benefit plan other than a defined contribution
plan. These would include both formal plans and those informal practices that create a construc-
tive obligation to the entity's employees.
For defined contribution plans, the cost to be recognised in the period is the contribution payable in
exchange for service rendered by employees during the period. [IAS 19(1998).44]
If contributions to a defined contribution plan do not fall due within 12 months after the end of the
period in which the employee renders the service, they are discounted to their present value.
[IAS 19(1998).45]
For defined benefit plans, the amount recognised in the statement of financial position is the present
value of the defined benefit obligation (that is, the present value of expected future payments required
to settle the obligation resulting from employee service in the current and prior periods), as adjusted for
unrecognised actuarial gains and losses and unrecognised past service cost, and reduced by the fair
value of plan assets at the end of the reporting period. [IAS 19(1998).54]
The present value of the defined benefit obligation should be determined using the Projected Unit
Credit Method. [IAS 19(1998).64] Valuations should be carried out with sufficient regularity such that
the amounts recognised in the financial statements do not differ materially from those that would be
determined at the end of the reporting period. [IAS 19(1998).56] The assumptions used for the purposes
of such valuations must be unbiased and mutually compatible. [IAS 19(1998).72] The rate used to
discount estimated cash flows is determined by reference to market yields at the end of the reporting
period on high quality corporate bonds, or where there is no deep market in such bonds, by reference to
market yields on government bonds. [IAS 19(1998).78]
On an ongoing basis, actuarial gains and losses arise that comprise experience adjustments (the effects
of differences between the previous actuarial assumptions and what has actually occurred) and the
effects of changes in actuarial assumptions. In the long-term, actuarial gains and losses may offset one
another and, as a result, the entity is not required to recognise all such gains and losses in profit or loss
immediately. IAS 19 (1998) specifies that if the accumulated unrecognised actuarial gains and losses
exceed 10% of the greater of the defined benefit obligation or the fair value of plan assets, a portion of
that net gain or loss is required to be recognised immediately as income or expense. The portion recog-
nised is the excess divided by the expected average remaining working lives of the participating
employees. Actuarial gains and losses that do not breach the 10% limits described above (the 'corridor')
need not be recognised - although the entity may choose to do so. [IAS 19(1998).92-93]
In December 2004, the IASB issued amendments to IAS 19 (1998) to allow the option of recognising
actuarial gains and losses in full in the period in which they occur, outside profit or loss, in other com-
prehensive income. This option is similar to the requirements of the UK standard, FRS 17 Retirement
Benefits. The Board concluded that, pending further work on post-employment benefits and on
reporting comprehensive income, the approach in FRS 17 should be available as an option to preparers
of financial statements using IFRSs. [IAS 19(1998).93A]
Over the life of the plan, changes in benefits under the plan will result in increases or decreases in the
entity's obligation.
Past service cost is the term used to describe the change in the obligation for employee service in prior
periods, arising as a result of changes to plan arrangements in the current period. Past service cost may
be either positive (where benefits are introduced or improved) or negative (where existing benefits are
reduced). Past service cost is recognised immediately to the extent that it relates to former employees
or to active employees already vested. Otherwise, it is amortised on a straight-line basis over the
average period until the amended benefits become vested. [IAS 19(1998).96]
Plan curtailments or settlements: Gains or losses resulting from curtailments or settlements of a plan
are recognised when the curtailment or settlement occurs. [IAS 19(1998).109-110] Curtailments are re-
ductions in scope of employees covered or in benefits.
If the calculation of the statement of financial position amount set out above results in an asset, the
amount recognised is limited to the net total of unrecognised actuarial losses and past service cost, plus
the present value of available refunds and reductions in future contributions to the plan.
[IAS 19(1998).58]
The IASB issued the final 'asset ceiling' amendment to IAS 19 (1998) in May 2002. The amendment
prevents the recognition of gains solely as a result of deferral of actuarial losses or past service cost, and
prohibits the recognition of losses solely as a result of deferral of actuarial gains. [IAS 19(1998).58A]
The amount recognised in the profit or loss (unless included in the cost of an asset under another
Standard) in a period in respect of a defined benefit plan is made up of the following components:
[IAS 19(1998).61]
o current service cost (the actuarial estimate of benefits earned by employee service in the
period)
o interest cost (the increase in the present value of the obligation as a result of moving one period
closer to settlement)
o expected return on plan assets* and on any reimbursement rights
o actuarial gains and losses, to the extent recognised
o past service cost, to the extent recognised
o the effect of any plan curtailments or settlements
o the effect of 'asset ceiling'
*The return on plan assets is interest, dividends and other revenue derived from the plan assets,
together with realised and unrealised gains or losses on the plan assets, less any costs of administering
the plan (other than those included in the actuarial assumptions used to measure the defined benefit
obligation) and less any tax payable by the plan itself. [IAS 19(1998).7]
IAS 19 (1998) contains detailed disclosure requirements for defined benefit plans. [IAS 19(1998).120-
125]
IAS 19 (1998) also provides guidance on allocating the cost in:
o a multi-employer plan to the individual entities-employers [IAS 19(1998).29-33]
o a group defined benefit plan to the entities in the group [IAS 19(1998).34-34B]
o a state plan to participating entities [IAS 19(1998).36-38].
Other long-term benefits

IAS 19 (1998) requires a simplified application of the model described above for other long-term
employee benefits. This method differs from the accounting required for post-employment benefits in
that: [IAS 19(1998).128-129]
o actuarial gains and losses are recognised immediately without the application of a 'corridor' (as
discussed above for post-employment benefits)
o all past service costs are recognised immediately.
Termination benefits
For termination benefits, IAS 19 (1998) specifies that amounts payable should be recognised when, and
only when, the entity is demonstrably committed to either: [IAS 19(1998).133]
o terminate the employment of an employee or group of employees before the normal retire-
ment date, or
o provide termination benefits as a result of an offer made in order to encourage voluntary redun-
dancy.
The entity will be demonstrably committed to a termination when, and only when, it has a detailed
formal plan (meeting minimum outlined requirements) for the termination and is without realistic possi-
bility of withdrawal. [IAS 19(1998).134] Where termination benefits fall due after more than 12 months
after the balance sheet date, they are discounted. [IAS 19(1998).139]
IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
Overview
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance outlines how to
account for government grants and other assistance. Government grants are recognised in profit or loss
on a systematic basis over the periods in which the entity recognises expenses for the related costs for
which the grants are intended to compensate, which in the case of grants related to assets requires
setting up the grant as deferred income or deducting it from the carrying amount of the asset.
IAS 20 was issued in April 1983 and is applicable to annual periods beginning on or after 1 January 1984.
History of IAS 20
September 1981 Exposure Draft E21 Accounting for Government Grants and Disclosure of
Government Assistance
April 1983 IAS 20 Accounting for Government Grants and Disclosure of Government As-
sistance
22 May 2008 IAS 20 amended for Annual Improvements to IFRSs 2007 to bring it in line
with IAS 39 in respect of loans with the below market-rate of interest
1 January 2009 Effective date of May 2008 amendment to IAS 20
o SIC-10 Government Assistance No Specific Relation to Operating Activities
o Government Grants Reconsideration of IAS 20
o Emission Trading Schemes
Summary of IAS 20
Objective of IAS 20
The objective of IAS 20 is to prescribe the accounting for, and disclosure of, government grants and
other forms of government assistance.
Scope
IAS 20 applies to all government grants and other forms of government assistance. [IAS 20.1] However,
it does not cover government assistance that is provided in the form of benefits in determining taxable
income. It does not cover government grants covered by IAS 41 Agriculture, either. [IAS 20.2] The
benefit of a government loan at a below-market rate of interest is treated as a government grant. [IAS
20.10A]
Accounting for grants
A government grant is recognised only when there is reasonable assurance that (a) the entity will
comply with any conditions attached to the grant and (b) the grant will be received. [IAS 20.7]
The grant is recognised as income over the period necessary to match them with the related costs, for
which they are intended to compensate, on a systematic basis. [IAS 20.12]
Non-monetary grants, such as land or other resources, are usually accounted for at fair value, although
recording both the asset and the grant at a nominal amount is also permitted. [IAS 20.23]
Even if there are no conditions attached to the assistance specifically relating to the operating activities
of the entity (other than the requirement to operate in certain regions or industry sectors), such grants
should not be credited to equity. [SIC-10]
A grant receivable as compensation for costs already incurred or for immediate financial support, with
no future related costs, should be recognised as income in the period in which it is receivable. [IAS
20.20]
A grant relating to assets may be presented in one of two ways: [IAS 20.24]
o as deferred income, or
o by deducting the grant from the asset's carrying amount.
A grant relating to income may be reported separately as 'other income' or deducted from the related
expense. [IAS 20.29]
If a grant becomes repayable, it should be treated as a change in estimate. Where the original grant
related to income, the repayment should be applied first against any related unamortised deferred
credit, and any excess should be dealt with as an expense. Where the original grant related to an asset,
the repayment should be treated as increasing the carrying amount of the asset or reducing the
deferred income balance. The cumulative depreciation which would have been charged had the grant
not been received should be charged as an expense. [IAS 20.32]
Disclosure of government grants
The following must be disclosed: [IAS 20.39]
o accounting policy adopted for grants, including method of balance sheet presentation
o nature and extent of grants recognised in the financial statements
o unfulfilled conditions and contingencies attaching to recognised grants

Government assistance
Government grants do not include government assistance whose value cannot be reasonably measured,
such as technical or marketing advice. [IAS 20.34] Disclosure of the benefits is required. [IAS 20.39(b)]
IAS 21 The Effects of Changes in Foreign Exchange Rates
Overview
IAS 21 The Effects of Changes in Foreign Exchange Rates outlines how to account for foreign currency
transactions and operations in financial statements, and also how to translate financial statements into
a presentation currency. An entity is required to determine a functional currency (for each of its opera-
tions if necessary) based on the primary economic environment in which it operates and generally
records foreign currency transactions using the spot conversion rate to that functional currency on the
date of the transaction.
2005.
History of IAS 21
December 1977 Exposure Draft E11 Accounting for Foreign Transactions and Translation of
Foreign Financial Statements
March 1982 E11 was modified and re-exposed as Exposure Draft E23 Accounting for
the Effects of Changes in Foreign Exchange Rates
July 1983 IAS 21 Accounting for the Effects of Changes in Foreign Exchange Rates
1993 IAS 21 (1983) was revised as part of the comparability of financial state-
ments project
May 1992 Exposure Draft E44 The Effects of Changes in Foreign Exchange Rates
December 1993 IAS 21 (1993) The Effects of Changes in Foreign Exchange Rates(revised as
part of the 'Comparability of Financial Statements' project)

December 2005 Minor Amendment to IAS 21 relating to net investment in a foreign
operation
1 January 2006 Effective date of the December 2005 amendments
10 January 2008 Some revisions of IAS 21 as a result of the Business Combinations Phase II
Project relating to disposals of foreign operations
1 July 2009 Effective date of the January 2008 amendments
o IFRIC 16 Hedge of a Net Investment in a Foreign Operation
o SIC-30 Reporting Currency Translation from Measurement Currency to Presentation

Currency.SIC-30 was superseded and incorporated into the 2003 revision of IAS 21.
o SIC-19 Reporting Currency Measurement and Presentation of Financial Statements under IAS
21 and IAS 29. SIC-19 was superseded and incorporated into the 2003 revision of IAS 21.
o SIC-11 Foreign Exchange Capitalisation of Losses Resulting from Severe Currency Devalua-
tions. SIC-11 was superseded and incorporated into the 2003 revision of IAS 21.
o SIC-7 Introduction of the Euro
o Research project Foreign currency translation
Summary of IAS 21
Objective of IAS 21
The objective of IAS 21 is to prescribe how to include foreign currency transactions and foreign opera-
tions in the financial statements of an entity and how to translate financial statements into a presenta-
tion currency. [IAS 21.1] The principal issues are which exchange rate(s) to use and how to report the
effects of changes in exchange rates in the financial statements. [IAS 21.2]
Functional currency: the currency of the primary economic environment in which the entity operates.
(The term 'functional currency' was used in the 2003 revision of IAS 21 in place of 'measurement
currency' but with essentially the same meaning.)
Presentation currency: the currency in which financial statements are presented.
Exchange difference: the difference resulting from translating a given number of units of one currency
into another currency at different exchange rates.
Foreign operation: a subsidiary, associate, joint venture, or branch whose activities are based in a
country or currency other than that of the reporting entity.
Basic steps for translating foreign currency amounts into the functional currency
Steps apply to a stand-alone entity, an entity with foreign operations (such as a parent with foreign sub-
sidiaries), or a foreign operation (such as a foreign subsidiary or branch).
1. the reporting entity determines its functional currency
2. the entity translates all foreign currency items into its functional currency
3. the entity reports the effects of such translation in accordance with paragraphs 20-37 [reporting
foreign currency transactions in the functional currency] and 50 [reporting the tax effects of exchange
differences].
Foreign currency transactions
A foreign currency transaction should be recorded initially at the rate of exchange at the date of the
transaction (use of averages is permitted if they are a reasonable approximation of actual). [IAS 21.21-
22]
At each subsequent balance sheet date: [IAS 21.23]
o foreign currency monetary amounts should be reported using the closing rate
o non-monetary items carried at historical cost should be reported using the exchange rate at the
date of the transaction
o non-monetary items carried at fair value should be reported at the rate that existed when the
fair values were determined
Exchange differences arising when monetary items are settled or when monetary items are translated at
rates different from those at which they were translated when initially recognised or in previous
financial statements are reported in profit or loss in the period, with one exception. [IAS 21.28] The
exception is that exchange differences arising on monetary items that form part of the reporting entity's
net investment in a foreign operation are recognised, in the consolidated financial statements that
include the foreign operation, in other comprehensive income; they will be recognised in profit or loss
on disposal of the net investment. [IAS 21.32]
As regards a monetary item that forms part of an entity's investment in a foreign operation, the
accounting treatment in consolidated financial statements should not be dependent on the currency of
the monetary item. [IAS 21.33] Also, the accounting should not depend on which entity within the group
conducts a transaction with the foreign operation. [IAS 21.15A] If a gain or loss on a non-monetary item
is recognised in other comprehensive income (for example, a property revaluation under IAS 16), any
foreign exchange component of that gain or loss is also recognised in other comprehensive income. [IAS
21.30]
Translation from the functional currency to the presentation currency

The results and financial position of an entity whose functional currency is not the currency of a hyperin-
flationary economy are translated into a different presentation currency using the following procedures:
[IAS 21.39]
o assets and liabilities for each balance sheet presented (including comparatives) are translated at
the closing rate at the date of that balance sheet. This would include any goodwill arising on the
acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition of that foreign operation are treated as part of the
assets and liabilities of the foreign operation [IAS 21.47];
o income and expenses for each income statement (including comparatives) are translated at
exchange rates at the dates of the transactions; and
o all resulting exchange differences are recognised in other comprehensive income.
Special rules apply for translating the results and financial position of an entity whose functional
currency is the currency of a hyperinflationary economy into a different presentation currency. [IAS
21.42-43]
Where the foreign entity reports in the currency of a hyperinflationary economy, the financial state-
ments of the foreign entity should be restated as required by IAS 29 Financial Reporting in Hyperinfla-
tionary Economies, before translation into the reporting currency. [IAS 21.36]
The requirements of IAS 21 regarding transactions and translation of financial statements should be
strictly applied in the changeover of the national currencies of participating Member States of the
European Union to the Euro monetary assets and liabilities should continue to be translated the
closing rate, cumulative exchange differences should remain in equity and exchange differences
resulting from the translation of liabilities denominated in participating currencies should not be
included in the carrying amount of related assets. [SIC-7]
Disposal of a foreign operation
When a foreign operation is disposed of, the cumulative amount of the exchange differences recognised
in other comprehensive income and accumulated in the separate component of equity relating to that
foreign operation shall be recognised in profit or loss when the gain or loss on disposal is recognised.
[IAS 21.48]
Tax effects of exchange differences
These must be accounted for using IAS 12 Income Taxes.
Disclosure
o The amount of exchange differences recognised in profit or loss (excluding differences arising on
financial instruments measured at fair value through profit or loss in accordance with IAS 39)
[IAS 21.52(a)]
o Net exchange differences recognised in other comprehensive income and accumulated in a

separate component of equity, and a reconciliation of the amount of such exchange differences
at the beginning and end of the period [IAS 21.52(b)]
o When the presentation currency is different from the functional currency, disclose that fact
together with the functional currency and the reason for using a different presentation currency
[IAS 21.53]
o A change in the functional currency of either the reporting entity or a significant foreign
operation and the reason therefor [IAS 21.54]
When an entity presents its financial statements in a currency that is different from its functional
currency, it may describe those financial statements as complying with IFRS only if they comply with all
the requirements of each applicable Standard (including IAS 21) and each applicable Interpretation. [IAS
21.55]
Convenience translations
Sometimes, an entity displays its financial statements or other financial information in a currency that is
different from either its functional currency or its presentation currency simply by translating all
amounts at end-of-period exchange rates. This is sometimes called a convenience translation. A result of
making a convenience translation is that the resulting financial information does not comply with all
IFRS, particularly IAS 21. In this case, the following disclosures are required: [IAS 21.57]
o Clearly identify the information as supplementary information to distinguish it from the informa-
tion that complies with IFRS
o Disclose the currency in which the supplementary information is displayed
o Disclose the entity's functional currency and the method of translation used to determine the
supplementary information
IAS 22 Business Combinations (Superseded)
History of IAS 22
September 1981 Exposure Draft E22 Accounting for Business Combinations
November 1983 IAS 22 Accounting for Business Combinations
June 1992 Exposure Draft E54 Business Combinations
December 1993 IAS 22 (1993), Business Combinations (revised as part of the 'Comparability
of Financial Statements' project)
August 1997 Exposure Draft E61 Business Combinations
September 1998 IAS 22 (1998) Business Combinations
1 July 1999 Effective date of IAS 22 (1998) Business Combinations
31 March 2004 IAS 22 superseded by IFRS 3 Business Combinations (2004), effective for
business combinations for which the agreement date is on or after 31 March
2004
o SIC-9 Business Combinations Classification either as Acquisitions or Unitings of Interests. Su-

perseded by IFRS 3.
o SIC-22 Business Combinations Subsequent Adjustment of Fair Values and Goodwill Initially
Reported. Superseded by IFRS 3.
o SIC-28 Business Combinations 'Date of Exchange' and Fair Value of Equity Instruments. Super-
seded by IFRS 3.
o None
Summary of IAS 22
Objective of IAS 22
The objective of IAS 22 (Revised 1993) is to prescribe the accounting treatment for business combina-
tions. The Standard covers both an acquisition of one enterprise by another (an acquisition) and also the
rare situation where an acquirer cannot be identified (a uniting of interests).
Business combination: Combining two separate enterprises into a single economic entity as a result of
one enterprise uniting with or obtaining control over the net assets and operations of another enter-
prise. The combination can result in a single legal entity or two separate legal entities.
Acquisition: A business combination in which one of the enterprises, the acquirer, obtains control over
the net assets and operations of another enterprise, the acquiree, in exchange for the transfer of assets,
incurrence of a liability or issue of equity.
Uniting of interests: A business combination in which the shareholders of the combining enterprises
combine control over the whole, or effectively the whole, of their net assets and operations to achieve a
continuing mutual sharing in the risks and benefits attaching to the combined entity such that neither
party can be identified as the acquirer. Also called a pooling of interests.
Control: The power to govern the financial and operating policies of an enterprise so as to obtain
benefits from its activities. If one enterprise controls another, the controlling enterprise is called
theparent and the controlled enterprise is called the subsidiary.
Distinguishing between acquisitions and unitings of interests
Under IAS 22, "virtually all" business combinations are acquisitions. [IAS 22.10]
Indications of an acquisition are: [IAS 22.10]
o One enterprise acquires more than one half of the voting rights of the other combining enter-
prise.
o One enterprise has the power over more than one half of the voting rights of the other enter-
prise as a result of an agreement with other investors.
o One enterprise has the power to govern the financial and operating policies of the other enter-
prise as a result of a statute.
o One enterprise has the power to appoint or remove the majority of the members of the board
of directors or equivalent governing body of the other enterprise.
o One enterprise has power to cast the majority of votes at meetings of the board of directors of
the other enterprise.
SIC-9 explains that the overriding criterion to distinguish an acquisition from a uniting of interests is
whether an acquirer can be identified, that is to day, whether the shareholders of one of the combining
enterprises obtain control over the combined enterprise.
In an acquisition, therefore, the acquiring company must be identified. Usually, that is evident. If it is not
evident, IAS 22.11 provides some guidance:
o The fair value of one of the combining enterprises is significantly more than that of the other.
o In an exchange of voting common shares for cash, the enterprise paying the cash is the acquirer.
o After the business combination, the management of one enterprise dominates the selection of
the management team of the combined enterprise.
Indications of a uniting of interests are: [IAS 22.13]
o An acquirer cannot be identified.
o The shareholders of both combining enterprises share control over the combined enterprise
substantially equally.
o The managements of both of the combining enterprises share in the management of the
combined entity.
A business combination should be classified as an acquisition unless the all of the following three charac-
teristics are present. Even if all three are present, the combination should be presented as a uniting of
interests only if the enterprise can demonstrate that an acquirer cannot be identified. [IAS 22.15]
o The substantial majority of the voting common shares of the combining enterprises are
exchanged or pooled.
o The fair value of one enterprise is not significantly different from that of the other enterprise.
o Shareholders of each enterprise maintain substantially the same voting rights and interests in
the combined entity, relative to each other, after the combination as before.
The following suggest that a business combination is not a uniting of interests: [IAS 22.16]
o Financial arrangements provide a relative advantage to one group of shareholders.
o One party's share of the equity in the combined entity depends on the performance, subse-
quent to the business combination, of the business which it previously controlled.
Unitings of interests accounting procedures
A uniting of interests should be accounted for using the pooling of interests method. [IAS 22.77] Under
this method:
o Financial statement items of uniting entities should be combined, in both the current and prior
periods, as if they had been united from the beginning of the earliest period presented. [IAS
22.78]
o Any difference between the amount recorded as share capital issued plus any additional consid-
eration in the form of cash or other assets and the amount recorded for the share capital
acquired should be adjusted against equity. [IAS 22.79]
o The costs of the combination should be expensed when incurred. [IAS 22.82]
Acquisitions accounting procedures
An acquisition should be accounted for using the purchase method of accounting. Under this method:
[IAS 22.19]
o The income statement should incorporate the results of the acquiree from the date of acquisi-
tion; and
o The balance sheet should include the identifiable assets and liabilities of the acquiree and any
goodwill or negative goodwill arising.
Date of acquisition
The date of acquisition is the date on which control of the net assets and operations of the acquiree is
effectively transferred to the acquirer. Goodwill is the difference between the cost of the acquisition
and the acquiring enterprise's share of the fair values of the identifiable assets acquired less liabilities
assumed. [IAS 22.20]
Cost of acquisition
The cost of the acquisition is the amount of cash paid and the fair value of the other consideration given
by the acquirer, plus any costs directly attributable to the acquisition. Contingent consideration should
be included in the cost of the acquisition at the date of the acquisition if payment of the amount is
probable and it can be measured reliably. The cost of acquisition should be adjusted when a relevant
contingency is resolved. When settlement of the consideration is deferred, the cost is the present value
of such consideration and not the nominal amount. [IAS 22.21]
Identifiable assets and liabilities
The identifiable assets and liabilities acquired that are recognised should be those of the acquiree that
existed at the date of acquisition (some of which may not have been recognised by the acquiree),
together with any permitted provisions for restructuring costs (see below). They should be recognised
separately if it is probable that any associated future economic benefits will flow to or from the acquirer,
and their cost/fair value can be measured reliably. Other than permitted provisions for restructuring
costs (see below), liabilities should not be recognised at the date of acquisition if they result from either:
o the acquirer's intentions or actions; or
o future losses or other costs expected to be incurred an a result of the acquisition.
Restructuring provisions
Liabilities should not be recognised at the date of acquisition based on the acquirer's stated intentions.
Liabilities should also not be recognised for future losses or other costs expected to be incurred as a
result of the acquisition, whether they relate to the acquirer or the acquiree. [IAS 22.29]
Restructuring provisions are recognised at acquisition only if the restructuring is an integral part of the
acquirer's plan for the acquisition and, among other things, the main features of the restructuring plan
were announced at, or before, the date of acquisition. The restructuring must involve terminating or
reducing the acquired company's activities. Furthermore, even if the main features of a restructuring
plan were announced prior to the acquisition, a provision for the restructuring sill should not be accrued
unless, by the earlier of three months after the date of acquisition and the date when the annual
financial statements are authorised for issue, the restructuring plan has been further developed into a
detailed formal plan (specifics set out in IAS 22.31].
Measuring acquired assets and liabilities
Individual assets and liabilities should be recognised separately as at the date of acquisition when it is
probable that any associated future economic benefits will flow to or from the acquirer, and their
cost/fair value can be measured reliably. [IAS 22.26]
IAS 22 provides for benchmark and an allowed alternative treatments for measuring the acquired assets
and liabilities:
o Under the benchmark treatment, the assets and liabilities are measured at the aggregate of the
fair value of the identifiable assets and liabilities acquired to the extent of the acquirer's interest
obtained, and the minority's proportion of the pre-acquisition carrying amounts of the assets
and liabilities. [IAS 22.32]
o Under the allowed alternative treatment, the assets and liabilities should be measured at their
fair values as at the date of acquisition with the minority's interest being stated at its proportion
of the fair value of the assets and liabilities. [IAS 22.34]
The fair values of assets and liabilities should be determined by reference to their intended use by the
acquirer. Guidelines are provided for the determining fair values for specific categories of assets and lia-
bilities. When an asset or business segment of the acquiree is to be disposed of, this is taken into consid-
eration in determining fair value. [IAS 22.39]
Step acquisitions (successive share purchases)
Where the acquisition is achieved by successive share purchases, each significant transaction is treated
separately for the purpose of determining the fair values of the assets/liabilities acquired and for deter-
mining the amount of goodwill arising on that transaction comparing each individual investment with
the percentage interest in the fair values of the assets and liabilities acquired at each significant step. If
all of the assets and liabilities are restated to fair values at the time of each purchase, adjustments
relating to the previously held interests are accounted for as revaluations. [IAS 22.36]
Subsequent adjustments to original measurements of acquired assets and liabilities
The carrying amounts of assets and liabilities should be adjusted when additional evidence becomes
available to assist with the estimation of the fair value of assets and liabilities at the date of acquisition.
Goodwill should also be adjusted if the adjustment is made by the end of the first annual accounting
period commencing after the acquisition (providing that it is probable that the amount of the adjust-
ment will be recovered from the expected future economic benefits). Otherwise, the adjustment should
be treated as income or expense. [IAS 22.68] Further guidance is provided in SIC-22.
Goodwill
Goodwill arising on the acquisition should be recognised as an asset and amortised over its useful life.
There is a rebuttable presumption that the useful life of goodwill will exceed 20 years. [IAS 22.44] IAS 22
indicates that the 20-year maximum presumption can be overcome "in rare cases" for instance if the
goodwill is so clearly related to an identifiable asset or group of identifiable assets that it can reasonably
be expected to provide benefits over the entire life of those related assets. Amortisation will normally
be on a straight-line basis. [IAS 22.50]
Goodwill is subject to the general impairment requirements of IAS 36. [IAS 22.55] If the amortisation
period exceeds 20 years, recoverable amount must be calculated annually, even if there is no indication
that it is impaired. [IAS 22.56] Non-amortisation of goodwill based on an argument that it has an infinite
life is not permitted by IAS 22.
Negative goodwill
Negative goodwill must always be measured and initially recognised as the full difference between the
acquirer's interest in the fair values of the identifiable assets and liabilities acquired less the cost of ac-
quisition. [IAS 22.59]
o To the extent that it relates to expected future losses and expenses that are identified in the
acquirer's acquisition plan, the negative goodwill is recognised as income when the future losses
and expenses are recognised. [IAS 22.61]
o An excess of negative goodwill to the extent of the fair values of acquired identifiable nonmone-
tary assets is recognised in income over the average live of those nonmonetary assets. [IAS
22.62(a)]
o Any remaining excess is recognised as income immediately. [IAS 22.62(b)]
o Negative goodwill is presented as a deduction from the assets of the enterprise, in the same
balance sheet classification as (positive) goodwill. [IAS 22.64]
Deferred income taxes
In both acquisitions and uniting of interests, sometimes the accounting treatment may differ from mea-
surements under national income tax laws. Any resulting deferred tax liabilities and deferred tax assets
are recognised under IAS 12 Income Taxes. [IAS 22.84]
Disclosure
These disclosures apply to all business combinations [IAS 22.86]
o Names and descriptions of the combining enterprises.
o Method of accounting for the combination.
o Effective date of the merger.
o Plans to dispose of a portion of the combined enterprise
These disclosures apply to acquisitions [IAS 22.87-88]
o Percentage of voting shares acquired. [IAS 22.87]
o Cost of acquisition, including a description of the purchase consideration paid or contingently

