All SBR Topics Overview PDF

STRATEGIC BUSINESS
REPORTING
Ms. Aleena Kareem

October 19, 2018
© ACCA
Assumed Knowledge for SBR
 Financial Reporting Syllabus
 SKANS Ecampus recorded lectures
 http://ready.campusinsight.net
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Assumed Knowledge for SBR
 Reflect understanding of Conceptual Framework rather than regurgitation
of contents
 Talk around standard, reason for existence, rationale and criticisms
 Sound understanding of basic consolidation techniques
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Conceptual Framework - Definitions
 Definitions of the elements relating to financial position
 Asset. An asset is a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the entity.
 Liability. A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.
 Equity. Equity is the residual interest in the assets of the entity after deducting all its
liabilities.
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Conceptual Framework - Definitions
 Definitions of the elements relating to performance
 Income. Income is increases in economic benefits during the accounting period

in the form of inflows or enhancements of assets or decreases of liabilities that
result in increases in equity, other than those relating to contributions from equity
participants.
 Expense. Expenses are decreases in economic benefits during the accounting

period in the form of outflows or depletions of assets or incurrences of liabilities
that result in decreases in equity, other than those relating to distributions to
equity participants.
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Logics behind Double entries
 Impact on elements of accounting
 Examples
 Recognition of assets
 Recognition of liabilities
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IAS 16 – PROPERTY, PLANT
AND EQUIPMENT
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Recognition
 To incorporate PPE in financial statements
Criteria
 Probable future inflow of ecnonomic benefits
 Cost reliably measurable
 Aggregation and Segmenting as per the nature of asset
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Measurement
 Initial measurement
 Subsequent measurement
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IAS 38 – INTANGIBLE
ASSETS
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Definitions
Intangible asset
An identifiable non-monetary asset without physical substance
Three critical attributes of an intangible asset are:

 Identifiability
 Control (power to obtain benefits from the assets)
 Future economic benefits (such as revenues or reduced future costs)
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Recognition and Measurement
Asset should meet:

Definition of Intangible Asset
Recognition criteria:
- Probable future inflow of economic
benefits from asset
- Reliable measurement of cost of asset
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Recognition and Measurement
 Initially measured at COST (same rules as IAS 16)
Separate rules, if:
 Acquired separately: At cost
 Acquired as part of a business combination: At fair value
 Acquired by way of a government grant: As per IAS 20
 Obtained in an exchange of assets: At fair value
 Generated internally (Discussed later)
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Research and Development
 Accounting treatment of Research
 Accounting treatment of Development
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Amortization & Impairment
 Asset With Finite Useful Life
 Asset With Indefinite Useful Life
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IAS 40 – INVESTMENT
PROPERTY
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Definitions
Investment property:
 Property (Land and building) held to earn rentals or for capital appreciation or
both, instead of:
 Production/ supply of goods/ services or for administrative purposes (IAS 16)
 Sale in the ordinary course of business (IAS 2)
Owner-occupied property:
 Property held for use in the production/ supply of goods/ services or for
administrative purposes.
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Recognition
Asset meeting definition of investment property recognised when:
 Probable future inflow of economic benefits
 Cost reliably measurable
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Measurement
 Initial Measurement
 Subsequent Measurement
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IAS 36 – IMPAIRMENT OF
ASSETS
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Definitions
 Impairment Loss: Amount by which carrying amount of an asset exceeds its
recoverable amount.
 Recoverable Amount: Higher of an asset’s net selling price and its value in use.
 Value In Use: Present value of estimated future cash flows arising from the
continuing use of an asset and from its disposal at the end of its useful life.
(Discount rate used is pre-tax)
 Net Selling Price: Amount obtainable from the sale of an asset at fair value less
the costs of disposal.
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Impairment Assessment
Assets to be impaired annually
 Intangible assets with indefinite useful life
 Intangible assets under development
 Goodwill acquired in business combination (IFRS 3)
An enterprise should assess at each reporting date:

 Any indication that an asset may be impaired
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Recognition of Impairment loss
 Recognized as an expense in the statement of profit or loss immediately.
 If asset is carried at revalued amount, the loss is recognized directly against any
revaluation surplus. Any over and above amount is expensed in P&L
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Cash Generating Unit (CGU)
 Cash Generating Unit: Smallest identifiable group of assets that generates cash
inflows from continuing use, largely independent of the cash inflows from other
assets.
 Corporate Assets: Assets other than goodwill that contribute to the future cash
flows of both the cash-generating unit under review and other cash-generating
units.
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Cash Generating Unit
 The impairment loss on a CGU is allocated in the following order:
1. To any asset that is impaired
2. To goodwill in the cash generating unit
3. To all other assets in the CGU on a pro rata basis based on carrying value
 When allocating an impairment loss the carrying amount of an asset should not
be reduced below the higher of its fair value less costs to sell, value in use or zero.
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Reversal of impairment loss
Considerations on reversal of an Impairment Loss for a cash generating unit:
 First, asset other than goodwill on a pro-rata basis based on the carrying amount
of each asset in the unit; and
 Impairment loss recognized for goodwill shall not be reversed in a subsequent
period.
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IFRS 5- NON-CURRENT
ASSETS HELD FOR SALE AND
DISCONTINUED
OPERATIONS
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Definitions
Held For Sale: A non-current asset whose carrying amount will be recovered
principally through a Sale transaction rather than through continuing use.
Discontinued Operation:
 Separately identifiable components
 Represents a major line of the entity’s business
 Part of a plan to dispose of a major line of business or a geographical area
 Subsidiary acquired with a view to resell
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Definitions
Disposal Group: A group of assets and possibly some liabilities that an entity intends
to dispose of in a single transaction.
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Accounting Treatment
 Presented separately on the Statement of Financial Position within current assets.
 For a disposal group the related liabilities are also reported separately within
current liabilities.
 Disclosed separately in the statement of financial position at the lower of their
carrying value and fair value less costs to sell.
© ACCA
Conditions:
a) Available for immediate sale in its present condition allowing for terms that are
usual or customary
b) Sale must be highly probable (expected within 1 year of reclassification)
c) Must be genuinely sold, not abandoned.
© ACCA
Highly Probable:
 Management committed to a plan to sell
 Active programme to locate a buyer and complete the sale initiated
 Sale price reasonable compared to its current fair value.
 Sale expected to be complete within one year from the date of classification.
 No indication that there will be significant changes made to the plan of sale.
© ACCA
Measurement
 Measured at the lower of:
 Fair value less costs to sell
 Carrying amount (in accordance with relevant Standard)
 Impairment loss is to be recognised in the statement of profit or loss
 Subsequent increase in fair value less cost to sell can be recognised in the
statement of profit or loss – to the extent the depreciated historical cost would
have been if the impairment had not been recognised
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Subsequent Measurement -
 No further depreciation or amortisation
 Fair value less costs to sell re-measured at every reporting date
 Further impairment or a reversal of previous impairment loss recognised in
statement of profit or loss
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IAS 37 - PROVISIONS,
CONTINGENT LIABILITIES
AND CONTINGENT ASSETS
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Definitions
Provision: Liability of uncertain timing or amount.
Obligating Event: Event that creates a legal or constructive obligation that results in
an enterprise having no realistic alternative to settling that obligation.
Legal obligation: Obligation that derives from:

