acca p2 考试复习资料
Post on 27-Oct-2014
219 Views
Preview:
TRANSCRIPT
Part one Group Accounts
1. Basic knowledge for group accounting
Major workings
W1 group structure
Subsidiary –IAS 27 Acquisition method “control”
Associate –IAS 28 Equity method “significant influence”
Joint Venture –IAS 31 Proportion or Equity method “joint control”
W 2 FV of net assets of the subsidiary
DOA DOC Movement (post
acquisition)
OSC × ×
Reserves × × ×
Fair value
adjustments
×* ×**
Additional
depreciation
(×) (×)
URP (S to H) (×) (×)
Policy Adjustments
Total a b c
*sometimes the question will state this figure in which case the fair value adjustment will
become the balancing figure
**only relevant to include this here if the asset subject to the fair value adjustment remains at
the reporting date i.e. it will not be relevant if it relates to inventory.
W3 goodwill calculation
There are two methods in which goodwill may be calculated following the update to IFRS 3
(1) Partial goodwill (old method)
Cost of investment ×
Less: S% FV of NA at DOA (S%×aW2) (×)
Goodwill on DOA ×
Less: impairment to date (×)
Goodwill on DOC ×
(2) Full goodwill (new method)
Cost of investment ×
Fair value of NCI at DOA ×
FV of NA at DOA W2 (a)
Goodwill on DOA ×
Less: impairment to date (×)
Goodwill on DOC ×
Or, this can be presented by:
Cost of investment ×
Less: S% FV of NA at DOA (×)
Goodwill on DOA (P’s share) ×
Fair value of NCI at DOA ×
NCI share of FV of NA at DOA (×)
Goodwill on DOA (NCI share) ×
Total goodwill ×
IFRS 3 requires that goodwill be subject to an impairment review. The subsidiary is regarded
as the cash –generating unit.
Net assets of the subsidiary at the balance sheet date ×
Plus the unimpaired goodwill (gross up) ×
Carrying value ×
Recoverable amount ×
Impairment loss (total) ×
Cost of investment
Cash
Deferred cash –PV and finance cost
Share for share –MV
Financial instruments –MV
Contingent consideration –FV at the DOA with adjustment for subsequent changes.
a) If the change is due to additional information obtained after the acquisition date
that affects the facts or circumstances as they existed at DOA, this is treated as a
‘measurement period adjustment’ and the cost of investment and goodwill are
remeasured.
b) If changes due to events after the acquisition date
Contingent consideration classified as equity shall not be remeasured, and its
subsequent settlement shall be accounted for within equity.
Contingent consideration classified as an asset or a liability that :
Is a financial instrument and is within the scope of IAS 39 shall be measured at
fair value, with any resulting gain or loss recognized either in profit or loss, or in
other comprehensive income.
Is not within the scope of IAS 39 shall be accounted for in accordance with IAS
37, Provisions, Contingent Liabilities and Contingent Assets, or other IFRSs as
appropriate.
Issue cost should be deducted from proceeds of issue. (i.e. share premium) not included in
the cost of the acquisition.
Professional fees and similar incremental costs –expense in the I/S
W 4 Non-controlling interest
(1) Old method
NCI % of FV of NA at DOC NCI%×b W2
(2) New method
FV of net assets of S at DOC (1 –S %) ×b ×NCI share of goodwill ×NCI share of impairment loss (×) ×Total non-controlling interest ×
NCI in income statement
NCI% × (PAT –URP –DEPR)
W 5 consolidated reserves (RE + other) calculation
The group reserves comprises as follows:
1 Parent company ×
Adjustment, corrections (if any) e.g. URP where the parent is the
seller or transactions the parent company has not yet recorded
×/(×)
2 Less cumulative goodwill impairment losses (P share) (×)
3 Plus the group share of the (adjusted) post acquisition profits of the
subsidiary and associate
×
Total ×
Brief recap on accounting for associates
Significant influence
20% -50%
Board representation
Associates are equity accounted for in the group accounts.
