financial reporting update 2018 - nelson cpa limited | · associate or joint venture that is an...

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20132018NelsonConsultingLimited 1

LAMChiYuenNelsonCFACharterHolder,FCPA(Practising)MBAMScBBACPA(U.S.)FCAFCCAFCPA(Aust.)FSCAwww.Facebook.com/NelsonCFA

FinancialReportingUpdate201829January2018

Cairo@Egypt Stephanie&Nelson2008

20132018NelsonConsultingLimited 2PhototakenbyStephanieandNelson2017Malbork @Poland

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Effectivefor2017Dec.YearEnd

Amendments to HKAS 7 Disclosure Initiative (Statement of Cash Flows)

Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses

Annual Improvements to HKFRSs 2014-2016 Cycle (Amendments to HKFRS 12)

Amendments to HKFRS for Private Entities

1 Jan. 2017

1 Jan. 2017

1 Jan. 2017

1 Jan. 2017

Selected new interpretations and amendments to HKFRSs

Effective for periods beginning on/after

UpdatedtoHKICPAUpdateNo.213ofJanuary2019


Effectivefor2018Dec.YearEnd

HKFRS 9 (2014) Financial Instruments Amendments to HKFRS 9 Clarify the Basis for Conclusions HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 15 Effective Date of HKFRS 15

Revenue from Contracts with Customers Amendments to HKFRS 15 Clarifications to HKFRS 15

Revenue from Contracts with Customers Amendments to HKFRS 2 Classification and Measurement of

Share-based Payment Transactions Amendments to HKFRS 4 Applying HKFRS 9 and HKFRS 4 Amendments to HKAS 40 Transfers of Investment Property Annual Improvements to HKFRSs 2014-2016 Cycle

(Amendments to HKFRS 1 and HKAS 28) Hong Kong (IFRIC) Interpretation 22 Foreign Currency

Transactions and Advance Consideration

1 Jan. 2018

1 Jan. 2017 1 Jan. 2018

1 Jan. 2018

1 Jan. 2018

1 Jan. 2018 1 Jan. 2018 1 Jan. 2018

1 Jan. 2018




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Effectiveafter2018Dec.YearEnd

HKFRS 16 Leases Hong Kong (IFRIC) Interpretation 23 Uncertainty over Income

Tax Treatments Amendments to HKFRS 9 Prepayment Features with Negative

Compensation. Amendments to HKAS 28 Investments in Associates and Joint

Ventures Amendments to HKFRS 10 and HKAS 28 Sale or Contribution

of Assets between an Investor and its Associate or Joint Venture

HKFRS 17 Insurance Contracts

1 Jan. 2019 1 Jan. 2019

1 Jan. 2019

1 Jan. 2019 1 Jan. 2016 (a date

to be determined by the IASB)

1 Jan. 2021





NeworRevisedHKFRSEffectivefor2017

TodaysAgenda


Full presentation can be found in:

www.Facebook.com/NelsonCFA

NeworRevisedHKFRSEffectiveforandafter2019

Recap and Update

Comprehensive Examples

Flowchart

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TodaysAgenda



20132018NelsonConsultingLimited 8PhototakenbyStephanieandNelson2007Rovaniemi@Finland

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DisclosureInitiative(AmendmentstoHKAS7StatementofCashFlows)


AmendmentstoHKAS7

In2016,theIASBamendedIAS7,andtheHKICPAthenfollowedtoamendHKAS7,aspartoftheIASBsDisclosureInitiative project

HKAS7thenrequiresentitiestoprovidedisclosuresthatenableusersoffinancialstatementstoevaluatechangesinliabilitiesarisingfromfinancingactivities,includingboth changesarisingfromcashflowsand noncashchanges(HKAS7.44A)

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AmendmentstoHKAS7

Totheextentnecessarytosatisfythenewrequirement,anentityisrequiredtodisclosethefollowingchangesinliabilitiesarisingfromfinancingactivities:1. changesfromfinancingcashflows;2. changesarisingfromobtainingorlosingcontrolofsubsidiariesorother

businesses;3. theeffectofchangesinforeignexchangerates;4. changesinfairvalues;and5. otherchanges.

Tofulfilthedisclosurerequirement,anentitycanprovideareconciliation betweentheopeningandclosingbalancesinthestatementoffinancialpositionforliabilitiesarisingfromfinancingactivities,includingthechangesasidentifiedabove.


AmendmentstoHKAS7

2015 Cashflows Noncashchanges 2016Acquisition Newleases

$ $ $ $ $Longtermborrowings 1,040 250 200 1,490Leaseliabilities (90) 900 810Longtermdebt 1,040 160 200 900 2,300

Example

Reconciliationofliabilitiesarisingfromfinancingactivities

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EffectiveDate

DisclosureInitiative(AmendmentstoHKAS7),issuedinJanuary2016,addedparagraphs44A44E.

Anentityshallapplythoseamendmentsforannualperiodsbeginningonorafter1January2017. Earlierapplicationispermitted. Whentheentityfirstapplies thoseamendments,itisnotrequiredtoprovidecomparativeinformationforprecedingperiods.(HKAS7.60)


DeferredTaxAssetsforUnrealisedLosses(AmendmentstoHKAS12IncomeTaxes)

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AmendmentstoHKAS12

In2016,theIASBissuedamendmentstoIAS12,andthenHKICPAfollowedthesame, toclarifytherequirementsonrecognitionofdeferredassets

forunrealisedlosses, includingthedeferredtaxassetsrelatedtodebtinstrumentsmeasuredatfairvalue.


AmendmentstoHKAS12

Whenanentityassesseswhethertaxableprofits willbeavailableagainstwhichitcanutiliseadeductibletemporarydifference,itconsiderswhethertaxlawrestricts thesourcesoftaxableprofitsagainstwhichitmaymakedeductionsonthereversalofthatdeductibletemporarydifference. Iftaxlawimposesnosuchrestrictions,

anentityassesses adeductibletemporarydifferenceincombinationwithallofitsotherdeductibletemporarydifferences.

However,iftaxlawrestrictstheutilisationoflosses todeductionagainstincomeofaspecifictype, adeductibletemporarydifferenceisassessedincombinationonlywith

otherdeductibletemporarydifferencesoftheappropriatetype(HKAS12.27A)

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AmendmentstoHKAS12

Inestimatingprobablefuturetaxableprofit,theestimatemayincludetherecoveryofsomeofanentitysassetsformorethantheircarryingamount ifthereissufficientevidencethatitisprobablethattheentitywillachievethis.(HKAS12.29A)


AmendmentstoHKAS12

HappyLimitedmeasuresafixedratedebtinstrumentatfairvalue(whichislowerthanthematurityvalue).HKAS12requiresHappytoconsiderwhetherthereissufficientevidencetoconcludethatitisprobablethatHappywillrecovertheinstrumentformorethanitscarryingamount.WhenHappyexpectstoholdafixedratedebtinstrumentuntilmaturity andcollectallthecontractualcashflows, thismaybethecasethatitisprobablethatHappywillrecover

theinstrumentformorethanitscarryingamount.

Example

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EffectiveDate

RecognitionofDeferredTaxAssetsforUnrealisedLosses(AmendmentstoHKAS12),issuedinJanuary2016,amendedparagraph29andaddedparagraphs27A,29Aandtheexamplefollowingparagraph26.

Anentityshallapplythoseamendmentsforannualperiodsbeginningonorafter1January2017. Earlierapplicationispermitted. Ifanentityappliesthoseamendmentsforanearlierperiod,itshalldisclosethatfact.


EffectiveDate

Anentityshallapplythoseamendmentsretrospectively inaccordancewithHKAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors. However,oninitialapplicationoftheamendment,thechangeintheopeningequityoftheearliestcomparativeperiodmayberecognisedinopeningretainedearnings(orinanothercomponentofequity,asappropriate),withoutallocatingthechangebetweenopeningretainedearningsandothercomponentsofequity.

Ifanentityappliesthisrelief,itshalldisclosethatfact.(HKAS12.98H)

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AnnualImprovements20142016Cycle


A.Improvements201416:Introduction

AnnualImprovementProject Avehicleformakingnonurgentbutnecessary

amendmentstoIFRS(andconsequentiallyHKFRSs) IntroducedbytheIASBin2007andissuedeachyear

TheamendmentscontainedinAnnualImprovements20142016Cycle AreissuedinFebruary2017

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A.Improvements201416:Introduction

HKFRS Amended SubjectofAmendmentsHKFRS1FirsttimeAdoptionofHongKongFinancialReportingStandards

Deletionofshorttermexemptionsforfirsttimeadopters

HKFRS12DisclosureofInterestsinOtherEntities

ClarificationofthescopeofHKFRS12

HKAS28InvestmentsinAssociatesandJointVentures

Measuringanassociateorjointventureatfairvalue

Effectivein2017

Effectivein2018

Effectivein2018


A.Improvements201416:HKFRS1

InAnnualImprovementstoIFRSStandards20142016Cycle,theBoard(IASB)deletedtheshorttermexemptions inparagraphsE3E7andtherelatedeffectivedateparagraphs. Theyincluded

Disclosuresaboutfinancialinstruments(HKFRS7) Employeebenefits(HKAS19) Investmententities(HKFRS10)

TheBoardnotedthatthereliefsprovidedinthoseparagraphswerenolongerapplicable.