a) A contract (through its explicit or implicit terms);
b) Legislation; or
c) Other operation of law.
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Definitions
Constructive obligation: Obligation that derives from an enterprise’s action, where:
a) Based on established pattern of past practice, published policies or a sufficiently
specific current statement and
b) As a result, the enterprise has created a valid expectation on the part of those
other parties that it will discharge those responsibilities
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Definitions
Contingent liability:
a) A possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of uncertain future
events; or
b) A present obligation that arises from past events but is not recognized because:
I. It is not probably that an outflow of resources will be required to settle the
obligation; or
II. The amount of the obligation cannot be measured with sufficient reliability.
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Definitions
Contingent asset: Possible asset that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events.
Onerous contract: A contract in which unavoidable costs of meeting the obligations

under the contract exceed the economic benefits expected to be received.
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Definitions
A restructuring is a program that is planned and controlled by management, and
materially changes either:
a) The scope of a business undertaken by an enterprise; or
b) The manner in which that business is conducted.
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Recognition
Provisions are recognized when:
 An entity has a present obligation based on a past event;
 It is probable that an outflow of economic benefits will be required to settle the
obligation; and
 A reliable estimate can be made of amount.
If these conditions are not met, no provision shall be recognized.
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Measurement
 Amounts recognized as provision are the best estimate of the expenditure
required to settle the present obligation at the reporting date. This means that:
 Provisions for one-off events are measured at the most likely amount.
 Provisions for large populations of events are measured at a probability-weighted
expected value.
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Measurement
 Both measurements are at discounted present value using a pre-tax discount rate
 In reaching the best estimate, the risks and uncertainties that surround the
underlying events, should be taken into account.
 Reimbursement of provision should be recognized when it is virtually certain that it
will be received.
 In SOFP, reimbursement is shown as an asset and provision is shown at gross
amount however, in statement of profit or loss they can be netted off.
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Measurement
Re-Measurement of Provisions:
 Review and adjust provisions at each reporting date
 If outflow is no longer probable, reverse the provision to statement of profit or loss.
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Application
Rules for Recognition and Measurement:
 Provisions shall not be recognized for future operating losses.
 If an entity has a contract that is onerous, the present obligation under the
contract shall be recognized and measured as a provision.
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Restructuring
Examples of Restructuring:
 Sale or termination of a line of business
 Closure of business locations
 Changes in management structure
 Fundamental re-organization of company
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Restructuring
Restructuring provisions should be accrued as follows:
Sale of operation: Accrue provision only after a binding sale agreement.
Closure or re-organization: Accrue only after a detailed formal plan is adopted and
announced publicly.
Restructuring provision on acquisition (merger): Accrue relevant provisions only if
announced at acquisition and only if a detailed formal plan is adopted 3 months
after acquisition.
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Restructuring
 A management or board decision to restructure taken before the reporting date
gives rise to a constructive obligation at the reporting date if the entity has,
before the reporting date:
 Stated to implement the restructuring plan; or
 Announced the main features to those affected by the restructuring sufficiently,
to raise a valid expectation.
 Restructuring provisions should include only direct expenditures caused by the
restructuring.
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Contingent Liability
 An enterprise should not recognize a contingent liability.
 A contingent liability is disclosed in financial statements, unless the possibility of an
outflow of resources embodying economic benefits is remote.
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IFRS 5- NON-CURRENT
ASSETS HELD FOR SALE AND
DISCONTINUED
OPERATIONS
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Definitions
Held For Sale: A non-current asset whose carrying amount will be recovered
principally through a Sale transaction rather than through continuing use.
Discontinued Operation:
 Separately identifiable components
 Represents a major line of the entity’s business
 Part of a plan to dispose of a major line of business or a geographical area
 Subsidiary acquired with a view to resell
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Definitions
Disposal Group: A group of assets and possibly some liabilities that an entity intends
to dispose of in a single transaction.
© ACCA
 Presented separately on the Statement of Financial Position within current assets.
 For a disposal group the related liabilities are also reported separately within
current liabilities.
 Disclosed separately in the statement of financial position at the lower of their
carrying value and fair value less costs to sell.
© ACCA
Conditions:
a) Available for immediate sale in its present condition allowing for terms that are
usual or customary
b) Sale must be highly probable (expected within 1 year of reclassification)
c) Must be genuinely sold, not abandoned.
© ACCA
Highly Probable:
 Management committed to a plan to sell
 Active programme to locate a buyer and complete the sale initiated
 Sale price reasonable compared to its current fair value.
 Sale expected to be complete within one year from the date of classification.
 No indication that there will be significant changes made to the plan of sale.
© ACCA
Measurement
 Measured at the lower of:
 Fair value less costs to sell
 Carrying amount (in accordance with relevant Standard)
 Impairment loss is to be recognised in the statement of profit or loss
 Subsequent increase in fair value less cost to sell can be recognised in the
statement of profit or loss – to the extent the depreciated historical cost would
have been if the impairment had not been recognised
© ACCA
Subsequent Measurement -
 No further depreciation or amortisation
 Fair value less costs to sell re-measured at every reporting date
 Further impairment or a reversal of previous impairment loss recognised in
statement of profit or loss
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IFRS 2
SHARED BASED PAYMENT
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SHARED BASED PAYMENT
When goods or services received in exchange of shares, share options (equity
instrument) or cash based on share price.
IFRS 2 has been divided into 3 components;

• Share based payment (Equity settled share based payment)
• Cash based on share price (Cash settled share based payment)
• Choice of settlement
© ACCA
SCOPE: (Outside the scope)
• Issue of shares to owners in capacity of owners (IAS 32)
e.g. right issue or bonus issue
• Exchange of shares in a business combination (IFRS 3)
e.g. as consideration of goodwill and replacement rewards
• Contracts that may or will be settled, net in company shares (IFRS 9)
© ACCA
TYPES OF SHARE BASED PAYMENTS
• Equity settled share based payment
• Cash settled share based payment
• Choice of settlement
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Equity settled share based payment
• When goods or service received in exchange of shares or share options (equity
instrument)
• Dr. Asset/ Expense for service $xx