Group balance sheet –extract
Investment in associate
A% of net assets (as adjusted for any depreciation and URP) ×
Plus the goodwill not yet written off ×
×
Group income statement –extract
Income from associate undertakings
A% of the profit after tax (as adjusted for any depreciation and URP) ×
Less goodwill impairment loss (×)
×
Balances, transactions between the associate and the group companies are not eliminated.
URP is eliminated to the extent of group share.
IAS 31 Interest in joint ventures
Joint venture: a contractual arrangement whereby two or more parties undertake an economic
activity that is subject to joint control.
Jointly controlled operations
Each venture uses its own assets, incurs its own expenses and liabilities, and raises its
own finance.
IAS 31 requires that the venture 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.
Jointly controlled assets
Jointly controlled assets involve the joint control, and often the joint ownership, of assets
dedicated to the joint venture.
Each venture may take a share of the output from the assets and each bears a share of the
expenses incurred.
IAS 31 requires that the venture should recognise in its financial statements it share of the
joint assets, any liabilities incurred, income and expenses in the joint venture.
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.
Each venture usually contributes cash or other resources to the jointly controlled entity.
Those contributions are included in the accounting records of the venture and recognised
in the venturer’s financial statements as an investment in the jointly controlled entity.
IAS 31 allows two treatments of accounting for an investment in jointly controlled
entities –except as noted below:
Method 1: proportionate consolidation
Under proportionate consolidation, the balance sheet of the venture includes its share of the
assets and its share of the liabilities. The income statement of the venture includes its share of
the income and expenses of the jointly controlled entity.
Method 2: equity method of accounting
Procedures for applying the equity method are the same as those described in IAS 28
investments in associates.
Transactions between a venture and a joint venture
Balances, transactions between the JV and the group companies are not eliminated. URP is
eliminated to the extent of group share.
2. Complex group structures
A vertical group
A
60%
B
70%
C
In this illustration:
A controls B and B controls C.
As A controls B, it also controls B’s holdings in other companies.
Hence, B and C are subsidiaries of A as they are controlled by A.
Company C is often called a sub-subsidiary.
In a vertical group, use the group structure to determine the status of investments.
The key is to identify control relationships
The parent controls its subsidiaries’ holdings in other companies but does not control
associate holdings.
The date of acquisition by A is the date on which A gains control. If B already held C, treat B
and C as being acquired on the same day.
The group structure is vital –always identify this first and determine the status of investment.
Also look carefully at dates to identify when the parent obtained control.
Effective group interest
Using the earlier group structure:
A owns 60% if B and B owns 70% of C
So A has an effective group interest in C of 60%*70% = 42%
NCI own 58% of C
Mixed group
The group is structure in manner where both the ultimate parent and a subsidiary have an
interest on another entity.
For example
H
60% 30%
S T
30%
T is a subsidiary of H controls 30% directly and 30% indirectly via its interest in S. thus 60%
is controlled. Consolidation is performed in a single stage using the consolidation
percentages.
S group share 60%
Minority share 40%
T group share
Direct 30%
Indirect 60%of 30% 18% 48%
Minority share 52%
Step acquisition
a. control is achieved through two or more transactions
The principles to be applied are:
A business combination occurs only in respect of the transaction that gives one entity
control of anther
The identifiable net assets of the acquire are remeasured to their fair value on the date of
acquisition
Non-controlling interests are measured on the date of acquisition under one of the two
options permitted by IFRS 3
Goodwill is measured as:
Consideration transferred to obtain control
Plus
Amount of non-controlling interest (using either option)
Plus
Fair value of previously-held equity interest
Less
Fair value of the identifiable net assets of the acquire
b. transactions between parent and non-controlling interests
Once control has been achieved, further transactions whereby the parent entity acquires
further equity interests from non-controlling interests, or disposes of equity interests but
without losing control, are accounted for as equity transactions (i.e. transactions with owners
in their capacity as owners) it follows that:
The carrying amount of the controlling and non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiary;
Any difference between the amount by which the non-controlling interests is adjusted and
the fair value of the consideration paid or received is recognised directly in equity and
attributed to the owners of the parent and;
There is no consequential adjustment to the carrying amount of goodwill, and no gain or
loss is recognised in profit or loss.