payable. [IAS 22.87]
o Amortisation period(s) for goodwill and, if over 20 years or non-straight-line, the justification.
[IAS 22.88]
o Line item(s) of the income statement in which the amortisation of goodwill is included [IAS
22.88]
o A reconciliation of the carrying amount of goodwill at the beginning and end of the period [IAS
22.88]
o Comparative information is not required.
o Special disclosures in negative goodwill situations. [IAS 22.91]
o Problems in determining fair values of assets and liabilities [IAS 22.93]
These disclosures apply to unitings of interest [IAS 22.94]
o Information about type and number of shares issued
o Amounts of assets and liabilities contributed by each enterprise; and
o Sales revenue, other operating revenues, extraordinary items and the net profit or loss of each
enterprise prior to the date of the combination that are included in the net profit or loss shown
by the combined enterprise's financial statements.
IAS 23 Borrowing Costs
Overview
IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construc-
tion or production of a 'qualifying asset' (one that necessarily takes a substantial period of time to get
ready for its intended use or sale) are included in the cost of the asset. Other borrowing costs are recog-
nised as an expense.
IAS 23 was reissued in March 2007 and applies to annual periods beginning on or after 1 January 2009.
History of IAS 23
November 1982 Exposure Draft E24 Capitalisation of Borrowing Costs
March 1984 IAS 23 Capitalisation of Borrowing Costs
August 1991 Exposure Draft E39 Capitalisation of Borrowing Costs
December 1993 IAS 23 (1993) Borrowing Costs (revised as part of the 'Comparability of
1 January 1995 Effective date of IAS 23 (1993) Borrowing Costs
25 May 2006 Exposure Draft of proposed amendments to IAS 23
29 March 2007 IASB amends IAS 23 to require capitalisation of borrowing costs.
22 May 2008 IAS 23 amended for 'Annual Improvements to IFRSs 2007 for components of
borrowing costs
1 January 2009 Effective date of March 2007 and May 2008 amendments to IAS 23
o SIC-2 Consistency Capitalisation of Borrowing Costs. SIC-2 was superseded by and incorpo-
rated into IAS 8 in December 2003.
o None
Summary of IAS 23
Objective of IAS 23
The objective of IAS 23 is to prescribe the accounting treatment for borrowing costs. Borrowing costs
include interest on bank overdrafts and borrowings, finance charges on finance leases and exchange dif-
ferences on foreign currency borrowings where they are regarded as an adjustment to interest costs.
Key definitions
Borrowing cost may include: [IAS 23.6]
o interest expense calculated by the effective interest method under IAS 39,
o finance charges in respect of finance leases recognised in accordance with IAS 17 Leases, and
o exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs
This standard does not deal with the actual or imputed cost of equity, including any preferred capital not
classified as a liability pursuant to IAS 32. [IAS 23.3]
A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or
sale. [IAS 23.5] That could be property, plant, and equipment and investment property during the con-
struction period, intangible assets during the development period, or "made-to-order" inventories. [IAS
23.6]
Scope of IAS 23
Two types of assets that would otherwise be qualifying assets are excluded from the scope of IAS 23:
o qualifying assets measured at fair value, such as biological assets accounted for under IAS 41
Agriculture
o inventories that are manufactured, or otherwise produced, in large quantities on a repetitive

basis and that take a substantial period to get ready for sale (for example, maturing whisky)
Accounting treatment
Recognition
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualify-
ing asset form part of the cost of that asset and, therefore, should be capitalised. Other borrowing costs
are recognised as an expense. [IAS 23.8]
Measurement
Where funds are borrowed specifically, costs eligible for capitalisation are the actual costs incurred less
any income earned on the temporary investment of such borrowings. [IAS 23.12] Where funds are part
of a general pool, the eligible amount is determined by applying a capitalisation rate to the expenditure
on that asset. The capitalisation rate will be the weighted average of the borrowing costs applicable to
the general pool. [IAS 23.14]
Capitalisation should commence when expenditures are being incurred, borrowing costs are being
incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress
(may include some activities prior to commencement of physical production). [IAS 23.17-18] Capitalisa-
tion should be suspended during periods in which active development is interrupted. [IAS 23.20] Capital-
isation should cease when substantially all of the activities necessary to prepare the asset for its
intended use or sale are complete. [IAS 23.22] If only minor modifications are outstanding, this indicates
that substantially all of the activities are complete. [IAS 23.23]
Where construction is completed in stages, which can be used while construction of the other parts
continues, capitalisation of attributable borrowing costs should cease when substantially all of the activi-
ties necessary to prepare that part for its intended use or sale are complete. [IAS 23.24]
Disclosure [IAS 23.26]
o amount of borrowing cost capitalised during the period
o capitalisation rate used

IAS 24 Related Party Disclosures
Overview
IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding balances with
an entity's related parties. The standard defines various classes of entities and people as related parties
and sets out the disclosures required in respect of those parties, including the compensation of key
management personnel.
IAS 24 was reissued in November 2009 and applies to annual periods beginning on or after 1 January
2011.
History of IAS 24
March 1983 Exposure Draft E25 Disclosure of Related

Party Transactions
July 1984 IAS 24 Related Party Disclosures issued Effective 1 January 1986
1994 IAS 24 was reformatted
18 December 2003 IAS 24 Related Party Disclosures Effective for annual

22 February 2007 Exposure Draft State-controlled Entities Comment deadline 25

and the Definition of a Related May 2007
Party published
11 December 2008 Exposure Draft Relationships with the State Comment deadline 13
(Proposed amendments to IAS March 2009
24) published
4 November 2009 IAS 24 Related Party Disclosures issued Effective for annual
12 December 2013 Amended by Annual Improvements to IFRSs Effective for annual
20102012 Cycle (entities providing key periods beginning on or
management personnel services) after 1 July 2014
o None
o None
Summary of IAS 24
Objective of IAS 24
The objective of IAS 24 is to ensure that an entity's financial statements contain the disclosures
necessary to draw attention to the possibility that its financial position and profit or loss may have been
affected by the existence of related parties and by transactions and outstanding balances with such
parties.
Who are related parties?
A related party is a person or entity that is related to the entity that is preparing its financial statements
(referred to as the 'reporting entity') [IAS 24.9].
o (a) A person or a close member of that person's family is related to a reporting entity if that
person:
o (i) has control or joint control over the reporting entity;
o (ii) has significant influence over the reporting entity; or
o (iii) is a member of the key management personnel of the reporting entity or of a parent
of the reporting entity.
o (b) An entity is related to a reporting entity if any of the following conditions applies:
o (i) The entity and the reporting entity are members of the same group (which means
that each parent, subsidiary and fellow subsidiary is related to the others).
o (ii) One entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member).
o (iii) Both entities are joint ventures of the same third party.
o (iv) One entity is a joint venture of a third entity and the other entity is an associate of
the third entity.
o (v) The entity is a post-employment defined benefit plan for the benefit of employees of
either the reporting entity or an entity related to the reporting entity. If the reporting
entity is itself such a plan, the sponsoring employers are also related to the reporting
entity.
o (vi) The entity is controlled or jointly controlled by a person identified in (a).
o (vii) A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity).
o (viii) The entity, or any member of a group of which it is a part, provides key manage-
ment personnel services to the reporting entity or to the parent of the reporting entity*.
* Requirement added by Annual Improvements to IFRSs 20102012 Cycle, effective for annual periods
beginning on or after 1 July 2014.
The following are deemed not to be related: [IAS 24.11]
o two entities simply because they have a director or key manager in common
o two venturers who share joint control over a joint venture
o providers of finance, trade unions, public utilities, and departments and agencies of a govern-
ment that does not control, jointly control or significantly influence the reporting entity, simply
by virtue of their normal dealings with an entity (even though they may affect the freedom of
action of an entity or participate in its decision-making process)
o a single customer, supplier, franchiser, distributor, or general agent with whom an entity
transacts a significant volume of business merely by virtue of the resulting economic depen-
dence
What are related party transactions?
A related party transaction is a transfer of resources, services, or obligations between related parties,
regardless of whether a price is charged. [IAS 24.9]
Disclosure
Relationships between parents and subsidiaries. Regardless of whether there have been transactions
between a parent and a subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. If neither the entity's parent nor the ultimate controlling party produces
financial statements available for public use, the name of the next most senior parent that does so must
also be disclosed. [IAS 24.16]
Management compensation. Disclose key management personnel compensation in total and for each
of the following categories: [IAS 24.17]
o short-term employee benefits
o post-employment benefits
o other long-term benefits
o termination benefits
o share-based payment benefits
Key management personnel are those persons having authority and responsibility for planning,
directing, and controlling the activities of the entity, directly or indirectly, including any directors
(whether executive or otherwise) of the entity. [IAS 24.9]
If an entity obtains key management personnel services from a management entity, the entity is not
required to disclose the compensation paid or payable by the management entity to the management
entitys employees or directors. Instead the entity discloses the amounts incurred by the entity for the
provision of key management personnel services that are provided by the separate management
entity*. [IAS 24.17A, 18A]
* These requirements were introduced by Annual Improvements to IFRSs 20102012 Cycle, effective for
annual periods beginning on or after 1 July 2014.
Related party transactions. If there have been transactions between related parties, disclose the nature
of the related party relationship as well as information about the transactions and outstanding balances
necessary for an understanding of the potential effect of the relationship on the financial statements.
These disclosure would be made separately for each category of related parties and would include: [IAS
24.18-19]
o the amount of the transactions
o the amount of outstanding balances, including terms and conditions and guarantees
o provisions for doubtful debts related to the amount of outstanding balances
o expense recognised during the period in respect of bad or doubtful debts due from related
parties
Examples of the kinds of transactions that are disclosed if they are with a related party
o purchases or sales of goods
o purchases or sales of property and other assets
o rendering or receiving of services
o leases
o transfers of research and development
o transfers under licence agreements
o transfers under finance arrangements (including loans and equity contributions in cash or in kind)
o provision of guarantees or collateral

o commitments to do something if a particular event occurs or does not occur in the future,
including executory contracts (recognised and unrecognised)
o settlement of liabilities on behalf of the entity or by the entity on behalf of another party
A statement that related party transactions were made on terms equivalent to those that prevail in
arm's length transactions should be made only if such terms can be substantiated. [IAS 24.21]
IAS 26 Accounting and Reporting by Retirement Benefit
Plans
Overview
IAS 26 Accounting and Reporting by Retirement Benefit Plans outlines the requirements for the prepara-
tion of financial statements of retirement benefit plans. It outlines the financial statements required and
discusses the measurement of various line items, particularly the actuarial present value of promised
retirement benefits for defined benefit plans.
IAS 26 was issued in January 1987 and applies to annual periods beginning on or after 1 January 1988.
History of IAS 26
July 1985 Exposure Draft E27 Accounting and Reporting by Retirement Benefit Plans
January 1987 IAS 26 Accounting and Reporting by Retirement Benefit Plans
o None
Summary of IAS 26
Objective of IAS 26
The objective of IAS 26 is to specify measurement and disclosure principles for the reports of retirement
benefit plans. All plans should include in their reports a statement of changes in net assets available for
benefits, a summary of significant accounting policies and a description of the plan and the effect of any
changes in the plan during the period.
Key definitions
Retirement benefit plan: An arrangement by which an entity provides benefits (annual income or lump
sum) to employees after they terminate from service. [IAS 26.8]
Defined contribution plan: A retirement benefit plan by which benefits to employees are based on the
amount of funds contributed to the plan plus investment earnings thereon. [IAS 26.8]
Defined benefit plan: A retirement benefit plan by which employees receive benefits based on a
formula usually linked to employee earnings. [IAS 26.8]

The report of a defined contribution plan should contain a statement of net assets available for benefits
and a description of the funding policy. [IAS 26.13]
The report of a defined benefit plan should contain either: [IAS 26.17]
o a statement that shows the net assets available for benefits, the actuarial present value of
promised retirement benefits (distinguishing between vested benefits and non-vested benefits)
and the resulting excess or deficit; or
o a statement of net assets available for benefits, including either a note disclosing the actuarial
present value of promised retirement benefits (distinguishing between vested benefits and non-
vested benefits) or a reference to this information in an accompanying actuarial report.
If an actuarial valuation has not been prepared at the date of the report of a defined benefit plan, the
most recent valuation should be used as a base and the date of the valuation disclosed. The actuarial
present value of promised retirement benefits should be based on the benefits promised under the
terms of the plan on service rendered to date, using either current salary levels or projected salary
levels, with disclosure of the basis used. The effect of any changes in actuarial assumptions that have
had a significant effect on the actuarial present value of promised retirement benefits should also be
disclosed. [IAS 26.18]
The report should explain the relationship between the actuarial present value of promised retirement
benefits and the net assets available for benefits, and the policy for the funding of promised benefits.
[IAS 26.19]
Retirement benefit plan investments should be carried at fair value. For marketable securities, fair value
means market value. If fair values cannot be estimated for certain retirement benefit plan investments,
disclosure should be made of the reason why fair value is not used. [IAS 26.32]
Disclosure
o Statement of net assets available for benefit, showing: [IAS 26.35(a)]
o assets at the end of the period
o basis of valuation
o details of any single investment exceeding 5% of net assets or 5% of any category of in-
vestment
o details of investment in the employer
o liabilities other than the actuarial present value of plan benefits
o Statement of changes in net assets available for benefits, showing: [IAS 26.35(b)]
o employer contributions
o employee contributions
o investment income
o other income
o benefits paid
o administrative expenses
o other expenses
o income taxes
o profit or loss on disposal of investments
o changes in fair value of investments
o transfers to/from other plans
o Description of funding policy [IAS 26.35(c)]
o Other details about the plan [IAS 26.36]
o Summary of significant accounting policies [IAS 26.34(b)]
o Description of the plan and of the effect of any changes in the plan during the period [IAS
26.34(c)]
o Disclosures for defined benefit plans: [IAS 26.35(d) and (e)]
o actuarial present value of promised benefit obligations
o description of actuarial assumptions
o description of the method used to calculate the actuarial present value of promised
benefit obligations
IAS 27 Separate Financial Statements (2011)
Overview
IAS 27 Separate Financial Statements (as amended in 2011) outlines the accounting and disclosure re-
quirements for 'separate financial statements', which are financial statements prepared by a parent, or
an investor in a joint venture or associate, where those investments are accounted for either at cost or
in accordance with IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9Financial In-
struments. The standard also outlines the accounting requirements for dividends and contains
numerous disclosure requirements.
IAS 27 was reissued in May 2011 and applies to annual periods beginning on or after 1 January 2013, su-
perseding IAS 27 Consolidated and Separate Financial Statements from that date.
History of IAS 27 (as amended in 2011)
September 1987 Exposure Draft E30 Consolidated Financial

Statements and Accounting for Investments
in Subsidiaries
April 1989 IAS 27 Consolidated Financial Statements and Effective 1 January

Accounting for Investments in Sub- 1990
sidiaries issued
1994 IAS 27 reformatted
December 1998 Amended by IAS 39 Financial Instruments: Effective 1 January

Recognition and Measurement 2001
18 December 2003 IAS 27 Consolidated and Separate Financial Effective for annual
Statements issued periods beginning on
or after 1 January 2005
25 June 2005 Exposure Draft of Proposed Amendments to

IFRS 3 and IAS 27
10 January 2008 IAS 27 Consolidated and Separate Financial Effective for annual
Statements (2008) issued periods beginning on
or after 1 July 2009
22 May 2008 Amended by Cost of a Subsidiary in the Effective for annual
Separate Financial Statements of a Parent on periods beginning on
First-time Adoption of IFRSs or after 1 January 2009
22 May 2008 Amended by Annual Improvements to IFRSs Effective for annual

(investments in subsidiaries held for sale) periods beginning on
6 May 2010 Amended by Annual Improvements to IFRSs Effective for annual

2010 periods beginning on
(transitional requirements) or after 1 July 2010
12 May 2011 Reissued as IAS 27 Separate Financial State- Effective for annual
ments (as amended in 2011). Consolidation periods beginning on
requirements previously forming part of IAS or after 1 January 2013
27 (2008) have been revised and are now
contained in IFRS 10 Consolidated Financial
Statements
31 October 2012 Amended by Investment Entities (Amend- Effective for annual

ments to IFRS 10, IFRS 12 and IAS 27) (project periods beginning on
history) or after 1 January 2014
12 August 2014 Amended by Equity Method in Separate Effective for annual

Financial Statements (Amendments to IAS periods beginning on
27) (project history) or after 1 January
2016, with earlier ap-
plication permitted
o IFRS 13 Unit of account
o Research project Common control transactions
Summary of IAS 27 (as amended in 2011)
The summary below applies to IAS 27 Separate Financial Statements, issued in May 2011 and applying
to annual reporting periods beginning on or after 1 January 2013. For earlier reporting periods, refer
to our summary of IAS 27 Consolidated and Separate Financial Statements.
Objectives of IAS 27
IAS 27 has the objective of setting standards to be applied in accounting for investments in subsidiaries,
jointly ventures, and associates when an entity elects, or is required by local regulations, to present
separate (non-consolidated) financial statements.
Key definitions
[IAS 27(2011).4]
Consolidated Financial statements of a group in which the assets, liabilities, equity, income,
financial state- expenses and cash flows of the parent and its subsidiaries are presented as
ments those of a single economic entity
Separate Financial statements presented by a parent (i.e. an investor with control of a

financial state- subsidiary), an investor with joint control of, or significant influence over, an
ments investee, in which the investments are accounted for at cost or in accordance
with IFRS 9Financial Instruments
Preparation of separate financial statements
Requirement for separate financial statements
IAS 27 does not mandate which entities produce separate financial statements available for public use.
It applies when an entity prepares separate financial statements that comply with International Financial
Reporting Standards. [IAS 27(2011).3]
Financial statements in which the equity method is applied are not separate financial statements.
Similarly, the financial statements of an entity that does not have a subsidiary, associate or joint
venturer's interest in a joint venture are not separate financial statements. [IAS 27(2011).7]
An investment entity that is required, throughout the current period and all comparative periods
presented, to apply the exception to consolidation for all of its subsidiaries in accordance with
ofIFRS 10 Consolidated Financial Statements presents separate financial statements as its only financial
statements. [IAS 27(2011).8A]
[Note: The investment entity consolidation exemption was introduced into IFRS 10 by Investment
Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January
2014.]
Choice of accounting method
When an entity prepares separate financial statements, investments in subsidiaries, associates, and
jointly controlled entities are accounted for either: [IAS 27(2011).10]
o at cost, or
o in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition
and Measurement for entities that have not yet adopted IFRS 9), or
o using the equity method as decribed in IAS 28 Investments in Associates and Joint Ventures. [See
the amendment information below.]
The entity applies the same accounting for each category of investments. Investments that are
accounted for at cost and classified as held for sale in accordance with IFRS 5 Non-current Assets Held
for Sale and Discontinued Operations are accounted for in accordance with that IFRS. Investments
carried at cost should be measured at the lower of their carrying amount and fair value less costs to sell.
The measurement of investments accounted for in accordance with IFRS 9 is not changed in such cir-
cumstances.
If an entity elects, in accordance with IAS 28 (as amended in 2011), to measure its investments in associ-
ates or joint ventures at fair value through profit or loss in accordance with IFRS 9, it shall also account
for those investments in the same way in its separate financial statements. [IAS 27(2011).11]
Investment entities
2014.]
If a parent investment entity is required, in accordance with IFRS 10, to measure its investment in a sub-
sidiary at fair value through profit or loss in accordance with IFRS 9 or IAS 39, it is required to also
account for its investment in a subsidiary in the same way in its separate financial statements. [IAS
27(2011).11A]
When a parent ceases to be an investment entity, the entity can account for an investment in a sub-
sidiary at cost (based on fair value at the date of change or status) or in accordance with IFRS 9. When
an entity becomes an investment entity, it accounts for an investment in a subsidiary at fair value
through profit or loss in accordance with IFRS 9. [IAS 27(2011).11B]
Recognition of dividends
An entity recognises a dividend from a subsidiary, joint venture or associate in profit or loss in its
separate financial statements when its right to receive the dividend in established. [IAS 27(2011).12]
(Accounting for dividends where the equity method is applied to investments in joint ventures and asso-
ciates is specified in IAS 28 Investments in Associates and Joint Ventures.)
Group reorganisations
Specified accounting applies in separate financial statements when a parent reorganises the structure of
its group by establishing a new entity as its parent in a manner satisfying the following criteria: [IAS
27(2011).13]
o the new parent obtains control of the original parent by issuing equity instruments in exchange
for existing equity instruments of the original parent
o the assets and liabilities of the new group and the original group are the same immediately
before and after the reorganisation, and
o the owners of the original parent before the reorganisation have the same absolute and relative
interests in the net assets of the original group and the new group immediately before and after
the reorganisation.
Where these criteria are met, and the new parent accounts for its investment in the original parent at
cost, the new parent measures the carrying amount of its share of the equity items shown in the
separate financial statements of the original parent at the date of the reorganisation. [IAS 27(2011).13]
The above requirements:
o apply to the establishment of an intermediate parent within a group, as well as establishment of

a new ultimate parent of a group [IAS 27(2011).BC24]
o apply to an entity that is not a parent entity and establishes a parent in a manner that satisfies
the above criteria [IAS 27(2011).14]
o apply only where the criteria above are satisfied and do not apply to other types of reorganisa-
tions or for common control transactions more broadly. [IAS 27(2011).BC27].
Disclosure
When a parent, in accordance with paragraph 4(a) of IFRS 10, elects not to prepare consolidated
financial statements and instead prepares separate financial statements, it shall disclose in those
separate financial statements: [IAS 27(2011).16]
o the fact that the financial statements are separate financial statements; that the exemption
from consolidation has been used; the name and principal place of business (and country of in-
corporation if different) of the entity whose consolidated financial statements that comply with
IFRS have been produced for public use; and the address where those consolidated financial
statements are obtainable,
o a list of significant investments in subsidiaries, jointly controlled entities, and associates,

including the name, principal place of business (and country of incorporation if different), pro-
portion of ownership interest and, if different, proportion of voting rights, and
o a description of the method used to account for the foregoing investments.
When an investment entity that is a parent prepares separate financial statements as its only financial
statements, it shall disclose that fact. The investment entity shall also present the disclosures relating to
investment entities required by IFRS 12. [IAS 27(2011).16A]
2014.]
When a parent (other than a parent covered by the above circumstances) or an investor with joint
control of, or significant influence over, an investee prepares separate financial statements, the parent
or investor shall identify the financial statements prepared in accordance
with IFRS 10, IFRS 11 orIAS 28 (as amended in 2011) to which they relate. The parent or investor shall
also disclose in its separate financial statements: [IAS 27(2011).17]
o the fact that the statements are separate financial statements and the reasons why those state-
ments are prepared if not required by law,

including the name, principal place of business (and country of incorporation if different), pro-
portion of ownership interest and, if different, proportion of voting rights, and
Applicability and early adoption
IAS 27 (as amended in 2011) is applicable to annual reporting periods beginning on or after 1 January
2013. [IAS 27(2011).18]
An entity may apply IAS 27 (as amended in 2011) to an earlier accounting period, but if doing so it must
disclose the fact that is has early adopted the standard and also apply: [IAS 27(2011).18]
o IFRS 10 Consolidated Financial Statements
o IFRS 11 Joint Arrangements
o IFRS 12 Disclosure of Interests in Other Entities
o IAS 28 Investments in Associates and Joint Ventures (as amended in 2011).
The amendments to IAS 27 (2011) made by Investment Entities are applicable to annual reporting
periods beginning on or after 1 January 2014 and special transitional provisions apply.
Equity Method in Separate Financial Statements (Amendments to IAS 27), issued in August 2014,
amended paragraphs 47, 10, 11B and 12. An entity shall apply those amendments for annual periods
beginning on or after 1 January 2016 retrospectively in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies those
amendments for an earlier period, it shall disclose that fact. [IAS 27(2011).18A-18J].
IAS 27 Consolidated and Separate Financial Statements
(2008)
Overview
IAS 27 Consolidated and Separate Financial Statements outlines when an entity must consolidate
another entity, how to account for a change in ownership interest, how to prepare separate financial
statements, and related disclosures. Consolidation is based on the concept of 'control' and changes in
ownership interests while control is maintained are accounted for as transactions between owners as
owners in equity.
IAS 27 was reissued in January 2008 and applies to annual periods beginning on or after 1 July 2009, and
is superseded by IAS 27 Separate Financial Statements and IFRS 10 Consolidated Financial State-
ments with effect from annual periods beginning on or after 1 January 2013.
History of IAS 27
September 1987 Exposure Draft E30 Consolidated Financial Statements and Accounting for
Investments in Subsidiaries
April 1989 IAS 27 Consolidated Financial Statements and Accounting for Investments
in Subsidiaries
December 1998 IAS 27 was amended by IAS 39 Financial Instruments: Recognition and
Measurement effective 1 January 2001
25 June 2005 Exposure Draft of Proposed Amendments to IFRS 3 and IAS 27
10 January 2008 Revised IAS 27 (2008) issued
22 May 2008 IAS 27 amended for Cost of a Subsidiary in the Separate Financial State-
ments of a Parent on First-time Adoption of IFRSs
22 May 2008 IAS 27 amended for Annual Improvements to IFRSs 2007 relating to mea-
surement of investments held for sale under IFRS 5 in separate financial
statements
1 January 2009 Effective date of the two May 2008 amendments
1 July 2009 Effective date of IAS 27 (2008). Deloitte has published a Special Edition of
our IAS Plus Newsletter dealing with the January 2008 revisions to IFRS 3
and IAS 27 (PDF 123k).
6 May 2010 IAS 27 amended for Annual Improvements to IFRSs 2010
1 July 2010 Effective date of May 2010 amendment to IAS 27
12 May 2011 IAS 27 (2008) is superseded by IAS 27 Separate Financial State-