Cr. Equity $xx
• Allocation of expense for services, if vesting period exists, allocate the expense
over the vesting period
© ACCA
Equity settled share based payment
• Allocation of expense for service, immediately vesting, charge expense to profit
and loss immediately
• Equity once recorded can’t be remeasured
• Calculation:
No. of share options expected to vest × Fair value of share option at grant date ×
time ratio
© ACCA
Example:
No. of employees = 100
Options per employee = 1,000
Fair value of option = $3
Exercise price = $2
Vesting period = 3 years
10 employees left during the first year.
No. of employees expected to leave in remaining years are 22.
11 employees left during year 2. 6 further employees were expected to leave by the
end of year 3
© ACCA
Cash settled share based payment
When goods or services are received in exchange of cash based on share price
Dr. Asset/Expense $xx

Cr. Liability $xx
Allocation of expense for services, if vesting period exists, allocate expense over
vesting period
© ACCA
Cash settled share based payment
• Allocation of expense for services, if immediately vesting, charge expense to
profit and loss immediately
• Liability will be remeasured to its fair value at each reporting date
Calculation:
No. of SAR’s expected to vest × Fair value of SAR’s at each reporting date × time
ratio
© ACCA
Year 1 Year 2 Year 3
Vesting
Grant Date Date
Conditions Attached over the

vesting period; VESTING
CONDITONS
© ACCA
VESTING CONDITIONS
• Market based conditions:
Conditions related to share price of the company e.g. share price, P/E ratio, earning
yield ratio target
 Accounting:
Ignore, because they are already considered in calculation of fair value at grant
date
© ACCA
VESTING CONDITIONS
• Non-market related conditions:
Conditions other than market related conditions e.g. EPS target, minimum service
period, cost reduction
 Accounting:
Consider, in calculation of no. of share options expected to vest
© ACCA
MEASUREMENT OF EQUITY SETTLED SBP
Transaction Transaction
with with third
employees party
Fair value of equity

Fair value of goods and
instrument at grant date
services can’t be
is used because
measured reliably, fair
services received from
value of equity
employees can’t be
instrument is used.
measured reliably
Fair value of good and

If fair value of equity
services can be
instrument can’t be
measured reliably, fair
measured reliably then
value of goods and
use intrinsic value of
services received is
share option
used.
© ACCA
VARIABLE VESTING PERIOD
Due to market related conditions, access vesting period at grant date;
• Can’t be longer than original
• Can be shorter if actually vest
Due to non-market related conditions, access vesting period at grant date
SBP Transaction during the year:
• Allocate expense on pro rata basis (Monthly basis)
© ACCA
MODIFICATION AND REPRICING
Fair value of Fair value of
option option
increases decreases
Beneficial for Not beneficial

employees for employees
Continue original Continue original

calculation calculation
Allocate expense of
increase in fair value of
option due to modification Ignore
over period between modification
modification date and
vesting date
© ACCA
MODIFICATION AND REPRICING
If modification is after vesting period
• No condition period attached, immediately charge to profit and loss
• condition period attached, allocate expense over vesting period
© ACCA
CHOICE OF SETTLEMENT
Counter
Entity has
party has
choice
choice
Same as issue
Access
of compound
obligation to pay
instrument. Use
cash exists or
split
not based on
accounting
Liability: Present
Management
value of future
intention
cash outfllows
Equity: Residual
Past practice
value
© ACCA
COUNTER PARTY – CHOICE OF SETTLEMENT
Transaction with employee
• Formula
Fair value of equity route/ alternative $x
Less liability (PV) ($x)
(R.V) Equity Option $x
© ACCA
Transaction with third party
• Formula
Fair value of goods/services $x
Less liability (PV) ($x)
(R.V) Equity Option $x
© ACCA
Transaction with third party
Double Entry:
Dr. Asset/ Expense $xx
Cr. Liability $xx
Cr. Equity Option $xx
Liability will be remeasured
© ACCA
CONSOLIDATED FINANCIAL
STATEMENTS
© ACCA
Definitions
Group of Companies: when one company (Parent) takes control of

another company (subsidiary).
Subsidiary: a company controlled by another company.
Parent: a company that controls one or more subsidiaries.
Non-Controlling Interest: collective representation of the shareholders

that normally own 49% or less of equity.
Consolidated Financial Statements: F/S of whole Group presented

as a single set of accounts.
© ACCA
Control
According to IFRS 10 Consolidated Financial Statements an investor

controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee.
 Existence of parent subsidiary relationship:
 Parent holds more than one half of the voting power of the entity
© ACCA
Control
 The parent has power over more than one half of the voting rights.
 The parent has the power to govern the financial and operating
policies of the entity.
 The parent has the power to appoint or remove a majority of the
board of directors
 The parent has the power to cast the majority of votes at meetings of
the board
© ACCA
Exemptions
Consolidated financial statements not prepared if:

 The parent itself is a wholly or partially owned subsidiary of another
entity. Its securities are not publicly traded.
 The parent’s debt or equity instruments are not traded in a public
market.
 The parent did not file its financial statements with a securities
commission or other regulatory organisation.
 The ultimate parent publishes consolidated financial statements that
comply with IFRS.
© ACCA
General Rules
 Same accounting policies should be used for holding company and

the subsidiaries. Adjustments must be made where there is a
difference.
 The reporting dates of parent and subsidiary will be the same in most
cases.
© ACCA
Separate Accounting
 The holding company produces its own separate financial

statements.
 Investments in subsidiaries and associates have to be accounted for

at cost or in accordance with IFRS 9.
 Where subsidiaries are classified as held for sale then the provisions
of IFRS 5 have to be complied with.
© ACCA
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
© ACCA
Consolidated Statement of Financial Position
 On acquisition, the investment by the parent company in the

subsidiary is cancelled of against the equity. Any excess remaining is
known as goodwill
 All assets and liabilities of the subsidiary are added on a line by line
basis with those of the parent company
© ACCA
 If the control is less than 100%, the remaining investment is known

as non-controlling interest and a portion of equity becomes
attributable to NCI
 Fair value of NCI
© ACCA
Consideration might be paid in the following ways:

 By cash
 By share for share exchange
 By deferred consideration
 By contingent consideration
 By loan notes
© ACCA
By Share for share exchange
 Parent Co. share price x No. of shares issued
© ACCA
Deferred consideration: is recorded at present value at the date of

acquisition.
Initial recognition:
Dr. Cost of investment
Cr. Provision for deferred consideration
Subsequent recognition Unwinding of discount
Dr. Consolidates retained earnings
Cr. Provision for deferred consideration
© ACCA
Contingent consideration: At times, the parent Co. agrees to pay the

consideration if certain conditions are met. These conditions are
contingent events and IFRS 3 measures such consideration at fair
value
Initial recognition:
Dr. Cost of investment
Cr. Provision for contingent consideration
© ACCA
Goodwill
 Full Goodwill method
 Proportionate share of Goodwill
© ACCA
Fair Value Adjustment