3. Disposal
a. loss of control
IAS 27 details the adjustments made when a parent losses control of a subsidiary, based on
the date when control is lost:
Derecognise the carrying amount of assets (including goodwill), liabilities and non-
controlling interests;
Recognise the fair value of consideration received;
Recognise any distribution of shares to owners;
Recognise the fair value of any residual interest;
Reclassify to profit or loss any amounts (i.e. the entire amount, not a proportion) relating
to the subsidiary’s assets and liabilities previously recognised in other comprehensive
income as if the assets and liabilities had been disposed of directly; and
Recognise any resulting difference as a gain or loss in profit or loss attributable to the
parent
b. Transactions between parent and NCI
Same principle as step acquisition (equity transaction)
c. Full disposal
Calculate gain or loss by comparing FV of consideration received, and FV of NA at date of
disposal plus unimpaired goodwill
4. Foreign currency
Individual company stage
Functional and presentational currencies
The functional currency is the currency of the primary economic environment where the
entity operates, in many cases this will be the local currency.
An entity should consider the following factors in determining its functional currency:
The currency than mainly influences sales prices for goods and services
The currency of the country whose competitive forces and regulations mainly determine
the sales price of goods and services
The currency that mainly influences labour, material and other costs of providing goods
and services.
The presentation currency is the currency in which the entity presents its financial statements
and this can be different from the functional currency, particularly if the entity in question is a
foreign owned subsidiary. It may have to present its financial statements in the currency of
the parent company. Even though that is different from their every day trading currency.
Individual transactions in a foreign currency
At transaction date:
At the spot exchange rate on the date the transaction occurred; or
Using an average rate over a period of time providing the exchange rate has not fluctuated
significantly.
At subsequent balance sheet dates:
Foreign currency monetary items (debtors, creditors, cash, loans) must be translated using
the closing rate.
Foreign currency non-monetary items (fixed assets, investments, stock) are not
retranslated
Exchange differences are recognized in income.
Group stage
Where there is an overseas subsidiary that has a functional currency which is a local currency,
prior to consolidation it will need to be translated into using the closing rate method.
Closing rate method
The balance sheet of the overseas entity is translated using the closing rate.
The income statement items are translated at the average rate for the period.
Exchange differences in the group accounts
With the closing rate method the group percentage of the exchange difference is dealt with in
reserves.
6. Cash Flow statement
Details see book
Part two summary of IAS and IFRS
1. IAS 10 events after the balance sheet date
Post balance sheet events: an event which occurs after the year end but before the FS are
approved. If it gives the new evidence on condition which existed at the year end, then
adjusting PBSE –apply relevant accounting treatment. If it gives new evidence on condition
which did not exist at the year end, but impacts going concern assumption, then adjust. If it
does not impact the going concern, then disclose in nature and estimate of financial effect.
2. IAS 37 provisions, contingent liabilities and contingent assets
Provisions: only provide if obligation legal or constructive; probable transfer of economic
benefit resulting from a past event; can be reliably measured
Contingent liability: potential liability, assess likelihood of liability, remote –ignore, possible
–disclose, probable –disclose/provide
Contingent asset: potential asset, assess likelihood of asset, remote –ignore, possible –ignore,
probable –disclose
Provision: A liability of uncertain timing or amount
Measurement of provisions
Best estimate –this means:
Provisions for one-off events (restructuring, environmental clean-up, settlement of a
lawsuit) are measured at the most likely amount
Provisions for large populations of events (warranties, customer refunds) are measured at
a probability-weighted expected value.