ments (2011) and IFRS 10 Consolidated Financial Statementseffective 1
January 2013
o SIC-12 Consolidation Special Purpose Entities
o IAS 27 (revised 2003) supersedes SIC-33 Consolidation and Equity Method Potential Voting
Rights and Allocation of Ownership Interest
Summary of IAS 27
Objectives of IAS 27
IAS 27 has the twin objectives of setting standards to be applied:
o in the preparation and presentation of consolidated financial statements for a group of entities
under the control of a parent; and
o in accounting for investments in subsidiaries, jointly controlled entities, and associates when an
entity elects, or is required by local regulations, to present separate (non-consolidated) financial
statements.
Consolidated financial statements: the financial statements of a group presented as those of a single
economic entity.
Subsidiary: an entity, including an unincorporated entity such as a partnership, that is controlled by

another entity (known as the parent).
Parent: an entity that has one or more subsidiaries.
Control: the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities.
Identification of subsidiaries
Control is presumed when the parent acquires more than half of the voting rights of the entity. Even
when more than one half of the voting rights is not acquired, control may be evidenced by power: [IAS
27.13]
o over more than one half of the voting rights by virtue of an agreement with other investors, or
o to govern the financial and operating policies of the entity under a statute or an agreement; or
o to appoint or remove the majority of the members of the board of directors; or
o to cast the majority of votes at a meeting of the board of directors.
SIC-12 provides other indicators of control (based on risks and rewards) for Special Purpose Entities
(SPEs). SPEs should be consolidated where the substance of the relationship indicates that the SPE is
controlled by the reporting entity. This may arise even where the activities of the SPE are predetermined
or where the majority of voting or equity are not held by the reporting entity. [SIC-12]
Presentation of consolidated financial statements
A parent is required to present consolidated financial statements in which it consolidates its investments
in subsidiaries [IAS 27.9] with the following exception:
A parent is not required to (but may) present consolidated financial statements if and only if all of the
following four conditions are met: [IAS 27.10]
1. the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another

entity and its other owners, including those not otherwise entitled to vote, have been informed
about, and do not object to, the parent not presenting consolidated financial statements;
2. the parent's debt or equity instruments are not traded in a public market;
3. the parent did not file, nor is it in the process of filing, its financial statements with a securities
commission or other regulatory organisation for the purpose of issuing any class of instruments
in a public market; and
4. the ultimate or any intermediate parent of the parent produces consolidated financial state-
ments available for public use that comply with International Financial Reporting Standards.
The consolidated accounts should include all of the parent's subsidiaries, both domestic and foreign:
[IAS 27.12]
o There is no exemption for a subsidiary whose business is of a different nature from the parent's.
o There is no exemption for a subsidiary that operates under severe long-term restrictions
impairing the subsidiary's ability to transfer funds to the parent. Such an exemption was
included in earlier versions of IAS 27, but in revising IAS 27 in December 2003 the IASB
concluded that these restrictions, in themselves, do not preclude control.
o There is no exemption for a subsidiary that had previously been consolidated and that is now
being held for sale. However, a subsidiary that meets the IFRS 5 criteria as an asset held for sale
shall be accounted for under that Standard.
Special purpose entities (SPEs) should be consolidated where the substance of the relationship indicates
that the SPE is controlled by the reporting entity. This may arise even where the activities of the SPE are
predetermined or where the majority of voting or equity are not held by the reporting entity. [SIC-12]
Once an investment ceases to fall within the definition of a subsidiary, it should be accounted for as an
associate under IAS 28, as a joint venture under IAS 31, or as an investment under IAS 39, as appropri-
ate. [IAS 27.31]
Consolidation procedures
Intragroup balances, transactions, income, and expenses should be eliminated in full. Intragroup losses
may indicate that an impairment loss on the related asset should be recognised. [IAS 27.24-25]
The financial statements of the parent and its subsidiaries used in preparing the consolidated financial
statements should all be prepared as of the same reporting date, unless it is impracticable to do so. [IAS
27.26] If it is impracticable a particular subsidiary to prepare its financial statements as of the same date
as its parent, adjustments must be made for the effects of significant transactions or events that occur
between the dates of the subsidiary's and the parent's financial statements. And in no case may the dif-
ference be more than three months. [IAS 27.27]
Consolidated financial statements must be prepared using uniform accounting policies for like transac-
tions and other events in similar circumstances. [IAS 27.28]
Minority interests should be presented in the consolidated balance sheet within equity, but separate
from the parent's shareholders' equity. Minority interests in the profit or loss of the group should also
be separately disclosed. [IAS 27.33]
Where losses applicable to the minority exceed the minority interest in the equity of the relevant sub-
sidiary, the excess, and any further losses attributable to the minority, are charged to the group unless
the minority has a binding obligation to, and is able to, make good the losses. Where excess losses have
been taken up by the group, if the subsidiary in question subsequently reports profits, all such profits
are attributed to the group until the minority's share of losses previously absorbed by the group has
been recovered. [IAS 27.35]
Partial disposal of an investment in a subsidiary
The accounting depends on whether control is retained or lost:
o Partial disposal of an investment in a subsidiary while control is retained. This is accounted for
as an equity transaction with owners, and gain or loss is not recognised.
o Partial disposal of an investment in a subsidiary that results in loss of control. Loss of control
triggers remeasurement of the residual holding to fair value. Any difference between fair value
and carrying amount is a gain or loss on the disposal, recognised in profit or loss. Thereafter,
apply IAS 28, IAS 31, or IAS 39, as appropriate, to the remaining holding.
Acquiring additional shares in the subsidiary after control is obtained
Acquiring additional shares in the subsidiary after control was obtained is accounted for as an equity
transaction with owners (like acquisition of 'treasury shares'). Goodwill is not remeasured.
Separate financial statements of the parent or investor in an associate or jointly controlled entity
In the parent's/investor's individual financial statements, investments in subsidiaries, associates, and

jointly controlled entities should be accounted for either: [IAS 27.37]
o at cost, or
o in accordance with IAS 39.
The parent/investor shall apply the same accounting for each category of investments. Investments that
are classified as held for sale in accordance with IFRS 5 shall be accounted for in accordance with that
IFRS. [IAS 27.37] Investments carried at cost should be measured at the lower of their carrying amount
and fair value less costs to sell. The measurement of investments accounted for in accordance with IAS
39 is not changed in such circumstances. [IAS 27.38] An entity shall recognise a dividend from a sub-
sidiary, jointly controlled entity or associate in profit or loss in its separate financial statements when its
right to receive the dividend is established. [IAS 27.38A]
Disclosure
Disclosures required in consolidated financial statements: [IAS 27.40]
o the nature of the relationship between the parent and a subsidiary when the parent does not
own, directly or indirectly through subsidiaries, more than half of the voting power,
o the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of
the voting or potential voting power of an investee does not constitute control,
o the reporting date of the financial statements of a subsidiary when such financial statements are
used to prepare consolidated financial statements and are as of a reporting date or for a period
that is different from that of the parent, and the reason for using a different reporting date or
period, and
o the nature and extent of any significant restrictions on the ability of subsidiaries to transfer
funds to the parent in the form of cash dividends or to repay loans or advances.
Disclosures required in separate financial statements that are prepared for a parent that is permitted
not to prepare consolidated financial statements: [IAS 27.41]
o the fact that the financial statements are separate financial statements; that the exemption
from consolidation has been used; the name and country of incorporation or residence of the
entity whose consolidated financial statements that comply with IFRS have been produced for
public use; and the address where those consolidated financial statements are obtainable,
including the name, country of incorporation or residence, proportion of ownership interest
and, if different, proportion of voting power held, and
Disclosures required in the separate financial statements of a parent, investor in a jointly controlled
entity, or investor in an associate: [IAS 27.42]
o the fact that the statements are separate financial statements and the reasons why those state-
ments are prepared if not required by law,

including the name, country of incorporation or residence, proportion of ownership interest
and, if different, proportion of voting power held, and

IAS 28 Investments in Associates and Joint Ventures (2011)
Overview
IAS 28 Investments in Associates and Joint Ventures (as amended in 2011) outlines how to apply, with
certain limited exceptions, the equity method to investments in associates and joint ventures. The
standard also defines an associate by reference to the concept of "significant influence", which requires
power to participate in financial and operating policy decisions of an investee (but not joint control or
control of those polices).
IAS 28 was reissued in May 2011 and applies to annual periods beginning on or after 1 January 2013.
History of IAS 28 (as amended in 2011)
July 1986 Exposure Draft E28 Accounting for In-

vestments in Associates and Joint
Ventures
April 1989 IAS 28 Accounting for Investments in Effective 1 January 1990

Associates issued
December 1998 Amended by IAS 39 Financial Instru- Effective 1 January 2001

ments: Recognition and Measurement
18 December 2003 IAS 28 Investments in Associatesissued Effective for annual periods

January 2005
10 January 2008 Amended by IFRS 3 Business Combina- Effective for annual periods
tions (loss of significant influence) beginning on or after 1 July
2009
22 May 2008 Amended by Improvements to Effective for annual periods

IFRSs(impairment testing) beginning on or after 1
January 2009
12 May 2011 IAS 28 Investments in Associates and Effective for annual periods
Joint Ventures (2011) issued (super- beginning on or after 1
sedes IAS 28 (2003)) January 2013
11 September 2014 Amended by Sale or Contribution of Effective on a prospective

Assets between an Investor and its basis to transactions
Associate or Joint Venture (Amend- occurring in annual periods
ments to IFRS 10 and IAS 28) beginning on or after 1
January 2016
18 December 2014 Amended by Investment Entities: Effective for annual periods

Applying the Consolidation Exception beginning on or after 1
(Amendments to IFRS 10, IFRS 12 and January 2016
IAS 28) (project history)
o None
o IAS 28 Elimination of gains arising from 'downstream' transactions
o Research project Equity method of accounting
o Research project Common control transactions
Summary of IAS 28 (as amended in 2011)
The summary below applies to IAS 28 Investments in Associates and Joint Ventures, issued in May
2011 and applying to annual reporting periods beginning on or after 1 January 2013. For earlier
reporting periods, refer to our summary of IAS 28 Investments in Associates.
Objective of IAS 28
The objective of IAS 28 (as amended in 2011) is to prescribe the accounting for investments in associates
and to set out the requirements for the application of the equity method when accounting for invest-
ments in associates and joint ventures. [IAS 28(2011).1]
Scope of IAS 28
IAS 28 applies to all entities that are investors with joint control of, or significant influence over, an
investee (associate or joint venture). [IAS 28(2011).2]
Key definitions
[IAS 28.3]
Associate An entity over which the investor has significant influence
Significant The power to participate in the financial and operating policy decisions of the
influence investee but is not control or joint control of those policies
Joint An arrangement of which two or more parties have joint control

arrange-
ment
Joint The contractually agreed sharing of control of an arrangement, which exists only
control when decisions about the relevant activities require the unanimous consent of
the parties sharing control
Joint A joint arrangement whereby the parties that have joint control of the arrange-
venture ment have rights to the net assets of the arrangement
Joint A party to a joint venture that has joint control of that joint venture
venturer
Equity A method of accounting whereby the investment is initially recognised at cost

method and adjusted thereafter for the post-acquisition change in the investor's share of
the investee's net assets. The investor's profit or loss includes its share of the
investee's profit or loss and the investor's other comprehensive income includes
its share of the investee's other comprehensive income
Significant influence
Where an entity holds 20% or more of the voting power (directly or through subsidiaries) on an
investee, it will be presumed the investor has significant influence unless it can be clearly demonstrated
that this is not the case. If the holding is less than 20%, the entity will be presumed not to have signifi-
cant influence unless such influence can be clearly demonstrated. A substantial or majority ownership
by another investor does not necessarily preclude an entity from having significant influence. [IAS
28(2011).5]
The existence of significant influence by an entity is usually evidenced in one or more of the following
ways: [IAS 28(2011).6]
o representation on the board of directors or equivalent governing body of the investee;
o participation in the policy-making process, including participation in decisions about dividends

or other distributions;
o material transactions between the entity and the investee;

o interchange of managerial personnel; or
o provision of essential technical information
The existence and effect of potential voting rights that are currently exercisable or convertible, including
potential voting rights held by other entities, are considered when assessing whether an entity has sig-
nificant influence. In assessing whether potential voting rights contribute to significant influence, the
entity examines all facts and circumstances that affect potential rights [IAS 28(2011).7, IAS 28(2011).8]
An entity loses significant influence over an investee when it loses the power to participate in the
financial and operating policy decisions of that investee. The loss of significant influence can occur with
or without a change in absolute or relative ownership levels. [IAS 28(2011).9]
The equity method of accounting
Basic principle. Under the equity method, on initial recognition the investment in an associate or a joint
venture is recognised at cost, and the carrying amount is increased or decreased to recognise the
investor's share of the profit or loss of the investee after the date of acquisition. [IAS 28(2011).10]
Distributions and other adjustments to carrying amount. The investor's share of the investee's profit or
loss is recognised in the investor's profit or loss. Distributions received from an investee reduce the
carrying amount of the investment. Adjustments to the carrying amount may also be necessary for
changes in the investor's proportionate interest in the investee arising from changes in the investee's
other comprehensive income (e.g. to account for changes arising from revaluations of property, plant
and equipment and foreign currency translations.) [IAS 28(2011).10]
Potential voting rights. An entity's interest in an associate or a joint venture is determined solely on the
basis of existing ownership interests and, generally, does not reflect the possible exercise or conversion
of potential voting rights and other derivative instruments. [IAS 28(2011).12]
Interaction with IFRS 9. IFRS 9 Financial Instruments does not apply to interests in associates and joint
ventures that are accounted for using the equity method. Instruments containing potential voting rights
in an associate or a joint venture are accounted for in accordance with IFRS 9, unless they currently give
access to the returns associated with an ownership interest in an associate or a joint venture. [IAS
28(2011).14]
Classification as non-current asset. An investment in an associate or a joint venture is generally classi-

fied as non-current asset, unless it is classified as held for sale in accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations. [IAS 28(2011).15]
Application of the equity method of accounting
Basic principle. In its consolidated financial statements, an investor uses the equity method of
accounting for investments in associates and joint ventures. [IAS 28(2011).16] Many of the procedures
that are appropriate for the application of the equity method are similar to the consolidation proce-
dures described in IFRS 10. Furthermore, the concepts underlying the procedures used in accounting for
the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in an
associate or a joint venture. [IAS 28.(2011).26]
Exemptions from applying the equity method. An entity is exempt from applying the equity method if
the investment meets one of the following conditions:
o The entity is a parent that is exempt from preparing consolidated financial statements
underIFRS 10 Consolidated Financial Statementsor or if all of the following four conditions are
met (in which case the entity need not apply the equity method): [IAS 28(2011).17]
o the entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another

entity and its other owners, including those not otherwise entitled to vote, have been
informed about, and do not object to, the investor not applying the equity method
o the investor or joint venturer's debt or equity instruments are not traded in a public
market
o the entity did not file, nor is it in the process of filing, its financial statements with a se-
curities commission or other regulatory organisation for the purpose of issuing any class
of instruments in a public market, and
o the ultimate or any intermediate parent of the parent produces financial statements
available for public use that comply with IFRSs, in which subsidiaries are consolidated or
are measured at fair value through profit or loss in accordance with IFRS 10.*
* Fair value measurement clause added by Investment Entities: Applying the Consolidation Exception
(Amendments to IFRS 10, IFRS 12 and IAS 28) amendments, effective 1 January 2016.
o When an investment in an associate or a joint venture is held by, or is held indirectly through, an
entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities
including investment-linked insurance funds, the entity may elect to measure investments in
those associates and joint ventures at fair value through profit or loss in accordance with IFRS 9.
[IAS 28(2011).18] When an entity has an investment in an associate, a portion of which is held
indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities
including investment-linked insurance funds, the entity may elect to measure that portion of the
investment in the associate at fair value through profit or loss in accordance with IFRS 9 regard-
less of whether the venture capital organisation, or the mutual fund, unit trust and similar
entities including investment-linked insurance funds, has significant influence over that portion
of the investment. If the entity makes that election, the entity shall apply the equity method to
any remaining portion of its investment in an associate that is not held through a venture capital
organisation, or a mutual fund, unit trust and similar entities including investment-linked
insurance funds. [IAS 28(2011).19]
Classification as held for sale. When the investment, or portion of an investment, meets the criteria to
be classified as held for sale, the portion so classified is accounted for in accordance with IFRS 5. Any
remaining portion is accounted for using the equity method until the time of disposal, at which time the
retained investment is accounted under IFRS 9, unless the retained interest continues to be an associate
or joint venture. [IAS 28(2011).20]
Discontinuing the equity method. Use of the equity method should cease from the date that significant
influence or joint control ceases: [IAS 28(2011).22]
o If the investment becomes a subsidiary, the entity accounts for its investment in accordance
withIFRS 3 Business Combinations and IFRS 10
o If the retained interest is a financial asset, it is measured at fair value and subsequently
accounted for under IFRS 9
o Any amounts recognised in other comprehensive income in relation to the investment in the
associate or joint venture are accounted for on the same basis as if the investee had directly
disposed of the related assets or liabilities (which may require reclassification to profit or loss)
o If an investment in an associate becomes an investment in a joint venture (or vice versa), the
entity continues to apply the equity method and does not remeasure the retained interest. [IAS
28(2011).24]
Changes in ownership interests. If an entity's interest in an associate or joint venture is reduced, but the
equity method is continued to be applied, the entity reclassifies to profit or loss the proportion of the
gain or loss previously recognised in other comprehensive income relative to that reduction in
ownership interest. [IAS 28(2011).25]
Equity method procedures.
o Transactions with associates or joint ventures. Profits and losses resulting from upstream
(associate to investor, or joint venture to joint venturer) and downstream (investor to associate,
or joint venturer to joint venture) transactions are eliminated to the extent of the investor's
interest in the associate or joint venture. However, unrealised losses are not eliminated to the
extent that the transaction provides evidence of a reduction in the net realisable value or in the
recoverable amount of the assets transferred. Contributions of non-monetary assets to an
associate or joint venture in exchange for an equity interest in the associate or joint venture are
also accounted for in accordance with these requirements. [IAS 28(2011).28-30]*
o Initial accounting. An investment is accounted for using the equity method from the date on
which it becomes an associate or a joint venture. On acquisition, any difference between the
cost of the investment and the entitys share of the net fair value of the investee's identifiable
assets and liabilities in case of goodwill is included in the carrying amount of the investment
(amortisation not permitted) and any excess of the entity's share of the net fair value of the
investee's identifiable assets and liabilities over the cost of the investment is included as income
in the determination of the entity's share of the associate or joint ventures profit or loss in the
period in which the investment is acquired. Adjustments to the entity's share of the associate's
or joint venture's profit or loss after acquisition are made, for example, for depreciation of the
depreciable assets based on their fair values at the acquisition date or for impairment losses
such as for goodwill or property, plant and equipment. [IAS 28(2011).32]
o Date of financial statements. In applying the equity method, the investor or joint venturer
should use the financial statements of the associate or joint venture as of the same date as the
financial statements of the investor or joint venturer unless it is impracticable to do so. If it is
impracticable, the most recent available financial statements of the associate or joint venture
should be used, with adjustments made for the effects of any significant transactions or events
occurring between the accounting period ends. However, the difference between the reporting
date of the associate and that of the investor cannot be longer than three months. [IAS
28(2011).33, IAS 28(2011).34]
o Accounting policies. If the associate or joint venture uses accounting policies that differ from
those of the investor, the associate or joint venture's financial statements are adjusted to reflect
the investor's accounting policies for the purpose of applying the equity method. [IAS
28(2011).35]
o Application of the equity method by a non-investment entity investor to an investment entity

investee. When applying the equity method to an associate or a joint venture, a non-investment
entity investor in an investment entity may retain the fair value measurement applied by the
associate or joint venture to its interests in subsidiaries. [IAS 28(2011).36A]**
o Losses in excess of investment. If an investor's or joint venturer's share of losses of an associate

or joint venture equals or exceeds its interest in the associate or joint venture, the investor or
joint venturer discontinues recognising its share of further losses. The interest in an associate or
joint venture is the carrying amount of the investment in the associate or joint venture under
the equity method together with any long-term interests that, in substance, form part of the
investor or joint venturer's net investment in the associate or joint venture. After the investor or
joint venturer's interest is reduced to zero, a liability is recognised only to the extent that the
investor or joint venturer has incurred legal or constructive obligations or made payments on
behalf of the associate. If the associate or joint venture subsequently reports profits, the
investor or joint venturer resumes recognising its share of those profits only after its share of
the profits equals the share of losses not recognised. [IAS 28(2011).38, IAS 28(2011).39]
*The Sale or Contribution of Assets between an Investor and its Associate or Joint Venture amendments,
effective 1 January 2016, added a requirement that gains or losses from downstream transactions
involving assets that constitute a business between an entity and its associate or joint venture must be
recognised in full in the investor's financial statements.
**Added by the Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS
12 and IAS 28) amendments, effective 1 January 2016.
Impairment. After application of the equity method an entity applies IAS 39 Financial Instruments:
Recognition and Measurement to determine whether it is necessary to recognise any additional impair-
ment loss with respect to its net investment in the associate or joint venture. If impairment is indicated,
the amount is calculated by reference to IAS 36 Impairment of Assets. The entire carrying amount of the
investment is tested for impairment as a single asset, that is, goodwill is not tested separately. The re-
coverable amount of an investment in an associate is assessed for each individual associate or joint
venture, unless the associate or joint venture does not generate cash flows independently. [IAS
28(2011).40, IAS 28(2011).42, IAS 28(2011).43]
Separate financial statements
An investment in an associate or a joint venture shall be accounted for in the entity's separate financial
statements in accordance with IAS 27 Separate Financial Statements (as amended in 2011).
Disclosure
There are no disclosures specified in IAS 28. Instead, IFRS 12 Disclosure of Interests in Other
Entitiesoutlines the disclosures required for entities with joint control of, or significant influence over, an
investee.
Applicability and early adoption
IAS 28 (2011) is applicable to annual reporting periods beginning on or after 1 January 2013. [IAS
28(2011).45]
An entity may apply IAS 28 (2011) to an earlier accounting period, but if doing so it must disclose the
fact that is has early adopted the standard and also apply: [IAS 28(2011).45]
o IFRS 10 Consolidated Financial Statements
o IFRS 11 Joint Arrangements
o IFRS 12 Disclosure of Interests in Other Entities
o IAS 27 Separate Financial Statements (2011).

IAS 28 Investments in Associates (2003)
Overview
IAS 28 Investments in Associates outlines the accounting for investments in associates. An associate is an
entity over which an investor has significant influence, being the power to participate in the financial
and operating policy decisions of the investee (but not control or joint control), and investments in asso-
ciates are, with limited exceptions, required to be accounted for using the equity method.
IAS 28 was reissued in December 2003, applies to annual periods beginning on or after 1 January 2005,
and is superseded by IAS 28 Investments in Associates and Joint Ventures and IFRS 12 Disclosure of
Interests in Other Entities with effect from annual periods beginning on or after 1 January 2013.
History of IAS 28
July 1986 Exposure Draft E28 Accounting for In-

vestments in Associates and Joint
Ventures
April 1989 IAS 28 Accounting for Investments in Effective 1 January 1990

Associates issued
December 1998 Amended by IAS 39 Financial Instru- Effective 1 January 2001

ments: Recognition and Measurement
18 December 2003 IAS 28 Investments in Associatesissued Effective for annual periods

January 2005
10 January 2008 Amended by IFRS 3 Business Combina- Effective for annual periods
tions (loss of significant influence) beginning on or after 1 July
2009

IFRSs(impairment testing) beginning on or after 1
January 2009
12 May 2011 Superseded by IAS 28 Investments in Effective for annual periods
Associates and Joint Ventures(2011) beginning on or after 1
January 2013
o IAS 28 (2003) superseded SIC-3 Elimination of Unrealised Profits and Losses on Transactions with
Associates
o IAS 28 (2003) superseded SIC-20 Equity Accounting Method Recognition of Losses
o IAS 28 (2003) superseded SIC-33 Consolidation and Equity Method Potential Voting Rights and
Allocation of Ownership Interest
o None
Summary of IAS 28
Scope
IAS 28 applies to all investments in which an investor has significant influence but not control or joint
control except for investments held by a venture capital organisation, mutual fund, unit trust, and
similar entity that are designated under IAS 39 to be at fair value with fair value changes recognised in
profit or loss. [IAS 28.1]
Associate: an entity in which an investor has significant influence but not control or joint control.
Significant influence: power to participate in the financial and operating policy decisions but not control
them.
Equity method: a method of accounting by which an equity investment is initially recorded at cost and
subsequently adjusted to reflect the investor's share of the net assets of the associate (investee).
Identification of associates
A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant
influence unless it can be clearly demonstrated otherwise. If the holding is less than 20%, the investor
will be presumed not to have significant influence unless such influence can be clearly demonstrated.
[IAS 28.6]
The existence of significant influence by an investor is usually evidenced in one or more of the following
ways: [IAS 28.7]
o representation on the board of directors or equivalent governing body of the investee
o participation in the policy-making process
o material transactions between the investor and the investee

o interchange of managerial personnel
o provision of essential technical information
Potential voting rights are a factor to be considered in deciding whether significant influence exists. [IAS
28.9]
Accounting for associates
In its consolidated financial statements, an investor should use the equity method of accounting for in-
vestments in associates, other than in the following three exceptional circumstances:
o An investment in an associate held by a venture capital organisation or a mutual fund (or similar
entity) and that upon initial recognition is designated as held for trading under IAS 39. Under IAS
39, those investments are measured at fair value with fair value changes recognised in profit or
loss. [IAS 28.1]
o An investment classified as held for sale in accordance with IFRS 5. [IAS 28.13(a)]
o A parent that is exempted from preparing consolidated financial statements by paragraph 10 of