 Gain or loss is adjusted in the calculation of goodwill
 Additional depreciation is deducted from retained earnings.
© ACCA
Intra-group balances are removed from consolidated statement of

financial position only if balances reconcile.
Dr. Payables
Cr. Receivables
© ACCA
If balances do not reconcile:

Make the adjustments for in transit items
 Cash in transit
DR Cash
CR Receivables
 Goods in transit
DR Inventories
CR Payables
© ACCA
Intra-Group unrealized profits
© ACCA
CSOFP – Intra group unrealised profits
Downstream transactions:
If P Co sold goods to S Co and these goods remain in the inventory at
the year end, the profit recognized by the P Co will be eliminated (No
impact on NCI)
Dr. Consolidated Reserves
Cr. Inventory
© ACCA
CSOFP – Intra group unrealised profits
Upstream transactions:
If the S Co. sold goods to P.Co. the profits earned by the S.Co. will be
eliminated not only from group reserve but also from NCI
Dr. Consolidated Reserves
Dr. NCI
Cr. Inventories
© ACCA
Consolidated Statement Of Financial Position
Intra group sale of non-current assets

 Elimination of profit
 Adjustment of additional depreciation
© ACCA
Intra group loans:

The portion of loan given by the P.Co to its subsidiary is an intra-group
receivable/ payable and is eliminated as such.
Dr. Loan liability
Cr. Loan Asset
© ACCA
Any interest receivable payable on intra-group loans is eliminated but

only to the extent related to the parent
Dr. Interest payable
Cr. Interest receivable
© ACCA
If the P.Co has not recorded interest receivable on loans given to the
sub Co. the first treatment is to record the interest receivable.
Dr. Interest receivable
Cr. Consolidated reserves
Then the intra-group interest receivable/payables is eliminated
Dr. Interest payable
Cr. Interest receivable
© ACCA
Intra-group dividends:
If the parent Co has not recorded the dividend recoverable, it should be recorded:
Dr. Dividend receivable
Cr. Consolidated reserve
After this an intra-group, dividends receivable/payable exists which is eliminated:
Dr. Consolidated reserves
Dr. NCI
Cr. Dividend payable
© ACCA
Goodwill in consolidated Statement of Financial Position:

Acquisition-date: Fair value of consideration transferred by parent X
Plus: Fair (or full) value of the NCI at date of acquisition X

Less: Fair value of subsidiary’s identifiable net assets at date of acquisition (x)
Equals: Total Goodwill X
© ACCA
Full or fair value of NCI
IFRS-3, allows/requires goodwill to be stated at full value i.e. a part of

goodwill shall now be attributable to NCI
© ACCA
Impairment Of Goodwill
Under this approach the goodwill appearing in the consolidated

Statement of Financial Position is the total goodwill. The accounting
treatment will be:
Dr Group retained Earnings X
Dr Non-controlling interest X
Cr Goodwill X
© ACCA
Consolidated Retained Earnings
© ACCA
Non-controlling Interest
© ACCA
Assets & Share capital
© ACCA
Acquisition during the year
© ACCA
Consolidated Revaluation Reserve
© ACCA
QUESTIONS?
© ACCA
CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
© ACCA
Consolidated statement of profit or loss
 Show results of the group as if it were a single entity
 Add sales, cost of sales and other expenses on a line by line basis.
Parent Co. figures are added to post acquisition figures of Subsidiary
Co.
 The majority of figures are simple aggregations of the results of the

parent and all the subsidiaries (line by line) down to profit after tax.
© ACCA
 In aggregating the results, intra-group transactions are eliminated.
 Non-controlling interest is ignored until profit after tax. The interest in

profits after tax is subtracted as a one-liner to leave profits
attributable to members of the parent.
© ACCA
P group plc - Pro-forma Consolidated statement of profit or loss
For year ended 30 November 20X6
$'m
Sales revenue (P+S less intra-group sales) X
Cost of Sales (X)
(P+S less intra-group purchases plus unrealised profit in inventory)
Gross Profit X
Distribution Costs (P+S) (X)
Administrative Expenses (P+S) (X)
Group operating Profit X
Interest and similar income receivable X
(P+S less intra group interest income)
Interest expenses (P+S less intra-group interest expense) (X)
X
Share of Profits of Associate (PAT) X
Profit before tax X
Income tax expense (P+S) (X)
Profit for the period X
Profit attributable to :
Owners of the parent X
Non-controlling interest X
© ACCA
OTHER ADJUSTMENTS
 If the subsidiary is acquired during the current accounting period the
profit for the period is apportioned between pre-acquisition and post-
acquisition elements.
 After profit after tax in consolidated statement, total profits are divided
between profits attributable to group and to NCI
 Dividends receivable by the parent must be cancelled against
dividends paid from the subsidiary.
© ACCA
 Intra Group purchase and sales are removed from the consolidated
statement by cancelling from both sales and cost of sales.
 The unrealized profit adjustment is to increase cost of sales. In case
of upstream transaction, the unrealized profit is deducted from profit
attributable to NCI also.
 Investment in loans leads to intra-group finance cost and inter-group
dividends.
 These cancel out in the same way as for dividends.
© ACCA
 Impairment of goodwill is treated as an administration expense

unless otherwise stated
 No impact of fair value adjustment on acquisition at the statement of

profit or loss. Any additional depreciation related to fair value
adjustment are charged by adding to cost of sales and deducting
from profit after tax of subsidiary, while calculating profit attributable
to NCI.
© ACCA
DISPOSAL OF INVESTMENT
© ACCA
Introduction
 FR syllabus includes only full disposal i.e. all the holding is sold (say,
70% to nil)
 The effective date of disposal is when control is lost.
 Subsidiaries are consolidated until the date control is lost therefore
profits need to be time-apportioned.
© ACCA
 In case of Statement of profit or loss and other comprehensive

income, consolidate results and non-controlling interests to the date
of disposal.
 Show group profit or loss on disposal
 In case of Statement of financial position, there will be no non-
controlling interests and no consolidation.
© ACCA
Parent Company’s Accounts
In the parent's individual financial statements the profit or loss on

disposal of a subsidiary will be calculated as:
$
Sales proceeds X
Less: Carrying amount (cost in P’s own statement of financial (X)
position)
Profit (loss) on disposal X/(X)
© ACCA
Disposal of Subsidiary
In the group financial statements the profit or loss on disposal will be

calculated as:
$ $
Proceeds X
Less: Amounts recognized prior to disposal:
Net assets of subsidiary X
Goodwill X
Non-controlling interest (X) (X0
Profit/loss X/(X)
© ACCA
Disposal of Subsidiary
If the disposal is mid-year:

 Calculate both net assets and the non-controlling interest at disposal
date
 Any dividends declared, paid in the year of disposal or prior to
disposal date must be deducted from the net assets of the subsidiary
if not already accounted for.
 Goodwill recognised prior to disposal is the original goodwill arising
less any impairment to date.
© ACCA
IAS 28 – INVESTMENTS IN
ASSOCIATES
© ACCA
Definitions
An associate is an entity, over which the investor has significant

influence and that is neither a subsidiary nor an interest in a joint
venture.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint
control over those policies.
© ACCA
Significant Influence
Significant influence is usually evidenced by:

 Representation on the board of directors Participating in policy
making process.
 Material transactions between the investor and the investee
 Interchange of managerial personnel; or
 Provision of essential technical information.
© ACCA
Equity Method
Statement of profit or loss

Dividend income from associates (reported in the investor's books) is
replaced by the share of profit after tax of the associate.
© ACCA
Equity Method
Statement of Financial Position
Initially the Investments in Associates is shown at cost, identifying any

goodwill included in the cost.
In subsequent years the Investor's accounts will show:
 The investment at cost
 Plus group share of associate's post acquisition reserves.
 Less any impairment of investment to date.
© ACCA
Consolidation
SBR
© ACCA
Consolidated statement of
financial position
© ACCA
PIECEMEAL ACQUISITION
 Step-wise acquisition
 Previous holding 10%. 45% additional acquisition
Goodwill
 45% consideration xx
 10% fair value xx
 Less net assets at the date of acquisition (xx)
 Goodwill XX
© ACCA
 Simple investment to Subsidiary
Goodwill
Fair value of existing holding xx
Consideration for new investment xx
Less Net assets (xx)
Goodwill xx
© ACCA
 Simple investment to Subsidiary
Gain/loss on old investment

Less Carrying value (xx)
Consolidated retained earning xx
© ACCA
 Associate to Subsidiary
Goodwill
Less Net assets (xx)
Goodwill xx
© ACCA
 Associate to Subsidiary

Consolidated retained earning/P&L xx
© ACCA
 Simple investment to Associate

 No calculation of Goodwill
Calculation of investment in Associate

Share of post acquisition reserves xx
Investment in Associate xx
© ACCA
 Simple investment to Associate

Consolidated retained earning xx
© ACCA
 Subsidiary to Subsidiary
 No impact on Goodwill
 The only adjustment is to reduce NCI
Dr. NCI
Dr./Cr. Capital Reserve
Cr. Cash
© ACCA
 The cash amount already available in data
 Calculation of NCI value required
Calculation of valuation of NCI
Net assets of subsidiary (Pre + Post) xx
Multiply: % of NCI xx
XX
NCI Goodwill xx
Fair value of NCI – Net Assets XX x Fraction
© ACCA
Disposal of investment
© ACCA
Introduction
 In case of Statement of financial position, there will be

no non-controlling interests and no consolidation at
year end
 The effective date of disposal is when control is lost.
 Subsidiaries are consolidated until the date control is

lost therefore profits need to be time-apportioned.
© ACCA
Disposal
Complete disposal
 Dr. Non-controlling interest
 Dr. Cash
 Cr. Goodwill
 Cr. Net assets
© ACCA
Disposal
Subsidiary to simple investment

 Dr. Cash
 Dr. Remaining investment
 Dr./Cr. Profit/Loss (Bal. fig.)
 Cr. Goodwill
 Cr. Net assets
© ACCA
Disposal
Partial disposal
Subsidiary to Associate
 Dr. Cash
 Dr. Investment in Associate
 Dr./Cr. Profit/Loss (Bal. fig.)
 Cr. Goodwill
 Cr. Net assets
© ACCA
Disposal
Subsidiary to Subsidiary
 Dr. Cash
 Dr./Cr. Capital Reserve (Bal. fig.)
 Cr. Non-controlling interest
Calculation of NCI
 Net assets of subsidiary x %old holding xx
 Parent goodwill xx
XX x Fraction
© ACCA
FOREIGN CURRENCY
TRANSACTIONS
© ACCA
Consolidated statement of
PROFIT OR LOSS
© ACCA
Profit or Loss and Other Comprehensive
Income
1. Show results of the group as if it were a single entity.
2. The majority of figures are simple aggregations of the results of the
parent and all the subsidiaries (line by line) down to profit after tax.
3. In aggregating the results, intra-group transactions are eliminated.
4. Non-controlling interest is ignored until profit after tax. The interest in
profits after tax is subtracted as a one-liner to leave profits attributable
to members of the parent.
© ACCA
P group plc - Pro-forma Consolidated statement of profit or loss
For year ended 30 November 20X6
$'m
Sales revenue (P+S less intra-group sales) X
Cost of Sales (X)
(P+S less intra-group purchases plus unrealised profit in inventory)
Gross Profit X
Distribution Costs (P+S) (X)
Administrative Expenses (P+S) (X)
Group operating Profit X
Interest and similar income receivable X
(P+S less intra group interest income)
Interest expenses (P+S less intra-group interest expense) (X)
X
Share of Profits of Associate (PAT) X
Profit before tax X
Income tax expense (P+S) (X)
Profit for the period X
Profit attributable to :
Owners of the parent X
Non-controlling interest X
© ACCA
Income
OTHER ADJUSTMENTS
 If the subsidiary is acquired during the current accounting period the
profit for the period is apportioned between pre-acquisition and post-
acquisition elements.
 After profit after tax in consolidated statement, total profits are divided
between profits attributable to group and to NCI
 Dividends receivable by the parent must be cancelled against dividends
paid from the subsidiary.
© ACCA
Income
 Impairment of goodwill is treated as an administration
expense unless otherwise stated
 No impact of fair value adjustment on acquisition at the
statement of profit or loss. Any additional depreciation
related to fair value adjustment are charged by adding
to cost of sales and deducting from profit after tax of
subsidiary, while calculating profit attributable to NCI.
© ACCA
Disposal – Statement of profit or loss
 Subsidiary to Associate
 Subsidiary to simple investment
© ACCA
Disposal – Statement of profit or loss
© ACCA
IFRS 15 – REVENUE FROM
CONTRACTS WITH
CUSTOMERS
© ACCA
Revenue
 Income arising in the course of an entity’s ordinary activities (Normal trading and
operating activities)
 Five step model for revenue recognition
© ACCA
Five-Step Model Framework
STEP 1: Identify the Contract with the Customer
Conditions for IFRS 15 application:
 Approved by all relevant parties
 Each party’s rights can be identified
 Payment terms can be identified
 There is commercial substance
 Consideration will probably be collected
 The contract can be written, verbal or implied
© ACCA
STEP 2: Identify the separate performance obligations
 Assess at the inception of the contract, the goods or services promised and
identify the performance obligation:
 Distinct goods or services (or bundle)
 Series of distinct goods or services; substantially the same and that have the same pattern of
transfer to the customer.
© ACCA
STEP 3: Determine Transaction Price:
 It is the amount to which an entity expects to be entitled in exchange for the
goods and services.
 Where elements of variable consideration exist, the entity will estimate the
amount of variable consideration to which it will be entitled under the contract.
© ACCA
 A more restrictive approach is applied in respect of sales or usage-based royalty
revenue arising from licences of intellectual property.
 Such revenue is recognised only when the underlying sales or usage occur.
© ACCA
STEP 4: Allocation of Transaction Price
 If a contract has multiple performance obligations, the transaction price is

allocated to them by reference to the relative standalone selling prices.
© ACCA
STEP 5: Revenue Recognition
 Revenue is recognised as control is passed over.