Thereliefsprovidedhadbeenavailabletoentitiesonlyforreportingperiodsthathadpassed.(HKFRS1.BC99)

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AnnualImprovementstoHKFRSStandards20142016Cycle,issuedinFebruary2017,amendedparagraphs39Land39Tanddeletedparagraphs39D,39F,39AAandE3E7.

Anentityshallapplythoseamendmentsforannualperiodsbeginningonorafter1January2018.(HKFRS1.39AD)



ExceptasdescribedinHKFRS12.B17,therequirementsinHKFRS12(DisclosureofInterestsinOtherEntities)applytoanentitysinterestslistedinHKFRS12.5thatareclassified(orincludedinadisposalgroupthatisclassified)asheldforsaleordiscontinuedoperations inaccordancewithHKFRS5NoncurrentAssetsHeldforSaleandDiscontinuedOperations.(HKFRS12.5A)

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AnnualImprovementstoHKFRSStandards20142016Cycle,issuedinFebruary2017,addedparagraph5AandamendedparagraphB17.

AnentityshallapplythoseamendmentsretrospectivelyinaccordancewithHKAS8AccountingPolicies,ChangesinAccountingEstimatesandErrorsforannualperiodsbeginningonorafter1January2017.(HKFRS12.C1D)


A.Improvements201416:HKAS28

Whenaninvestmentinanassociateorajointventureisheldby,orisheldindirectlythrough,anentitythatisaventurecapitalorganisation,oramutualfund,unittrustandsimilarentitiesincludinginvestmentlinkedinsurancefunds, theentitymayelecttomeasurethatinvestmentsatfairvaluethroughprofitorloss inaccordancewithHKFRS9.

Anentityshallmakethiselectionseparately foreachassociateorjointventure,atinitialrecognitionoftheassociateorjointventure.(HKAS28.18)

AddedbyAI

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NotwithstandingtherequirementinHKAS28.36,ifanentitythatisnotitselfaninvestmententity hasaninterestinanassociateorjointventurethatisaninvestmententity, theentitymay,whenapplyingtheequitymethod,electto retainthe

fairvaluemeasurement appliedbythatinvestmententityassociateorjointventuretotheinvestmententityassociatesorjointventuresinterestsinsubsidiaries.

Thiselectionismadeseparately foreach investmententityassociateorjointventure,atthelaterofthedateonwhich(a) theinvestmententityassociateorjointventureisinitiallyrecognised;(b) theassociateorjointventurebecomesaninvestmententity;and(c) theinvestmententityassociateorjointventurefirstbecomesa

parent.(HKAS28.36A)

AddedbyAI



AnnualImprovementstoHKFRSStandards20142016Cycle,issuedinFebruary2017,amendedparagraphs18and36A.

AnentityshallapplythoseamendmentsretrospectivelyinaccordancewithHKAS8forannualperiodsbeginningonorafter1January2018.

Earlierapplicationispermitted. Ifanentityappliesthoseamendmentsforanearlierperiod,itshalldisclosethatfact.(HKAS28.45E)

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HKFRSforPrivateEntities

Small vs.

Large


KeyChanges(HKICPAUpdateNo.175)

Allowinganoptiontousetherevaluationmodelforproperty,plantandequipment;and

Replacingthemodifiedtextinsection29IncomeTax ofHKFRSforPEwiththerevisedsection29oftheamendmentstotheIFRSforSMEs. Asaresultofthischange,therecognitionand

measurementrequirementsfordeferredincometaxesofHKFRSforPE,IFRSforSMEsandIAS12IncomeTaxes arenowaligned.

Theotheramendments clarifytheexistingrequirementsoraddsupporting

guidance, insteadofchangingtheunderlyingrequirementsin

thestandard.

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20132018NelsonConsultingLimited 33PhototakenbyStephanieandNelson2017Kyoto@Japan


TodaysAgenda




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HKFRS9FinancialInstruments



1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition

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Chapter4.1ClassificationofFA

Unlesspara.4.1.5ofHKFRS9(socalledfairvalueoption)applies,anentityshallclassifyfinancialassetsassubsequentlymeasuredateither amortised cost, fairvaluethroughothercomprehensiveincome,or fairvaluethroughprofitorlossonthebasisofboth:a) theentitysbusinessmodel formanagingthefinancialassets;andb) thecontractualcashflowcharacteristics ofthefinancialasset.

(para.4.1.1)

AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough

ProfitorLoss


No



ProfitorLoss

Contractualcashflowsaresolelyprincipaland

interest?

Determinethecategoryofafinancialassetforsubsequent

measurement

No

Choosefairvalueoption(designateatfairvaluethroughprofitorloss)?

No

Yes

Yes

Heldwithinabusinessmodeltocollectcontractual

cashflow?Yes

No HeldwithinabusinessmodeltocollectcontractualcashflowandsellingFA?

Contractualcashflowsaresolelyprincipaland

interest?

Yes

Yes

No

No

Entitleandelecttopresentfairvaluechangesinothercomprehensiveincome

Yes

Source:AdvancedFinancialReporting(2016)byNelsonLam,KPYuenandJasmineKwong

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EventhecommonunderstandingviewsthattherearethreecategoriesinHKFRS9fortheclassificationandsubsequentmeasurementofafinancialasset,afinancialassetcanbeclassifiedintothefollowingfivecategoriesorsubcategories:1. Financialassetatamortisedcost;2. Financialasset(notbeinginvestmentinequityinstrument)atfairvalue

throughothercomprehensiveincome;3. Financialasset,beinginvestmentinanequityinstrument,irrevocable

electedtomeasureatfairvaluethroughothercomprehensiveincome.4. Financialassetatfairvaluethroughprofitorloss;and5. Optiontodesignateafinancialassetatfairvaluethroughprofitorloss;


ProfitorLoss

1 2 3 4 5



Afinancialassetshallbemeasuredatfairvaluethroughprofitorloss unlessitismeasured atamortisedcost inaccordancewithpara.4.1.2or atfairvaluethroughothercomprehensiveincome inaccordancewith

parag.4.1.2A. Howeveranentitymaymake

anirrevocableelection atinitialrecognition forparticularinvestmentsinequityinstruments thatwouldotherwisebemeasuredatfairvaluethroughprofitorlosstopresent subsequentchangesinfairvalueinothercomprehensiveincome(seepara.5.7.55.7.6).(para.4.1.4)


ProfitorLoss

No


Yes

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Chapter5.7GainsandLosses Atinitialrecognition,anentitymaymake

anirrevocableelection topresentinothercomprehensiveincome subsequentchangesinthefairvalueofaninvestmentinanequityinstrument withinthescopeofHKFRS9thatisneitherheldfortradingnorcontingentconsideration recognisedbyanacquirerinabusinesscombinationtowhichHKFRS3applies.(para.5.7.5)

Ifanentitymakestheaboveelectioninpara.5.7.5,itshallrecogniseinprofitorloss dividendsfromthatinvestmentinaccordancewithpara.5.7.1A.(para.5.7.7)

Forthoseclassifiedasmeasuredatfairvalue

Fairvalueoption?

Equityinstrument?

Heldfortrading?and/orcontingentconsideration?

No

Yes

No

Partofhedgingrelationship

No

FairValueThroughOtherComprehensiveincome


Yes

AmortisedCost FairValueThroughProfitorLoss

Source:IntermediateFinancialReporting,3rd(2017)byNelsonLam&PeterLau


Chapter5.7GainsandLosses Thiselection(para.5.7.5)ismadeonan

instrumentbyinstrument (ie sharebyshare)basis.

Amountspresentedinothercomprehensiveincomeshallnot besubsequentlytransferredtoprofitorloss.

However,theentitymaytransferthecumulativegainorlosswithinequity.(para.B5.7.1)

Thegainorlossthatispresentedinothercomprehensiveincomeinaccordancewithpara.5.7.5includesanyrelatedforeignexchangecomponent.(para.B5.7.3)

Forthoseclassifiedasmeasuredatfairvalue

Fairvalueoption?

Equityinstrument?

Heldfortrading?and/orcontingentconsideration?

No

Yes

No

Partofhedgingrelationship

No



Yes

Source:IntermediateFinancialReporting,3rd(2017)byNelsonLam&PeterLau

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Chapter4.3EmbededDerivatives

Accountingforderivatives

Yes Accountingforasfinancialguaranteecontract

No

Is the derivative a financial guarantee contract?

Is the derivative a designated and effective

hedging instrument?

Contract meets the definition of derivative

ApplyhedgeaccountingYes

No

Derivative other than financial guarantee contract

and designated and effective hedging instrument

Source:AdvancedFinancialReporting(2016)byNelsonLam,KPYuenandJasmineKwong


Chapter4.3EmbededDerivatives

Economiccharacteristicsandrisksoftheembeddedderivativecloselyrelated?

Embeddedderivativemeetsthedefinitionofderivative?

Hybridcontractmeasuredatfairvaluethroughprofitorloss?