IAS 27 may prepare separate financial statements as its primary financial statements. In those
separate statements, the investment in the associate may be accounted for by the cost method
or under IAS 39. [IAS 28.13(b)]
o An investor need not use the equity method if all of the following four conditions are met: [IAS
28.13(c)]
1. the investor is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of

another entity and its other owners, including those not otherwise entitled to vote, have
been informed about, and do not object to, the investor not applying the equity
method;
2. the investor's debt or equity instruments are not traded in a public market;
3. the investor did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing any
class of instruments in a public market; and
4. the ultimate or any intermediate parent of the investor produces consolidated financial
statements available for public use that comply with International Financial Reporting
Standards.
Applying the equity method of accounting
Basic principle. Under the equity method of accounting, an equity investment is initially recorded at cost
and is subsequently adjusted to reflect the investor's share of the net profit or loss of the associate. [IAS
28.11]
Distributions and other adjustments to carrying amount. Distributions received from the investee
reduce the carrying amount of the investment. Adjustments to the carrying amount may also be
required arising from changes in the investee's other comprehensive income that have not been
included in profit or loss (for example, revaluations). [IAS 28.11]
Potential voting rights. Although potential voting rights are considered in deciding whether significant
influence exists, the investor's share of profit or loss of the investee and of changes in the investee's
equity is determined on the basis of present ownership interests. It should not reflect the possible
exercise or conversion of potential voting rights. [IAS 28.12]
Implicit goodwill and fair value adjustments. On acquisition of the investment in an associate, any dif-
ference (whether positive or negative) between the cost of acquisition and the investor's share of the
fair values of the net identifiable assets of the associate is accounted for like goodwill in accordance
with IFRS 3 Business Combinations. Appropriate adjustments to the investor's share of the profits or
losses after acquisition are made to account for additional depreciation or amortisation of the
associate's depreciable or amortisable assets based on the excess of their fair values over their carrying
amounts at the time the investment was acquired. [IAS 28.23]
Impairment. The impairment indicators in IAS 39 Financial Instruments: Recognition and Measurement,
apply to investments in associates. [IAS 28.31] If impairment is indicated, the amount is calculated by
reference to IAS 36 Impairment of Assets. The entire carrying amount of the investment is tested for im-
pairment as a single asset, that is, goodwill is not tested separately. [IAS 28.33] The recoverable amount
of an investment in an associate is assessed for each individual associate, unless the associate does not
generate cash flows independently. [IAS 28.34]
Discontinuing the equity method. Use of the equity method should cease from the date that significant
influence ceases. The carrying amount of the investment at that date should be regarded as a new cost
basis. [IAS 28.18-19]
Transactions with associates. If an associate is accounted for using the equity method, unrealised
profits and losses resulting from upstream (associate to investor) and downstream (investor to
associate) transactions should be eliminated to the extent of the investor's interest in the associate.
However, unrealised losses should not be eliminated to the extent that the transaction provides
evidence of an impairment of the asset transferred. [IAS 28.22]
Date of associate's financial statements. In applying the equity method, the investor should use the
financial statements of the associate as of the same date as the financial statements of the investor
unless it is impracticable to do so. [IAS 28.24] If it is impracticable, the most recent available financial
statements of the associate should be used, with adjustments made for the effects of any significant
transactions or events occurring between the accounting period ends. However, the difference between
the reporting date of the associate and that of the investor cannot be longer than three months. [IAS
28.25]
Associate's accounting policies. If the associate uses accounting policies that differ from those of the
investor, the associate's financial statements should be adjusted to reflect the investor's accounting
policies for the purpose of applying the equity method. [IAS 28.27]
Losses in excess of investment. If an investor's share of losses of an associate equals or exceeds its
"interest in the associate", the investor discontinues recognising its share of further losses. The "interest
in an associate" is the carrying amount of the investment in the associate under the equity method
together with any long-term interests that, in substance, form part of the investor's net investment in
the associate. [IAS 28.29] After the investor's interest is reduced to zero, additional losses are recog-
nised by a provision (liability) only to the extent that the investor has incurred legal or constructive
obligations or made payments on behalf of the associate. If the associate subsequently reports profits,
the investor resumes recognising its share of those profits only after its share of the profits equals the
share of losses not recognised. [IAS 28.30]
Partial disposals of associates. If an investor loses significant influence over an associate, it derecog-
nises that associate and recognises in profit or loss the difference between the sum of the proceeds
received and any retained interest, and the carrying amount of the investment in the associate at the
date significant influence is lost.
Separate financial statements of the investor
Equity accounting is required in the separate financial statements of the investor even if consolidated
accounts are not required, for example, because the investor has no subsidiaries. But equity accounting
is not required where the investor would be exempt from preparing consolidated financial statements
under IAS 27. In that circumstance, instead of equity accounting, the parent would account for the in-
vestment either (a) at cost or (b) in accordance with IAS 39.
Disclosure
The following disclosures are required: [IAS 28.37]
o fair value of investments in associates for which there are published price quotations
o summarised financial information of associates, including the aggregated amounts of assets, lia-
bilities, revenues, and profit or loss
o explanations when investments of less than 20% are accounted for by the equity method or
when investments of more than 20% are not accounted for by the equity method
o use of a reporting date of the financial statements of an associate that is different from that of
the investor
o nature and extent of any significant restrictions on the ability of associates to transfer funds to
the investor in the form of cash dividends, or repayment of loans or advances
o unrecognised share of losses of an associate, both for the period and cumulatively, if an investor
has discontinued recognition of its share of losses of an associate
o explanation of any associate is not accounted for using the equity method
o summarised financial information of associates, either individually or in groups, that are not
accounted for using the equity method, including the amounts of total assets, total liabilities,
revenues, and profit or loss
The following disclosures relating to contingent liabilities are also required: [IAS 28.40]
o investor's share of the contingent liabilities of an associate incurred jointly with other investors
o contingent liabilities that arise because the investor is severally liable for all or part of the liabili-
ties of the associate
Venture capital organisations, mutual funds, and other similar entities must provide disclosures about
nature and extent of any significant restrictions on transfer of funds by associates. [IAS 28.1]
Presentation
o Equity method investments must be classified as non-current assets. [IAS 28.38]
o The investor's share of the profit or loss of equity method investments, and the carrying amount
of those investments, must be separately disclosed. [IAS 28.38]
o The investor's share of any discontinuing operations of such associates is also separately
disclosed. [IAS 28.38]
o The investor's share of changes recognised directly in the associate's other comprehensive
income are also recognised in other comprehensive income by the investor, with disclosure in
the statement of changes in equity as required by IAS 1 Presentation of Financial Statements.
[IAS 28.39]
IAS 29 Financial Reporting in Hyperinflationary Economies
Overview
IAS 29 Financial Reporting in Hyperinflationary Economies applies where an entity's functional currency
is that of a hyperinflationary economy. The standard does not prescribe when hyperinflation arises but
requires the financial statements (and corresponding figures for previous periods) of an entity with a
functional currency that is hyperinflationary to be restated for the changes in the general pricing power
of the functional currency.
IAS 29 was issued in July 1989 and is operative for periods beginning on or after 1 January 1990.
History of IAS 29
November 1987 Exposure Draft E31 Financial Reporting in Hyperinflationary Economies
July 1989 IAS 29 Financial Reporting in Hyperinflationary Economies
22 May 2008 IAS 29 amended for Annual Improvements to IFRSs 2007
1 January 2009 Effective date of the May 2008 revisions to IAS 29
o IAS 21 superseded SIC-19 Reporting Currency Measurement and Presentation of Financial

Statements under IAS 21 and IAS 29
o IAS 21 superseded SIC-30 Reporting Currency Translation from Measurement Currency to Pre-
sentation Currency
o IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflation-
ary Economies
o Research project Financial reporting in high inflationary economies
Summary of IAS 29
Objective of IAS 29
The objective of IAS 29 is to establish specific standards for entities reporting in the currency of a hyper-
inflationary economy, so that the financial information provided is meaningful.
Restatement of financial statements
The basic principle in IAS 29 is that the financial statements of an entity that reports in the currency of a
hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet
date. Comparative figures for prior period(s) should be restated into the same current measuring unit.
[IAS 29.8]
Restatements are made by applying a general price index. Items such as monetary items that are already
stated at the measuring unit at the balance sheet date are not restated. Other items are restated based
on the change in the general price index between the date those items were acquired or incurred and
the balance sheet date.
A gain or loss on the net monetary position is included in net income. It should be disclosed separately.
[IAS 29.9]
The restated amount of a non-monetary item is reduced, in accordance with appropriate IFRSs, when it
exceeds its the recoverable amount. [IAS 29.19]
The Standard does not establish an absolute rate at which hyperinflation is deemed to arise - but allows
judgement as to when restatement of financial statements becomes necessary. Characteristics of the
economic environment of a country which indicate the existence of hyperinflation include: [IAS 29.3]
o the general population prefers to keep its wealth in non-monetary assets or in a relatively stable
foreign currency. Amounts of local currency held are immediately invested to maintain purchas-
ing power;
o the general population regards monetary amounts not in terms of the local currency but in
terms of a relatively stable foreign currency. Prices may be quoted in that currency;
o sales and purchases on credit take place at prices that compensate for the expected loss of pur-
chasing power during the credit period, even if the period is short;
o interest rates, wages, and prices are linked to a price index; and
o the cumulative inflation rate over three years approaches, or exceeds, 100%.
IAS 29 describes characteristics that may indicate that an economy is hyperinflationary. However, it
concludes that it is a matter of judgement when restatement of financial statements becomes
necessary.
When an economy ceases to be hyperinflationary and an entity discontinues the preparation and pre-
sentation of financial statements in accordance with IAS 29, it should treat the amounts expressed in the
measuring unit current at the end of the previous reporting period as the basis for the carrying amounts
in its subsequent financial statements. [IAS 29.38]
Disclosure
o Gain or loss on monetary items [IAS 29.9]
o The fact that financial statements and other prior period data have been restated for changes in
the general purchasing power of the reporting currency [IAS 29.39]
o Whether the financial statements are based on an historical cost or current cost approach [IAS
29.39]
o Identity and level of the price index at the balance sheet date and moves during the current and
previous reporting period [IAS 29.39]
Which jurisdictions are hyperinflationary?
IAS 29 defines and provides general guidance for assessing whether a particular jurisdiction's economy is
hyperinflationary. But the IASB does not identify specific jurisdictions. The International Practices Task
Force (IPTF) of the AICPA's Centre for Audit Quality monitors the status of 'highly inflationary' countries.
The Task Force's criteria for identifying such countries are similar to those for identifying 'hyperinflation-
ary economies' under IAS 29. From time to time, the IPTF issues reports of its discussions with SEC staff
on the IPTF's recommendations of which countries should be considered highly inflationary, and which
countries are on the Task Force's inflation 'watch list'. The IPTF'smeeting notes from the 18 November
2014 meeting state the following view of the Task Force:
Countries with three-year cumulative inflation rates exceeding 100%:
o Belarus
o Islamic Republic of Iran
o Venezuela
o Sudan
Countries where the three-year cumulative inflation rates had exceeded 100% in recent years:
o South Sudan
Countries (a) with projected three-year cumulative inflation rates between 70% and 100%; (b) where
the last known three-year cumulative inflation rates previously exceeded 100% and current actual
inflation data has not been obtained; or (c) with a significant increase in inflation during the current
period
o Malawi
Other countries noted in the report:
o Argentina - consumer price projections for Argentina were excluded from the October 2014 data
because of a "structural break in the data"
IAS 30 Disclosures in the Financial Statements of Banks and
Similar Financial Institutions
History of IAS 30
April 1987 Exposure Draft E29 Disclosures in Financial Statements of Banks
July 1989 Exposure Draft E29 was modified and re-exposed as Exposure Draft E34Dis-
closures in Financial Statements of Banks and Similar Financial Institutions
August 1990 IAS 30 Disclosures in Financial Statements of Banks and Similar Financial Insti-
tutions
December 1998 IAS 30 was amended by IAS 39 Financial Instruments: Recognition and Mea-
surement, effective 1 January 2001
18 August 2005 IAS 30 is superseded by IFRS 7 Financial Instruments: Disclosureseffective 1

January 2007
o None
o None
Summary of IAS 30
Objective of IAS 30
The objective of IAS 30 is to prescribe appropriate presentation and disclosure standards for banks and
similar financial institutions (hereafter called 'banks'), which supplement the requirements of other
Standards. The intention is to provide users with appropriate information to assist them in evaluating
the financial position and performance of banks, and to enable them to obtain a better understanding of
the special characteristics of the operations of banks.
Presentation and disclosure
A bank's income statement should group income and expenses by nature. [IAS 30.9]
A bank's income statement or notes should report the following specific amounts: [IAS 30.10]
o interest income
o interest expense
o dividend income
o fee and commission income
o fee and commission expense
o net gains/losses from securities dealing
o net gains/losses from investment securities
o net gains/losses from foreign currency dealing
o other operating income
o loan losses
o general administrative expenses
o other operating expenses.
A bank's balance sheet should group assets and liabilities by nature and list them in liquidity sequence.
[IAS 30.18] IAS 30.19 sets out the specific line items requiring disclosure.
IAS 30.13 and IAS 30.23 include guidelines for the limited circumstances in which income and expense
items or asset and liability items are offset.
A bank must disclose the fair values of each class of its financial assets and financial liabilities as required
by IAS 32 and IAS 39. [IAS 30.24]
Disclosures are also required about:
o specific contingencies and commitments (including off-balance sheet items) requiring disclosure
[IAS 30.26]
o specified disclosures for the maturity of assets and liabilities [IAS 30.30]
o concentrations of assets, liabilities and off-balance sheet items [IAS 30.40]
o losses on loans and advances [IAS 30.43]
o general banking risks [IAS 30.50]
o assets pledged as security [IAS 30.53].

IAS 31 Interests In Joint Ventures
Overview
IAS 31 Interests in Joint Ventures sets out the accounting for an entity's interests in various forms of joint
ventures: jointly controlled operations, jointly controlled assets, and jointly controlled entities. The
standard permits jointly controlled entities to be accounted for using either the equity method or by
proportionate consolidation.
and is superseded by IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other
Entities with effect from annual periods beginning on or after 1 January 2013.
History of IAS 31
December 1989 Exposure Draft E35 Financial Reporting of Interests in Joint Ventures
December 1990 IAS 31 Financial Reporting of Interests in Joint Ventures
December 1998 IAS 31 was revised by IAS 39 effective 1 January 2001
13 September 2007 Exposure Draft ED 9 Joint Arrangements issued. Proposes to replace IAS
31 with a new standard titled Joint Arrangements.
10 January 2008 Some significant revisions of IAS 31 were adopted as a result of the
Business Combinations Phase II Project relating to loss of joint control
22 May 2008 IAS 31 amended for Annual Improvements to IFRSs 2007 for certain dis-
closures and reversals of impairment losses (equity method)
1 January 2009 Effective date of the May 2008 revisions to IAS 31

1 July 2009 Effective date of the January 2008 revisions to IAS 31
12 May 2011 IAS 31 is superseded by IFRS 11 Joint Arrangements and IFRS 12Disclo-
sure of Interests in Other Entities effective 1 January 2013
o SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers. Superseded

byIFRS 11 Joint Arrangements effective 1 January 2013
Summary of IAS 31
Scope
IAS 31 applies to accounting for all interests in joint ventures and the reporting of joint venture assets,
liabilities, income, and expenses in the financial statements of venturers and investors, regardless of the
structures or forms under which the joint venture activities take place, except for investments held by a
venture capital organisation, mutual fund, unit trust, and similar entity that (by election or requirement)
are accounted for as under IAS 39 at fair value with fair value changes recognised in profit or loss. [IAS
31.1]
Joint venture: a contractual arrangement whereby two or more parties undertake an economic activity
that is subject to joint control.
Venturer: a party to a joint venture and has joint control over that joint venture.
Investor in a joint venture: a party to a joint venture and does not have joint control over that joint
venture.
Control: the power to govern the financial and operating policies of an activity so as to obtain benefits
from it.
Joint control: the contractually agreed sharing of control over an economic activity. Joint control exists
only when the strategic financial and operating decisions relating to the activity require the unanimous
consent of the venturers.
Jointly controlled operations
Jointly controlled operations involve the use of assets and other resources of the venturers rather than
the establishment of a separate entity. Each venturer uses its own assets, incurs its own expenses and
liabilities, and raises its own finance. [IAS 31.13]
IAS 31 requires that the venturer should recognise in its financial statements the assets that it controls,
the liabilities that it incurs, the expenses that it incurs, and its share of the income from the sale of
goods or services by the joint venture. [IAS 31.15]
Jointly controlled assets

Jointly controlled assets involve the joint control, and often the joint ownership, of assets dedicated to
the joint venture. Each venturer may take a share of the output from the assets and each bears a share
of the expenses incurred. [IAS 31.18]
IAS 31 requires that the venturer should recognise in its financial statements its share of the joint assets,
any liabilities that it has incurred directly and its share of any liabilities incurred jointly with the other
venturers, income from the sale or use of its share of the output of the joint venture, its share of
expenses incurred by the joint venture and expenses incurred directly in respect of its interest in the
joint venture. [IAS 31.21]
Jointly controlled entities
A jointly controlled entity is a corporation, partnership, or other entity in which two or more venturers
have an interest, under a contractual arrangement that establishes joint control over the entity. [IAS
31.24]
Each venturer usually contributes cash or other resources to the jointly controlled entity. Those contri-
butions are included in the accounting records of the venturer and recognised in the venturer's financial
statements as an investment in the jointly controlled entity. [IAS 31.29]
IAS 31 allows two treatments of accounting for an investment in jointly controlled entities except as
noted below:
o proportionate consolidation [IAS 31.30]
o equity method of accounting [IAS 31.38]
Proportionate consolidation or equity method are not required in the following exceptional circum-
stances: [IAS 31.1-2]
o An investment in a jointly controlled entity that is held by a venture capital organisation or

mutual fund (or similar entity) and that upon initial recognition is designated as held for trading
under IAS 39. Under IAS 39, those investments are measured at fair value with fair value
changes recognised in profit or loss.
o The interest is classified as held for sale in accordance with IFRS 5.
o A parent that is exempted from preparing consolidated financial statements by paragraph 10 of

IAS 27 may prepare separate financial statements as its primary financial statements. In those
separate statements, the investment in the jointly controlled entity may be accounted for by the
cost method or under IAS 39.
o An investor in a jointly controlled entity need not use proportionate consolidation or the equity
method if all of the following four conditions are met:
1. the venturer is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of

another entity and its other owners, including those not otherwise entitled to vote, have
been informed about, and do not object to, the venturer not applying proportionate
consolidation or the equity method;
2. the venturer's debt or equity instruments are not traded in a public market;
3. the venturer did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing any
class of instruments in a public market; and
4. the ultimate or any intermediate parent of the venturer produces consolidated financial
statements available for public use that comply with International Financial Reporting
Standards.
Proportionate consolidation
Under proportionate consolidation, the balance sheet of the venturer includes its share of the assets
that it controls jointly and its share of the liabilities for which it is jointly responsible. The income
statement of the venturer includes its share of the income and expenses of the jointly controlled entity.
[IAS 31.33]
IAS 31 allows for the use of two different reporting formats for presenting proportionate consolidation:
[IAS 31.34]
o The venturer may combine its share of each of the assets, liabilities, income and expenses of the
jointly controlled entity with the similar items, line by line, in its financial statements; or
o The venturer may include separate line items for its share of the assets, liabilities, income and
expenses of the jointly controlled entity in its financial statements.
Equity method
Procedures for applying the equity method are the same as those described in IAS 28 Investments in As-
sociates.
Separate financial statements of the venturer
In the separate financial statements of the venturer, its interests in the joint venture should be: [IAS
31.46]
o accounted for at cost; or
o accounted for under IAS 39 Financial Instruments: Recognition and Measurement.
Transactions between a venturer and a joint venture
If a venturer contributes or sells an asset to a jointly controlled entity, while the assets are retained by
the joint venture, provided that the venturer has transferred the risks and rewards of ownership, it
should recognise only the proportion of the gain attributable to the other venturers. The venturer
should recognise the full amount of any loss incurred when the contribution or sale provides evidence of
a reduction in the net realisable value of current assets or an impairment loss. [IAS 31.48]
The requirements for recognition of gains and losses apply equally to non-monetary contributions unless
the gain or loss cannot be measured, or the other venturers contribute similar assets. Unrealised gains
or losses should be eliminated against the underlying assets (proportionate consolidation) or against the
investment (equity method). [SIC-13]
When a venturer purchases assets from a jointly controlled entity, it should not recognise its share of
the gain until it resells the asset to an independent party. Losses should be recognised when they
represent a reduction in the net realisable value of current assets or an impairment loss. [IAS 31.49]
Financial statements of an investor
An investor in a joint venture who does not have joint control should report its interest in a joint venture
in its consolidated financial statements either: [IAS 31.51]
o in accordance with IAS 28 Investments in Associates only if the investor has significant
influence in the joint venture; or
o in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
Partial disposals of joint ventures
If an investor loses joint control of a jointly controlled entity, it derecognises that investment and recog-
nises in profit or loss the difference between the sum of the proceeds received and any retained
interest, and the carrying amount of the investment in the jointly controlled entity at the date when
joint control is lost. [IAS 31.45]
Disclosure
A venturer is required to disclose:
o Information about contingent liabilities relating to its interest in a joint venture. [IAS 31.54]
o Information about commitments relating to its interests in joint ventures. [IAS 31.55]
o A listing and description of interests in significant joint ventures and the proportion of
ownership interest held in jointly controlled entities. A venturer that recognises its interests in
jointly controlled entities using the line-by-line reporting format for proportionate consolidation
or the equity method shall disclose the aggregate amounts of each of current assets, long-term
assets, current liabilities, long-term liabilities, income, and expenses related to its interests in
joint ventures. [IAS 31.56]
o The method it uses to recognise its interests in jointly controlled entities. [IAS 31.57]
Venture capital organisations or mutual funds that account for their interests in jointly controlled
entities in accordance with IAS 39 must make the disclosures required by IAS 31.55-56. [IAS 31.1]
IAS 32 Financial Instruments: Presentation
Overview
IAS 32 Financial Instruments: Presentation outlines the accounting requirements for the presentation of
financial instruments, particularly as to the classification of such instruments into financial assets,
financial liabilities and equity instruments. The standard also provide guidance on the classification of
related interest, dividends and gains/losses, and when financial assets and financial liabilities can be
offset.
2005.
History of IAS 32
September 1991 Exposure Draft E40 Financial Instruments
January 1994 E40 was modified and re-exposed as Exposure Draft E48 Financial Instru-
ments
June 1995 The disclosure and presentation portion of E48 was adopted as IAS
32Financial Instruments: Disclosure and Presentation
December 1998 IAS 32 was revised by IAS 39, effective 1 January 2001
18 August 2005 Disclosure provisions of IAS 32 are replaced by IFRS 7 Financial Instru-
ments: Disclosures effective 1 January 2007. Title of IAS 32 changed
toFinancial Instruments: Presentation
22 June 2006 Exposure Draft of proposed amendments relating to Puttable Instruments

and Obligations Arising on Liquidation
14 February 2008 IAS 32 amended for Puttable Instruments and Obligations Arising on Liqui-
dation
1 January 2009 Effective date of amendments for puttable instruments and obligations
arising on liquidation
6 August 2009 Exposure Draft Classification of Rights Issues proposing to amend IAS 32
8 October 2009 Amendment to IAS 32 about Classification of Rights Issues
1 February 2010 Effective date of the October 2009 amendment
16 December 2011 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS
32) issued
17 May 2012 Amendments resulting from Annual Improvements 2009-2011 Cycle (tax
effect of equity distributions). Click for More Information
1 January 2013 Effective date of May 2012 amendments (Annual Improvements 2009-
2011 Cycle)
1 January 2014 Effective date of December 2011 amendments
o IAS 32 (2003) superseded SIC-5 Classification of Financial Instruments Contingent Settlement

Provisions
o IAS 32 (2003) superseded SIC-16 Share Capital Reacquired Own Equity Instruments(Treasury
Shares)
o IAS 32 (2003) superseded SIC-17 Equity Costs of an Equity Transaction
o IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments
o Financial Instruments with Characteristics of Equity (Liabilities and Equity)
Summary of IAS 32
Objective of IAS 32
The stated objective of IAS 32 is to establish principles for presenting financial instruments as liabilities
or equity and for offsetting financial assets and liabilities. [IAS 32.1]
IAS 32 addresses this in a number of ways:
o clarifying the classification of a financial instrument issued by an entity as a liability or as equity

o prescribing the accounting for treasury shares (an entity's own repurchased shares)
o prescribing strict conditions under which assets and liabilities may be offset in the balance sheet
IAS 32 is a companion to IAS 39 Financial Instruments: Recognition and Measure-

ment and IFRS 9Financial Instruments. IAS 39 deals with, among other things, initial recognition of
financial assets and liabilities, measurement subsequent to initial recognition, impairment, derecogni-
tion, and hedge accounting. IAS 39 is progressively being replaced by IFRS 9 as the IASB completes the
various phases of its financial instruments project.
Scope
IAS 32 applies in presenting and disclosing information about all types of financial instruments with the
following exceptions: [IAS 32.4]
o interests in subsidiaries, associates and joint ventures that are accounted for under IAS 27 Con-
solidated and Separate Financial Statements, IAS 28 Investments in Associates or IAS 31Interests
in Joint Ventures (or, for annual periods beginning on or after 1 January 2013, IFRS 10Consoli-
dated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in As-
sociates and Joint Ventures). However, IAS 32 applies to all derivatives on interests in sub-
sidiaries, associates, or joint ventures.
o employers' rights and obligations under employee benefit plans (see IAS 19 Employee Benefits)
o insurance contracts(see IFRS 4 Insurance Contracts). However, IAS 32 applies to derivatives that
are embedded in insurance contracts if they are required to be accounted separately by IAS 39
o financial instruments that are within the scope of IFRS 4 because they contain a discretionary
participation feature are only exempt from applying paragraphs 15-32 and AG25-35 (analysing
debt and equity components) but are subject to all other IAS 32 requirements
o contracts and obligations under share-based payment transactions (see IFRS 2 Share-based
Payment) with the following exceptions:
o this standard applies to contracts within the scope of IAS 32.8-10 (see below)
o paragraphs 33-34 apply when accounting for treasury shares purchased, sold, issued or
cancelled by employee share option plans or similar arrangements
IAS 32 applies to those contracts to buy or sell a non-financial item that can be settled net in cash or
another financial instrument, except for contracts that were entered into and continue to be held for
the purpose of the receipt or delivery of a non-financial item in accordance with the entity's expected
purchase, sale or usage requirements. [IAS 32.8]
Financial instrument: a contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.
Financial asset: any asset that is:

o cash
o an equity instrument of another entity
o a contractual right
o to receive cash or another financial asset from another entity; or
o to exchange financial assets or financial liabilities with another entity under conditions
that are potentially favourable to the entity; or
o a contract that will or may be settled in the entity's own equity instruments and is:
o a non-derivative for which the entity is or may be obliged to receive a variable number
of the entity's own equity instruments
o a derivative that will or may be settled other than by the exchange of a fixed amount of
cash or another financial asset for a fixed number of the entity's own equity instru-
ments. For this purpose the entity's own equity instruments do not include instruments
that are themselves contracts for the future receipt or delivery of the entity's own
equity instruments
o puttable instruments classified as equity or certain liabilities arising on liquidation classi-

fied by IAS 32 as equity instruments
Financial liability: any liability that is:
o a contractual obligation:
o to deliver cash or another financial asset to another entity; or
o to exchange financial assets or financial liabilities with another entity under conditions
that are potentially unfavourable to the entity; or
o a contract that will or may be settled in the entity's own equity instruments and is
o a non-derivative for which the entity is or may be obliged to deliver a variable number
of the entity's own equity instruments or
o a derivative that will or may be settled other than by the exchange of a fixed amount of
cash or another financial asset for a fixed number of the entity's own equity instru-
ments. For this purpose the entity's own equity instruments do not include: instruments
that are themselves contracts for the future receipt or delivery of the entity's own
equity instruments; puttable instruments classified as equity or certain liabilities arising
on liquidation classified by IAS 32 as equity instruments
Equity instrument: Any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities.
Fair value: the amount for which an asset could be exchanged, or a liability settled, between knowledge-
able, willing parties in an arm's length transaction.
The definition of financial instrument used in IAS 32 is the same as that in IAS 39.
Puttable instrument: a financial instrument that gives the holder the right to put the instrument back to
the issuer for cash or another financial asset or is automatically put back to the issuer on occurrence of
an uncertain future event or the death or retirement of the instrument holder.
Classification as liability or equity
The fundamental principle of IAS 32 is that a financial instrument should be classified as either a
financial liability or an equity instrument according to the substance of the contract, not its legal form,
and the definitions of financial liability and equity instrument. Two exceptions from this principle are
certain puttable instruments meeting specific criteria and certain obligations arising on liquidation (see
below). The entity must make the decision at the time the instrument is initially recognised. The classifi-
cation is not subsequently changed based on changed circumstances. [IAS 32.15]
A financial instrument is an equity instrument only if (a) the instrument includes no contractual obliga-
tion to deliver cash or another financial asset to another entity and (b) if the instrument will or may be
settled in the issuer's own equity instruments, it is either:
o a non-derivative that includes no contractual obligation for the issuer to deliver a variable
number of its own equity instruments; or
o a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another
financial asset for a fixed number of its own equity instruments. [IAS 32.16]
Illustration preference shares
If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that have a
mandatory redemption feature at a future date, the substance is that they are a contractual obligation
to deliver cash and, therefore, should be recognised as a liability. [IAS 32.18(a)] In contrast, preference
shares that do not have a fixed maturity, and where the issuer does not have a contractual obligation to
make any payment are equity. In this example even though both instruments are legally termed prefer-
ence shares they have different contractual terms and one is a financial liability while the other is equity.
Illustration issuance of fixed monetary amount of equity instruments
A contractual right or obligation to receive or deliver a number of its own shares or other equity instru-
ments that varies so that the fair value of the entity's own equity instruments to be received or
delivered equals the fixed monetary amount of the contractual right or obligation is a financial liability.
[IAS 32.20]
Illustration one party has a choice over how an instrument is settled
When a derivative financial instrument gives one party a choice over how it is settled (for instance, the
issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial
asset or a financial liability unless all of the settlement alternatives would result in it being an equity in-
strument. [IAS 32.26]
Contingent settlement provisions