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.
Remeasurement
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.
Restructurings
Restructuring provisions should be accrued as follows:
Sale of operation: accrue provision only after a binding sale agreement
Closure or reorganisation: accrue only after a detailed formal plan is adopted and
announced publicly. A board decision is not enough.
Future operating losses: provisions should not be recognised for future operating losses,
even in a restructuring
Restructuring provision on acquisition (merger): accrue provision for terminating
employees, closing facilities, and eliminating product lines only if announced at
acquisition and, then only if a detailed formal plan is adopted 3 months after acquisition.
Restructuring provisions should include only direct expenditures caused by the restructuring,
not costs that associated with the ongoing activities of the enterprise.
Onerous contracts
The least net cost should be recognised as a provision. The least net cost is lower of the cost
of fulfilling the contract or of terminating it and suffering any penalty payments.
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:
obligation for environmental cleanup when a new mine is opened or an offshore oil rig is
installed.
Contingent liabilities
It requires that enterprises should not recognise contigent liabilities – but should disclose
them, unless the possibility of an outflow of economic resources is remote.
Contingent assets
Contingent assets should not be recognised –but should be disclosed where an inflow of
economic benefits is probable.
Non-current assets
3. IAS 16 Property, plant and equipment
Recognition
Meet definition of asset
Owner occupied asset with physical existence
Major inspection or overhaul costs
They can be treated as a separate component of the asset, they will be depreciated over the
period up until the next overhaul date
Initial measurement
They should be initially recorded at cost. Cost includes all costs necessary to bring the asset
to working condition for its intended use.
Measurement subsequent to initial recognition
IAS 16 permits two accounting models:
Cost model
Revaluation model
The revaluation model
Upwards –revaluation reserves unless reverses previous decrease
Downwards –income statements unless reverses previous increase
May transfer differences between new and old depreciation from RR to RE
On disposal, transfer remaining balance of RR to RE. The transfer to retained earnings
should not be made through the income statement.
4. IAS 36 impairment of assets
Impairment. An asset is impaired when its carrying amount exceeds its recoverable amount.
Recoverable amount. The higher of an asset’s fair value less costs to sell (sometimes called
net selling price) and its value in use.
Value in use. The discounted present value of estimated future cash flows expected to arise
from the use of the asset.
Asset are tested for impairment annually
An intangible asset with an indefinite useful life
An intangible asset not yet available for use
Goodwill acquired in a business combination
Indications of impairment
External sources
Market value declines
Negative changes in technology, markets, economy, or laws
Increases in market interest rates
Company stock price is below book value
Internal sources
Obsolescence or physical damage
Asset is part of a restructuring or held for disposal
Worse economic performance than expected
Recognition of an impairment loss
The impairment loss is an expense in the income statement (unless it relates to a revalued
asset where the value changes are recognised directly in equity).
Adjust depreciation for future periods
Cash-generating units
The impairment loss is allocated to reduce the carrying amount of the assets of the unit
(group of units) in the following order:
Specifically impaired assets
Goodwill
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:
Its fair value less costs to sell (if determinable);
Its value in use (if determinable);
Zero
Reversal of an impairment loss
The increased carrying amount due to reversal should not be more than what the
depreciated historical cost would have been if the impairment had never been recorded.
Reversal of an impairment loss is recognised as income in the income statement.
Adjust depreciation for future periods
Reversal of an impairment loss for goodwill is prohibited
5. IAS 40 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.
Initial measurement
Investment property is initially measured at cost, including transaction costs.
Measurement subsequent to initial recognition
IAS 40 permits enterprises to choose between:
A fair value model
A cost model
IAS 40 notes that this highly unlikely for a change from a fair value model to a cost model.
Fair value model
Investment property is remeasured at fair value at each year end with gains or losses are taken
to I/S.