Separatetheembeddedderivativefromthehost

No

Yes

No

Yes

No

Yes

Otherhybridcontract

Hybridcontractwithfinancialassethost?

Hybridcontractwithfinancialassethost

YesNo

Nonfinancialassethost

Embeddedderivative

Nottoseparatetheembeddedderivativefromthehost

Accountedforasotherderivatives ApplyapplicableHKFRSSource:AdvancedFinancialReporting(2016)byNelsonLam,KPYuenandJasmineKwong

Accountedforasotherfinancial

assets

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1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition


Chapter5Measurement

Initialmeasurement Exceptfortradereceivables withinthescopeofpara.5.1.3, atinitialrecognition,anentityshallmeasurea

financialassetorfinancialliability atitsfairvalue plusorminus,inthecaseofafinancialassetorfinancialliabilitynotatfairvaluethroughprofitorloss,transactioncosts thataredirectlyattributabletotheacquisitionorissueofthefinancialassetorfinancialliability.(para.5.1.1)

However,ifthefairvalue ofthefinancialassetorfinancialliabilityatinitialrecognition differsfromthetransactionprice,anentityshallapplypara.B5.1.2A.(para.5.1.1A)

Initial MeasurementFair Value

Transaction Cost+

ToalignHKFRS15

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Chapter5Measurement

SubsequentMeasurementofFinancialAssets Afterinitialrecognition,anentityshallmeasureafinancialassetinaccordancewithpara.4.1.14.1.5at:a. amortisedcost;b. fairvaluethroughothercomprehensiveincome;orc. fairvaluethroughprofitorloss.(para.5.2.1)


ProfitorLoss


Chapter5Measurement

Anentityshallapplytheimpairmentrequirements inSection5.5 tofinancialassetsthataremeasuredatamortisedcost inaccordancewith

para.4.1.2(i.e.undertheholdtocollectbusinessmodel)and tofinancialassetsthataremeasuredatfairvaluethroughother

comprehensiveincome inaccordancewithpara.4.1.2A(i.e.undertheholdtocollectandsellbusinessmodel).(para.5.2.2)


ProfitorLoss

SubsequentMeasurementofFinancialAssets

No

EntitleandelecttopresentfairvaluechangesinothercomprehensiveincomeYes

Impairmentrequirementsappliedtothesetwocategoriesonly(impliedthatequityinstrumentsarenotsubjectto

impairmentrequirements)

1 2

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Chapter5.5Impairment

Anentityshallrecognise alossallowanceforexpectedcreditlosseson afinancialasset thatismeasuredinaccordancewithpara.4.1.2or4.1.2A, aleasereceivable, acontractasset or aloancommitment andafinancialguarantee

contract towhichtheimpairmentrequirementsapplyinaccordancewithpara.2.1(g),4.2.1(c)or4.2.1(d).(para.5.5.1)

RecognitionofExpectedCreditLosses GeneralApproach

HKFRS9definesexpectedcreditlosses as: Theweightedaverage ofcreditlosseswiththe

respectiverisksofadefaultoccurringastheweights.



Tounderstandandapplytheserequirements,anentityhastoascertain thescopeoftheimpairmentinHKFRS9, theconceptofexpectedcreditlosses, theapproachinrecognitionofexpectedcreditlosses, thefinancialinstrumentswiththescopeinrecognitionofexpectedcredit

lossesbutnotfallingwithinthethreestagemodel, theassessmentofthecreditriskonafinancialinstrumentsinceinitial

recognition, thedeterminationoffinancialinstrumentsbeingcreditimpaired,and thethreestagemodelinsuchrecognition.

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Chapter5.5Impairment Alwaysrecognisealoss

allowanceforchangesinlifetimeexpectedcreditlosses,and

Calculateacreditadjustedeffectiveinterestrate

Calculateinterestrevenueongrosscarryingamount

Hastherebeenasignificantincreaseincreditrisksince

initialrecognition?

No

Issimplifiedapproachfortradereceivables,contractassetsandlease

receivablesapplicable?No

Yes

No

Isthelowcreditrisksimplification

applied?

Yes

Yes

Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)

Yes

Yes

No

No


YesNo

Calculateinterestrevenueonamortisedcost

RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses

Stage1 Stage2 Stage3

Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?

Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?

AdaptedfromtheflowchartafterHKFRS9.IE102



ScopeinRecognitionofExpectedCreditLosses InHKFRS9,notonlyfinancialassetsbutalsosomefinancialinstrumentsmayfallwithinthescopeinrecognitionofexpectedcreditlosses.

HKFRS9specificallyrequirestoanentitytorecognisealossallowanceforexpectedcreditlossesonthefollowingfinancialassets:1. Financialassetatamortisedcost;2. Financialasset(notbeinginvestmentinequityinstrument)atfairvalue

throughothercomprehensiveincome;3. Leasereceivable,4. Contractasset,or5. Loancommitmentandfinancialguaranteecontracttowhichthe

impairmentrequirementsapplyinaccordancewithHKFRS9

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TheConceptofExpectedCreditLosses ThemainchangeoftheimpairmentrequirementsinHKFRS9istheintroductionoftheexpectcreditlosstoreplacetheincurredlossmodel.

TheIASBconsideredthat,forthosefinancialassetsbeingthedebtinstruments,theeffectofchangesincreditriskaremorerelevanttoaninvestorsunderstandingofthelikelihoodofthecollectionoffuturecontractualcashflowsthantheeffectsofotherchanges,forexamplechangesinmarketinterestrates.

Theexpectedcreditlossescanbefurtherdividedintotwotypes: 12monthexpectedcreditlosses(recognisedinStage1oftheimpairment

stages);and lifetimeexpectedcreditlosses(recognisedinStage2and3ofthe

impairmentstagesandforspecificfinancialinstruments)



ApproachinRecognitionofExpectedCreditLosses ToachievetheobjectiveandcomplytheimpairmentrequirementsinHKFRS9,anentityisrequiredtohavethefollowing3kindsofassessment:1. Assettypeassessment toassessthetypeofthefinancialassetand

determinewhetheritisa) purchasedororiginatedcreditimpairedfinancialassets;b) tradereceivables,contractassetsandleasereceivablesforwhichthe

entityappliessimplifiedapproach;orc) otherfinancialassets.

2. Creditriskassessment Toassessthecreditriskonthefinancialasset;and

3. CreditimpairedassessmentTodeterminewhetherthefinancialassetiscreditimpaired.

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Assettypeassessment

Creditriskassessment

Creditimpairedassessment


initialrecognition?


receivablesapplicable?


applied?






Assettypeassessment Thefinancialinstrumentswiththescopeinrecognitionofexpectedcreditlossesbutnotfallingwithinthethreestagemodel

Beforehavingcreditriskassessment,anentityisrequiredtodirectlyrecogniselifetimeexpectedcreditlossesfortwotypesoffinancialinstruments:1. Purchasedororiginatedcreditimpairedfinancialassets;and2. Tradereceivables,contractassetsandleasereceivablesforwhichtheentity

appliessimplifiedapproach.



AssettypeassessmentNo


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Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and




Yes



Yes

No


YesNo


Recogniselifetimeexpectedcreditlosses

Stage2 Stage3






Example

BonnieCorporationisamanufacturerandhasaportfoliooftradereceivablesof$30millionin2015andoperatesonlyinSingapore.Bonniesdeterminesthat: Thecustomerbaseconsistsofalargenumberofsmallclients. Thetradereceivablesarecategorisedbycommonriskcharacteristicsthatarerepresentativeofthecustomersabilitiestopayallamountsdueinaccordancewiththecontractualterms.

ThetradereceivablesdonothaveasignificantfinancingcomponentinaccordancewithHKFRS15.

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Example

InaccordancewithHKFRS9,thelossallowanceforsuchtradereceivablesisalwaysmeasuredatanamountequaltolifetimetimeexpectedcreditlosses.

Todeterminetheexpectedcreditlossesfortheportfolio,Bonnieusesaprovisionmatrix.

Theprovisionmatrixisbasedonitshistoricalobserveddefaultratesovertheexpectedlifeofthetradereceivablesandisadjustedforforwardlookingestimates.

Ateveryreportingdate,thehistoricalobserveddefaultratesareupdatedandchangesintheforwardlookingestimatesareanalysed.Inthiscase,itisforecastthateconomicconditionswilldeteriorateoverthenextyear.





Example

Onthatbasis,Bonnieestimatesthefollowingprovisionmatrix:130days 3160days 6190days Over90days

Current pastdue pastdue pastdue pastdueDefaultrate 1% 3% 5% 10% 15%

Tradereceivablesfromthelargenumberofsmallcustomersamountto$30millionandaremeasuredusingtheprovisionmatrixasfollows:

Grosscarrying Default Lifetimeexpectedamount rate creditlossallowance

Current $15,000,000 1% $150,000130dayspastdue 7,500,000 3% 225,0003160dayspastdue 4,000,000 5% 200,0006190dayspastdue 2,500,000 10% 250,000Over90dayspastdue 1,000,000 15% 150,000

$30,000,000 $975,000

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Creditriskassessment Ateachreportingdate,forallfinancialinstruments,otherthanpurchased

ororiginatedcreditimpairedfinancialassets,orfinancialassetsthatsimplificationapproachisapplied, anentityisrequiredtoassesswhetherthecreditrisk onafinancialinstrumenthasincreasedsignificantlysinceinitialrecognition.


initialrecognition?


applied?