If, as a result of contingent settlement provisions, the issuer does not have an unconditional right to
avoid settlement by delivery of cash or other financial instrument (or otherwise to settle in a way that it
would be a financial liability) the instrument is a financial liability of the issuer, unless:
o the contingent settlement provision is not genuine or
o the issuer can only be required to settle the obligation in the event of the issuer's liquidation or
o the instrument has all the features and meets the conditions of IAS 32.16A and 16B for puttable
instruments [IAS 32.25]
Puttable instruments and obligations arising on liquidation
In February 2008, the IASB amended IAS 32 and IAS 1 Presentation of Financial Statements with respect
to the balance sheet classification of puttable financial instruments and obligations arising only on liqui-
dation. As a result of the amendments, some financial instruments that currently meet the definition of
a financial liability will be classified as equity because they represent the residual interest in the net
assets of the entity. [IAS 32.16A-D]
Classifications of rights issues
In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues. For rights
issues offered for a fixed amount of foreign currency current practice appears to require such issues to
be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to
an entity's all existing shareholders in the same class for a fixed amount of currency, they should be clas-
sified as equity regardless of the currency in which the exercise price is denominated.
Compound financial instruments
Some financial instruments sometimes called compound instruments have both a liability and an
equity component from the issuer's perspective. In that case, IAS 32 requires that the component parts
be accounted for and presented separately according to their substance based on the definitions of
liability and equity. The split is made at issuance and not revised for subsequent changes in market
interest rates, share prices, or other event that changes the likelihood that the conversion option will be
exercised. [IAS 32.29-30]
To illustrate, a convertible bond contains two components. One is a financial liability, namely the issuer's
contractual obligation to pay cash, and the other is an equity instrument, namely the holder's option to
convert into common shares. Another example is debt issued with detachable share purchase warrants.
When the initial carrying amount of a compound financial instrument is required to be allocated to its
equity and liability components, the equity component is assigned the residual amount after deducting
from the fair value of the instrument as a whole the amount separately determined for the liability
component. [IAS 32.32]
Interest, dividends, gains, and losses relating to an instrument classified as a liability should be reported
in profit or loss. This means that dividend payments on preferred shares classified as liabilities are
treated as expenses. On the other hand, distributions (such as dividends) to holders of a financial instru-
ment classified as equity should be charged directly against equity, not against earnings. [IAS 32.35]
Transaction costs of an equity transaction are deducted from equity. Transaction costs related to an
issue of a compound financial instrument are allocated to the liability and equity components in propor-
tion to the allocation of proceeds.
Treasury shares
The cost of an entity's own equity instruments that it has reacquired ('treasury shares') is deducted from
equity. Gain or loss is not recognised on the purchase, sale, issue, or cancellation of treasury shares.
Treasury shares may be acquired and held by the entity or by other members of the consolidated group.
Consideration paid or received is recognised directly in equity. [IAS 32.33]
Offsetting
IAS 32 also prescribes rules for the offsetting of financial assets and financial liabilities. It specifies that a
financial asset and a financial liability should be offset and the net amount reported when, and only
when, an entity: [IAS 32.42]
o has a legally enforceable right to set off the amounts; and
o intends either to settle on a net basis, or to realise the asset and settle the liability simultane-
ously. [IAS 32.48]
Costs of issuing or reacquiring equity instruments
Costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted
for as a deduction from equity, net of any related income tax benefit. [IAS 32.35]
Disclosures
Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures, and no longer in IAS
32.
The disclosures relating to treasury shares are in IAS 1 Presentation of Financial Statements and IAS
24 Related Parties for share repurchases from related parties. [IAS 32.34 and 39]
IAS 33 Earnings Per Share
Overview
IAS 33 Earnings Per Share sets out how to calculate both basic earnings per share (EPS) and diluted EPS.
The calculation of Basic EPS is based on the weighted average number of ordinary shares outstanding
during the period, whereas diluted EPS also includes dilutive potential ordinary shares (such as options
and convertible instruments) if they meet certain criteria.
2005.
History of IAS 33
January 1996 Exposure Draft E33 Earnings Per Share
February 1997 IAS 33 Earnings Per Share
7 August 2008 IASB proposes to amend IAS 33. Click for Press Release (PDF 48k).
1 January 2009 Effective date of consequential amendments arising from IAS 1 (2007)
o IAS 33 (2003) superseded SIC-24 Earnings Per Share Financial Instruments and Other Contracts
that May Be Settled in Shares
o Performance Reporting
o Earnings Per Share
Summary of IAS 33
Objective of IAS 33
The objective of IAS 33 is to prescribe principles for determining and presenting earnings per share (EPS)
amounts to improve performance comparisons between different entities in the same reporting period
and between different reporting periods for the same entity. [IAS 33.1]
Scope
IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securi-
ties to the public. [IAS 33.2] Other entities that choose to present EPS information must also comply
with IAS 33. [IAS 33.3]
If both parent and consolidated statements are presented in a single report, EPS is required only for the
consolidated statements. [IAS 33.4]
Ordinary share: also known as a common share or common stock. An equity instrument that is subordi-
nate to all other classes of equity instruments.
Potential ordinary share: a financial instrument or other contract that may entitle its holder to ordinary
shares.
Common examples of potential ordinary shares
o convertible debt
o convertible preferred shares
o share warrants
o share options
o share rights
o employee stock purchase plans
o contractual rights to purchase shares
o contingent issuance contracts or agreements (such as those arising in business combina-

tion)
Dilution: a reduction in earnings per share or an increase in loss per share resulting from the assumption
that convertible instruments are converted, that options or warrants are exercised, or that ordinary
shares are issued upon the satisfaction of specified conditions.
Antidilution: an increase in earnings per share or a reduction in loss per share resulting from the as-
sumption that convertible instruments are converted, that options or warrants are exercised, or that
ordinary shares are issued upon the satisfaction of specified conditions.
Requirement to present EPS

An entity whose securities are publicly traded (or that is in process of public issuance) must present, on
the face of the statement of comprehensive income, basic and diluted EPS for: [IAS 33.66]
o profit or loss from continuing operations attributable to the ordinary equity holders of the
parent entity; and
o profit or loss attributable to the ordinary equity holders of the parent entity for the period for
each class of ordinary shares that has a different right to share in profit for the period.
If an entity presents the components of profit or loss in a separate income statement, it presents EPS
only in that separate statement. [IAS 33.4A]
Basic and diluted EPS must be presented with equal prominence for all periods presented. [IAS 33.66]
Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share). [IAS
33.69]
If an entity reports a discontinued operation, basic and diluted amounts per share must be disclosed for
the discontinued operation either on the face of the of comprehensive income (or separate income
statement if presented) or in the notes to the financial statements. [IAS 33.68 and 68A]
Basic EPS
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the parent
entity (the numerator) by the weighted average number of ordinary shares outstanding (the denomina-
tor) during the period. [IAS 33.10]
The earnings numerators (profit or loss from continuing operations and net profit or loss) used for the
calculation should be after deducting all expenses including taxes, minority interests, and preference
dividends. [IAS 33.12]
The denominator (number of shares) is calculated by adjusting the shares in issue at the beginning of
the period by the number of shares bought back or issued during the period, multiplied by a time-
weighting factor. IAS 33 includes guidance on appropriate recognition dates for shares issued in various
circumstances. [IAS 33.20-21]
Contingently issuable shares are included in the basic EPS denominator when the contingency has been
met. [IAS 33.24]
Diluted EPS
Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive
options and other dilutive potential ordinary shares. [IAS 33.31] The effects of anti-dilutive potential
ordinary shares are ignored in calculating diluted EPS. [IAS 33.41]
Guidance on calculating dilution

Convertible securities. The numerator should be adjusted for the after-tax effects of dividends and
interest charged in relation to dilutive potential ordinary shares and for any other changes in
income that would result from the conversion of the potential ordinary shares. [IAS 33.33] The de-
nominator should include shares that would be issued on the conversion. [IAS 33.36]
Options and warrants. In calculating diluted EPS, assume the exercise of outstanding dilutive
options and warrants. The assumed proceeds from exercise should be regarded as having been
used to repurchase ordinary shares at the average market price during the period. The difference
between the number of ordinary shares assumed issued on exercise and the number of ordinary
shares assumed repurchased shall be treated as an issue of ordinary shares for no consideration.
[IAS 33.45]
Contingently issuable shares. Contingently issuable ordinary shares are treated as outstanding and
included in the calculation of both basic and diluted EPS if the conditions have been met. If the
conditions have not been met, the number of contingently issuable shares included in the diluted
EPS calculation is based on the number of shares that would be issuable if the end of the period
were the end of the contingency period. Restatement is not permitted if the conditions are not
met when the contingency period expires. [IAS 33.52]
Contracts that may be settled in ordinary shares or cash. Presume that the contract will be settled
in ordinary shares, and include the resulting potential ordinary shares in diluted EPS if the effect is
dilutive. [IAS 33.58]
Retrospective adjustments
The calculation of basic and diluted EPS for all periods presented is adjusted retrospectively when the
number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation,
bonus issue, or share split, or decreases as a result of a reverse share split. If such changes occur after
the balance sheet date but before the financial statements are authorised for issue, the EPS calculations
for those and any prior period financial statements presented are based on the new number of shares.
Disclosure is required. [IAS 33.64]
Basic and diluted EPS are also adjusted for the effects of errors and adjustments resulting from changes
in accounting policies, accounted for retrospectively. [IAS 33.64]
Diluted EPS for prior periods should not be adjusted for changes in the assumptions used or for the con-
version of potential ordinary shares into ordinary shares outstanding. [IAS 33.65]
Disclosure
If EPS is presented, the following disclosures are required: [IAS 33.70]
o the amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of
those amounts to profit or loss attributable to the parent entity for the period
o the weighted average number of ordinary shares used as the denominator in calculating basic
and diluted EPS, and a reconciliation of these denominators to each other
o instruments (including contingently issuable shares) that could potentially dilute basic EPS in the
future, but were not included in the calculation of diluted EPS because they are antidilutive for
the period(s) presented
o a description of those ordinary share transactions or potential ordinary share transactions that
occur after the balance sheet date and that would have changed significantly the number of
ordinary shares or potential ordinary shares outstanding at the end of the period if those trans-
actions had occurred before the end of the reporting period. Examples include issues and re-
demptions of ordinary shares issued for cash, warrants and options, conversions, and exercises
[IAS 34.71]
An entity is permitted to disclose amounts per share other than profit or loss from continuing opera-
tions, discontinued operations, and net profit or loss earnings per share. Guidance for calculating and
presenting such amounts is included in IAS 33.73 and 73A.
IAS 34 Interim Financial Reporting
Overview
IAS 34 Interim Financial Reporting applies when an entity prepares an interim financial report,
without mandating when an entity should prepare such a report. Permitting less information to
be reported than in annual financial statements (on the basis of providing an update to those
financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.
IAS 34 was issued in June 1998 and is operative for periods beginning on or after 1 January
1999.
History of IAS 34
August 1997 Exposure Draft E57 Interim Financial

Reporting published
June 1999 IAS 34 Interim Financial Operative for financial

Reporting issued statements covering
6 May 2010 Amended by Improvements to IFRSs Effective for annual

2010 (significant transactions and periods beginning on or
events) after 1 January 2011
17 May 2012 Amended by Annual Improvements Effective for annual

2009-2011 Cycle (segment periods beginning on or
information) after 1 January 2013
25 September Amended by Improvements to IFRSs Effective for annual

2014 2014 (disclosure of information periods beginning on or
'elsewhere in the interim financial after 1 January 2016
report')
IFRIC 10 Interim Financial Reporting and Impairment
Amendments under consideration
None
Summary of IAS 34
Deloitte's publication Interim Financial Reporting: A Guide to IAS 34 (2009 edition) provides an overview of IAS 34,
an IAS 34 compliance checklist. Contents:
1. Introduction and scope
2. Content of an interim financial report
3. Condensed or complete interim financial statements
4. Selected explanatory notes
5. Accounting policies for interim reporting
6. General principles for recognition and measurement
7. Applying the recognition and measurement principles
8. Impairment of assets
9. Measuring interim income tax expense
10. Earnings per share
11. First-time adoption of IFRSs
Model interim financial report
IAS 34 compliance checklist
Click to Download the Deloitte Guide to IAS 34 (PDF 1,205k, March 2009, 76 pages).
Objective of IAS 34
The objective of IAS 34 is to prescribe the minimum content of an interim financial report and
to prescribe the principles for recognition and measurement in financial statements presented
for an interim period.
Key definitions
Interim period: a financial reporting period shorter than a full financial year (most typically a
quarter or half-year). [IAS 34.4]
Interim financial report: a financial report that contains either a complete or condensed set of
financial statements for an interim period. [IAS 34.4]
Matters left to local regulators
IAS 34 specifies the content of an interim financial report that is described as conforming to
International Financial Reporting Standards. However, IAS 34 does not mandate:
which entities should publish interim financial reports,
how frequently, or
how soon after the end of an interim period.
Such matters will be decided by national governments, securities regulators, stock exchanges,
and accountancy bodies. [IAS 34.1]
However, the Standard encourages publicly-traded entities to provide interim financial reports
that conform to the recognition, measurement, and disclosure principles set out in IAS 34, at
least as of the end of the first half of their financial year, such reports to be made available not
later than 60 days after the end of the interim period. [IAS 34.1]
Minimum content of an interim financial report
The minimum components specified for an interim financial report are: [IAS 34.8]
a condensed balance sheet (statement of financial position)
either (a) a condensed statement of comprehensive income or (b) a condensed
statement of comprehensive income and a condensed income statement
a condensed statement of changes in equity
a condensed statement of cash flows
selected explanatory notes
If a complete set of financial statements is published in the interim report, those financial
statements should be in full compliance with IFRSs. [IAS 34.9]
If the financial statements are condensed, they should include, at a minimum, each of the
headings and sub-totals included in the most recent annual financial statements and the
explanatory notes required by IAS 34. Additional line-items or notes should be included if their
omission would make the interim financial information misleading. [IAS 34.10]
If the annual financial statements were consolidated (group) statements, the interim
statements should be group statements as well. [IAS 34.14]
The periods to be covered by the interim financial statements are as follows: [IAS 34.20]
balance sheet (statement of financial position) as of the end of the current interim
period and a comparative balance sheet as of the end of the immediately preceding
financial year
statement of comprehensive income (and income statement, if presented) for the
current interim period and cumulatively for the current financial year to date, with
comparative statements for the comparable interim periods (current and year-to-date)
of the immediately preceding financial year
statement of changes in equity cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year
statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year
If the company's business is highly seasonal, IAS 34 encourages disclosure of financial
information for the latest 12 months, and comparative information for the prior 12-month
period, in addition to the interim period financial statements. [IAS 34.21]
Note disclosures
The explanatory notes required are designed to provide an explanation of events and
transactions that are significant to an understanding of the changes in financial position and
performance of the entity since the last annual reporting date. IAS 34 states a presumption that
anyone who reads an entity's interim report will also have access to its most recent annual
report. Consequently, IAS 34 avoids repeating annual disclosures in interim condensed reports.
[IAS 34.15]
Examples of specific disclosure requirements of IAS 34
Examples of events and transactions for which disclosures are required if they are
significant [IAS 34.15A-15B]
write-down of inventories
recognition or reversal of an impairment loss
reversal of provision for the costs of restructuring
acquisitions and disposals of property, plant and equipment
commitments for the purchase of property, plant and equipment
litigation settlements
corrections of prior period errors
changes in business or economic circumstances affecting the fair value of financial
assets and liabilities
unremedied loan defaults and breaches of loan agreements
transfers between levels of the 'fair value hierarchy' or changes in the classification
of financial assets
changes in contingent liabilities and contingent assets.
Examples of other disclosures required [IAS 34.16A]
changes in accounting policies
explanation of any seasonality or cyclicality of interim operations
unusual items affecting assets, liabilities, equity, net income or cash flows
changes in estimates
issues, repurchases and repayment of debt and equity securities
dividends paid
particular segment information (where IFRS 8 Operating Segments applies to the
entity)
events after the end of the reporting period
changes in the composition of the entity, such as business combinations, obtaining
or losing control of subsidiaries, restructurings and discontinued operations
disclosures about the fair value of financial instruments
Accounting policies
The same accounting policies should be applied for interim reporting as are applied in the
entity's annual financial statements, except for accounting policy changes made after the date
of the most recent annual financial statements that are to be reflected in the next annual
financial statements. [IAS 34.28]
A key provision of IAS 34 is that an entity should use the same accounting policy throughout a
single financial year. If a decision is made to change a policy mid-year, the change is
implemented retrospectively, and previously reported interim data is restated. [IAS 34.43]
Measurement
Measurements for interim reporting purposes should be made on a year-to-date basis, so that
the frequency of the entity's reporting does not affect the measurement of its annual results.
[IAS 34.28]
Several important measurement points:
Revenues that are received seasonally, cyclically or occasionally within a financial year
should not be anticipated or deferred as of the interim date, if anticipation or deferral
would not be appropriate at the end of the financial year. [IAS 34.37]
Costs that are incurred unevenly during a financial year should be anticipated or
deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate
or defer that type of cost at the end of the financial year. [IAS 34.39]
Income tax expense should be recognised based on the best estimate of the weighted
average annual effective income tax rate expected for the full financial year. [IAS 34
Appendix B12]
An appendix to IAS 34 provides guidance for applying the basic recognition and measurement
principles at interim dates to various types of asset, liability, income, and expense.
Materiality
In deciding how to recognise, measure, classify, or disclose an item for interim financial
reporting purposes, materiality is to be assessed in relation to the interim period financial data,
not forecast annual data. [IAS 34.23]
Disclosure in annual financial statements
If an estimate of an amount reported in an interim period is changed significantly during the
financial interim period in the financial year but a separate financial report is not published for
that period, the nature and amount of that change must be disclosed in the notes to the annual
IAS 35 Discontinuing Operations Superseded
History of IAS 35
August 1997 Exposure Draft E58 Discontinuing Operations
June 1998 IAS 35 Discontinuing Operations
1 July 1999 Effective date of IAS 35 (1998)
31 March 2004 IAS 35 is superseded by IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations effective 1 January 2005
None
Summary of IAS 35
Objective of IAS 35
The objective of IAS 35 is to establish principles for reporting information about discontinuing activities
(as defined), thereby enhancing the ability of users of financial statements to make projections of an
enterprise's cash flows, earnings-generating capacity and financial position, by segregating information
about discontinuing activities from information about continuing operations. The Standard does not
establish any recognition or measurement principles in relation to discontinuing operations these are
dealt with under other IAS. In particular, IAS 35 provides guidance on how to apply IAS 36 Impairment of
Assets and IAS 37 Provisions, Contingent Liabilities and Contingent Assets to a discontinuing operation.
[IAS 35.17-19]
Discontinuing operation defined
Discontinuing operation: A relatively large component of a business enterprise such as a business or

geographical segment under IAS 14 Segment Reporting that the enterprise, pursuant to a single plan,
either is disposing of substantially in its entirety or is terminating through abandonment or piecemeal
sale. [IAS 35.2] A restructuring, transaction or event that does not meet the definition of a discontinuing
operation should not be called a discontinuing operation. [IAS 35.43]
When to disclose
Disclosures begin after the earlier of the following:
the company has entered into an agreement to sell substantially all of the assets of the
discontinuing operation; or
its board of directors or other similar governing body has both approved and announced the
planned discontinuance. [IAS 35.16]
The disclosures are required if a plan for disposal is both approved and publicly announced after the end
of the financial reporting period but before the financial statements for that period are approved. A
board decision after year-end, by itself, is not enough. [IAS 35.29]
What to disclose
The following must be disclosed: [IAS 35.27 and IAS 35.31]
a description of the discontinuing operation;
the business or geographical segment(s) in which it is reported in accordance with IAS 14;
the date that the plan for discontinuance was announced;
the timing of expected completion, if known or determinable;
the carrying amounts of the total assets and the total liabilities to be disposed of;
the amounts of revenue, expenses, and pre-tax operating profit or loss attributable to the
discontinuing operation, and (separately) related income tax expense;
the amount of gain or loss recognised on the disposal of assets or settlement of liabilities
attributable to the discontinuing operation, and related income tax expense;
the net cash flows attributable to the operating, investing, and financing activities of the
discontinuing operation; and
the net selling prices received or expected from the sale of those net assets for which the
enterprise has entered into one or more binding sale agreements, and the expected timing
thereof, and the carrying amounts of those net assets.
How to disclose
The disclosures may be, but need not be, shown on the face of the financial statements. Only the gain or
loss on actual disposal of assets and settlement of liabilities must be on the face of the income
statement. [IAS 35.39] IAS 35 does not prescribe a particular format for the disclosures. Among the
acceptable ways:
Separate columns in the financial statements for continuing and discontinuing operations
One column but separate sections (with subtotals) for continuing and discontinuing operations
within that single column
One or more separate line items for discontinuing operations on the face of the financial
statements with detailed disclosures about discontinuing operations in the notes (but the line-
item disclosure requirements of IAS 1 Presentation of Financial Statements must still be met).
In periods after the discontinuance is first approved and announced, and before it is completed, the
financial statements must update the prior disclosures, including a description of any significant changes
in the amount or timing of cash flows relating to the assets and liabilities to be disposed of or settled
and the causes of those changes. [IAS 35.33]
The disclosures continue until completion of the disposal, though there may be cash payments still to
come. [IAS 35.35-36]
Comparative information presented in financial statements prepared after initial disclosure must be
restated to segregate the continuing and discontinuing assets, liabilities, income, expenses, and cash
flows. This helps in trend analysis and forecasting. [IAS 35.45]
IAS 35 applies to only to those corporate restructurings that meet the definition of a discontinuing
operation. But many so-called restructurings are of a smaller scope than an IAS 35 discontinuing
operation, such as plant closings, product discontinuances, and sales of subsidiaries while the company
remains in the same line of business. IAS 37 on provisions specifies the accounting and disclosures for
restructurings.
The specified disclosures are required to be presented separately for each discontinuing operation. [IAS
35.38]
Income and expenses relating to discontinuing operations should not be presented as extraordinary
items. [IAS 35.41]
Notes to an interim financial report should disclose information about discontinuing operations. [IAS
35.47]
IAS 36 Impairment of Assets
Overview
IAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their
recoverable amount (i.e. the higher of fair value less costs of disposal and value in use). With the
exception of goodwill and certain intangible assets for which an annual impairment test is required,
entities are required to conduct impairment tests where there is an indication of impairment of an
asset, and the test may be conducted for a 'cash-generating unit' where an asset does not generate cash
inflows that are largely independent of those from other assets.
IAS 36 was reissued in March 2004 and applies to goodwill and intangible assets acquired in business
combinations for which the agreement date is on or after 31 March 2004, and for all other assets
prospectively from the beginning of the first annual period beginning on or after 31 March 2004.
History of IAS 36
May 1997 Exposure Draft E55 Impairment

of Assets
June 1998 IAS 36 Impairment of Assets Operative for financial statements

covering periods beginning on or after
1 July 1999
31 March 2004 IAS 36 Impairment of Applies to goodwill and intangible

Assets revised assets acquired in business
combinations for which the agreement
date is on or after 31 March 2004, and
for all other assets prospectively from
the beginning of the first annual period
beginning on or after 31 March 2004
22 May 2008 Amended by Annual Effective for annual periods beginning

Improvements to IFRSs on or after 1 January 2009
2007 (disclosure of estimates
used to determine a recoverable
amount)
16 April 2009 Amended by Annual Effective for annual periods beginning

Improvements to IFRSs on or after 1 January 2010
2009 (units of accounting for
goodwill impairment testing
using segments under IFRS 8
before aggregation)
29 May 2013 Amended by Recoverable Effective for annual periods beginning

Amount Disclosures for Non- on or after 1 January 2014
Financial Assets (clarification of
disclosures required)
o None
Summary of IAS 36
Objective of IAS 36
To ensure that assets are carried at no more than their recoverable amount, and to define how
recoverable amount is determined.
Scope
IAS 36 applies to all assets except: [IAS 36.2]
o inventories (see IAS 2)
o assets arising from construction contracts (see IAS 11)
o deferred tax assets (see IAS 12)
o assets arising from employee benefits (see IAS 19)
o financial assets (see IAS 39)
o investment property carried at fair value (see IAS 40)
o agricultural assets carried at fair value (see IAS 41)
o insurance contract assets (see IFRS 4)
o non-current assets held for sale (see IFRS 5)
Therefore, IAS 36 applies to (among other assets):
o land
o buildings
o machinery and equipment
o investment property carried at cost
o intangible assets
o goodwill
o investments in subsidiaries, associates, and joint ventures carried at cost
o assets carried at revalued amounts under IAS 16 and IAS 38
Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit exceeds
its recoverable amount
Carrying amount: the amount at which an asset is recognised in the balance sheet after deducting
accumulated depreciation and accumulated impairment losses
Recoverable amount: the higher of an asset's fair value less costs of disposal* (sometimes called net
selling price) and its value in use
* Prior to consequential amendments made by IFRS 13 Fair Value Measurement, this was referred to as
'fair value less costs to sell'.
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 (see IFRS 13 Fair Value
Measurement)
Value in use: the present value of the future cash flows expected to be derived from an asset or cash-
generating unit
Identifying an asset that may be impaired
At the end of each reporting period, an entity is required to assess whether there is any indication that
an asset may be impaired (i.e. its carrying amount may be higher than its recoverable amount). IAS 36
has a list of external and internal indicators of impairment. If there is an indication that an asset may be
impaired, then the asset's recoverable amount must be calculated. [IAS 36.9]
The recoverable amounts of the following types of intangible assets are measured annually whether or
not there is any indication that it may be impaired. In some cases, the most recent detailed calculation
of recoverable amount made in a preceding period may be used in the impairment test for that asset in
the current period: [IAS 36.10]
o an intangible asset with an indefinite useful life
o an intangible asset not yet available for use
o goodwill acquired in a business combination
Indications of impairment [IAS 36.12]

