Other disclosures

Disclosures about Dividends

In addition to the distributions information in the statement of changes in equity (see above), the following must be disclosed in the notes: the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognized as a distribution to owners during the period, and the related amount per share and the amount of any cumulative preference dividends not recognized.

Capital Disclosures

An entity should disclose information about its objectives, policies and processes for managing capital. To comply with this, the disclosures include:

• Qualitative information about the entity's objectives, policies and processes for managing capital, including
• Description of capital it manages
• Nature of external capital requirements, if any
• How it is meeting its objectives
• Quantitative data about what the entity regards as capital
• Changes from one period to another
• Whether the entity has complied with any external capital requirements and
• If it has not complied, the consequences of such non-compliance

Disclosures about Puttable Financial Instruments

IAS 1 requires the following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:

• Summary quantitative data about the amount classified as equity
• The entity's objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when required to do so by the instrument holders, including any changes from the previous period
• The expected cash outflow on redemption or repurchase of that class of financial instruments and
• Information about how the expected cash outflow on redemption or repurchase was determined

Notes to the financial statements

The notes must:

• Present information about the basis of preparation of the financial statements and the specific accounting policies used
• Disclose any information required by IFRSs that is not presented elsewhere in the financial statements and
• Provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them

Notes should be cross-referenced from the face of the financial statements to the relevant note.

IAS 1 suggest that the notes should normally be presented in the following order:

• A statement of compliance with IFRSs
• A summary of significant accounting policies applied, including:
• The measurement basis (or bases) used in preparing the financial statements
• The other accounting policies used that are relevant to an understanding of the financial statements
• Supporting information for items presented on the face of the statement of financial position (balance sheet), statement of comprehensive income (and income statement, if presented), statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented
• Other disclosures, including:
• Contingent liabilities and undersigned contractual commitments
• Non-financial disclosures, such as the entity's financial risk management objectives and policies

Disclosure of judgments

An entity must disclose, in the summary of significant accounting policies or other notes, the judgments, apart from these involving estimations, that management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognized in the financial statements.

Examples cited in IAS 1 include management's judgments in determining:

• Whether financial assets are held-to-maturity investments
• When substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities
• Whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and
• Whether the substance of the relationship between the entity and a special purpose entity indicates control

Disclosure of key resources of estimation uncertainty

An entity must disclose, in the notes, information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. These disclosures do not involve disclosing budgets or forecasts.

The following other note disclosures are required by IAS 1 if not disclosed elsewhere in information published with the financial statements:

• Domicile and legal form of the entity
• Country of incorporation
• Address of registered office or principal place of business
• Description of the entity's operations and principal activities
• If it is part of a group, the name of its parent and the ultimate parent of the group
• If it is a limited life entity, information regarding the length of the life

Statement of changes in equity

IAS 1 requires an entity to present a statement of changes in equity as a separate component of the financial statements. The statement must show:

• Total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
• The effect of retrospective application, when applicable, for each component
• Reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
• Profit or loss
• Each item of owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control

The following amounts may also be presented on the face of the statement of changes in equity, or they may be presented in the notes:

• Amounts or dividends are recognized as distributions, and
• The related amount per share

Statement of cash flows

Rather than setting out separate standards for presenting the cash flow statement, IAS 1 refers to IAS 7 - cash flow statement

Statement of comprehensive income

Comprehensive income for a period includes profit or loss for that period plus other comprehensive income recognized in that period. As a result of the revision to IAS 3, the standard is now using profit or loss rather than net profit or loss as the descriptive term for the bottom line of the income statement.

All items of income and expense recognized in a period must be included in profit or loss unless a standard or an interpretation requires otherwise. Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income.

The components of other comprehensive income include:

• Changes in revaluation surplus (IAS 16 & IAS 38)
• Actuarial gains and losses on defined benefit plans recognized in accordance with IAS 19
• Gains and losses arising from translating the financial statements of a foreign operation (IAS 21)
• Gains and losses on remeasuring available-for-sale financial assets (IAS 39)
• The effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39)

An entity has a choice of presenting:

• A single statement of comprehensive income or
• Two statements:
• An income statements displaying components of profit or loss and
• A statement of comprehensive income that begins with profit or loss (bottom line of the income statement) and displays components of other comprehensive income

Minimum items of the face of the statement of comprehensive income should include:

• Revenue
• Finance costs
• Share of the profit or loss of associates and joint ventures accounted for using the equity method
• Tax expense
• A single amount comprising the total of
1. The post-tax profit or loss of discontinued operations
2. The post-tax gain or loss recognized on the disposal of the assets or disposal group(s) constituting the discontinued operation
• Profit or loss
• Each component of other comprehensive income classified by nature
• Share of the other comprehensive income of associates and joint ventures accounted for using the equity method
• Total comprehensive income

The following items must also be disclosed in the statement of comprehensive income all allocations for the period:

• Profit or loss for the period attributable to non-controlling interests and owners of the parent
• Total comprehensive income attributable to non-controlling interests and owners of the parent

Additional line items may be needed to fairly present the entity's results of operations.