Creditriskassessment RiskofDefaultandPastDueInformation

HKFRS9incorporatestworebuttablepresumptionsinassessingsignificantincreasesincreditriskandriskofdefault:i. 30Dayspastduerebuttableresumption inrespectofsignificantincreasesincreditrisk Regardlessofthewayinwhichanentityassessessignificantincreasesin

creditrisk,thereisarebuttablepresumptionthatthecreditrisk onafinancialassethasincreasedsignificantlysinceinitialrecognition whencontractualpaymentsaremorethan30dayspastdue(HKFRS9.5.5.11).

ii. 90Dayspastduerebuttableresumption inrespectofdefaultoccurred Indefiningdefault,thereisarebuttablepresumptionthatdefaultdoesnot

occurlaterthanwhenafinancialassetis90dayspastdue unlessanentityhasreasonableandsupportableinformationtodemonstratethatamorelaggingdefaultcriterionismoreappropriate.

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Creditimpairedassessment thedeterminationoffinancialinstrumentsbeingcreditimpaired, InHKFRS9,afterassessingcreditriskandascertainingpastdueinformation,anentityhastodeterminewhetherthefinancialinstrumentiscreditimpaired.





ThreeStageModel ByapplyingsuchimpairmentapproachinHKFRS9toafinancialinstrumentandbasedontheresultofcreditriskassessment,anentitymay,asexplainedbytheIASB,dividetheimpairmentrequirementsintothreeimpairmentstages:Stage1 Performingfinancialinstrumentstage;Stage2 Underperformingfinancialinstrumentstage;andStage3 Nonperformingfinancialinstrumentstage.

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Stage1 Performing Stage2 Underperforming Stage3 NonPerformingIncrease in credit risk since initial recognition

Impairmentrecognition

Interestrevenue

12monthexpectedcreditlosses

Effectiveinterestongrosscarryingamount

Lifetimeexpectedcreditlosses

Effectiveinterestonamortisedcost

AdaptedfromProjectSummaryofIFSR9(July2014)

Assettypeassessment



Otherfinancialassetsonly

Creditimpaired

Significantincreaseincreditrisk

Otherfinancialassetsandthosesimplificationapproachapplied

Notcreditimpaired

Nosignificantincreasein(orlow)creditrisk


AdaptedfromtheIASBsProjectSummaryissuedinJuly2014


Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and




initialrecognition?

No


receivablesapplicable?No

Yes

No


applied?

Yes

Yes


Yes

Yes

No

No


YesNo


RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses

Stage1 Stage2 Stage3




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HowwillitbeaffectedbyHKFRS9?

Stage 1 Stage 2 Stage 3

HKFRS9

Lifetimeexpectedcreditlosses

(HKFRS9)


Chapter7EffectiveDateandTransition

AnentityshallapplyHKFRS9forannualperiodsbeginningonorafter1January2018. Earlierapplicationispermitted.(HKFRS9.7.1) Withsomerestrictions,anentitymayelecttoearlyapplysome

requirementsonly.(HKFRS9.7.1.2)

AnentityshallapplyHKFRS9retrospectively,inaccordancewithHKAS8,exceptasspecified inpara.7.2.47.2.26and7.2.28. HKFRS9shallnotbeappliedtoitemsthathavealreadybeenderecognised

atthedateofinitialapplication.(HKFRS9.7.2.1)

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Forthepurposesofthetransitionprovisionsinpara.7.2.1,7.2.37.2.28and7.3.2,thedateofinitialapplication is thedatewhenanentityfirstappliesthoserequirementsofHKFRS9 and

mustbethebeginningofareportingperiodaftertheissueofHKFRS9.

DependingontheentityschosenapproachtoapplyingHKFRS9,thetransitioncaninvolveoneormorethanonedateofinitialapplicationfordifferentrequirements.(HKFRS9.7.2.2)

HKFRS9providesfurthertransitionarrangementsfor Classificationandmeasurement Impairment Hedgeaccounting



Atthedateofinitialapplication, anentityshallassess whetherafinancialassetmeetsthecondition inpara.4.1.2(a)(i.e.holdtocollectbusinessmodel)or4.1.2A(a)(i.e.holdtocollectandsellbusinessmodel)onthebasisofthefactsandcircumstancesthatexistatthatdate.

Theresultingclassificationshallbeappliedretrospectively irrespectiveoftheentitysbusinessmodelinpriorreportingperiods.(HKFRS9.7.2.3)

AmortisedCost FairValueThroughOtherComprehensiveincome

1 2

Classificationandmeasurement

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Atthedateofinitialapplication anentitymaydesignate:

a. afinancialassetasmeasuredatfairvaluethroughprofitorloss inaccordancewithparagraph4.1.5;or

b. aninvestmentinanequityinstrumentasatfairvaluethroughothercomprehensiveincome inaccordancewithparagraph5.7.5.

Suchadesignationshallbemadeonthebasisofthefactsandcircumstancesthatexist atthedateofinitialapplication.

Thatclassificationshallbeappliedretrospectively.(HKFRS9.7.2.8)


FairValueThroughProfitorLoss

3 5




Ifanentitypreviouslyaccountedatcost (inaccordancewithHKAS39),foraninvestmentinanequityinstrumentthatdoesnothaveaquotedpriceinanactivemarketforanidenticalinstrument(ie aLevel1input)(orforaderivativeassetthatislinkedtoandmustbesettledbydeliveryofsuchanequityinstrument)itshallmeasurethatinstrumentatfairvalueatthedateofinitialapplication.

Anydifferencebetweenthepreviouscarryingamountandthefairvalueshallberecognisedintheopeningretainedearnings(orothercomponentofequity,asappropriate) ofthereportingperiodthatincludesthedateofinitialapplication.(HKFRS9.7.2.12)



3

FairValueThroughProfitorLoss

4 5

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AnentityshallapplytheimpairmentrequirementsinSection5.5retrospectively inaccordancewithHKAS8 subjecttopara.7.2.15and7.2.187.2.20.(HKFRS9.7.2.17)

Atthedateofinitialapplication,anentityshallusereasonableandsupportableinformation thatisavailablewithoutunduecostoreffort to determinethecreditriskatthedatethatafinancialinstrumentwasinitiallyrecognised (orforloancommitmentsandfinancialguaranteecontractsatthedatethattheentitybecameapartytotheirrevocablecommitmentinaccordancewithpara.5.5.6)and

comparethattothecreditriskatthedateofinitialapplicationofHKFRS9.(HKFRS9.7.2.18)

Impairment



Whendeterminingwhethertherehasbeenasignificantincreaseincreditrisksinceinitialrecognition,anentitymayapply:a. therequirementsinpara.5.5.10andB5.5.22B5.5.24;andb. therebuttablepresumptioninpara.5.5.11forcontractualpayments

thataremorethan30dayspastdue ifanentitywillapplytheimpairmentrequirementsbyidentifyingsignificantincreasesincreditrisksinceinitialrecognitionforthosefinancialinstrumentsonthebasisofpastdueinformation.(HKFRS9.7.2.19)

Impairment

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If,atthedateofinitialapplication,determiningwhethertherehasbeenasignificantincreaseincreditrisksinceinitialrecognitionwouldrequireunduecostoreffort, anentityshallrecognisealossallowanceatanamountequaltolifetimeexpectedcreditlossesateachreportingdateuntilthatfinancialinstrumentisderecognised (unlessthatfinancialinstrumentislowcreditriskatareportingdate,inwhichcaseparagraph7.2.19(a)applies).(HKFRS9.7.2.20)

Impairment


ForeignCurrencyTransactionsandAdvanceConsideration(HK(IFRIC)Interpretation22)

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HK(IFRIC)Int.22 Background

HKAS21TheEffectsofChangesinForeignExchangeRatesrequiresthat: Aforeigncurrencytransaction shallberecorded,oninitialrecognitioninthefunctionalcurrency,byapplyingtotheforeigncurrencyamountthespotexchangeratebetweenthefunctionalcurrencyandtheforeigncurrencyatthedateofthetransaction.(HKAS21.21)

Thedateofatransaction is thedateonwhichthetransactionfirst

qualifiesforrecognitioninaccordancewithHKFRSs.(HKAS21.22)



Whenanentitypaysorreceivesconsiderationinadvanceinaforeigncurrency, itgenerallyrecognisesanonmonetaryassetornonmonetaryliability beforetherecognitionoftherelatedasset,expenseorincome.

Therelatedasset,expenseorincome(orpartofit)istheamountrecognisedapplyingrelevantStandards,whichresultsinthederecognition ofthenonmonetaryassetornonmonetaryliabilityarisingfromtheadvanceconsideration.(para.2)

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Forexample,paragraph106ofHKFRS15RevenuefromContractswithCustomers requiresthat ifacustomerpaysconsideration,oranentityhasarighttoanamountofconsiderationthatisunconditional(i.e.areceivable),beforetheentitytransfersagoodorservicetothecustomer, theentityshallpresentthecontractasacontractliability whenthepaymentismadeorthepaymentisdue(whicheverisearlier).