External sources:
o market value declines
o negative changes in technology, markets, economy, or laws
o increases in market interest rates
o net assets of the company higher than market capitalisation
Internal sources:
o obsolescence or physical damage
o asset is idle, part of a restructuring or held for disposal
o worse economic performance than expected
o for investments in subsidiaries, joint ventures or associates, the carrying amount is higher than
the carrying amount of the investee's assets, or a dividend exceeds the total comprehensive
income of the investee
These lists are not intended to be exhaustive. [IAS 36.13] Further, an indication that an asset may be
impaired may indicate that the asset's useful life, depreciation method, or residual value may need to be
reviewed and adjusted. [IAS 36.17]
Determining recoverable amount
o If fair value less costs of disposal or value in use is more than carrying amount, it is not
necessary to calculate the other amount. The asset is not impaired. [IAS 36.19]
o If fair value less costs of disposal cannot be determined, then recoverable amount is value in
use. [IAS 36.20]
o For assets to be disposed of, recoverable amount is fair value less costs of disposal. [IAS 36.21]
Fair value less costs of disposal
o Fair value is determined in accordance with IFRS 13 Fair Value Measurement
o Costs of disposal are the direct added costs only (not existing costs or overhead). [IAS 36.28]
Value in use
The calculation of value in use should reflect the following elements: [IAS 36.30]
o an estimate of the future cash flows the entity expects to derive from the asset
o expectations about possible variations in the amount or timing of those future cash flows
o the time value of money, represented by the current market risk-free rate of interest
o the price for bearing the uncertainty inherent in the asset

o other factors, such as illiquidity, that market participants would reflect in pricing the future cash
flows the entity expects to derive from the asset
Cash flow projections should be based on reasonable and supportable assumptions, the most recent
budgets and forecasts, and extrapolation for periods beyond budgeted projections. [IAS 36.33] IAS 36
presumes that budgets and forecasts should not go beyond five years; for periods after five years,
extrapolate from the earlier budgets. [IAS 36.35] Management should assess the reasonableness of its
assumptions by examining the causes of differences between past cash flow projections and actual cash
flows. [IAS 36.34]
Cash flow projections should relate to the asset in its current condition future restructurings to which
the entity is not committed and expenditures to improve or enhance the asset's performance should not
be anticipated. [IAS 36.44]
Estimates of future cash flows should not include cash inflows or outflows from financing activities, or
income tax receipts or payments. [IAS 36.50]
Discount rate
In measuring value in use, the discount rate used should be the pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the asset. [IAS 36.55]
The discount rate should not reflect risks for which future cash flows have been adjusted and should
equal the rate of return that investors would require if they were to choose an investment that would
generate cash flows equivalent to those expected from the asset. [IAS 36.56]
For impairment of an individual asset or portfolio of assets, the discount rate is the rate the entity would
pay in a current market transaction to borrow money to buy that specific asset or portfolio.
If a market-determined asset-specific rate is not available, a surrogate must be used that reflects the
time value of money over the asset's life as well as country risk, currency risk, price risk, and cash flow
risk. The following would normally be considered: [IAS 36.57]
o the entity's own weighted average cost of capital
o the entity's incremental borrowing rate
o other market borrowing rates.
Recognition of an impairment loss
o An impairment loss is recognised whenever recoverable amount is below carrying amount. [IAS
36.59]
o The impairment loss is recognised as an expense (unless it relates to a revalued asset where the
impairment loss is treated as a revaluation decrease). [IAS 36.60]
o Adjust depreciation for future periods. [IAS 36.63]
Cash-generating units
Recoverable amount should be determined for the individual asset, if possible. [IAS 36.66]
If it is not possible to determine the recoverable amount (fair value less costs of disposal and value in
use) for the individual asset, then determine recoverable amount for the asset's cash-generating unit
(CGU). [IAS 36.66] The CGU is the smallest identifiable group of assets that generates cash inflows that
are largely independent of the cash inflows from other assets or groups of assets. [IAS 36.6]
Impairment of goodwill
Goodwill should be tested for impairment annually. [IAS 36.96]
To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating units, or
groups of cash-generating units, that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of
units. Each unit or group of units to which the goodwill is so allocated shall: [IAS 36.80]
o represent the lowest level within the entity at which the goodwill is monitored for internal
management purposes; and
o not be larger than an operating segment determined in accordance with IFRS 8 Operating
Segments.
A cash-generating unit to which goodwill has been allocated shall be tested for impairment at least
annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable
amount of the unit: [IAS 36.90]
o If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the
goodwill allocated to that unit is not impaired
o If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity must
recognise an impairment loss.
The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of units)
in the following order: [IAS 36.104]
o first, reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of
units); and
o then, reduce the carrying amounts of the other assets of the unit (group of units) pro rata on the
basis.
The carrying amount of an asset should not be reduced below the highest of: [IAS 36.105]
o its fair value less costs of disposal (if measurable)
o its value in use (if measurable)
o zero.
If the preceding rule is applied, further allocation of the impairment loss is made pro rata to the other
assets of the unit (group of units).
Reversal of an impairment loss

o Same approach as for the identification of impaired assets: assess at each balance sheet date
whether there is an indication that an impairment loss may have decreased. If so, calculate
recoverable amount. [IAS 36.110]
o No reversal for unwinding of discount. [IAS 36.116]
o The increased carrying amount due to reversal should not be more than what the depreciated
historical cost would have been if the impairment had not been recognised. [IAS 36.117]
o Reversal of an impairment loss is recognised in the profit or loss unless it relates to a revalued
asset [IAS 36.119]
o Adjust depreciation for future periods. [IAS 36.121]
o Reversal of an impairment loss for goodwill is prohibited. [IAS 36.124]
Disclosure
Disclosure by class of assets: [IAS 36.126]
o impairment losses recognised in profit or loss
o impairment losses reversed in profit or loss
o which line item(s) of the statement of comprehensive income
o impairment losses on revalued assets recognised in other comprehensive income
o impairment losses on revalued assets reversed in other comprehensive income
Disclosure by reportable segment: [IAS 36.129]
o impairment losses recognised
o impairment losses reversed
Other disclosures:
If an individual impairment loss (reversal) is material disclose: [IAS 36.130]
o events and circumstances resulting in the impairment loss
o amount of the loss or reversal
o individual asset: nature and segment to which it relates
o cash generating unit: description, amount of impairment loss (reversal) by class of assets and
segment
o if recoverable amount is fair value less costs of disposal, the level of the fair value hierarchy
(from IFRS 13 Fair Value Measurement) within which the fair value measurement is categorised,
the valuation techniques used to measure fair value less costs of disposal and the key
assumptions used in the measurement of fair value measurements categorised within 'Level 2'
and 'Level 3' of the fair value hierarchy*
o if recoverable amount has been determined on the basis of value in use, or on the basis of fair
value less costs of disposal using a present value technique*, disclose the discount rate
* Amendments introduced by Recoverable Amount Disclosures for Non-Financial Assets, effective for
If impairment losses recognised (reversed) are material in aggregate to the financial statements as a
whole, disclose: [IAS 36.131]
o main classes of assets affected
o main events and circumstances
Disclose detailed information about the estimates used to measure recoverable amounts of cash
generating units containing goodwill or intangible assets with indefinite useful lives. [IAS 36.134-35]
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Overview
IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting for provisions
(liabilities of uncertain timing or amount), together with contingent assets (possible assets) and
contingent liabilities (possible obligations and present obligations that are not probable or not reliably
measurable). Provisions are measured at the best estimate (including risks and uncertainties) of the
expenditure required to settle the present obligation, and reflects the present value of expenditures
required to settle the obligation where the time value of money is material.
IAS 37 was issued in September 1998 and is operative for periods beginning on or after 1 July 1999.
History of IAS 37
August 1997 Exposure Draft E59 Provisions,

Contingent Liabilities and Contingent
Assets published
September 1998 IAS 37 Provisions, Contingent Operative for annual financial

Liabilities and Contingent statements covering periods
Assets issued beginning on or after 1 July 1999
30 June 2005 Exposure Draft Amendments to IAS Comment deadline 28 October

37 Provisions, Contingent Liabilities 2005 (proposals were not
and Contingent Assets and IAS 19 finalised, instead being
Employee Benefits published reconsidered as a longer
term research project)
o IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities
o IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Funds
o IFRIC 6 Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic
Equipment
o IFRIC 21 Levies
o Research project Non-financial liabilities

Summary of IAS 37
Objective
The objective of IAS 37 is to ensure that appropriate recognition criteria and measurement bases are
applied to provisions, contingent liabilities and contingent assets and that sufficient information is
disclosed in the notes to the financial statements to enable users to understand their nature, timing and
amount. The key principle established by the Standard is that a provision should be recognised only
when there is a liability i.e. a present obligation resulting from past events. The Standard thus aims to
ensure that only genuine obligations are dealt with in the financial statements planned future
expenditure, even where authorised by the board of directors or equivalent governing body, is excluded
from recognition.
Scope
IAS 37 excludes obligations and contingencies arising from: [IAS 37.1-6]
o financial instruments that are in the scope of IAS 39 Financial Instruments: Recognition and
Measurement (or IFRS 9 Financial Instruments)
o non-onerous executory contracts
o insurance contracts (see IFRS 4 Insurance Contracts), but IAS 37 does apply to other provisions,
contingent liabilities and contingent assets of an insurer
o items covered by another IFRS. For example, IAS 11 Construction Contracts applies to obligations
arising under such contracts; IAS 12 Income Taxes applies to obligations for current or deferred
income taxes; IAS 17 Leases applies to lease obligations; and IAS 19 Employee Benefits applies to
pension and other employee benefit obligations.
Provision: a liability of uncertain timing or amount.
Liability:
o present obligation as a result of past events
o settlement is expected to result in an outflow of resources (payment)
Contingent liability:
o a possible obligation depending on whether some uncertain future event occurs, or
o a present obligation but payment is not probable or the amount cannot be measured reliably
Contingent asset:
o a possible asset that arises from past events, and

o whose existence will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity.
Recognition of a provision
An entity must recognise a provision if, and only if: [IAS 37.14]
o a present obligation (legal or constructive) has arisen as a result of a past event (the obligating
event),
o payment is probable ('more likely than not'), and
o the amount can be estimated reliably.
An obligating event is an event that creates a legal or constructive obligation and, therefore, results in
an entity having no realistic alternative but to settle the obligation. [IAS 37.10]
A constructive obligation arises if past practice creates a valid expectation on the part of a third party,
for example, a retail store that has a long-standing policy of allowing customers to return merchandise
within, say, a 30-day period. [IAS 37.10]
A possible obligation (a contingent liability) is disclosed but not accrued. However, disclosure is not
required if payment is remote. [IAS 37.86]
In rare cases, for example in a lawsuit, it may not be clear whether an entity has a present obligation. In
those cases, a past event is deemed to give rise to a present obligation if, taking account of all available
evidence, it is more likely than not that a present obligation exists at the balance sheet date. A provision
should be recognised for that present obligation if the other recognition criteria described above are
met. If it is more likely than not that no present obligation exists, the entity should disclose a contingent
liability, unless the possibility of an outflow of resources is remote. [IAS 37.15]
Measurement of provisions
The amount recognised as a provision should be the best estimate of the expenditure required to settle
the present obligation at the balance sheet date, that is, the amount that an entity would rationally pay
to settle the obligation at the balance sheet date or to transfer it to a third party. [IAS 37.36] This means:
o Provisions for one-off events (restructuring, environmental clean-up, settlement of a lawsuit)

are measured at the most likely amount. [IAS 37.40]
o Provisions for large populations of events (warranties, customer refunds) are measured at a
probability-weighted expected value. [IAS 37.39]
o Both measurements are at discounted present value using a pre-tax discount rate that reflects
the current market assessments of the time value of money and the risks specific to the liability.
[IAS 37.45 and 37.47]
In reaching its best estimate, the entity should take into account the risks and uncertainties that
surround the underlying events. [IAS 37.42]
If some or all of the expenditure required to settle a provision is expected to be reimbursed by another
party, the reimbursement should be recognised as a separate asset, and not as a reduction of the
required provision, when, and only when, it is virtually certain that reimbursement will be received if the
entity settles the obligation. The amount recognised should not exceed the amount of the provision.
[IAS 37.53]
In measuring a provision consider future events as follows:
o forecast reasonable changes in applying existing technology [IAS 37.49]
o ignore possible gains on sale of assets [IAS 37.51]
o consider changes in legislation only if virtually certain to be enacted [IAS 37.50]
Remeasurement of provisions [IAS 37.59]
o Review and adjust provisions at each balance sheet date
o If an outflow no longer probable, provision is reversed.
Some examples of provisions
Circumstance Recognise a provision?
Restructuring by sale Only when the entity is committed to a sale, i.e. there is a binding sale
of an operation agreement [IAS 37.78]
Restructuring by Only when a detailed form plan is in place and the entity has started to
closure or implement the plan, or announced its main features to those affected.
reorganisation A Board decision is insufficient [IAS 37.72, Appendix C, Examples 5A &
5B]
Warranty When an obligating event occurs (sale of product with a warranty and
probable warranty claims will be made) [Appendix C, Example 1]
Land contamination A provision is recognised as contamination occurs for any legal

obligations of clean up, or for constructive obligations if the company's
published policy is to clean up even if there is no legal requirement to
do so (past event is the contamination and public expectation created
by the company's policy) [Appendix C, Examples 2B]
Customer refunds Recognise a provision if the entity's established policy is to give

refunds (past event is the sale of the product together with the
customer's expectation, at time of purchase, that a refund would be
available) [Appendix C, Example 4]
Offshore oil rig must Recognise a provision for removal costs arising from the construction
be removed and sea of the the oil rig as it is constructed, and add to the cost of the
bed restored asset. Obligations arising from the production of oil are recognised as
the production occurs [Appendix C, Example 3]
Abandoned leasehold, A provision is recognised for the unavoidable lease payments

four years to run, no [Appendix C, Example 8]
re-letting possible
CPA firm must staff No provision is recognised (there is no obligation to provide the
training for recent training, recognise a liability if and when the retraining occurs)
changes in tax law [Appendix C, Example 7]
Major overhaul or No provision is recognised (no obligation) [Appendix C, Example 11]

repairs
Onerous (loss-making) Recognise a provision [IAS 37.66]

contract
Future operating No provision is recognised (no liability) [IAS 37.63]

losses
Restructurings
A restructuring is: [IAS 37.70]
o sale or termination of a line of business
o closure of business locations
o changes in management structure
o fundamental reorganisations.
Restructuring provisions should be recognised as follows: [IAS 37.72]
o Sale of operation: recognise a provision only after a binding sale agreement [IAS 37.78]
o Closure or reorganisation: recognise a provision only after a detailed formal plan is adopted and
has started being implemented, or announced to those affected. A board decision of itself is
insufficient.
o Future operating losses: provisions are not recognised for future operating losses, even in a
restructuring
o Restructuring provision on acquisition: recognise a provision only if there is an obligation at
acquisition date [IFRS 3.11]
Restructuring provisions should include only direct expenditures necessarily entailed by the
restructuring, not costs that associated with the ongoing activities of the entity. [IAS 37.80]
What is the debit entry?
When a provision (liability) is recognised, the debit entry for a provision is not always an expense.
Sometimes the provision may form part of the cost of the asset. Examples: included in the cost of
inventories, or an obligation for environmental cleanup when a new mine is opened or an offshore oil
rig is installed. [IAS 37.8]
Use of provisions
Provisions should only be used for the purpose for which they were originally recognised. They should
be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no
longer probable that an outflow of resources will be required to settle the obligation, the provision
should be reversed. [IAS 37.61]
Contingent liabilities
Since there is common ground as regards liabilities that are uncertain, IAS 37 also deals with
contingencies. It requires that entities should not recognise contingent liabilities but should disclose
them, unless the possibility of an outflow of economic resources is remote. [IAS 37.86]
Contingent assets
Contingent assets should not be recognised but should be disclosed where an inflow of economic
benefits is probable. When the realisation of income is virtually certain, then the related asset is not a
contingent asset and its recognition is appropriate. [IAS 37.31-35]
Disclosures
Reconciliation for each class of provision: [IAS 37.84]
o opening balance
o additions
o used (amounts charged against the provision)
o unused amounts reversed
o unwinding of the discount, or changes in discount rate
o closing balance
A prior year reconciliation is not required. [IAS 37.84]
For each class of provision, a brief description of: [IAS 37.85]
o nature
o timing
o uncertainties
o assumptions
o reimbursement, if any.
IAS 38 Intangible Assets
Overview
IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-mon-
etary assets which are without physical substance and identifiable (either being separable or arising
from contractual or other legal rights). Intangible assets meeting the relevant recognition criteria are
initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised
on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it
is not amortised).
IAS 38 was revised in March 2004 and applies to intangible assets acquired in business combinations
occurring on or after 31 March 2004, or otherwise to other intangible assets for annual periods
beginning on or after 31 March 2004.
History of IAS 38
February 1977 Exposure Draft E9Accounting for

Research and Development Activi-
ties
July 1978 IAS 9 (1978) Accounting for Effective 1 January 1980

Research and Development Activi-
ties issued
August 1991 Exposure Draft E37Research and

Development Costs published
December 1993 IAS 9 (1993) Research and Devel- Operative for annual financial
opment Costs issued statements covering periods
beginning on or after 1 January
1995
June 1995 Exposure Draft E50 Intangible

Assets published
August 1997 E50 was modified and re-exposed

as Exposure Draft E59Intangible
Assets
September 1998 IAS 38 Intangible Assetsissued Operative for annual financial
statements covering periods
beginning on or after 1 July 1998
31 March 2004 IAS 38 Intangible Assetsissued Applies to intangible assets

acquired in business combinations
occurring on or after 31 March
2004, or otherwise to other intan-
gible assets for annual periods
beginning on or after 31 March
2004

IFRSs (advertising and promotional beginning on or after 1 January
activities, units of production 2009
method of amortisation)
16 April 2009 Amended by Improvements to Effective for annual periods

IFRSs (measurement of intangible beginning on or after 1 July 2009
assets in business combinations)
12 December 2013 Amended by Annual Improve- Effective for annual periods

ments to IFRSs 20102012 beginning on or after 1 July 2014
Cycle (proportionate restatement
of accumulated depreciation
under the revaluation method)
12 May 2014 Amended by Clarification of Ac- Effective for annual periods

ceptable Methods of Depreciation beginning on or after 1 January
and Amortisation (Amendments to 2016
IAS 16 and IAS 38)
o IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
o IAS 16 supersedes SIC-6 Costs of Modifying Existing Software
o SIC-32 Intangible Assets Website Costs

o Research project Rate-regulated activities
o Research project Intangible assets
Summary of IAS 38
Objective
The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt
with specifically in another IFRS. The Standard requires an entity to recognise an intangible asset if, and
only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of in-
tangible assets and requires certain disclosures regarding intangible assets. [IAS 38.1]
Scope
IAS 38 applies to all intangible assets other than: [IAS 38.2-3]
o financial assets (see IAS 32 Financial Instruments: Presentation)
o exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral
Resources)
o expenditure on the development and extraction of minerals, oil, natural gas, and similar
resources
o intangible assets arising from insurance contracts issued by insurance companies
o intangible assets covered by another IFRS, such as intangibles held for sale (IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations), deferred tax assets (IAS 12 Income Taxes),
lease assets (IAS 17 Leases), assets arising from employee benefits (IAS 19 Employee
Benefits (2011)), and goodwill (IFRS 3 Business Combinations).
Key definitions
Intangible asset: an identifiable non-monetary asset without physical substance. An asset is a resource
that is controlled by the entity as a result of past events (for example, purchase or self-creation) and
from which future economic benefits (inflows of cash or other assets) are expected. [IAS 38.8] Thus, the
three critical attributes of an intangible asset are:
o identifiability
o control (power to obtain benefits from the asset)
o future economic benefits (such as revenues or reduced future costs)
Identifiability: an intangible asset is identifiable when it: [IAS 38.12]
o is separable (capable of being separated and sold, transferred, licensed, rented, or exchanged,
either individually or together with a related contract) or
o arises from contractual or other legal rights, regardless of whether those rights are transferable
or separable from the entity or from other rights and obligations.
Examples of intangible assets
o patented technology, computer software, databases and trade secrets
o trademarks, trade dress, newspaper mastheads, internet domains
o video and audiovisual material (e.g. motion pictures, television programmes)
o customer lists
o mortgage servicing rights
o licensing, royalty and standstill agreements
o import quotas
o franchise agreements
o customer and supplier relationships (including customer lists)
o marketing rights
Intangibles can be acquired:
o by separate purchase
o as part of a business combination
o by a government grant
o by exchange of assets
o by self-creation (internal generation)
Recognition
Recognition criteria. IAS 38 requires an entity to recognise an intangible asset, whether purchased or
self-created (at cost) if, and only if: [IAS 38.21]
o it is probable that the future economic benefits that are attributable to the asset will flow to the
entity; and
o the cost of the asset can be measured reliably.
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS
38 includes additional recognition criteria for internally generated intangible assets (see below).
The probability of future economic benefits must be based on reasonable and supportable assumptions
about conditions that will exist over the life of the asset. [IAS 38.22] The probability recognition criterion
is always considered to be satisfied for intangible assets that are acquired separately or in a business
combination. [IAS 38.33]
If recognition criteria not met. If an intangible item does not meet both the definition of and the criteria
for recognition as an intangible asset, IAS 38 requires the expenditure on this item to be recognised as
an expense when it is incurred. [IAS 38.68]
Business combinations. There is a presumption that the fair value (and therefore the cost) of an intangi-
ble asset acquired in a business combination can be measured reliably. [IAS 38.35] An expenditure
(included in the cost of acquisition) on an intangible item that does not meet both the definition of and
recognition criteria for an intangible asset should form part of the amount attributed to the goodwill
recognised at the acquisition date.
Reinstatement. The Standard also prohibits an entity from subsequently reinstating as an intangible
asset, at a later date, an expenditure that was originally charged to expense. [IAS 38.71]
Initial recognition: research and development costs
o Charge all research cost to expense. [IAS 38.54]
o Development costs are capitalised only after technical and commercial feasibility of the asset for
sale or use have been established. This means that the entity must intend and be able to
complete the intangible asset and either use it or sell it and be able to demonstrate how the
asset will generate future economic benefits. [IAS 38.57]
If an entity cannot distinguish the research phase of an internal project to create an intangible asset
from the development phase, the entity treats the expenditure for that project as if it were incurred in
the research phase only.
Initial recognition: in-process research and development acquired in a business combination
A research and development project acquired in a business combination is recognised as an asset at

cost, even if a component is research. Subsequent expenditure on that project is accounted for as any
other research and development cost (expensed except to the extent that the expenditure satisfies the
criteria in IAS 38 for recognising such expenditure as an intangible asset). [IAS 38.34]
Initial recognition: internally generated brands, mastheads, titles, lists
Brands, mastheads, publishing titles, customer lists and items similar in substance that are internally
generated should not be recognised as assets. [IAS 38.63]
Initial recognition: computer software
o Purchased: capitalise
o Operating system for hardware: include in hardware cost
o Internally developed (whether for use or sale): charge to expense until technological feasibility,
probable future benefits, intent and ability to use or sell the software, resources to complete
the software, and ability to measure cost.
o Amortisation: over useful life, based on pattern of benefits (straight-line is the default).
Initial recognition: certain other defined types of costs

The following items must be charged to expense when incurred:
o internally generated goodwill [IAS 38.48]
o start-up, pre-opening, and pre-operating costs [IAS 38.69]
o training cost [IAS 38.69]
o advertising and promotional cost, including mail order catalogues [IAS 38.69]
o relocation costs [IAS 38.69]
For this purpose, 'when incurred' means when the entity receives the related goods or services. If the
entity has made a prepayment for the above items, that prepayment is recognised as an asset until the
entity receives the related goods or services. [IAS 38.70]
Initial measurement
Intangible assets are initially measured at cost. [IAS 38.24]
Measurement subsequent to acquisition: cost model and revaluation models allowed
An entity must choose either the cost model or the revaluation model for each class of intangible asset.
[IAS 38.72]
Cost model. After initial recognition intangible assets should be carried at cost less accumulated amorti-
sation and impairment losses. [IAS 38.74]
Revaluation model. Intangible assets may be carried at a revalued amount (based on fair value) less any
subsequent amortisation and impairment losses only if fair value can be determined by reference to an
active market. [IAS 38.75] Such active markets are expected to be uncommon for intangible assets. [IAS
38.78] Examples where they might exist:
o production quotas
o fishing licences
o taxi licences
Under the revaluation model, revaluation increases are recognised in other comprehensive income and
accumulated in the "revaluation surplus" within equity except to the extent that it reverses a revalua-
tion decrease previously recognised in profit and loss. If the revalued intangible has a finite life and is,
therefore, being amortised (see below) the revalued amount is amortised. [IAS 38.85]
Classification of intangible assets based on useful life
Intangible assets are classified as: [IAS 38.88]
o Indefinite life: no foreseeable limit to the period over which the asset is expected to generate
net cash inflows for the entity.
o Finite life: a limited period of benefit to the entity.
Measurement subsequent to acquisition: intangible assets with finite lives