6. IFRS 5 non-current assets held for sale and discontinued operation
Held-for-sale classification. In general, the following conditions must be net for an asset
(disposal group) to be classified as held for sale:
Management is committed to a plan to sell
The asset is available for immediate sale
An active program to locate a buyer is initiated
The sale is highly probable, within 12 months of classification as held for sale (subject to
limited expectations)
The asset is being actively marketed for sale at a sales price reasonable in relation to its
fair value
Actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn
A decision made after the year-end but before the accounts are approved that a non-current
asset or disposal group is held for sale is a non-adjusting event.
Measurement
Non-current assets or disposal groups that are classified as held for sale are measured at the
lower of carrying amount and fair value less costs to sell. Assts should be presented as a
current asset in the balance sheet.
Non-depreciation. Non-current assets or disposal groups that are classified as held for sale
shall not be depreciated.
Key provisions of IFRS 5 relating to discontinued operations:
Classification as discontinuing. A discontinued operation is a component of an entity that
either has been disposed of or is classified as held for sale, and:
Represents a separate major line of business or geographical area of operations,
Is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations, or
Is a subsidiary acquired exclusively with a view to resale
Income statement presentation
The sum of the post-tax profit or loss of the discontinued operation and
The post-tax gain or loss on the disposal of the assets (or disposal group)
Detailed disclosure of revenue, expenses, pre-tax profit or loss, and related income taxed
is required either in the notes or on the face of the income statement in a section distinct
from continuing operations.
No retroactive classification. IFRS 5 prohibits the retroactive classification as a
discontinued operation, when the discontinued criteria are met after the balance sheet date.
7. IAS 38 intangible assets
Recognition –meet definition
Purchased separately
License
Quota
Franchise
Should be measured at cost
Purchased as part of business combination
Goodwill=consolidation –fair value of net assets at date of acquisition other identifiable
assets and liabilities –separately account for (see group account)
Internally generated intangibles
Internally generated goodwill –no recognition
Development of brands, mastheads, publishing titles and customer lists –costs incurred on
these items should be written off.
Research and development
Research –income statements as an expense
Development should be recognised if, and only if, an enterprise can demonstrate all of the
following:
The technical feasibility
Its intention to complete and use or sell it
Its ability to use or sell the intangible asset
The intangible asset will generate probable future economic benefits.
The availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset
Measured reliably
Amortisation
Finite useful life –amortise over that life. Normally the straight-line method should be
used with a zero residual value
Indefinite useful life –not be amortised, but tested for impairment annually
8. leases
Classification of leases
A leases 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
subjective and is made at the inception of the lease.
Whether a lease is a finance lease or an operating lease depends on the substance of the
transaction rather than the form. Indicators may be:
The lease transfers ownership of the asset to the lessee by the end of the lease term
The lessee has the option to purchase the asset at nominal value
The lease term is for the major part of the economic life of the asset
At the inception of the lease, PVMLP/FV > 90%
The lease assets are of a specialised nature such that only the lessee can use them without
major modifications being made
The lessee has the ability to continue to lease for a secondary period at a rent that is
substantially lower than market rent
In classifying a lease of land and buildings, land and buildings elements would normally be
separately. The land element is normally classified as an operating lease unless title passes to
the lessee at the end of the lease term. The building element is classified as an operating or
finance lease by applying the classification criteria in IAS 17.
Accounting by lessees
The following principles should be applied in the financial statements of lessees:
Finance lease
Step 1
Capitalise using lower of PVMLP and fair value
Dr Non current assets
Cr Finance lease obligation
Step 2
Depreciate over shorter of lease term and useful economic life
Step 3
Calculate interest charges and outstanding liability
Rentals in advance
Period b/f Interest 10% rent c/f
Yr 1 1000 100 (200) 900
Yr 2 900 90 (200) 790
I/S depr *
Finance charge 100
B/S NCA *
NCL –finance lease obligation 790
CL –finance lease obligation 110
Operating lease, 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.