Example


HK(IFRIC)Int.22 Scope

ThisInterpretationappliesto aforeigncurrencytransaction (orpartofit)whenanentityrecognisesa

nonmonetaryassetornonmonetaryliability arisingfromthepaymentorreceiptof advanceconsideration before theentityrecognisestherelatedasset,expenseorincome(orpartofit).(para.4)

ThisInterpretationdoesnotapply whenanentitymeasurestherelatedasset,expenseorincomeoninitial

recognition:(a) atfairvalue;or(b) atthefairvalueoftheconsiderationpaidorreceivedatadateother

thanthedateofinitialrecognition ofthenonmonetaryassetornonmonetaryliabilityarisingfromadvanceconsideration(forexample,themeasurementofgoodwillapplyingHKFRS3BusinessCombinations).(para.5)

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HK(IFRIC)Int.22 Scope

Anentityisnotrequiredtoapply thisInterpretationto:(a) incometaxes;or(b) insurancecontracts(includingreinsurancecontracts)thatitissues or

reinsurancecontractsthatitholds.(para.6)


HK(IFRIC)Int.22 Issue

ThisInterpretationaddresseshowtodeterminethedateofthetransaction forthepurposeofdeterminingtheexchangeratetouseoninitialrecognitionoftherelatedasset,expenseorincome(orpartofit)onthederecognitionofanonmonetaryassetornonmonetaryliability arisingfromthepaymentorreceiptofadvanceconsiderationinaforeigncurrency.(para.7)

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HK(IFRIC)Int.22 Conclusion

Applyingparagraphs2122ofHKAS21,thedateofthetransaction forthepurposeofdeterminingtheexchangeratetouseoninitialrecognitionoftherelatedasset,expenseorincome(orpartofit)is thedate onwhichanentityinitiallyrecognisesthenonmonetaryassetornonmonetaryliabilityarisingfromthepaymentorreceiptofadvanceconsideration.(para.8)

Iftherearemultiplepaymentsorreceiptsinadvance, theentityshalldetermineadateofthetransactionforeachpaymentorreceiptofadvanceconsideration. (para.9)


HK(IFRIC)Int.22 ConclusionExample

OnDay1,HKABCenteredintoacontractwithasuppliertopurchaseamachineforuseinitsbusiness.

OnDay2,underthecontractterms,HKABCpaysthesupplierafixedpurchasepriceofUS$1,000.

OnDay3,HKABCtakesdeliveryofthemachine. HKABCinitiallyrecognisesanonmonetaryassettranslatingUS$1,000intoitsfunctionalcurrencyatthespotexchangerate betweenthefunctionalcurrencyandtheforeigncurrencyonDay2. ApplyingHKAS21.23(b),HKABCdoesnotupdatethetranslatedamountofthatnonmonetaryasset.

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HK(IFRIC)Int.22 ConclusionExample

OnDay3,HKABCtakesdeliveryofthemachineandthen,HKABC derecognisesthenonmonetaryasset,and recognisesthemachineasproperty,plantandequipmentapplyingHKAS16.

Oninitialrecognitionofthemachine, HKABCrecognisesthecostofthemachineusingtheexchangerateatthedateofthetransaction,whichisDay2 (thedateofinitialrecognitionofthenonmonetaryasset).


EffectiveDate

AnentityshallapplythisInterpretationforannualreportingperiodsbeginningonorafter1January2018.

Earlierapplicationispermitted. IfanentityappliesthisInterpretationforanearlierperiod,itshalldisclosethatfact.(HK(IFRIC)Int.22.A1)

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Transition

Oninitialapplication,anentityshallapplythisInterpretationeither:(a) retrospectively applyingHKAS8;or(b) prospectively toallassets,expensesandincomeinthe

scopeoftheInterpretationinitiallyrecognisedonorafter:(i) thebeginningofthereportingperiod inwhichthe

entityfirstappliestheInterpretation;or(ii) thebeginningofapriorreportingperiodpresented

ascomparativeinformation inthefinancialstatementsofthereportingperiodinwhichtheentityfirstappliestheInterpretation.(HK(IFRIC)Int.22.A2)


Transition

Anentitythatappliespara.A2(b)(i.e.prospectiveapplicationofthisInterpretation)shall,oninitialapplication,applytheInterpretationtoassets,expensesandincomeinitiallyrecognisedonorafterthebeginningofthereportingperiodinpara.A2(b)(i)or(ii)forwhichtheentityhasrecognisednonmonetaryassetsornonmonetaryliabilitiesarisingfromadvanceconsiderationbeforethatdate.(HK(IFRIC)Int.22.A3)

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20132018NelsonConsultingLimited 89PhototakenbyStephanieandNelson2017Auschwitz@Poland


HKFRS15RevenuefromContractswithCustomers

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HKFRS15Issuedin2014

HKFRS15establishesacomprehensiveframeworkfordetermining when torecogniserevenueand howmuch revenuetorecognise.

Thecoreprincipleisthatanentityrecognisesrevenue todepictthetransferofpromisedgoodsorservicestocustomers inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices

UnderHKFRS15,anentityappliesa5stepapproach inrecognisingrevenue

Step5:Recognise

revenuewhenorasperformanceobligationissatisfied

Step4:Allocatethetransaction

price

Step3:Determine

thetransaction

price

Step2:Identifytheperformanceobligations

Step1:Identifythe

contractwithacustomer


HKFRS15Issuedin2014

EffectiveDate AnentityshallapplyHKFRS15forannualreportingperiodsbeginningonorafter1January2017 2018.(HKICPAUpdateNo.174)

Earlierapplicationispermitted. IfanentityappliesHKFRS15,itshalldisclosethatfact.

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


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HKFRS15Issuedin2014

HKFRS15supersedesthefollowingStandards:a. HKAS11ConstructionContractsb. HKAS18Revenuec. HK(IFRIC)Int 13CustomerLoyaltyProgrammesd. HK(IFRIC)Int 15Agreementsforthe

ConstructionofRealEstatee. HK(IFRIC)Int 18TransfersofAssetsfromCustomersf. HK(SIC)Int 31Revenue BarterTransactions

InvolvingAdvertisingServices

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe



ContentsinHKFRS15Issuedin2014

A. ObjectiveB. ScopeC. Recognition

Identifyingthecontract(Step1) Identifyingperformanceobligations(Step2) Satisfactionofperformanceobligations(Step5)

D. Measurement Determiningthetransactionprice(Step4) Allocatingthetransactionpricetoperformanceobligations(Step5)

E. ContractcostsF. PresentationG. Disclosure

Todays update

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20132018NelsonConsultingLimited 95Source:IntermediateFinancialReporting3rd(2017)byNelsonLamandPeterLau

Scope

Yes

No

ForacontractwithinHKFRS15,thereareoneormorecomponentswithin

otherHKFRSs?

OtherHKFRSsspecifyhowtoseparateand/orinitiallymeasureoneormore

partifthecontract?

ApplytherequirementsinHKFRS15

ExcludefromtransactionpricetheamountmeasuredbyotherHKFRSsasabove

ApplyHKFRS15ontheremainingpart

No

Yes

IsthecontractwithinHKFRS15?

Yes

ApplyotherHKFRSsNo

FirstapplyotherHKFRSs(theseparationand/ormeasurementrequirementsof

otherHKFRSs)


Step1:IdentifytheContract(s)Step5:

Recogniserevenuewhenorasperformanceobligationissatisfied


price

Step3:Determine

thetransaction

price


Step1:Identifythe


Step1:IdentifyingtheContract(s) Acontractisanagreementbetweentwoormorepartiesthatcreates

enforceablerightsandobligations. TherequirementsofHKFRS15applytoeachcontract thathasbeenagreed

uponwithacustomerandmeetsspecifiedcriteria. Insomecases,HKFRS15requiresanentitytocombinecontracts and

accountforthemasonecontract. HKFRS15alsoprovidesrequirementsfortheaccountingforcontract

modifications.(HKFRS15.IN7)

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Step1:IdentifytheContract(s)

Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenallofthefollowingcriteria(i.e.contractcriteria)aremet:a. thepartiestothecontracthaveapprovedthecontract (inwriting,orally

orinaccordancewithothercustomarybusinesspractices)andarecommittedtoperformtheirrespectiveobligations;

b. theentitycanidentifyeachpartysrights regardingthegoodsorservicestobetransferred;

c. theentitycanidentifythepaymentterms forthegoodsorservicestobetransferred;

d. thecontracthascommercialsubstance(i.e.therisk,timingoramountoftheentitysfuturecashflowsisexpectedtochangeasaresultofthecontract);and


Step1:IdentifytheContract(s)

Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenall ofthefollowingcriteria(i.e.contractcriteria)aremet:e. itisprobable thattheentitywillcollecttheconsideration towhichitwill

beentitledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer. Inevaluatingwhethercollectabilityofanamountofconsiderationis

probable,anentityshallconsideronlythecustomersabilityandintentiontopay thatamountofconsiderationwhenitisdue.