The cost less residual value of an intangible asset with a finite useful life should be amortised on a sys-
tematic basis over that life: [IAS 38.97]
o The amortisation method should reflect the pattern of benefits.
o If the pattern cannot be determined reliably, amortise by the straight line method.
o The amortisation charge is recognised in profit or loss unless another IFRS requires that it be
included in the cost of another asset.
o The amortisation period should be reviewed at least annually. [IAS 38.104]
Expected future reductions in selling prices could be indicative of a higher rate of consumption of the
future economic benefits embodied in an asset. [IAS 18.92]
The standard contains a rebuttable presumption that a revenue-based amortisation method for intangi-
ble assets is inappropriate. However, there are limited circumstances when the presumption can be
overcome:
o The intangible asset is expressed as a measure of revenue; and
o it can be demonstrated that revenue and the consumption of economic benefits of the intangi-
ble asset are highly correlated. [IAS 38.98A]
Note: The guidance on expected future reductions in selling prices and the clarification regarding the
revenue-based depreciation method were introduced by Clarification of Acceptable Methods of Depreci-
ation and Amortisation, which applies to annual periods beginning on or after 1 January 2016.
Examples where revenue based amortisation may be appropriate
IAS 38 notes that in the circumstance in which the predominant limiting factor that is inherent in
an intangible asset is the achievement of a revenue threshold, the revenue to be generated can be
an appropriate basis for amortisation of the asset. The standard provides the following examples
where revenue to be generated might be an appropriate basis for amortisation: [IAS 38.98C]
o A concession to explore and extract gold from a gold mine which is limited to a fixed
amount of revenue generated from the extraction of gold
o A right to operate a toll road that is based on a fixed amount of revenue generation from
cumulative tolls charged.
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
Measurement subsequent to acquisition: intangible assets with indefinite useful lives
An intangible asset with an indefinite useful life should not be amortised. [IAS 38.107]
Its useful life should be reviewed each reporting period to determine whether events and circumstances
continue to support an indefinite useful life assessment for that asset. If they do not, the change in the
useful life assessment from indefinite to finite should be accounted for as a change in an accounting
estimate. [IAS 38.109]
The asset should also be assessed for impairment in accordance with IAS 36. [IAS 38.111]
Subsequent expenditure
Due to the nature of intangible assets, subsequent expenditure will only rarely meet the criteria for
being recognised in the carrying amount of an asset. [IAS 38.20] Subsequent expenditure on brands,
mastheads, publishing titles, customer lists and similar items must always be recognised in profit or loss
as incurred. [IAS 38.63]
Disclosure
For each class of intangible asset, disclose: [IAS 38.118 and 38.122]
o useful life or amortisation rate
o amortisation method
o gross carrying amount
o accumulated amortisation and impairment losses
o line items in the income statement in which amortisation is included
o reconciliation of the carrying amount at the beginning and the end of the period showing:
o additions (business combinations separately)
o assets held for sale
o retirements and other disposals
o revaluations
o impairments
o reversals of impairments
o amortisation
o foreign exchange differences
o other changes
o basis for determining that an intangible has an indefinite life
o description and carrying amount of individually material intangible assets
o certain special disclosures about intangible assets acquired by way of government grants
o information about intangible assets whose title is restricted
o contractual commitments to acquire intangible assets

Additional disclosures are required about:
o intangible assets carried at revalued amounts [IAS 38.124]
o the amount of research and development expenditure recognised as an expense in the current
period [IAS 38.126]
IAS 39 Financial Instruments: Recognition and
Measurement
Overview
IAS 39 Financial Instruments: Recognition and Measurement outlines the requirements for the recogni-
tion and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-fi-
nancial items. Financial instruments are initially recognised when an entity becomes a party to the con-
tractual provisions of the instrument, and are classified into various categories depending upon the type
of instrument, which then determines the subsequent measurement of the instrument (typically
amortised cost or fair value). Special rules apply to embedded derivatives and hedging instruments.
and will be largely replaced by IFRS 9 Financial Instruments for annual periods beginning on or after 1
January 2018.
History of IAS 39
October 1984 Exposure Draft E26 Accounting for Investments
March 1986 IAS 25 Accounting for Investments Operative for

financial state-
ments covering
periods beginning
on or after 1
January 1987
September 1991 Exposure Draft E40 Financial Instruments
January 1994 E40 was modified and re-exposed as Exposure

Draft E48Financial Instruments
June 1995 The disclosure and presentation portion of E48

was adopted as IAS 32
March 1997 Discussion Paper Accounting for Financial Assets

and Financial Liabilities issued
June 1998 Exposure Draft E62 Financial Instruments: Recog- Comment deadline
nition and Measurement issued 30 September
1998
December 1998 IAS 39 Financial Instruments: Recognition and Effective date 1

Measurement (1998) January 2001
April 2000 Withdrawal of IAS 25 following the approval Effective for

of IAS 40 Investment Property financial state-
ments covering
periods beginning
on or after 1
January 2001
October 2000 Limited revisions to IAS 39 Effective date 1

January 2001
17 December 2003 IAS 39 Financial Instruments: Recognition and Effective for

Measurement (2004) issued annual periods
beginning on or
after 1 January
2005
31 March 2004 IAS 39 revised to reflect macro hedging Effective for

annual periods
beginning on or
after 1 January
2005
17 December 2004 Amendment issued to IAS 39 for transition and

initial recognition of profit or loss
14 April 2005 Amendment issued to IAS 39 for cash flow Effective for
hedges of forecast intragroup transactions annual periods
beginning on or
after 1 January
2006
15 June 2005 Amendment to IAS 39 for fair value option Effective for
annual periods
beginning on or
after 1 January
2006
18 August 2005 Amendment to IAS 39 for financial guarantee Effective for

contracts annual periods
beginning on or
after 1 January
2006
22 May 2008 IAS 39 amended for Annual Improvements to Effective for

IFRSs 2007 annual periods
beginning on or
after 1 January
2009
30 July 2008 Amendment to IAS 39 for eligible hedged items Effective for
annual periods
beginning on or
after 1 July 2009
13 October 2008 Amendment to IAS 39 for reclassifications of Effective 1 July

financial assets 2008
12 March 2009 Amendment to IAS 39 for embedded derivatives Effective for

on reclassifications of financial assets annual periods
beginning on or
after 1 July 2009
16 April 2009 IAS 39 amended for Annual Improvements to Effective for

IFRSs 2009 annual periods
beginning on or
after 1 January
2010
12 November 2009 IFRS 9 Financial Instruments issued, replacing the Original effective
classification and measurement of financial assets date 1 January
provisions of IAS 39 2013, later
deferred and sub-
sequently
removed*
28 October 2010 IFRS 9 Financial Instruments reissued, incorporat- Original effective

ing new requirements on accounting for financial date 1 January
liabilities and carrying over from IAS 39 the re- 2013, later
quirements for derecognition of financial assets deferred and sub-
and financial liabilities sequently
removed*
27 June 2013 Amended by Novation of Derivatives and Contin- Effective for

uation of Hedge Accounting annual periods
beginning on or
after 1 January
2014 (earlier appli-
cation permitted)
19 November 2013 IFRS 9 Financial Instruments (Hedge Accounting Applies when IFRS
and amendments to IFRS 9, IFRS 7 and IAS 9 is applied*
39) issued, permitting an entity to elect to
continue to apply the hedge accounting require-
ments in IAS 39 for a fair value hedge of the
interest rate exposure of a portion of a portfolio
of financial assets or financial liabilities when IFRS
9 is applied, and to extend the fair value option to
certain contracts that meet the 'own use' scope
exception
24 July 2014 IFRS 9 Financial Instruments issued, replacing IAS Effective for
39 requirements for classification and measure- annual periods
ment, impairment, hedge accounting and dere- beginning on or
cognition after 1 January
2018#
* IFRS 9 (2014) supersedes IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013), but these standards remain
available for application if the relevant date of initial application is before 1 February 2015.
# When an entity first applies IFRS 9, it may choose as its accounting policy choice to continue to apply
the hedge accounting requirements of IAS 39 instead of the requirements of Chapter 6 of IFRS 9. The
IASB currently is undertaking a project on macro hedge accounting which is expected to eventually
replace these sections of IAS 39.
o IFRIC 16 Hedge of a Net Investment in a Foreign Operation
o IFRIC 9 Reassessment of Embedded Derivatives
o IAS 39 (2003) superseded SIC-33 Consolidation and Equity Method Potential Voting Rights and
Allocation of Ownership Interest
o Financial instruments Macro hedge accounting
Summary of IAS 39
Deloitte guidance on IFRSs for financial instruments
iGAAP 2012: Financial Instruments
Deloitte (United Kingdom) has developed iGAAP 2012: Financial Instruments IFRS 9 and
related Standards (Volume B) and iGAAP 2012: Financial Instruments IAS 39 and related
Standards (Volume C), which have been published by LexisNexis. These publications are the
authoritative guides for financial instruments accounting under IFRSs. These two titles go
beyond and behind the technical requirements, unearthing common practices and problems,
and providing views, interpretations, clear explanations and examples. They enable the reader
to gain a sound understanding of the standards and an appreciation of their practicalities.
The iGAAP 2012 Financial Instruments books can be purchased through www.lexisnexis.co.uk/
deloitte.
Scope
Scope exclusions
IAS 39 applies to all types of financial instruments except for the following, which are scoped out of
IAS 39: [IAS 39.2]
o interests in subsidiaries, associates, and joint ventures accounted for under IAS 27 Consolidated
and Separate Financial Statements, IAS 28 Investments in Associates, or IAS 31 Interests in Joint
Ventures (or, for periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial
Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint
Ventures); however IAS 39 applies in cases where under those standards such interests are to be
accounted for under IAS 39. The standard also applies to most derivatives on an interest in a
subsidiary, associate, or joint venture
o employers' rights and obligations under employee benefit plans to which IAS 19 Employee
Benefits applies
o forward contracts between an acquirer and selling shareholder to buy or sell an acquiree that
will result in a business combination at a future acquisition date
o rights and obligations under insurance contracts, except IAS 39 does apply to financial instru-
ments that take the form of an insurance (or reinsurance) contract but that principally involve
the transfer of financial risks and derivatives embedded in insurance contracts
o financial instruments that meet the definition of own equity under IAS 32 Financial Instruments:
Presentation
o financial instruments, contracts and obligations under share-based payment transactions to

which IFRS 2 Share-based Payment applies
o rights to reimbursement payments to which IAS 37 Provisions, Contingent Liabilities and Contin-
gent Assets applies
Leases
IAS 39 applies to lease receivables and payables only in limited respects: [IAS 39.2(b)]
o IAS 39 applies to lease receivables with respect to the derecognition and impairment provisions
o IAS 39 applies to lease payables with respect to the derecognition provisions
o IAS 39 applies to derivatives embedded in leases.
Financial guarantees
IAS 39 applies to financial guarantee contracts issued. However, if an issuer of financial guarantee
contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has
used accounting applicable to insurance contracts, the issuer may elect to apply either IAS 39 orIFRS
4 Insurance Contracts to such financial guarantee contracts. The issuer may make that election contract
by contract, but the election for each contract is irrevocable.
Accounting by the holder is excluded from the scope of IAS 39 and IFRS 4 (unless the contract is a rein-
surance contract). Therefore, paragraphs 10-12 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors apply. Those paragraphs specify criteria to use in developing an accounting policy if
no IFRS applies specifically to an item.
Loan commitments
Loan commitments are outside the scope of IAS 39 if they cannot be settled net in cash or another
financial instrument, they are not designated as financial liabilities at fair value through profit or loss,
and the entity does not have a past practice of selling the loans that resulted from the commitment
shortly after origination. An issuer of a commitment to provide a loan at a below-market interest rate is
required initially to recognise the commitment at its fair value; subsequently, the issuer will remeasure
it at the higher of (a) the amount recognised under IAS 37 and (b) the amount initially recognised less,
where appropriate, cumulative amortisation recognised in accordance with IAS 18. An issuer of loan
commitments must apply IAS 37 to other loan commitments that are not within the scope of IAS 39
(that is, those made at market or above). Loan commitments are subject to the derecognition provisions
of IAS 39. [IAS 39.4]
Contracts to buy or sell financial items

Contracts to buy or sell financial items are always within the scope of IAS 39 (unless one of the other ex-
ceptions applies).
Contracts to buy or sell non-financial items
Contracts to buy or sell non-financial items are within the scope of IAS 39 if they can be settled net in
cash or another financial asset and are not entered into and held for the purpose of the receipt or
delivery of a non-financial item in accordance with the entity's expected purchase, sale, or usage re-
quirements. Contracts to buy or sell non-financial items are inside the scope if net settlement occurs.
The following situations constitute net settlement: [IAS 39.5-6]
o the terms of the contract permit either counterparty to settle net
o there is a past practice of net settling similar contracts
o there is a past practice, for similar contracts, of taking delivery of the underlying and selling it
within a short period after delivery to generate a profit from short-term fluctuations in price, or
from a dealer's margin, or
o the non-financial item is readily convertible to cash
Weather derivatives
Although contracts requiring payment based on climatic, geological, or other physical variable were
generally excluded from the original version of IAS 39, they were added to the scope of the revised
IAS 39 in December 2003 if they are not in the scope of IFRS 4. [IAS 39.AG1]
Definitions
IAS 39 incorporates the definitions of the following items from IAS 32 Financial Instruments: Presenta-
tion: [IAS 39.8]
o financial instrument
o financial asset
o financial liability
o equity instrument.
Note: Where an entity applies IFRS 9 Financial Instruments prior to its mandatory application date (1
January 2015), definitions of the following terms are also incorporated from IFRS 9: derecognition, deriv-
ative, fair value, financial guarantee contract. The definition of those terms outlined below (as relevant)
are those from IAS 39.
Common examples of financial instruments within the scope of IAS 39
o cash
o demand and time deposits

o commercial paper
o accounts, notes, and loans receivable and payable
o debt and equity securities. These are financial instruments from the perspectives of both the
holder and the issuer. This category includes investments in subsidiaries, associates, and joint
ventures
o asset backed securities such as collateralised mortgage obligations, repurchase agreements, and
securitised packages of receivables
o derivatives, including options, rights, warrants, futures contracts, forward contracts, and swaps.
A derivative is a financial instrument:
o Whose value changes in response to the change in an underlying variable such as an interest
rate, commodity or security price, or index;
o That requires no initial investment, or one that is smaller than would be required for a contract
with similar response to changes in market factors; and
o That is settled at a future date. [IAS 39.9]
Examples of derivatives
Forwards: Contracts to purchase or sell a specific quantity of a financial instrument, a commodity, or a

foreign currency at a specified price determined at the outset, with delivery or settlement at a specified
future date. Settlement is at maturity by actual delivery of the item specified in the contract, or by a net
cash settlement.
Interest rate swaps and forward rate agreements: Contracts to exchange cash flows as of a specified date
or a series of specified dates based on a notional amount and fixed and floating rates.
Futures: Contracts similar to forwards but with the following differences: futures are generic exchange-
traded, whereas forwards are individually tailored. Futures are generally settled through an offsetting
(reversing) trade, whereas forwards are generally settled by delivery of the underlying item or cash settle-
ment.
Options: Contracts that give the purchaser the right, but not the obligation, to buy (call option) or sell (put
option) a specified quantity of a particular financial instrument, commodity, or foreign currency, at a
specified price (strike price), during or at a specified period of time. These can be individually written or
exchange-traded. The purchaser of the option pays the seller (writer) of the option a fee (premium) to
compensate the seller for the risk of payments under the option.
Caps and floors: These are contracts sometimes referred to as interest rate options. An interest rate cap
will compensate the purchaser of the cap if interest rates rise above a predetermined rate (strike rate)
while an interest rate floor will compensate the purchaser if rates fall below a predetermined rate.
Embedded derivatives
Some contracts that themselves are not financial instruments may nonetheless have financial instru-
ments embedded in them. For example, a contract to purchase a commodity at a fixed price for delivery
at a future date has embedded in it a derivative that is indexed to the price of the commodity.
An embedded derivative is a feature within a contract, such that the cash flows associated with that
feature behave in a similar fashion to a stand-alone derivative. In the same way that derivatives must be
accounted for at fair value on the balance sheet with changes recognised in the income statement, so
must some embedded derivatives. IAS 39 requires that an embedded derivative be separated from its
host contract and accounted for as a derivative when: [IAS 39.11]
o the economic risks and characteristics of the embedded derivative are not closely related to
those of the host contract
o a separate instrument with the same terms as the embedded derivative would meet the defini-
tion of a derivative, and
o the entire instrument is not measured at fair value with changes in fair value recognised in the
income statement
If an embedded derivative is separated, the host contract is accounted for under the appropriate
standard (for instance, under IAS 39 if the host is a financial instrument). Appendix A to IAS 39 provides
examples of embedded derivatives that are closely related to their hosts, and of those that are not.
Examples of embedded derivatives that are not closely related to their hosts (and therefore must be
separately accounted for) include:
o the equity conversion option in debt convertible to ordinary shares (from the perspective of the
holder only) [IAS 39.AG30(f)]
o commodity indexed interest or principal payments in host debt contracts[IAS 39.AG30(e)]
o cap and floor options in host debt contracts that are in-the-money when the instrument was
issued [IAS 39.AG33(b)]
o leveraged inflation adjustments to lease payments [IAS 39.AG33(f)]
o currency derivatives in purchase or sale contracts for non-financial items where the foreign
currency is not that of either counterparty to the contract, is not the currency in which the
related good or service is routinely denominated in commercial transactions around the world,
and is not the currency that is commonly used in such contracts in the economic environment in
which the transaction takes place. [IAS 39.AG33(d)]
If IAS 39 requires that an embedded derivative be separated from its host contract, but the entity is
unable to measure the embedded derivative separately, the entire combined contract must be desig-
nated as a financial asset as at fair value through profit or loss). [IAS 39.12]
Classification as liability or equity

Since IAS 39 does not address accounting for equity instruments issued by the reporting enterprise but it
does deal with accounting for financial liabilities, classification of an instrument as liability or as equity is
critical. IAS 32 Financial Instruments: Presentation addresses the classification question.
Classification of financial assets
IAS 39 requires financial assets to be classified in one of the following categories: [IAS 39.45]
o Financial assets at fair value through profit or loss
o Available-for-sale financial assets
o Loans and receivables
o Held-to-maturity investments
Those categories are used to determine how a particular financial asset is recognised and measured in
the financial statements.
Financial assets at fair value through profit or loss. This category has two subcategories:
o Designated. The first includes any financial asset that is designated on initial recognition as one
to be measured at fair value with fair value changes in profit or loss.
o Held for trading. The second category includes financial assets that are held for trading. All de-
rivatives (except those designated hedging instruments) and financial assets acquired or held for
the purpose of selling in the short term or for which there is a recent pattern of short-term
profit taking are held for trading. [IAS 39.9]
Available-for-sale financial assets (AFS) are any non-derivative financial assets designated on initial
recognition as available for sale or any other instruments that are not classified as as (a) loans and re-
ceivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.
[IAS 39.9] AFS assets are measured at fair value in the balance sheet. Fair value changes on AFS assets
are recognised directly in equity, through the statement of changes in equity, except for interest on AFS
assets (which is recognised in income on an effective yield basis), impairment losses and (for interest-
bearing AFS debt instruments) foreign exchange gains or losses. The cumulative gain or loss that was
recognised in equity is recognised in profit or loss when an available-for-sale financial asset is derecog-
nised. [IAS 39.55(b)]
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market, other than held for trading or designated on initial recognition as assets
at fair value through profit or loss or as available-for-sale. Loans and receivables for which the holder
may not recover substantially all of its initial investment, other than because of credit deterioration,
should be classified as available-for-sale.[IAS 39.9] Loans and receivables are measured at amortised
cost. [IAS 39.46(a)]
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments
that an entity intends and is able to hold to maturity and that do not meet the definition of loans and
receivables and are not designated on initial recognition as assets at fair value through profit or loss or
as available for sale. Held-to-maturity investments are measured at amortised cost. If an entity sells a
held-to-maturity investment other than in insignificant amounts or as a consequence of a non-recurring,
isolated event beyond its control that could not be reasonably anticipated, all of its other held-to-matu-
rity investments must be reclassified as available-for-sale for the current and next two financial
reporting years. [IAS 39.9] Held-to-maturity investments are measured at amortised cost. [IAS 39.46(b)]
Classification of financial liabilities
IAS 39 recognises two classes of financial liabilities: [IAS 39.47]
o Financial liabilities at fair value through profit or loss
o Other financial liabilities measured at amortised cost using the effective interest method
The category of financial liability at fair value through profit or loss has two subcategories:
o Designated. a financial liability that is designated by the entity as a liability at fair value through
profit or loss upon initial recognition
o Held for trading. a financial liability classified as held for trading, such as an obligation for securi-
ties borrowed in a short sale, which have to be returned in the future
Initial recognition
IAS 39 requires recognition of a financial asset or a financial liability when, and only when, the entity
becomes a party to the contractual provisions of the instrument, subject to the following provisions in
respect of regular way purchases. [IAS 39.14]
Regular way purchases or sales of a financial asset. A regular way purchase or sale of financial assets is
recognised and derecognised using either trade date or settlement date accounting. [IAS 39.38] The
method used is to be applied consistently for all purchases and sales of financial assets that belong to
the same category of financial asset as defined in IAS 39 (note that for this purpose assets held for
trading form a different category from assets designated at fair value through profit or loss). The choice
of method is an accounting policy. [IAS 39.38]
IAS 39 requires that all financial assets and all financial liabilities be recognised on the balance sheet.
That includes all derivatives. Historically, in many parts of the world, derivatives have not been recog-
nised on company balance sheets. The argument has been that at the time the derivative contract was
entered into, there was no amount of cash or other assets paid. Zero cost justified non-recognition,
notwithstanding that as time passes and the value of the underlying variable (rate, price, or index)
changes, the derivative has a positive (asset) or negative (liability) value.
Initial measurement
Initially, financial assets and liabilities should be measured at fair value (including transaction costs, for
assets and liabilities not measured at fair value through profit or loss). [IAS 39.43]
Subsequently, financial assets and liabilities (including derivatives) should be measured at fair value,
with the following exceptions: [IAS 39.46-47]
o Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities
should be measured at amortised cost using the effective interest method.
o Investments in equity instruments with no reliable fair value measurement (and derivatives
indexed to such equity instruments) should be measured at cost.
o Financial assets and liabilities that are designated as a hedged item or hedging instrument are
subject to measurement under the hedge accounting requirements of the IAS 39.
o Financial liabilities that arise when a transfer of a financial asset does not qualify for derecogni-
tion, or that are accounted for using the continuing-involvement method, are subject to particu-
lar measurement requirements.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowl-
edgeable, willing parties in an arm's length transaction. [IAS 39.9] IAS 39 provides a hierarchy to be used
in determining the fair value for a financial instrument: [IAS 39 Appendix A, paragraphs AG69-82]
o Quoted market prices in an active market are the best evidence of fair value and should be used,
where they exist, to measure the financial instrument.
o If a market for a financial instrument is not active, an entity establishes fair value by using a
valuation technique that makes maximum use of market inputs and includes recent arm's length
market transactions, reference to the current fair value of another instrument that is substan-
tially the same, discounted cash flow analysis, and option pricing models. An acceptable
valuation technique incorporates all factors that market participants would consider in setting a
price and is consistent with accepted economic methodologies for pricing financial instruments.
o If there is no active market for an equity instrument and the range of reasonable fair values is
significant and these estimates cannot be made reliably, then an entity must measure the equity
instrument at cost less impairment.
Amortised cost is calculated using the effective interest method. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected life of the
financial instrument to the net carrying amount of the financial asset or liability. Financial assets that are
not carried at fair value though profit and loss are subject to an impairment test. If expected life cannot
be determined reliably, then the contractual life is used.
IAS 39 fair value option
IAS 39 permits entities to designate, at the time of acquisition or issuance, any financial asset or financial
liability to be measured at fair value, with value changes recognised in profit or loss. This option is
available even if the financial asset or financial liability would ordinarily, by its nature, be measured at
amortised cost but only if fair value can be reliably measured.
In June 2005 the IASB issued its amendment to IAS 39 to restrict the use of the option to designate any
financial asset or any financial liability to be measured at fair value through profit and loss (the fair value
option). The revisions limit the use of the option to those financial instruments that meet certain condi-
tions: [IAS 39.9]
o the fair value option designation eliminates or significantly reduces an accounting mismatch, or
o a group of financial assets, financial liabilities or both is managed and its performance is
evaluated on a fair value basis by entity's management.
Once an instrument is put in the fair-value-through-profit-and-loss category, it cannot be reclassified out

with some exceptions. [IAS 39.50] In October 2008, the IASB issued amendments to IAS 39. The amend-
ments permit reclassification of some financial instruments out of the fair-value-through-profit-or-loss
category (FVTPL) and out of the available-for-sale category for more detail see IAS 39.50(c). In the
event of reclassification, additional disclosures are required under IFRS 7 Financial Instruments: Disclo-
sures. In March 2009 the IASB clarified that reclassifications of financial assets under the October 2008
amendments (see above): on reclassification of a financial asset out of the 'fair value through profit or
loss' category, all embedded derivatives have to be (re)assessed and, if necessary, separately accounted
for in financial statements.
IAS 39 available for sale option for loans and receivables
IAS 39 permits entities to designate, at the time of acquisition, any loan or receivable as available for
sale, in which case it is measured at fair value with changes in fair value recognised in equity.
Impairment
A financial asset or group of assets is impaired, and impairment losses are recognised, only if there is
objective evidence as a result of one or more events that occurred after the initial recognition of the
asset. An entity is required to assess at each balance sheet date whether there is any objective evidence
of impairment. If any such evidence exists, the entity is required to do a detailed impairment calculation
to determine whether an impairment loss should be recognised. [IAS 39.58] The amount of the loss is
measured as the difference between the asset's carrying amount and the present value of estimated
cash flows discounted at the financial asset's original effective interest rate. [IAS 39.63]
Assets that are individually assessed and for which no impairment exists are grouped with financial
assets with similar credit risk statistics and collectively assessed for impairment. [IAS 39.64]
If, in a subsequent period, the amount of the impairment loss relating to a financial asset carried at
amortised cost or a debt instrument carried as available-for-sale decreases due to an event occurring
after the impairment was originally recognised, the previously recognised impairment loss is reversed
through profit or loss. Impairments relating to investments in available-for-sale equity instruments are
not reversed through profit or loss. [IAS 39.65]
Financial guarantees
A financial guarantee contract is a contract that requires the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.
[IAS 39.9]
Under IAS 39 as amended, financial guarantee contracts are recognised:
o initially at fair value. If the financial guarantee contract was issued in a stand-alone arm's length
transaction to an unrelated party, its fair value at inception is likely to equal the consideration
received, unless there is evidence to the contrary.
o subsequently at the higher of (i) the amount determined in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets and (ii) the amount initially recognised less, when
appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue. (If
specified criteria are met, the issuer may use the fair value option in IAS 39. Furthermore,
different requirements continue to apply in the specialised context of a 'failed' derecognition
transaction.)
Some credit-related guarantees do not, as a precondition for payment, require that the holder is
exposed to, and has incurred a loss on, the failure of the debtor to make payments on the guaranteed
asset when due. An example of such a guarantee is a credit derivative that requires payments in
response to changes in a specified credit rating or credit index. These are derivatives and they must be
measured at fair value under IAS 39.
Derecognition of a financial asset
The basic premise for the derecognition model in IAS 39 is to determine whether the asset under consid-
eration for derecognition is: [IAS 39.16]
o an asset in its entirety or
o specifically identified cash flows from an asset or
o a fully proportionate share of the cash flows from an asset or
o a fully proportionate share of specifically identified cash flows from a financial asset
Once the asset under consideration for derecognition has been determined, an assessment is made as
to whether the asset has been transferred, and if so, whether the transfer of that asset is subsequently
eligible for derecognition.
An asset is transferred if either the entity has transferred the contractual rights to receive the cash
flows, or the entity has retained the contractual rights to receive the cash flows from the asset, but has
assumed a contractual obligation to pass those cash flows on under an arrangement that meets the
following three conditions: [IAS 39.17-19]
o the entity has no obligation to pay amounts to the eventual recipient unless it collects equiva-
lent amounts on the original asset
o the entity is prohibited from selling or pledging the original asset (other than as security to the
eventual recipient),
o the entity has an obligation to remit those cash flows without material delay
Once an entity has determined that the asset has been transferred, it then determines whether or not it
has transferred substantially all of the risks and rewards of ownership of the asset. If substantially all the
risks and rewards have been transferred, the asset is derecognised. If substantially all the risks and
rewards have been retained, derecognition of the asset is precluded. [IAS 39.20]
If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset,
then the entity must assess whether it has relinquished control of the asset or not. If the entity does not
control the asset then derecognition is appropriate; however if the entity has retained control of the
asset, then the entity continues to recognise the asset to the extent to which it has a continuing involve-
ment in the asset. [IAS 39.30]
These various derecognition steps are summarised in the decision tree in AG36.
Derecognition of a financial liability
A financial liability should be removed from the balance sheet when, and only when, it is extinguished,
that is, when the obligation specified in the contract is either discharged or cancelled or expires.
[IAS 39.39] Where there has been an exchange between an existing borrower and lender of debt instru-
ments with substantially different terms, or there has been a substantial modification of the terms of an
existing financial liability, this transaction is accounted for as an extinguishment of the original financial
liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original
financial liability is recognised in profit or loss. [IAS 39.40-41]
Hedge accounting
IAS 39 permits hedge accounting under certain circumstances provided that the hedging relationship is:
[IAS 39.88]
o formally designated and documented, including the entity's risk management objective and
strategy for undertaking the hedge, identification of the hedging instrument, the hedged item,
the nature of the risk being hedged, and how the entity will assess the hedging instrument's ef-
fectiveness and
o expected to be highly effective in achieving offsetting changes in fair value or cash flows attrib-
utable to the hedged risk as designated and documented, and effectiveness can be reliably
measured and
o assessed on an ongoing basis and determined to have been highly effective
Hedging instruments
Hedging instrument is an instrument whose fair value or cash flows are expected to offset changes in
the fair value or cash flows of a designated hedged item. [IAS 39.9]
All derivative contracts with an external counterparty may be designated as hedging instruments except
for some written options. A non-derivative financial asset or liability may not be designated as a hedging
instrument except as a hedge of foreign currency risk. [IAS 39.72]
For hedge accounting purposes, only instruments that involve a party external to the reporting entity
can be designated as a hedging instrument. This applies to intragroup transactions as well (with the
exception of certain foreign currency hedges of forecast intragroup transactions see below). However,
they may qualify for hedge accounting in individual financial statements. [IAS 39.73]
Hedged items
Hedged item is an item that exposes the entity to risk of changes in fair value or future cash flows and is
designated as being hedged. [IAS 39.9]
A hedged item can be: [IAS 39.78-82]