 Control is defined as the ability to direct the use of and obtain substantially all of
the remaining benefits from the asset
© ACCA
 If an entity satisfies the performance obligation at a point in time, revenue will be
recognised when control is passed.
 If an entity satisfies the performance obligation over the period of time, revenue is
recognised over time
© ACCA
 Factors that may indicate the point in time when control passes include, but are
not limited to:
 The entity has a present right to payment
 The customer has legal title
 The entity has transferred physical possession
 The customer has the significant risks and rewards
 The customer has accepted the asset.
© ACCA
Mighty IT Co has developed an accounting software package. The company offers
a supply and installation service for $1,000 and a separate two-year technical
support service for $500. Alternatively, it also offers a combined goods and services
contract which includes both of these elements for $1,200. payment for the
combined contract is due one month after the date of installation.
For each combined contract sold, what is the amount of revenue which Mighty IT Co
should recognized in respect of the supply and installation service in accordance
with IFRS 15?
A. $700
B. $800
C. $1,000
D. $1,200
© ACCA
Contract Costs
 Incremental costs of obtaining a contract are recognised as an asset if the entity
expects to recover those costs.
 Costs incurred to fulfil a contract are recognised as an asset if all of the following
criteria are met:
 The costs relate directly to a contract
 The costs generate or enhance resources of the entity that will be used in satisfying
performance obligations in the future; AND
 The costs are expected to be recovered.
© ACCA
Contract Costs
 The asset recognised in respect of the costs to obtain or fulfil a contract is
amortised on a systematic basis that is consistent with the pattern of transfer of
the goods or services to which the asset relates.
© ACCA
Extracts for Construction Contracts P&L
$
Revenue
(Contract price x %age of completion) – Revenue already recognized xx
in previous years
- Cost
(Total cost x %age of completion) – Cost already recognized in previous (xx)
years
Profit/ Loss xx
© ACCA
Extracts for Statement of Financial Position
$
Actual costs to date xx
Add: Profit to date xx
Less: Progress billings to date (xx)
CONTRACT ASSET/LIABILITY xx
RECEIVABLES xx
(Billings to date – Payment to date)
© ACCA
Percentage of Completion
 Input method / Cost Method

= Actual cost to date x 100%
Total cost
= Hours incurred to date x 100%
Total hours to complete the project
 Output Method
= Agreed value of work x 100%
Contract price
© ACCA
Sale of Goods with Rendering of Services
 Revenue of goods sold should be recognised when control passes to customer
(usually at delivery date)
 Rendering of services revenue should be allocated over service period
© ACCA
Sale of Goods with Right to return
 Goods will not be returned – Revenue
 Goods are expected to be returned – Refund liability
© ACCA
Sale as Commission Agent
 Commission earned will be recognised as revenue
© ACCA
Warranty
 Assurance that the product will comply with agreed upon specifications –
Provision as per IAS 37
 Additional warranty that customer can purchase – Separate performance

obligation & its revenue is allocated over period of warranty
© ACCA
Licensing
 Right to use – Recognise revenue at a particular point in time
 Right to access – Recognise revenue over period of time
© ACCA
Consignment Inventory
 Arrangement where a product is delivered to a customer (dealer) under
consignment arrangement. As dealer doesn’t obtain control of the product so
NO revenue recognised
Indicators:
 Product is controlled by entity until sold to customers
 Entity may require a return of product or transfer from one dealer to another
 Dealer has no unconditional obligation to pay
© ACCA
Sale on Repurchase Terms
 Repurchase price is already fixed and more than selling price
 Loan arrangement
© ACCA
Bill and Hold Arrangement
 Customer invoiced but vendor retains physical possession
 Revenue recognised when control passes and ALL the following criteria are met
a) The reason for the bill-and-hold arrangement must be substantive

b) The product must be identified separately as belonging to the customer
c) The product currently must be ready for physical transfer to the customer
d) The entity cannot have the ability to use the product or to direct it to another
customer
© ACCA
IFRS 16 – LEASES
© ACCA
Lessee Accounting
 Single model for lease accounting (Recognise asset and lease liability for all
leases)
Except (Optional)
 Lease for less than 12 months
 Low value items
Accounting
 Rentals are recorded as expense on a straight line basis in P&L over lease term
 Expense = Total payments
Lease term
© ACCA
Initial Measurement
 Right-of-use asset
 Lease liability
© ACCA
Initial Measurement
Right-of-Use Asset
 Initially measured at COST
Cost includes
 The amount of initial lease liability
 Lease payments made on or before commencement
 Initial direct costs incurred
 Estimated costs of dismantling or site restoration
 Less: Incentives
© ACCA
Initial Measurement
Lease Liability
 Present value of unpaid lease payment
Includes
 Fixed rental payments less incentives
 Variable lease payments based on an index or rate
 Purchase option price (reasonably certain)
 Guaranteed Residual Value
 Penalty for termination of lease
© ACCA
Interest Rate
 Interest rate implicit in a lease
 Incremental borrowing rate by lessee
© ACCA
Subsequent Measurement
Right-of-Use Asset
 Measured using COST MODEL
Except
 Fair value model of IAS 40
 Revaluation model under IAS 16
© ACCA
Subsequent Measurement Lease Liability
 Increase carrying amount to reflect interest
 Reduce carrying amount to reflect lease payments
 Re-measure carrying amount to reflect any reassessment or lease modifications
© ACCA
Subsequent Measurement Lease Liability
 Variable lease payments recognised in the period in which the event or condition
occurs
 Lease modification recognised as separate lease if