Theamountofconsiderationtowhichtheentitywillbeentitledmaybelessthanthepricestatedinthecontractiftheconsiderationisvariablebecausetheentitymayofferthecustomerapriceconcession(seeHKFRS15.52)(HKFRS15.9)

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Step1:IdentifytheContract(s)No

Yes

Isitacontractwithacustomer?

Doesthecontractmeetthecontractcriteria(i.e.HKFRS15.9)?

No

NotwithinHKFRS15

Yes

Eitherofthefollowingeventshasoccurred? Theentityhasnoremainingobligationandallorsubstantialallconsideration

receivedisnonrefundable;or Thecontracthasbeenterminatedandconsiderationreceivedisnonrefundable

Considerationreceivedrecognisedasrevenue

Yes

Considerationreceived?

WithinHKFRS15 continuethe5stepmodelofHKFRS15

NoConsiderationreceivedrecognisedasliability

Yes

Continuetoassesswhetherthecontractcriteriaaremetsubsequently

Source:IntermediateFinancialReporting3rd(2017)byNelsonLamandPeterLau


ComprehensiveExample Step1Example

LeonGroupsignsanewcontractwithacustomer,AndyInc.,whichhasbusinesswithLeonforawhileandhasgoodcredithistory

Thetermsofthenewcontractinclude: apromisestograntafranchiselicence thatprovidesAndywiththerightto

useLeonstradenameandsellLeonsproductsfor10years apromisestoprovidetheequipment necessarytooperateafranchise

store. afixedconsiderationof$150,000fortheequipment,thatispayableto

Leonwhentheequipmentisdelivered asalesbasedroyaltyof5%ofAndysmonthlysales,payabletoLeon

Leonsstandalonesellingpriceoftheequipmentis$150,000andLeonregularlylicensesfranchisesinexchangefor5%ofAndysales

InrecognisingtherevenuewithAndy,Leonappliesthe5stepmodelinHKFRS15stepbystep

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ComprehensiveExample Step1Step5:



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Example

Step1:IdentifytheContractorContractswithaCustomer InStep1,Leondeterminesthat,primafacie,

thecontractwithAndymeetsallthecontractcriteria and thereisonlyonecontract.


Step2:IdentifyPerformanceObligations

Step2:IdentifyingthePerformanceObligationsintheContract Acontractincludespromisestotransfergoodsorservicestoacustomer. Ifthosegoodsorservicesaredistinct,thepromises

areperformanceobligations andareaccountedforseparately Agoodorserviceisdistinct if

thecustomercanbenefit fromthegoodorserviceonitsownortogetherwithotherresourcesthatarereadilyavailabletothecustomerand

theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiable fromotherpromisesinthecontract.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


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Atcontractinception,anentityshall assessthegoodsorservicespromised inacontractwithacustomer,and identifyasaperformanceobligation eachpromisetotransfer tothe

customereither:a. agoodorservice (orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservices thataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer(seeHKFRS15.23)(HKFRS15.22)

PerformanceobligationsHKFRS15definesperformanceobligation as:Apromiseinacontractwithacustomertotransfertothecustomereither:

a. agoodorservice(orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservicesthataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer.



Agoodorservicethatispromisedtoacustomerisdistinct ifbothofthefollowingcriteriaaremet:a. thecustomercanbenefitfromthegoodorservice eitheronitsownor

togetherwithotherresourcesthatarereadilyavailabletothecustomer(i.e.thegoodorserviceiscapableofbeingdistinct);and

b. theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiablefromotherpromises inthecontract(i.e.thegoodorserviceisdistinctwithinthecontextofthecontract).(HKFRS15.27)

Performanceobligations

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ComprehensiveExample Step2

Step2:IdentifythePerformanceObligationsintheContract InStep2,LeonobservesthatLeon,asafranchisor,hasdevelopeda

customarybusinesspracticetoundertakeactivitiessuchasanalysingtheconsumerschangingpreferencesandimplementingproductimprovements,pricingstrategies,marketingcampaignsandoperationalefficienciestosupportthefranchisename.However,LeonconcludesthattheseactivitiesdonotdirectlytransfergoodsorservicestoAndybecausetheyarepartofLeonspromisetograntalicence.

Leondeterminesthatithastwopromises totransfergoodsorservices:(a)apromisetotransferequipmentand(b)apromisetograntalicence.

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Example

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Step3:DetermineTransactionPrice

Step3:DeterminingtheTransactionPrices Thetransactionprice

istheamountofconsiderationinacontracttowhichanentityexpectstobeentitled inexchangefortransferringpromisedgoodsorservicestoacustomer

canbeafixedamountofcustomerconsideration,butitmaysometimesinclude variableconsiderationor considerationinaformotherthancash

isalsoadjustedfortheeffectsofthetimevalueofmoney ifthecontractincludesasignificantfinancingcomponentandforanyconsiderationpayabletothecustomer.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe




Step3:DeterminingtheTransactionPrices Iftheconsiderationisvariable,anentityestimates theamountof

considerationtowhichitwillbeentitledinexchangeforthepromisedgoodsorservices.

Theestimatedamountofvariableconsiderationwillbeincludedinthetransactionprice onlytotheextentthatitishighlyprobable thatasignificantreversal inthe

amountofcumulativerevenuerecognisedwillnotoccur whentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


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Thenature,timing andamount ofconsiderationpromisedbyacustomeraffecttheestimateofthetransactionprice.

Whendeterminingthetransactionprice,anentityshallconsidertheeffectsofallofthefollowing:a. variableconsideration (seeHKFRS15.5055and59);b. constrainingestimates ofvariableconsideration

(seeHKFRS15.5658);c. theexistenceofasignificantfinancingcomponent

inthecontract(seeHKFRS15.6065);d. noncashconsideration (seeHKFRS15.6669);ande. considerationpayabletoacustomer

(seeHKFRS15.7072).(HKFRS15.48)

VariableConsideration

ConstrainingEstimatesofVariableCon.

SignificantFinancingComponentNoncash

ConsiderationConsiderationPayable

toCustomer



Yes

Isthereanyvariableconsideration?

Chooseoneofthetwomethodstoestimatethevariable

consideration(dependingonwhichcanbetterpredictthe

considerationentitled)

Themostlikelyamountmethod(maybeappropriatefor

thecontractwithonlytwopossibleoutcomes)

Theexpectedvaluemethod(maybeappropriateforlargenumberofcontractswithsimilarcharacteristics)

VariableConsideration


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Step3:DeterminetheTransactionPrice InStep3,Leonisrequiredtodeterminethetransactionpriceofthe

contract. Basedonthecontractterms,Leondeterminesthatthetransactionpriceof

Leonscontractincludesafixedconsiderationof$150,000fortheequipment,andavariableconsideration,i.e.asalesbasedroyaltyof5%ofAndysmonthlysales

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Example

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ComprehensiveExample Step3Step5:



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Step3:DeterminetheTransactionPrice Salesbasedorusagebasedroyaltymayresultinvariableconsiderationin

anentityscontractwithacustomer. Toaccountforconsiderationintheformofasalesbasedorusagebased

royaltythatispromisedinexchangeforalicenceofintellectualproperty,Leonisspecificallyrequiredtorecogniserevenueonlywhenorasthelaterofthefollowingeventsoccurs:a. thesubsequentsaleorusageoccurs;andb. theperformanceobligationtowhichsomeorallofthesalesbasedor

usagebasedroyaltyhasbeenallocatedhasbeensatisfied(orpartiallysatisfied).

Example


Step4:AllocateTransactionPricetoPO

Step4:AllocatingtheTransactionPricetoPerformanceObligations Anentitytypicallyallocatesthetransactionpricetoeachperformance

obligationonthebasisoftherelativestandalonesellingpricesofeachdistinctgoodorservicepromised inthecontract. Ifastandalonesellingpriceisnotobservable,anentityestimatesit.

HKFRS15specifywhen anentityallocatesthediscountorvariableconsiderationtooneormore,butnotall,performanceobligations (ordistinctgoodsorservices)inthecontract.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


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Theobjectivewhenallocatingthetransactionprice is foranentitytoallocatethetransactionpriceto

eachperformanceobligation (ordistinctgoodorservice)inanamountthatdepictstheamountofconsideration towhichtheentityexpectstobeentitledinexchangefortransferringthepromisedgoodsorservicestothecustomer.(HKFRS15.73)

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration



Tomeettheallocationobjective,anentityshallallocatethetransactionpricetoeachperformanceobligationidentifiedinthecontractonarelativestandalonesellingpricebasis inaccordancewithHKFRS15.7680,exceptasspecifiedin HKFRS15.8183(forallocatingdiscounts)and HKFRS15.8486(forallocating

considerationthatincludesvariableamounts).(HKFRS15.74)

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration

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SuitablemethodsforestimatingSASPofagoodorserviceinclude(notlimitedto):a. Adjustedmarketassessmentapproachb. Expectedcostplusamarginapproachc. Residualapproachd. Combinationoftheabove

BasedonStandaloneSellingPrice(SASP)










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Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe



Step4:DeterminetheTransactionPrice InStep4,Leonhastodeterminewhetherthetransactionpriceshouldbe

allocatedtothetwoperformanceobligationsinthecontract. LeonappliesHKFRS15todeterminewhetherthevariableconsideration

shouldbeallocatedentirelytotheperformanceobligationtotransferthefranchiselicence.


Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


ComprehensiveExample Step4Step4:DeterminetheTransactionPrice Leonconcludesthatthevariableconsideration(i.e.thesalesbasedroyalty)

shouldbeallocatedentirelytothefranchiselicencebecausethevariableconsiderationrelatesentirelytoLeonspromisetograntthefranchiselicence.

Inaddition,Leonobservesthatallocating$150,000totheequipmentandthesalesbasedroyaltytothefranchiselicencewouldbeconsistentwithanallocationbasedonLeonsrelativestandalonesellingpricesinsimilarcontracts.

SinceLeonsstandalonesellingpriceoftheequipmentis$150,000andLeonregularlylicensesfranchisesinexchangefor5%ofAndyssales.

Consequently,Leonconcludesthatthevariableconsideration(i.e.thesalesbasedroyalty)shouldbeallocatedentirelytotheperformanceobligationtograntthefranchiselicence.

Example

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Step5:SatisfyPerformanceObligations

Step5:Satisfactionofperformanceobligations Aanentityrecognisesrevenuewhen(oras)itsatisfiesaperformance

obligation bytransferringapromisedgoodorservicetoacustomer whichiswhenthecustomerobtainscontrolofthatgoodorservice.

Theamountofrevenuerecognisedistheamountallocatedtothesatisfiedperformanceobligation.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe




Step5:Satisfactionofperformanceobligations Aperformanceobligationmaybesatisfied

atapointintime (typicallyforpromisestotransfergoodstoacustomer)or

overtime (typicallyforpromisestotransferservicestoacustomer). Forperformanceobligationssatisfiedovertime,anentityrecognises

revenueovertimebyselectinganappropriatemethodformeasuringtheentitysprogress towardscompletesatisfactionofthatperformanceobligation.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


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Anentityshallrecogniserevenue when(oras)theentitysatisfiesaperformanceobligation bytransferring a

promisedgoodorservice (i.e.anasset)toacustomer.

Anassetistransferred when(oras)thecustomerobtainscontrol ofthatasset(HKFRS15.31)



ForeachperformanceobligationidentifiedinaccordancewithHKFRS15.2230, anentityshalldetermineatcontractinception whetherit

satisfiestheperformanceobligationovertime(inaccordancewithHKFRS15.3537)or

satisfiestheperformanceobligationatapointintime (inaccordancewithHKFRS15.38). Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.(HKFRS15.32)

OverTime

AtaPointinTime

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Goodsandservicesareassets,evenifonlymomentarily,whentheyarereceivedandused(asinthecaseofmanyservices).

Control ofanasset referstotheabilitytodirect theuseof,andobtain

substantiallyalloftheremainingbenefits from,theasset.

includestheabilitytopreventotherentitiesfromdirecting theuseof,andobtainingthebenefitsfrom,anasset.

Whenevaluatingwhetheracustomerobtainscontrolofanasset, anentityshallconsideranyagreement

torepurchasetheasset (seeHKFRS15.B64B76).(HKFRS15.33)

OverTime

AtaPointinTime



Anentitytransferscontrol ofagoodorserviceovertime and,therefore,satisfiesaperformanceobligationandrecognisesrevenueovertime,ifoneofthefollowingcriteriaismet:a. thecustomersimultaneouslyreceivesandconsumes

thebenefits providedbytheentitysperformanceastheentityperforms(seeHKFRS15.B3B4);

b. theentitysperformancecreatesorenhancesanasset (e.g.workinprogress)thatthecustomercontrols astheassetiscreatedorenhanced(seeHKFRS15.B5);or

c. theentitysperformancedoesnotcreateanassetwithanalternativeusetotheentity (seeHKFRS15.36)andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate (seeHKFRS15.37).(HKFRS15.35)

OverTime

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No

No

Doesthecustomerreceiveandconsumethebenefitsprovidedbytheentityastheentityperforms?

Doesthecustomercontroltheassetbeingcreatedorenhancedbytheentity?

Doestheentitysperformancecreateanassetwithanalternativeusetotheentity?

Yes

Performanceobligationssatisfiedatapointintime

Performanceobligationsatisfiedovertime

Doestheentityhaveanenforceablerighttopaymentforperformancecompletedtodate?

No

Yes

YesNo

Yes

Measuringprogresstowardscompletesatisfactionofthatperformance

Determineatcontractinception




MethodsforMeasuringProgress Appropriatemethodsofmeasuringprogressinclude

outputmethods andinputmethods (HKFRS15.B14B19provideguidance)

Indeterminingtheappropriatemethodformeasuringprogress,anentityshallconsiderthenatureofthegoodorservice thattheentitypromisedtotransfertothecustomer.(HKFRS15.41)

Whenapplyingamethodformeasuringprogress,anentityshallexcludefromthemeasureofprogress anygoodsorservicesforwhichtheentitydoesnottransfercontroltoacustomer.

Conversely,anentityshallincludeinthemeasureofprogress anygoodsorservicesforwhichtheentitydoestransfercontroltoacustomer whensatisfyingthatperformanceobligation.(HKFRS15.42)

OverTime

MeasuringProgress

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Ifaperformanceobligationisnotsatisfiedovertime inaccordancewithHKFRS15.3537,anentitysatisfiestheperformanceobligationatapointintime.

Todeterminethepointintimeatwhichacustomerobtainscontrol ofapromisedassetandtheentitysatisfiesaperformanceobligation, theentityshallconsidertherequirementsfor

control inHKFRS15.3134.(HKFRS15.38)

AtaPointinTime



Inaddition,anentityshallconsiderindicatorsofthetransferofcontrol,whichinclude,butarenotlimitedto,thefollowing:a. Theentityhasapresentrighttopayment fortheassetb. Thecustomerhaslegaltitletotheassetc. Theentityhastransferredphysicalpossession oftheassetd. Thecustomerhasthesignificantrisksand

rewardsofownership oftheassete. Thecustomerhasacceptedtheasset

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5Steps:RecognitionandMeasurement

When(oras)aperformanceobligationissatisfied, anentityshallrecogniseasrevenue

theamountofthetransactionprice (whichexcludesestimatesofvariableconsiderationthatareconstrained inaccordancewithHKFRS15.5658)thatisallocatedtothatperformanceobligation.(HKFRS15.46)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe











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Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe



Step5:RecogniseRevenueWhentheEntitySatisfiesaPerformanceObligation InStep5,Leonisrequiredtorecogniserevenuewhenorasitsatisfiesa

performanceobligationbytransferringapromisedgoodorservice(i.e.anasset)tothecustomer,Andy.

Anassetistransferredwhenorasthecustomerobtainscontrolofthatasset.Theamountofrevenuerecognisedistheamountallocatedtothesatisfiedperformanceobligation.Aperformanceobligationmaybesatisfiedatapointintimeorovertime.


Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Example

Step5:RecogniseRevenueWhentheEntitySatisfiesaPerformanceObligation Leonidentifiestwoperformanceobligations:

(a) apromisetotransferequipmentand(b) apromisetograntafranchiselicence.

Forapromiseoftransferequipment,theperformanceobligationissatisfiedatapointintimeasthethreecriteriaforperformanceobligationsatisfiedovertimearenotmet. Whiletheallocatedtransactionpricetoitisthefixedconsiderationof$150,000,LeonfinallyrecognisesthefixedconsiderationwhenthatpromiseissatisfiedbydeliveringtheequipmenttoAndy(i.e.controltransferred).


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Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


Example

Step5:RecogniseRevenueWhentheEntitySatisfiesaPerformanceObligation Forapromiseoftransferafranchiselicence,thevariableconsideration,i.e.

intheformofthesalesbasedroyalty,isallocatedentirelytothefranchiselicence. Then,thefinalstepinrecognisedtheallocatedtransactionpriceistodeterminewhethertheperformanceobligationinlicencetransferissatisfiedatapointintimeorovertime.

HKFRS15hasaspecificapplicationguidanceforlicensing,whichalsoincludessalesbasedorusagebasedroyalty.