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.
Accounting by lessors
The following principles should be applied in the financial statements of lessors:
Finance lease
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, normally no sale is recognised
The lessor should recognised finance income and
If the lessor is a manufacturer or dealer, there is a sale should be recognised
Operating lease
Should be presented in the balance sheet of the lessor according to the nature of the asset.
Lease income should be recognised over the lease term on a straight-line basis
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.
Initial direct costs
Initial direct costs are costs that are directly attributable to negotiating and arranging a lease,
for example, commissions, legal fees and premiums. Both lessees and lessors may incur these
costs.
Costs incurred by lessee Costs incurred by lessor
Finance lease Add to amount recognised as
an asset; depreciate over
asset’s useful life
Include in initial
measurement of receivable;
reduce income receivable
over lease term
Operating lease Treat as part of lease rentals,
expense over lease term on
straight line basis
Add to carrying amount of
leased asset; expense over
lease term on same basis as
lease income
Sale and leaseback transactions
For a sale and leaseback transaction that result in a finance lease, the asset is recognised as a
non-current asset before and after the sale, so no sale can have taken place. it is treated as a
secured loan under framework. So :
Continue to recognise the original asset at its original cost (less depreciation)
Credit the proceeds of the sale to a finance lease liability account.
However, under IAS 17, this can be recognised as a sale with gain deferred over lease term
and loss recognised in I/S, and then a finance lease.
For a transaction that results in an operating lease treat as a sale
NBV= 1000 FV = 1500
Selling
price
=FV 1500 Recognise gain of 500
<FV 1200 Recognise gain of 200
<FV 900 Loss of 100 is amortised over lease term to increase future
lease expense if the rent is lower than market price.
Otherwise, recognise 100 loss immediately in IS
>FV 1700 Recognise 500 gain in IS immediately excess above FV of
200 is amortised over lease term to decrease future lease
expense
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.
9. IAS 12 income taxes
Temporary difference. A difference between the carrying amount of an asset or liability and
its tax base. The tax base is the amount attributed to an asset or liability for tax purpose.
Taxable temporary difference. A temporary difference that result in amounts that are tax
deductible in the future when the carrying amount of the asset if recovered or the liability is
settled. ( carrying value > tax base)
Deductible temporary difference. A temporary difference that will result in amounts that are
tax deductible in the future when the carrying amount of the asset is recovered or the liability
is settled. ( carrying value < tax base)
Permanent difference. Expense in the income statements are not allowable expenditure for
tax purposes, so the increase in tax charge has to be accepted. Such as fines and penalty,
entertainment to customers.
Recognition of deferred tax
The general principle in IAS 12 is that deferred tax liabilities should be recognised for all
taxable temporary differences unless the deferred tax liability arises from goodwill for
which amortizations not tax deductible
A deferred tax asset should be recognised for all deductible temporary differences unless
exceptions above also apply
The carrying amount of deferred tax assets/liabilities should be reviewed at each balance
sheet date with difference to FS
Deferred tax should be provided for on revaluation in equity because revaluation is
accounted in equity
Temporary differences may arise on a business combination because carrying value will
be increased/decreased to fair value and tax base remains same
Full provision rather than nil or partial provision is made for deferred tax
Deferred tax assets and liabilities should not be discounted
IAS 12 allows a deferred tax asset to be recognised for the carry forward of unused tax
losses to the extent that it is probable that there will be sufficient future taxable profits to
enable the loss relief to be used.