 Scope of lease increases
 Consideration for the lease increases
© ACCA
Accounting by Lessee
Start of Year 1
 Dr. Right-of-use Asset
Cr. Lease liability
Cr. Bank
End of Year 1
 Dr. Finance cost
Cr. Lease liability
 Dr. Lease Liability
Cr. Bank
© ACCA
© ACCA
© ACCA
© ACCA
© ACCA
Sales and Lease Back
 IFRS 15 guidance to determine transaction a sale or not
 When performance obligation satisfied
 Transfer is a sale
 Transfer is not a sale
© ACCA
Transfer is a sale
 The right-of-use asset is recorded in proportion to the previous carrying amount of
the asset that relates to the right of use retained
 Gains and losses are limited to the amount relating to the rights transferred
 Adjustments required if sale is not at fair value or lease payments are not at
market rates
 Accounting for pre-payment or additional financing
© ACCA
Double entry
 Dr. Bank
Dr. Right to use
Cr. Asset
Cr. Lease Liability
Cr. P&L (Bal. Fig.)
 % Retained = Lease liability

Fair value
© ACCA
Transfer is not a sale
 Financial liability is recognised equal to the proceeds transferred
 The financial liability is accounted for in accordance with IFRS 9.
© ACCA
IAS 12 – INCOME TAXES
© ACCA
Definitions
Accounting profit: Net profit (or loss) for the reporting period before deducting tax
expense.
Taxable Profit: Profit (or loss) for a period, determined in accordance with the local
tax authority's rules, upon which income taxes are payable.
© ACCA
Definitions
Tax Expense: consists of three elements:
 Current tax expense
 Adjustments to tax charges of prior periods (over/under provisions)
 Transfers to/from deferred tax.
© ACCA
Current Tax
The amount of income tax payable (or recoverable) in respect of the taxable profit
(or loss) for the period.
Accounting for Current Tax:
 Tax payable for current period treated as expense and adjustment of under/over
provision of prior periods
 If tax expense and provision at year end are greater than the payment, the
difference is disclosed as current tax liability and vice versa.
© ACCA
Current Tax
Accounting for Current Tax:
 Current tax = Taxable profits/loss x %age of tax
 Tax expense/income will follow the treatment of line item (OCI /P&L/SOCIE )
© ACCA
Current Tax
Under/Over Provision related to previous years
Trial balance(single effect)
Dr. Cr.
Under provision (Expense) xx
Over provision (Income) xx
© ACCA
Current Tax – Current year
Tax Payable
Dr. Tax Expense
Cr. Provision for tax
Tax Refund
Dr. Tax Refund
Cr. Tax Expense
© ACCA
Current Tax – Prior period
Under Provision
 Shown as debit in Trial Balance
 Increases the tax expense
Over Provision
 Shown as credit in Trial Balance
 Decreases the tax expense
© ACCA
Deferred Tax
Tax Base: The amount attributed to an asset or liability for tax purposes.
Tax base-Asset: The amount that will be deductible for tax purposes against any
future taxable benefits derived from the asset.
Tax base-Liability: The carrying amount of a liability less any amount that will be
deductible for tax purposes in respect of that liability in future periods.
© ACCA
Deferred Tax
Accounting for Deferred Tax:
 Deferred tax liabilities: Income taxes payable in future periods in respect of
taxable temporary differences.
 Deferred tax assets: Income taxes recoverable in future periods in respect of:
 Deductible temporary differences
 The carry forward of unused tax losses
 The carry forward of unused tax credits
© ACCA
Temporary Differences
Temporary Differences are differences between the carrying amount of an asset or
liability in the SOFP and its tax base.
Temporary
Differences
Taxable
Deductible
© ACCA
Measurement
 Calculate temporary difference between carrying value and tax base
 Deferred tax = Temporary difference x Tax rate (% of tax)
© ACCA
Measurement
 Measurement is at tax rates expected to be applicable in the period when the
asset is realised or liability is settled.
 The rates used should be enacted or substantially enacted by the end of the
reporting period.
 It depends upon the expectations of the manner in which the recovery or
settlement of tax asset/ liability will take place.
© ACCA
Measurement
 The values cannot be discounted.
 Deferred tax expense is recognized in the statement of profit or loss.
 If the tax relates to items, credited or charged directly to equity, then the current
tax and deferred tax shall also be directly treated in equity.
© ACCA
Double entries
Statement of profit or loss item
 Increase in Deferred tax liability
Dr. Tax Expense
Cr. Deferred tax liability
 Decrease in Deferred tax liability
Dr. Deferred tax liability
Cr. Tax expense
 Deferred tax due to revaluation
Dr. Revaluation reserve/ OCI
Cr. Deferred tax liability
© ACCA
Presentation
 Current tax assets and liabilities are offset in the SOFP, if the entity has the legal
right and the intention to settle on a net basis.
 Deferred tax assets and liabilities are offset in the SOFP only if the entity has the
legal right to settle on a net basis.
© ACCA
FINANCIAL INSTRUMENTS
© ACCA
Definitions
Financial Instrument: A contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity.
Examples
 Shares (Ordinary shares, preference shares)
 Debentures ( Loan notes, Loan stock)
 Derivatives (Futures, Forwards, Option, Swap)
© ACCA
Definitions
Financial Assets:
 Cash
 Contractual right to receive cash or another financial asset
 An equity instrument of another entity.
Financial Liabilities: Liability that is a contractual obligation to deliver cash or

another financial asset to another entity
© ACCA
Equity Instruments
Equity Instrument: A contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities.
© ACCA
Initial Recognition
A financial asset or a financial liability should be recorded in an entity’s statement of
financial position:
 When it becomes a party to the contractual provisions of the instrument
© ACCA
Financial Assets - Measurement
Initial Measurement:
At fair value: Purchase consideration paid to acquire the financial asset plus
transaction costs (except instruments at FVTPL)
Subsequent Measurement:
Depends upon whether the investment is in a debt instrument or an equity

instrument
© ACCA
Debt Instruments:
 At fair value through profit or loss (FVTPL)
 At amortised cost
© ACCA
Amortised cost
Two tests have to be passed:
 The business management model test
Business management model to hold the investment for collection of contractual
cash flows
 BMM should be assessed on portfolio level
 Irregular sale doesn’t effect BMM
 Entity may have more than one BMM for different portfolios
 The contractual cash flow characteristics test
Investments can generate contractual cash flows at specified time
© ACCA
Equity instruments: Measured at
 Fair value either through profit or loss, OR
 Fair value through other comprehensive income
Equity instrument recognised at fair value through other comprehensive income,

provided:
 It is NOT held for trading AND
 There is an irrevocable election to recognise gain/losses in OCI
© ACCA
Debt instrument recognised at fair value through other comprehensive income:
 BMM is to hold investment for collection of contractual cash flows and to sell
 Same as amortised cost
© ACCA
Financial Liabilities
Types
 Loan notes – Financial Liability
 Convertible loan notes - Compound financial instruments (Financial liability +
Equity)
© ACCA
Financial Liabilities - Measurement
Subsequent Measurement:
Financial liabilities (other than liabilities held for trading and derivatives that are
liabilities) are recorded at amortised cost using the effective interest rate method
Opening Finance cost Interest paid Closing

balance of charged (b/d x (principle amount x balance of
liability effective rate of nominal rate of liability
interest interest)
© ACCA
Compound Instruments
Compound Instrument: Financial instrument that has characteristics of both equity
and liabilities. It should be split into:
 A financial liability (the debt)
 An equity instrument (the option to convert into shares)
© ACCA
Accounting
Split accounting is done for Convertible Bond i.e. split between Liability and Equity
1. Calculate fair value of liability component:

 Based on present value of future cash flows assuming non-conversion
 Apply discount rate equivalent to interest on similar non-convertible debt
instrument
1. Equity = remainder
© ACCA
Accounting
Value of convertible loan xx
Less: Liability (xx)
(Max. possible cashflows x Discount factor on loan without conversion option)
Equity option (Balancing figure) xx
© ACCA
Issue cost, Interest and Dividend paid
Accounting for Liability
 Issue costs and Interest paid are charged as Finance cost in P&L
 Finance cost is calculated using Effective interest rate method
Accounting for Equity

 Issue costs and Dividend paid are charged to equity in Statement of changes in
equity
© ACCA
Effective Interest Rate Method
Finance cost
 Issue cost
 Discount on issuance
 Interest expense
 Premium on redemption
© ACCA
IFRS 8
OPERATING SEGMENTS
Ms. Aleena Kareem

© ACCA
IFRS 8 – Operating Segments
Segment reporting
 By product/region/operation
 Risk & rewards
 Profitability
 Management view
© ACCA
Segment reporting criteria

Operating segment
 Revenue and expenses
 Financial information available
 Resource allocated, segment results review from
resource allocation
© ACCA

Quantitative threshold:
 Segment reported revenue is 10% or more of the combined
revenue
 Its assets are 10% or more of the combined assets
 Its reported profit/loss is 10% or more of the greater of the
combined reported profit & reported loss of segment
© ACCA
© ACCA

Quantitative threshold:
 If the total external revenue reported by operating
segments constitutes less than 75% of the total
revenue, additional operating segments shall be
identified as reportable segments until at least 75% of
the entity’s revenue is included in reporting segments
© ACCA
Aggregation criteria
Two or more operating segments may be aggregated if the segments are
similar in each of the following respects:
 The nature of the product & services
 The nature of the production process
 The type or class of customer for their products & services
 The method used to distribute their product or provide their services
 The nature of the regulatory environment
© ACCA
Disclosures
 An entity shall report profit/loss & total assets for each
reportable segment
 Other disclosures are required if specific amounts are
received regarding each reportable segment
 Judgments made by the management for the purpose of
aggregation
© ACCA
Disclosures
 Operating segment information disclosed is not necessarily IFRS
compliant
 Operating segment information disclosed must be reconciled back to
IFRS amounts disclosed
 Entity reports geographical information if available
 An entity provides information about the extent of its reliance on its
major customer (greater than 10% revenue)
© ACCA
IFRS 11
JOINT ARRANGEMENTS
© ACCA
Joint
arrangement
Agreement
Joint control
(common
control)
Operation Entity Asset
© ACCA
1. Net assets belong to the
parties involved
2. Asset right/ ownership &

Joint Venture Obligations ; Joint venture
itself
Joint arrangement
3. Profit Sharing
Yes Need to consider factors
Separate Established
No Joint controlled operation
1. Asset right/ownership &

obligations belongs to
parties involved
Jointly Controlled 2. Sharing of Assets and

Operation Liabilities
Revenue Sharing
© ACCA
Accounting – IFRS 11
 Joint venture is sort of associate

 IAS 28, equity method of consolidation is used
 Jointly controlled operation;
i. Asset × %
ii. Liabilities × %
iii. Income × %
iv. Expenses × %
© ACCA
IAS 24
RELATED PARTY TRANSACTIONS
© ACCA
Related party disclosures
Definition of Why disclosures What disclosures

related party are required are required
 Amount of
a) PERSON: Provide information about
transaction
• A key management personal entity financial position &  Nature of transaction
• Any person who has control, performances to shareholders  Outstanding balance
joint control, significant
 Irrecoverable debt
influence over reporting
 Director’s
entity
remuneration (IAS19
+ IFRS 2)
 Names of related
b) Entity party
• Structures
© ACCA

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STRATEGIC BUSINESS

Ms. Aleena Kareem

 Income. Income is increases in economic benefits during the accounting period

 Expense. Expenses are decreases in economic benefits during the accounting

 Aggregation and Segmenting as per the nature of asset

Three critical attributes of an intangible asset are:

Asset should meet:

 Accounting treatment of Development

 Asset With Indefinite Useful Life

An enterprise should assess at each reporting date:

Legal obligation: Obligation that derives from:

Onerous contract: A contract in which unavoidable costs of meeting the obligations

IFRS 2 has been divided into 3 components;

• Dr. Asset/ Expense for service $xx

Dr. Asset/Expense $xx

Conditions Attached over the

Fair value of equity

Fair value of good and

Beneficial for Not beneficial

Continue original Continue original

• No condition period attached, immediately charge to profit and loss

• condition period attached, allocate expense over vesting period

Group of Companies: when one company (Parent) takes control of

Subsidiary: a company controlled by another company.

Parent: a company that controls one or more subsidiaries.

Non-Controlling Interest: collective representation of the shareholders

Consolidated Financial Statements: F/S of whole Group presented

According to IFRS 10 Consolidated Financial Statements an investor

 Existence of parent subsidiary relationship:

Consolidated financial statements not prepared if:

 Same accounting policies should be used for holding company and

 The holding company produces its own separate financial

 Investments in subsidiaries and associates have to be accounted for

 On acquisition, the investment by the parent company in the

 If the control is less than 100%, the remaining investment is known

 Fair value of NCI

Consideration might be paid in the following ways:

By Share for share exchange

 Parent Co. share price x No. of shares issued

Deferred consideration: is recorded at present value at the date of

Contingent consideration: At times, the parent Co. agrees to pay the

Fair Value Adjustment

Intra-group balances are removed from consolidated statement of

If balances do not reconcile:

Intra-Group unrealized profits

Intra group sale of non-current assets

Intra group loans:

Any interest receivable payable on intra-group loans is eliminated but

Dr. Interest receivable

Cr. Consolidated reserves

Then the intra-group interest receivable/payables is eliminated

Dr. Interest payable

Cr. Interest receivable

Dr. Dividend receivable

Cr. Consolidated reserve

After this an intra-group, dividends receivable/payable exists which is eliminated:

Dr. Consolidated reserves

Cr. Dividend payable

Goodwill in consolidated Statement of Financial Position:

Plus: Fair (or full) value of the NCI at date of acquisition X

Equals: Total Goodwill X

Full or fair value of NCI

IFRS-3, allows/requires goodwill to be stated at full value i.e. a part of