RevenueContractCosts

IncrementalCostsofObtainingaContract Anentityshallrecogniseasanasset theincrementalcostsofobtaininga

contract withacustomeriftheentityexpectstorecoverthosecosts.(HKFRS15.91) Theincrementalcostsofobtainingacontractarethosecoststhatanentityincurstoobtainacontractwithacustomerthatitwouldnothaveincurredifthecontracthadnotbeenobtained(e.g.asalescommission).(HKFRS15.92)

Coststoobtainacontractthatwouldhavebeenincurredregardlessofwhetherthecontractwasobtainedshallberecognisedasanexpensewhenincurred,unlessthosecostsareexplicitlychargeabletothecustomerregardlessofwhetherthecontractisobtained.(HKFRS15.93)

Asapracticalexpedient,anentitymayrecognisetheincrementalcostsofobtainingacontractasanexpensewhenincurred iftheamortisationperiodoftheassetthattheentityotherwisewouldhaverecognisedisoneyearorless.(HKFRS15.94)

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CoststoFulfilaContract Ifthecostsincurredinfulfillingacontractwithacustomerarenotwithin

thescopeofanotherStandard(e.g.HKAS2,HKAS16orHKAS38),anentityshallrecogniseanassetfromthecostsincurredtofulfilacontract onlyifthosecostsmeetall ofthefollowingcriteria:a. thecostsrelatedirectlytoacontractortoananticipatedcontractthat

theentitycanspecificallyidentify (e.g.costsrelatingtoservicestobeprovidedunderrenewalofanexistingcontractorcostsofdesigninganassettobetransferredunderaspecificcontractthathasnotyetbeenapproved);

b. thecostsgenerateorenhanceresources oftheentitythatwillbeusedinsatisfying(orincontinuingtosatisfy)performanceobligations inthefuture;and

c. thecostsareexpectedtoberecovered.(HKFRS15.95)



ForcostsincurredinfulfillingacontractwithacustomerthatarewithinthescopeofanotherStandard, anentityshallaccountforthosecostsinaccordancewiththoseotherStandards.(HKFRS15.96)

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AmortisationandImpairment AnassetrecognisedinaccordancewithHKFRS15.91or95shallbe

amortisedonasystematicbasis thatisconsistentwiththetransfertothecustomerofthegoodsorservicestowhichtheassetrelates.

Theassetmayrelatetogoodsorservicestobetransferredunderaspecificanticipatedcontract(asdescribedinHKFRS15.95(a)).(HKFRS15.99)

Anentityshallupdatetheamortisation toreflectasignificantchangeintheentitysexpectedtimingoftransfer tothecustomerofthegoodsorservicestowhichtheassetrelates. SuchachangeshallbeaccountedforasachangeinaccountingestimateinaccordancewithHKAS8.(HKFRS15.100)



Anentityshallrecogniseanimpairmentlossinprofitorloss totheextentthatthecarryingamountofanassetrecognisedinaccordancewithHKFRS15.91or95exceeds:a. theremainingamountofconsideration thattheentityexpectsto

receiveinexchangeforthegoodsorservicestowhichtheassetrelates;less

b. thecosts thatrelatedirectly toprovidingthosegoodsorservicesandthathavenotbeenrecognisedasexpenses(seeHKFRS15.97).(HKFRS15.101)

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EffectiveDateandTransition

AnentityshallapplyHKFSR15forannualreportingperiodsbeginningonorafter1January2018. Earlierapplicationispermitted. IfanentityappliesHKFRS15earlier,itshalldisclosethatfact.

(HKFRS15.C1)



ForthepurposesofthetransitionrequirementsinparagraphsC3C8A:a. thedateofinitialapplication is

thestartofthereportingperiodinwhichanentityfirstappliesHKFRS15;and

b. acompletedcontract is acontractforwhichtheentityhastransferredallofthegoodsor

servicesidentified inaccordancewithHKAS11ConstructionContracts,HKAS18Revenue andrelatedInterpretations.(HKFRS15.C2)

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AnentityshallapplyHKFRS15usingoneofthefollowingtwomethods:a) retrospectivelytoeachpriorreporting

periodpresented inaccordancewithHKAS8,subjecttotheexpedientsinpara.C5;or

b) retrospectivelywiththecumulativeeffectofinitiallyapplyingHKFRS15recognisedatthedateofinitialapplication inaccordancewithpara.C7C8.(HKFRS15.C3)

ThedateofinitialapplicationisthestartofthereportingperiodinwhichanentityfirstappliesHKFRS15

Practicalexpedientsareavailable



Anentitymayuseoneormoreofthefollowingpracticalexpedients whenapplyingHKFRS15retrospectivelyinaccordancewithpara.C3(a):a. forcompletedcontracts,anentityneednotrestatecontracts that:

i. beginandendwithinthesameannualreportingperiod;orii. arecompletedcontractsatthebeginningoftheearliestperiod

presented.b. forcompletedcontractsthathavevariableconsideration,anentitymayuse

thetransactionpriceatthedatethecontractwascompletedratherthanestimatingvariableconsiderationamountsinthecomparativereportingperiods.

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EffectiveDateandTransitionc. forcontractsthatweremodifiedbeforethebeginningoftheearliestperiod

presented,anentityneednotretrospectivelyrestate thecontractforthosecontractmodificationsinaccordancewithpara.2021.Instead,anentityshallreflecttheaggregateeffectofallofthemodificationsthatoccurbeforethebeginningoftheearliestperiodpresentedwhen:i. identifyingthesatisfiedandunsatisfiedperformanceobligations;ii. determiningthetransactionprice;andiii. allocatingthetransactionpricetothesatisfiedandunsatisfied

performanceobligations.d. forallreportingperiodspresentedbeforethedateofinitial

application,anentityneednotdisclose theamountofthetransactionpriceallocatedtotheremainingperformanceobligationsandanexplanationofwhentheentityexpectstorecognisethatamountasrevenue(seepara.120).(HKFRS15.C5)

20132018NelsonConsultingLimited 146PhototakenbyStephanieandNelson2015SNAI,Shanghai@China

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TodaysAgenda



NeworRevisedHKFRSEffectiveforandafter2019


HKFRS16Leases

PhototakenbyStephanieandNelson2016HeidelbergCastle@Germany

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Introduction

HKFRS 16 supersedesthefollowingStandardsandInterpretations:(a) HKAS17Leases;(b) HKFRIC4Determiningwhetheran

ArrangementcontainsaLease;(c) HK(SIC)15OperatingLeases

Incentives;and(d) HK(SIC)27EvaluatingtheSubstanceof

TransactionsInvolvingtheLegalFormofaLease.


HKFRS16 Contents

1. Objective2. Scope3. RecognitionExemptions4. IdentifyingaLease5. LeaseTerm6. Lessee7. Lessor8. SalesandLeasebackTransactions9. EffectiveDateandTransition

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HKFRS16

Yes

Assessacontractwhetheritisaleaseorcontainsalease?

Determiningleaseterm

Lesseeaccounting

No

NotwithinHKFRS16

Lessoraccounting

Reportingexemptionisapplicableandelected?

No

Recogniseassetsandliabilities

forallleases

Recogniseleasepaymentsasanexpense

Yes

SaleandleasebacktransactionsSource:IntermediateFinancialReporting3rd(2017)byNelsonLamandPeterLau


3.ReportingExemptions

Alesseemayelectnottoapply therequirementsinHKFRS16(HKFRS16.2249)to:(a) shorttermleases;and(b) leasesforwhichtheunderlyingassetisoflowvalue

(asdescribedinHKFRS16.B3B8).

HKFRS16definesshorttermlease as: Aleasethat,atthecommencementdate,hasaleasetermof12monthsorless.

Aleasethatcontainsapurchaseoption isnotashorttermlease.

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Leasesforwhichtheunderlyingassetisoflowvalue Alesseeshallassessthevalueofanunderlyingassetbasedon

thevalueoftheassetwhenitisnew,regardlessoftheageoftheassetbeingleased.(HKFRS16.B3)

Theassessmentofwhetheranunderlyingassetisoflowvalueisperformedonanabsolutebasis. Leasesoflowvalueassetsqualifyfortheaccountingtreatmentin

HKFRS16.6regardlessofwhetherthoseleasesarematerialtothelessee.

Theassessmentisnotaffectedbythesize,natureorcircumstancesofthelessee.

Accordingly,differentlesseesareexpectedtoreachthesameconclusions aboutwhetheraparticularunderlyingassetisoflowvalue.(HKFRS16.B4)



Aleaseofanunderlyingassetdoesnotqualifyasaleaseofalowvalueassetifthenatureoftheassetissuchthat,whennew,theassetistypicallynotoflowvalue. Forexample,leasesofcarswouldnotqualifyasleasesoflowvalueassets becauseanewcarwouldtypicallynotbeoflowvalue.(HKFRS16.B6)

Ifalesseesubleasesanasset,orexpectstosubleaseanasset,theheadleasedoesnotqualify asaleaseofalowvalueasset.(HKFRS16.B7)

Examplesoflowvalueunderlyingassetscaninclude tabletandpersonalcomputers, smallitemsofofficefurnitureand telephones.(HKFRS16.B8)

Example

Leasesforwhichtheunderlyingassetisoflowvalue

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4.IdentifyingaLease

HKFRS16defineslease as: Acontract,orpartofacontract,thatconveysthe

righttouseanasset (theunderlyingasset)foraperiodoftime inexchangeforconsideration.

Atinception ofacontract,anentityshallassesswhetherthecontractis,orcontains,alease.

Acontractis,orcontains,aleaseifthecontractconveystherighttocontroltheuse ofanidentifiedassetforaperiodoftimeinexchangeforconsideration.(HKFRS16.9)


4.IdentifyingaLease

Toassesswhetheracontractconveystherighttocontroltheuseofanidentifiedasset (seeHKFRS16.B13B20)foraperiodoftime,anentityshallassesswhether,throughouttheperiodofuse,thecustome

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