No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as extraordinary items.

Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if material, including:

• Write-downs of inventories to net realizable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs
• Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuRing
• Disposals of items of property, plant and equipment
• Disposals of investments
• Discontinuing operations
• Litigation settlements
• Other reversals of provisions

Expenses recognized in profit or loss should be analyzed either by nature (raw materials, staffing costs, depreciation, etc) or by function (cost of sales, selling, administrative, etc). If an entity categorises by function, then additional information on the nature of expenses - at a minimum depreciation, amortisation and employee benefits expense - must be disclosed.

Statement of Financial Position

An entity must normally present a classified statement of financial position, separating current and non-current assets and liabilities. Only if a presentation based on liquidity provides information that is reliable and more relevant may the current / non-current split be omitted. In either case, if an assets (liability) category combines amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from the 12-month amounts.

Current assets are cash; cash equivalents; assets held for collection, sale or consumption within the entity's normal operating cycle; or assets held for trading within the next 12 months. All other assets are non-current.

Current liabilities are those to be settled within the entity's normal operating cycle or due within 12 months, or those held for trading, or those for which the entity does not have an unconditional right to defer payment beyond 12 months. Other liabilities are non-current.

When a long-term debts is expected to be refinanced under an existing long facility and the entity has the discretion the debt is classified as non-current, even if due within 12 months.

If a liability has become payable on demand because an entity has breached an undertaking under a long-term loan agreement on or before the reporting date, the liability is current, even if the lender has agreed, after the reporting date and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within the entity can rectify the breach and during which the lender cannot demand immediate repayment.

Minimum items on the face of the statement of financial position

• Property, plant and equipment
• Investment property
• IntangIble assets
• Financial assets
• Investments accounted for using the equity method
• Biological assets
• Assets held for sale
• Inventories
• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables
• Provisions
• Financial liabilities
• Liabilities and assets for current tax, as defined in IAS 12
• Deferred tax liabilities and deferred tax assets, as defined in IAS 12
• Liabilities included in disposal groups
• Minority interest, presented within equity
• Issued capital and reserves attributable to equity holders of the parent

Additional line items may be needed to fairly present the entity's financial position.

IAS 1 does not prescribe the format of the balance sheet. Assets can be presented current the non-current, or vice versa and liabilities and equity can be presented current then non-current then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed.

Regarding issued share capital and reserves, the following disclosures are required:

• Numbers of shares authorized, issued and fully paid, and issued but not fully paid
• Par value
• Reconciliation of shares outstanding at the beginning and the end of the period
• Description of rights, preferences, and restrictions
• Treasury shares, including shares held by subsidiaries and associates
• Shares reserved for issuance under options and contracts
• A description of the nature and purpose of each reserve within owners' equity

IAS 1 - Presentation of Financial Statements

Background

This standard prescribes the basis for presentation of general purpose financial statements, to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. To achieve this objective, this standard sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

IAS 1 sets out the overall framework and responsibilities for the presentation of financial statements, guidelines for their structure and minimum requirements for the content of the financial statements. Please note that standards for recognizing, measuring and disclosing specific transactions are addressed in other standards and interpretations.

Scope

IAS 1 applies to all general-purpose financial statements based on International Financial Reporting Standards. General purpose financial statements are those intended to serve users who do not have the authority to demand financial reports tailored for their own needs.

Objective of Financial Statements

The objective of general-purpose financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet that objective, financial statements provide information about an entity's:

• Assets
• Liabilities
• Equity
• Income and expenses, including gains and losses
• Other changes in equity
• Cash Flows 

Components of Financial Statements

A complete set of financial statements should include:

• A statement of financial position at the end of the period
• A statement of comprehensive income for the period
• A statement of changes in equity for the period
• Statement of cash flows for the period
• Notes, comprising a summary of accounting policies and other explanatory notes

When an entry applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements, it must also present a statement of financial position as at the beginning of the comparative period.

Retrospective application means adjusting the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.

An entity may use titles for the statements other than those stated above.

Reports that are presented out side of the financial statements including financial reviews by management, environmental reports, and value-added statements are outside the scope of IFRSs.

Fair presentation and compliance with IFRSs

The financial statements must "present fairly" the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

IAS 1 requires that an entity whose financial statements comply with IFRSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs (including interpretations)

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.

IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an IFRSs requirement would be so misleading that it would conflict with the objective of financial statements set out in the framework. In such a case, the entity is required to depart from the standard requirement, with detailed disclosure of the nature, reasons and impact of the departure.

Going concern

When preparing financial statements, management shall make an assessment of an entity's ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures.

Accrual Basis

IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

Consistency of presentation

The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new standard.