Deferred tax calculation
General
Carrying value Tax base Temporary difference
(NBV)
Asset × ×/nil ×/(×)
liability (×) (×)/nil ×/(×)
Deferred tax liability: CV> tax base with taxable temporary differences
Deferred tax asset: CV< tax base with deductible temporary differences
Closing deferred tax = temporary difference * tax rate ( go to B/S)
Change in deferred tax = closing deferred tax –opening deferred tax (go to I/S)
Relates to equity if the related items are recognised in the equity
For asset –tax base is the future tax relief
For liability –tax base is CV less future tax relief
10. IAS 33 earning per share
EPS = profit after tax and preference dividend/ weighted average number of shares
Basic EPS Current year Previous year
Fresh issue/issue at full
market price
Time apportion the number
of shares
No restatement required
Bonus issue No time apportionment
required for number of shares
Restate:
Last year’s EPS
*no. of shares before
bonus/no. of shares after
bonus
Right issue Time apportion the number
of shares.
Share before the rights also
multiply by:
*CRP/TERP (CRP is the cum
rights price which will be
given in the question. TERP
is the theoretical ex-rights
price, this will have to be
calculated)
Restated
Last year’s EPS* TERP/CRP
Fully diluted EPS
This calculation takes into account all the potential shares that will arise in the future. This
calculation is done to warn the shareholders of the impact on the EPS due to these shares.
Most dilutive basis
No comparative figure adjustment
Convertible bonds/loan notes
The fully diluted EPS will be affected by:
Earnings –this will increase due to the post tax savings in interes
WANS –this will increase due to the conversion factor
Share options
The fully diluted EPS will be affected by the increase in the number of shares.
The extra number of shares= number of options * FV- OP/FV
FV = fair value of the share price
OP= option price/exercise price of the shares
Retrospective adjustments
If a bonus share issues after year end but before date of approval of financial statements.
EPS should be based on the new number of shares issues. (as well as bonus factor of
rights issue) i.e. EPS is restated for current and previous year.
Basic and diluted EPS are also adjusted for the effects of errors and adjustments resulting
from changes in accounting policies, accounted for retrospectively.
11. IAS 19 Employee benefits
Defined contribution plans
Company pays fixed contributions into the fund
Company has no legal or constructive obligation to make further payment if the fund
suffers under-performance
Investment risk is borne by employees
No further risk for employer
Accounting treatment for DCS
Recognise contribution payable in IS as incurred
Normally base on employees’ compensation level
Defined benefit plans
Company creates a constructive obligation to provide the agreed amount of benefits to
current and retired employees at retirement
Ultimate benefits/pension are defined and contribution payable is variable (link to final
salary)
Investment risk is borne by employer and no risk for employees
Accounting for defined benefit scheme
Scheme assets –FV with investment returen
Scheme liabilities –PV with interest cost
Actuarial assumptions
Wages inflation (final salary)
Average working life
Investment return
Interest cost
Recognition of actuarial gains and losses
Arises on the revaluation of the pension fund’s assets and liabilities (effects of changes in
actuarial assumption)
Recognise in OCI
Recognise in IS
Corridor approach –if accumulated unrecognised actuarial G/L B/F exceeds greater
of 10%:
-FV of scheme assets –b/f
-PV of scheme liabilities – b/f
The excess will be spread over the expected average remaining working life to I/S
explanation Accounting
treatment
Double entry
Current service cost The increase in the
actuarial liability
expected to arise
from employee
service in the current
period
Operating cost Dr IS
Cr liability
Interest cost The increase in the
actuarial liability
arising from the
unwinding of the
discount
Financial item
adjacent to interest
Dr IS
Cr liability
Expected return on
assets
Expected increase in
the market value of
Financial item
adjacent to interest
Dr asset
Cr IS
the scheme’s assets
Past service costs (if
any)
The increases in the
actuarial liability
related to employees
service in the prior
period but arising in
the current period as
a result of the
introduction of, or
improvement to,
retirement benefits
Operating cost Dr IS
Cr liability
Format of employment benefits calculation
Scheme assets Scheme liability IS
Opening balance × ×
Prior yr adjustment ×/(×) ×/(×)
Restated balance × ×
Expected return × (×)
Interest cost × ×
Current service cost × ×
Past service cost × ×
Contribution ×
Benefit paid × ×
Actuarial G/L ×/(×) ×/(×)
Closing balance × × ×/(×)
Presentation in SFP
Scheme assets –c/f ×
Scheme liabilities –c/f ×
Net assets/liabilities ×/(×)
Unrecognised actuarial G/L-
b/f
×
Recognised in I/S (×)
Occurred in the year ×
Unrecognised actuarial G/L-
c/f
×
Net pension ×
Cash flow statement
Reconciliation of operating profit to cash generated from operating activities
Add back: net pension cost ×
Less: pension cash contribution (×)
12. IFRS 2 share-based payment
Definition of share-based payment
A share-based payment is a transaction in which the entity receives or acquires goods or
services either as
Consideration for its equity instruments or
By incurring liabilities for amounts based on the price of the entity’s shares or other
equity instruments of the entity.