o a single recognised asset or liability, firm commitment, highly probable transaction or a net in-
vestment in a foreign operation
o a group of assets, liabilities, firm commitments, highly probable forecast transactions or net in-
vestments in foreign operations with similar risk characteristics
o a held-to-maturity investment for foreign currency or credit risk (but not for interest risk or pre-
payment risk)
o a portion of the cash flows or fair value of a financial asset or financial liability or
o a non-financial item for foreign currency risk only for all risks of the entire item
o in a portfolio hedge of interest rate risk (Macro Hedge) only, a portion of the portfolio of
financial assets or financial liabilities that share the risk being hedged
In April 2005, the IASB amended IAS 39 to permit the foreign currency risk of a highly probable intra-
group forecast transaction to qualify as the hedged item in a cash flow hedge in consolidated financial
statements provided that the transaction is denominated in a currency other than the functional
currency of the entity entering into that transaction and the foreign currency risk will affect consolidated
In 30 July 2008, the IASB amended IAS 39 to clarify two hedge accounting issues:
o inflation in a financial hedged item
o a one-sided risk in a hedged item.
Effectiveness
IAS 39 requires hedge effectiveness to be assessed both prospectively and retrospectively. To qualify for
hedge accounting at the inception of a hedge and, at a minimum, at each reporting date, the changes in
the fair value or cash flows of the hedged item attributable to the hedged risk must be expected to be
highly effective in offsetting the changes in the fair value or cash flows of the hedging instrument on a
prospective basis, and on a retrospective basis where actual results are within a range of 80% to 125%.
All hedge ineffectiveness is recognised immediately in profit or loss (including ineffectiveness within the
80% to 125% window).
Categories of hedges
A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or
a previously unrecognised firm commitment or an identified portion of such an asset, liability or firm
commitment, that is attributable to a particular risk and could affect profit or loss. [IAS 39.86(a)] The
gain or loss from the change in fair value of the hedging instrument is recognised immediately in profit
or loss. At the same time the carrying amount of the hedged item is adjusted for the corresponding gain
or loss with respect to the hedged risk, which is also recognised immediately in net profit or loss.
[IAS 39.89]
A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a par-
ticular risk associated with a recognised asset or liability (such as all or some future interest payments
on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.
[IAS 39.86(b)] The portion of the gain or loss on the hedging instrument that is determined to be an
effective hedge is recognised in other comprehensive income. [IAS 39.95]
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a

financial liability, any gain or loss on the hedging instrument that was previously recognised directly in
equity is 'recycled' into profit or loss in the same period(s) in which the financial asset or liability affects
profit or loss. [IAS 39.97]
If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or

non-financial liability, then the entity has an accounting policy option that must be applied to all such
hedges of forecast transactions: [IAS 39.98]
o Same accounting as for recognition of a financial asset or financial liability any gain or loss on
the hedging instrument that was previously recognised in other comprehensive income is
'recycled' into profit or loss in the same period(s) in which the non-financial asset or liability
affects profit or loss.
o 'Basis adjustment' of the acquired non-financial asset or liability the gain or loss on the
hedging instrument that was previously recognised in other comprehensive income is removed
from equity and is included in the initial cost or other carrying amount of the acquired non-fi-
nancial asset or liability.
A hedge of a net investment in a foreign operation as defined in IAS 21 The Effects of Changes in
Foreign Exchange Rates is accounted for similarly to a cash flow hedge. [IAS 39.102]
A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge
or as a cash flow hedge.
Discontinuation of hedge accounting
Hedge accounting must be discontinued prospectively if: [IAS 39.91 and 39.101]
o the hedging instrument expires or is sold, terminated, or exercised
o the hedge no longer meets the hedge accounting criteria for example it is no longer effective
o for cash flow hedges the forecast transaction is no longer expected to occur, or
o the entity revokes the hedge designation
In June 2013, the IASB amended IAS 39 to make it clear that there is no need to discontinue hedge
accounting if a hedging derivative is novated, provided certain criteria are met. [IAS 39.91 and IAS
39.101]
For the purpose of measuring the carrying amount of the hedged item when fair value hedge accounting
ceases, a revised effective interest rate is calculated. [IAS 39.BC35A]
If hedge accounting ceases for a cash flow hedge relationship because the forecast transaction is no
longer expected to occur, gains and losses deferred in other comprehensive income must be taken to
profit or loss immediately. If the transaction is still expected to occur and the hedge relationship ceases,
the amounts accumulated in equity will be retained in equity until the hedged item affects profit or loss.
[IAS 39.101(c)]
If a hedged financial instrument that is measured at amortised cost has been adjusted for the gain or
loss attributable to the hedged risk in a fair value hedge, this adjustment is amortised to profit or loss
based on a recalculated effective interest rate on this date such that the adjustment is fully amortised by
the maturity of the instrument. Amortisation may begin as soon as an adjustment exists and must begin
no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the
risks being hedged.
Disclosure
In 2003 all disclosures about financial instruments were moved to IAS 32, so IAS 32 was
renamedFinancial Instruments: Disclosure and Presentation. In 2005, the IASB issued IFRS 7 Financial In-
struments: Disclosures to replace the disclosure portions of IAS 32 effective 1 January 2007. IFRS 7 also
superseded IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions.
IAS 40 Investment Property
Overview
IAS 40 Investment Property applies to the accounting for property (land and/or buildings) held to earn
rentals or for capital appreciation (or both). Investment properties are initially measured at cost and,
with some exceptions. may be subsequently measured using a cost model or fair value model, with
changes in the fair value under the fair value model being recognised in profit or loss.
2005.
History of IAS 40
October 1984 Exposure Draft E26 Accounting for In-

vestments published
March 1986 IAS 25 Accounting for Investmentsissued Operative for financial

statements covering
July 1999 Exposure Draft E64 Investment Comment deadline 31

Property published October 1999
April 2000 IAS 40 Investment Property (2000) issued Operative for annual
(Supersedes IAS 25 with respect to in- financial statements
vestment property) covering periods beginning
on or after 1 January 2001
May 2002 Exposure Draft Improvements to Comment deadline 16

International Accounting September 2002
Standards(2000) published
18 December 2003 IAS 40 Investment Property (2003) issued Effective for annual periods
January 2005
22 May 2008 Amended by Annual Improvements to Effective for annual periods
IFRSs 2007 (include property under con- beginning on or after 1
struction or development for future use January 2009
within scope)
12 December 2013 Amended by Annual Improvements to Effective for annual periods

IFRSs 20112013 Cycle (interrelationship beginning on or after 1 July
between IFRS 3 and IAS 40) 2014
o None
Summary of IAS 40
Definition of investment property
Investment property is property (land or a building or part of a building or both) held (by the owner or
by the lessee under a finance lease) to earn rentals or for capital appreciation or both. [IAS 40.5]
Examples of investment property: [IAS 40.8]
o land held for long-term capital appreciation
o land held for a currently undetermined future use
o building leased out under an operating lease
o vacant building held to be leased out under an operating lease
o property that is being constructed or developed for future use as investment property
The following are not investment property and, therefore, are outside the scope of IAS 40: [IAS 40.5 and
40.9]
o property held for use in the production or supply of goods or services or for administrative
purposes
o property held for sale in the ordinary course of business or in the process of construction of de-
velopment for such sale (IAS 2 Inventories)
o property being constructed or developed on behalf of third parties (IAS 11 Construction

Contracts)
o owner-occupied property (IAS 16 Property, Plant and Equipment), including property held for
future use as owner-occupied property, property held for future development and subsequent
use as owner-occupied property, property occupied by employees and owner-occupied property
awaiting disposal
o property leased to another entity under a finance lease

In May 2008, as part of its Annual improvements project, the IASB expanded the scope of IAS 40 to
include property under construction or development for future use as an investment property. Such
property previously fell within the scope of IAS 16.
Other classification issues
Property held under an operating lease. A property interest that is held by a lessee under an operating
lease may be classified and accounted for as investment property provided that: [IAS 40.6]
o the rest of the definition of investment property is met
o the operating lease is accounted for as if it were a finance lease in accordance with IAS 17
Leases
o the lessee uses the fair value model set out in this Standard for the asset recognised
An entity may make the foregoing classification on a property-by-property basis.
Partial own use. If the owner uses part of the property for its own use, and part to earn rentals or for
capital appreciation, and the portions can be sold or leased out separately, they are accounted for sepa-
rately. Therefore the part that is rented out is investment property. If the portions cannot be sold or
leased out separately, the property is investment property only if the owner-occupied portion is insignif-
icant. [IAS 40.10]
Ancillary services. If the entity provides ancillary services to the occupants of a property held by the
entity, the appropriateness of classification as investment property is determined by the significance of
the services provided. If those services are a relatively insignificant component of the arrangement as a
whole (for instance, the building owner supplies security and maintenance services to the lessees), then
the entity may treat the property as investment property. Where the services provided are more signifi-
cant (such as in the case of an owner-managed hotel), the property should be classified as owner-occu-
pied. [IAS 40.13]
Intracompany rentals. Property rented to a parent, subsidiary, or fellow subsidiary is not investment
property in consolidated financial statements that include both the lessor and the lessee, because the
property is owner-occupied from the perspective of the group. However, such property could qualify as
investment property in the separate financial statements of the lessor, if the definition of investment
property is otherwise met. [IAS 40.15]
Recognition
Investment property should be recognised as an asset when it is probable that the future economic
benefits that are associated with the property will flow to the entity, and the cost of the property can be
reliably measured. [IAS 40.16]
Initial measurement
Investment property is initially measured at cost, including transaction costs. Such cost should not
include start-up costs, abnormal waste, or initial operating losses incurred before the investment
property achieves the planned level of occupancy. [IAS 40.20 and 40.23]

IAS 40 permits entities to choose between: [IAS 40.30]
o a fair value model, and
o a cost model.
One method must be adopted for all of an entity's investment property. Change is permitted only if this
results in a more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a
fair value model to a cost model.
Fair value model
Investment property is remeasured at fair value, which is the amount for which the property could be
exchanged between knowledgeable, willing parties in an arm's length transaction. [IAS 40.5] Gains or
losses arising from changes in the fair value of investment property must be included in net profit or loss
for the period in which it arises. [IAS 40.35]
Fair value should reflect the actual market state and circumstances as of the balance sheet date. [IAS
40.38] The best evidence of fair value is normally given by current prices on an active market for similar
property in the same location and condition and subject to similar lease and other contracts. [IAS 40.45]
In the absence of such information, the entity may consider current prices for properties of a different
nature or subject to different conditions, recent prices on less active markets with adjustments to reflect
changes in economic conditions, and discounted cash flow projections based on reliable estimates of
future cash flows. [IAS 40.46]
There is a rebuttable presumption that the entity will be able to determine the fair value of an invest-
ment property reliably on a continuing basis. However: [IAS 40.53]
o If an entity determines that the fair value of an investment property under construction is not
reliably determinable but expects the fair value of the property to be reliably determinable
when construction is complete, it measures that investment property under construction at cost
until either its fair value becomes reliably determinable or construction is completed.
o If an entity determines that the fair value of an investment property (other than an investment
property under construction) is not reliably determinable on a continuing basis, the entity shall
measure that investment property using the cost model in IAS 16. The residual value of the in-
vestment property shall be assumed to be zero. The entity shall apply IAS 16 until disposal of the
investment property.
Where a property has previously been measured at fair value, it should continue to be measured at fair
value until disposal, even if comparable market transactions become less frequent or market prices
become less readily available. [IAS 40.55]
Cost model
After initial recognition, investment property is accounted for in accordance with the cost model as set
out in IAS 16 Property, Plant and Equipment cost less accumulated depreciation and less accumulated
impairment losses. [IAS 40.56]
Transfers to or from investment property classification

Transfers to, or from, investment property should only be made when there is a change in use,
evidenced by one or more of the following: [IAS 40.57]
o commencement of owner-occupation (transfer from investment property to owner-occupied

property)
o commencement of development with a view to sale (transfer from investment property to in-
ventories)
o end of owner-occupation (transfer from owner-occupied property to investment property)
o commencement of an operating lease to another party (transfer from inventories to investment

property)
o end of construction or development (transfer from property in the course of construction/devel-

opment to investment property
When an entity decides to sell an investment property without development, the property is not reclas-
sified as inventory but is dealt with as investment property until it is derecognised. [IAS 40.58]
The following rules apply for accounting for transfers between categories:
o for a transfer from investment property carried at fair value to owner-occupied property or in-
ventories, the fair value at the change of use is the 'cost' of the property under its new classifica-
tion [IAS 40.60]
o for a transfer from owner-occupied property to investment property carried at fair value, IAS 16
should be applied up to the date of reclassification. Any difference arising between the carrying
amount under IAS 16 at that date and the fair value is dealt with as a revaluation under IAS 16
[IAS 40.61]
o for a transfer from inventories to investment property at fair value, any difference between the
fair value at the date of transfer and it previous carrying amount should be recognised in profit
or loss [IAS 40.63]
o when an entity completes construction/development of an investment property that will be

carried at fair value, any difference between the fair value at the date of transfer and the
previous carrying amount should be recognised in profit or loss. [IAS 40.65]
When an entity uses the cost model for investment property, transfers between categories do not
change the carrying amount of the property transferred, and they do not change the cost of the
property for measurement or disclosure purposes.
Disposal
An investment property should be derecognised on disposal or when the investment property is perma-
nently withdrawn from use and no future economic benefits are expected from its disposal. The gain or
loss on disposal should be calculated as the difference between the net disposal proceeds and the
carrying amount of the asset and should be recognised as income or expense in the income statement.
[IAS 40.66 and 40.69] Compensation from third parties is recognised when it becomes receivable. [IAS
40.72]
Disclosure
Both Fair Value Model and Cost Model [IAS 40.75]
o whether the fair value or the cost model is used
o if the fair value model is used, whether property interests held under operating leases are classi-
fied and accounted for as investment property
o if classification is difficult, the criteria to distinguish investment property from owner-occupied

property and from property held for sale
o the methods and significant assumptions applied in determining the fair value of investment
property
o the extent to which the fair value of investment property is based on a valuation by a qualified
independent valuer; if there has been no such valuation, that fact must be disclosed
o the amounts recognised in profit or loss for:
o rental income from investment property
o direct operating expenses (including repairs and maintenance) arising from investment
property that generated rental income during the period
o direct operating expenses (including repairs and maintenance) arising from investment
property that did not generate rental income during the period
o the cumulative change in fair value recognised in profit or loss on a sale from a pool of
assets in which the cost model is used into a pool in which the fair value model is used
o restrictions on the realisability of investment property or the remittance of income and

proceeds of disposal
o contractual obligations to purchase, construct, or develop investment property or for repairs,

maintenance or enhancements
Additional Disclosures for the Fair Value Model [IAS 40.76]
o a reconciliation between the carrying amounts of investment property at the beginning and end
of the period, showing additions, disposals, fair value adjustments, net foreign exchange differ-
ences, transfers to and from inventories and owner-occupied property, and other changes [IAS
40.76]
o significant adjustments to an outside valuation (if any) [IAS 40.77]
o if an entity that otherwise uses the fair value model measures an item of investment property
using the cost model, certain additional disclosures are required [IAS 40.78]
Additional Disclosures for the Cost Model [IAS 40.79]
o the depreciation methods used

o the useful lives or the depreciation rates used
o the gross carrying amount and the accumulated depreciation (aggregated with accumulated im-
pairment losses) at the beginning and end of the period
o a reconciliation of the carrying amount of investment property at the beginning and end of the
period, showing additions, disposals, depreciation, impairment recognised or reversed, foreign
exchange differences, transfers to and from inventories and owner-occupied property, and
other changes
o the fair value of investment property. If the fair value of an item of investment property cannot
be measured reliably, additional disclosures are required, including, if possible, the range of
estimates within which fair value is highly likely to lie
IAS 41 Agriculture
Overview
IAS 41 Agriculture sets out the accounting for agricultural activity the transformation of biological
assets (living plants and animals) into agricultural produce (harvested product of the entity's biological
assets). The standard generally requires biological assets to be measured at fair value less costs to sell.
IAS 41 was originally issued in December 2000 and first applied to annual periods beginning on or after 1
January 2003.
History of IAS 41
December 1999 Exposure Draft E65 Agriculture Comment deadline 31 January 2000
December 2000 IAS 41 Agriculture issued Operative for annual financial state-
ments covering periods beginning on
22 May 2008 Amended by Improvements to Effective for annual periods beginning

IFRSs (discount rates) on or after 1 January 2009
30 June 2014 Amended by Agriculture: Bearer Effective for annual periods beginning
Plants (Amendments to IAS 16 on or after 1 January 2016
and IAS 41)
o None
o None
Summary of IAS 41
Objective
The objective of IAS 41 is to establish standards of accounting for agricultural activity the management
of the biological transformation of biological assets (living plants and animals) into agricultural produce
(harvested product of the entity's biological assets).
Scope
IAS 41 applies to biological assets with the exception of bearer plants, agricultural produce at the point
of harvest, and government grants related to these biological assets. It does not apply to land related to
agricultural activity, intangible assets related to agricultural activity, government grants related to
bearer plants, and bearer plants. However, it does apply to produce growing on bearer plants.
Note: Bearer plants were excluded from the scope of IAS 41 by Agriculture: Bearer Plants (Amendments
to IAS 16 and IAS 41), which applies to annual periods beginning on or after 1 January 2016.
Key definitions
[IAS 41.5]
Biological asset A living animal or plant
Bearer plant* A living plant that:
a. is used in the production or supply of agricultural produce
b. is expected to bear produce for more than one period, and
c. has a remote likelihood of being sold as agricultural produce, except

for incidental scrap sales.
Agricultural The harvested product from biological assets

produce
Costs to sell The incremental costs directly attributable to the disposal of an asset,
excluding finance costs and income taxes
* Definition included by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which applies to
Initial recognition
An entity recognises a biological asset or agriculture produce only when the entity controls the asset as
a result of past events, it is probable that future economic benefits will flow to the entity, and the fair
value or cost of the asset can be measured reliably. [IAS 41.10]
Measurement
Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent
reporting dates at fair value less estimated costs to sell, unless fair value cannot be reliably measured.
[IAS 41.12]
Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. [IAS
41.13] Because harvested produce is a marketable commodity, there is no 'measurement reliability'
exception for produce.
The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value
less costs to sell of biological assets during a period, are included in profit or loss. [IAS 41.26]
A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value less costs
to sell are included in profit or loss for the period in which it arises. [IAS 41.28]
All costs related to biological assets that are measured at fair value are recognised as expenses when
incurred, other than costs to purchase biological assets.
IAS 41 presumes that fair value can be reliably measured for most biological assets. However, that pre-
sumption can be rebutted for a biological asset that, at the time it is initially recognised, does not have a
quoted market price in an active market and for which alternative fair value measurements are deter-
mined to be clearly unreliable. In such a case, the asset is measured at cost less accumulated deprecia-
tion and impairment losses. But the entity must still measure all of its other biological assets at fair value
less costs to sell. If circumstances change and fair value becomes reliably measurable, a switch to fair
value less costs to sell is required. [IAS 41.30]
Guidance on the determination of fair value is available in IFRS 13 Fair Value Measurement. IFRS 13 also
requires disclosures about fair value measurements.
Other issues
The change in fair value of biological assets is part physical change (growth, etc) and part unit price
change. Separate disclosure of the two components is encouraged, not required. [IAS 41.51]
Agricultural produce is measured at fair value less costs to sell at harvest, and this measurement is con-
sidered the cost of the produce at that time (for the purposes of IAS 2 Inventories or any other applica-
ble standard). [IAS 41.13]
Agricultural land is accounted for under IAS 16 Property, Plant and Equipment. However, biological
assets (other than bearer plants) that are physically attached to land are measured as biological assets
separate from the land. In some cases, the determination of the fair value less costs to sell of the bio-
logical asset can be based on the fair value of the combined asset (land, improvements and biological
assets). [IAS 41.25]
Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for
underIAS 38 Intangible Assets.
Government grants
Unconditional government grants received in respect of biological assets measured at fair value less
costs to sell are recognised in profit or loss when the grant becomes receivable. [IAS 41.34]
If such a grant is conditional (including where the grant requires an entity not to engage in certain agri-
cultural activity), the entity recognises the grant in profit or loss only when the conditions have been
met. [IAS 41.35]
Disclosure
Disclosure requirements in IAS 41 include:
o aggregate gain or loss from the initial recognition of biological assets and agricultural produce
and the change in fair value less costs to sell during the period* [IAS 41.40]
o description of an entity's biological assets, by broad group [IAS 41.41]
o description of the nature of an entity's activities with each group of biological assets and non-
financial measures or estimates of physical quantities of output during the period and assets on
hand at the end of the period [IAS 41.46]
o information about biological assets whose title is restricted or that are pledged as security [IAS
41.49]
o commitments for development or acquisition of biological assets [IAS 41.49]
o financial risk management strategies [IAS 41.49]
o reconciliation of changes in the carrying amount of biological assets, showing separately

changes in value, purchases, sales, harvesting, business combinations, and foreign exchange dif-
ferences* [IAS 41.50]
* Separate and/or additional disclosures are required where biological assets are measured at cost less
accumulated depreciation [IAS 41.55]
Disclosure of a quantified description of each group of biological assets, distinguishing between consum-
able and bearer assets or between mature and immature assets, is encouraged but not required. [IAS
41.43]
If fair value cannot be measured reliably, additional required disclosures include: [IAS 41.54]
o description of the assets
o an explanation of why fair value cannot be reliably measured
o if possible, a range within which fair value is highly likely to lie
o depreciation method
o useful lives or depreciation rates
o gross carrying amount and the accumulated depreciation, beginning and ending.
If the fair value of biological assets previously measured at cost subsequently becomes available, certain
additional disclosures are required. [IAS 41.56]
Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions,
and significant decreases expected in the level of grants. [IAS 41.57]

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IAS 1 Presentation of Financial Statements

Date Development Comments

March 1974 Exposure Draft E1 Disclosure

January 1975 IAS 1 Disclosure of Accounting Operative for

June 1975 Exposure Draft E5 Informa-

October 1976 IAS 5 Information to Be Operative for

November 1979 IAS 13 Presentation of Current Operative for

1994 IAS 1, IAS 5, and IAS 13 refor-

July 1996 Exposure Draft E53 Presenta-

August 1997 IAS 1 Presentation of Operative for

18 December 2003 IAS 1 Presentation of Effective for annual

18 August 2005 Amended by Amendment to Effective for annual

22 June 2006 Exposure Draft Financial In- Comment deadline

6 September 2007 IAS 1 Presentation of Effective for annual

14 February 2008 Amended by Puttable Effective for annual

22 May 2008 Amended by Annual Improve- Effective for annual

16 April 2009 Amended by Improvements Effective for annual

27 May 2010 Exposure Draft Comment deadline

16 June 2011 Amended by Presentation of Effective for annual

17 May 2012 Amended by Annual Improve- Effective for annual

18 December 2014 Amended by Disclosure Initia- Effective for annual

When a long-term debt is expected to be refinanced under an existing loan

Examples of items recognised outside of profit or loss

o Changes in revaluation surplus where the revaluation method is used

Term before 2007 revision of Term as amended by IAS 1 (2007)

balance sheet statement of financial position

cash flow statement statement of cash flows

income statement statement of comprehensive income

recognised in the income recognised in profit or loss

recognised [directly] in equity recognised in other comprehensive

recognised [directly] in equity recognised outside profit or loss (either in

removed from equity and reclassified from equity to profit or loss as

Standard or/and Interpreta- IFRSs

balance sheet date end of the reporting period

reporting date end of the reporting period

after the balance sheet date after the reporting period

Date Development Comments

September 1974 Exposure Draft E2 Valuation and

October 1975 IAS 2 Valuation and Presentation of

August 1991 Exposure Draft E38 Inventories published

December 1993 IAS 9 (1993) Inventories issued Operative for annual

18 December 2003 IAS 2 Inventories issued Effective for annual

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

financial instruments (see IAS 39 Financial Instruments: Recognition and Measurement)

Fundamental principle of IAS 2

Cost should include all: [IAS 2.10]

costs of conversion (including fixed and variable manufacturing overheads) and

Inventory cost should not include: [IAS 2.16 and 2.18]

administrative overheads unrelated to production

Write-down to net realisable value

Required disclosures: [IAS 2.36]

accounting policy for inventories

amount of any write-down of inventories recognised as an expense in the period

cost of inventories recognised as expense (cost of goods sold).

June 1976 Exposure Draft E7 Statement of Source and Application of Funds

October 1977 IAS 7 Statement of Changes in Financial Position

July 1991 Exposure Draft E36 Cash Flow Statements

December 1992 IAS 7 (1992) Cash Flow Statements

1 January 1994 Effective date of IAS 7 (1992)

1 January 2010 Effective date of the April 2009 revisions to IAS 7

Amendments under consideration by the IASB

o Disclosure initiative Reconciliation of liabilities from financing activities

o Disclosure initiative Principles of disclosure (research project)

Fundamental principle in IAS 7