The accounting requirements for the share-based payment depend on how the transaction
will be settled, that is, by the issuance of equity, cash, equity or cash.
13. Financial instruments
There are four categories of financial assets
Financial assets at
fair value through
profit or loss
Held to maturity
investments
Loans and
receivables
Available for sale
assets
These are held for
trading or elected to
be classified in this
These are quoted
company investments
in redeemable debt
These are loans that
the company has
made and do not
This category is the
default category
category. Derivatives
are always classified
as held for trading
unless they are
effective hedges
instruments that the
company will not be
selling before
maturity.
have a quoted price.
There are two categories of financial liabilities
At fair value through the profit and loss Measured at amortised cost
These are held for trading and derivatives
unless they are effective hedges.
This category is the default category and
includes trade creditors, debt instruments
issued and deposits from customers
Initial measurement
A financial asset or liability should initially be recognised at cost, the fair value of the
consideration given or received for it.
Transaction costs when buying assets are capitalised (except for financial assets at fair value
with through the profit and loss)
How are financial assets subsequently measured on the balance
sheet?
Assets Liabilities
Financial
assets at fair
value
through
profit or loss
Held to
maturity
investments
Loans and
receivables
Available for
sale assets
At fair value
through the
profit and
loss
Measured at
amortised
cost
On the
balance sheet
at fair value
with gains
and losses
Amortised
cost
Amortised
cost
On the
balance sheet
at fair value
with gains
and losses
On the
balance sheet
at fair value
with gains
and losses
Amortised
cost
immediately
recognised
through the
profit and
loss account.
being
recognised in
reserves, but
recycled to
income on
disposal
immediately
recognised
through the
profit and
loss account
Impairment
The impairment requirements apply to the following financial assets:
Loans and receivables
Held-to-maturity investments
Available-for-sale financial assets
Investments in unquoted equity instruments whose fair value cannot be reliable measured.
The only category of financial asset that is not subject to testing for impairment is financial
assets at fair value through profit and loss. Since any decline in value for such assets is
recognised immediately in profit and loss. For loans, receivables, and held-to-maturity
investments, impaired assets are measured at the present value of estimated future cash flows,
discounted using the original effective interest rate of the financial asset.
14. IAS 18 revenue recognition
Recognition of revenue when selling goods
The seller has transferred to the buyer the significant risks and rewards of ownership
The seller retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold
The amount of revenue can be measured reliably
It is probable that the economic benefits associated with the transaction will flow to the
seller
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Recognition of revenue when rendering of service
The amount of revenue can be measured reliably
It is probable that the economic benefits will flow to the seller
The stage of completion at the balance sheet date can be measured reliably
The costs incurred, or to be incurred, in respect of the transaction can be measured
reliably
Recognition of revenue for interest, royalties, and dividends
Interest on a time proportion basis
Royalties on an accruals basis with the substance of the relevant agreement
Dividends when the shareholder’s right to receive payment is established.
top related