Materiality and aggregation

Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.

Omissions or misstatements of items are material if they could, individually or collectively; influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. If a line item is not individually material, it is aggregated with other items either on the face of those statements or in the notes. An item that is not sufficiently material to warrant separate presentation on the face of those statements may nevertheless be sufficiently material for it to be presented separately in the notes.

Offsetting

Assets and liabilities, and income and expenses, may not be offset unless required or permitted by a standard or an interpretation.

Comparative information

IAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another standard requires otherwise. If comparative amounts are changed or reclassified, various disclosures are required.

Structure and content of financial statements in general

Clearly identify:

• The financial statements
• The reporting enterprise
• Whether the statements are for the enterprise or for a group
• The date or period covered
• The presentation currency
• The level of precision (thousands, millions, etc.)

Reporting period

There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the enterprise must disclose the reason for the change and a warning about problems of comparability.

Disclosures

• Statement of financial position
• Statement of comprehensive income
• Statement of cash flows
• Statement of changes in equity
• Notes to the financial statements
• Other disclosures

IFRS 8 - Operating Segments

Objective

To provide users of financial statements with information about the nature and financial effects of the business activities in which an entity engages.

Operating segments

Scope

• IFRS 8 applies to the separate financial statements of entities whose debt or equity instruments publicly treated (or are int he process  of being issued in a public market)
• IFRS 8 also applies to the consolidated financial statements of a group whose parent is required to apply IFRS 8 to its separate financial statements
• The scope of IAS 33 has been changed to be consistent with that of IFRS 8
• Where an entiy is not required to apply IFRS 8, but chooses to do so, it must not describes information about segments as "segment information" unless it complies with IFRS 8
• Where a parent's separate financial statements are presented with consolidated financial statements, segment information is required only in the consolidated financial statements

Definitions

Operating segment

• This is a component that meets the following three criteria:
• It engages in business activities from which it may earn revenues and incur expenses (including intersegment revenues and expenses arising from transactions with other components of the same entity) - Thus a start - up operation not yet earning revenues may be an operating segment, as revenues would be expected in the future.
• Its operating results are regularly reviewed by the entity's "chief operating decision maker" to make decisions (about resources to be allocated) and to assess its performance; and
• Discrete financial information is available - A component, by definition, should meet this last criterion (see IFRS 5)
• An entity's post-employment benefit plans are not operating segments
• Corporate headquarters or other departments that may not earn revenues (or only incidental revenues) are not operating segments

Chief operating decision maker

This term describes a function (to allocate resources to and assess the performance of operating segments). This may be a chief executive office, a board of directors or others.

An operating segment will generally have a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, etc.

Reportable segments

Separate information

Separate information must be reported for each operating segment that:

• Meets the definition criteria or aggregation criteria for two or more segments and
• Exceeds the quantitative thresholds

Aggregation criteria

Two or more operating segments may be aggregated into a single operating segment if:

• Aggregation is consistent with the core principle of this IFRS;
• The segment have the similar economic characteristics; and
• The segments are similar in respect of:
• the nature of products and services (e.g. domestic or industrial)
• the nature of the production process (e.g. maturing or production line)
• types or classes of customer (e.g. corporate or individual)
• distribution method (e.g. door-to-door or web sales)
• the regulatory environment (e.g. in shipping, banking, etc)

An operating segment that does not meet a qualitative threshold may be aggregated with another segment that does only if the operating segments have similar economic characteristics and share a majority of the above aggregation criteria.

Quantitative thresholds

Separate information must be reported an operating segment that meets any of the following quantitative thresholds:

• Reported revenue (including both external and intersegment) is 10% or more of the combined revenue (internal and external) of all operating segments;
• Profit or loss is 10% or more, in absolute amount, of the grater of:
• the combined profit of all operating segments that did not report a loss; and
• the combined loss of all operating segments that reported a loss;
• Assets are 10% or more of the combined assets of all operating segments
• At least 75% of the entity's revenue must be included in reportable segments. Thus operating segments that fall below the quantitative thresholds may need to be identified as reportable. (Segments that fall below the threshold may also be considered reportable, and separately disclosed, if management believes that the information would be useful to users of the financial statements)
• Information about other business activities and operating segments that are not reportable are combined and disclosed in an "all other segments" category.
• When an operating segment is first identified as a reportable segment according to the quantitative thresholds, comparative date should be presented. Unless the necessary information is not available and the cost to develop it would be excessive. (The standard suggest ten as a practical limit to the number of reportable segments separately disclosed as segment information may otherwise become too detailed)

Disclosure

Core Principle

• An entry must disclose information to enable users of its financial statements to evaluate.
• The nature and financial effects of its business activities
• The economic environments in which it operates
• This includes;
• General information.
• Information about reported segment profit or loss, segment assets, segments liabilities and the basis of measurement.
• Reconciliations. (This information must be disclosed for every period for which an income statement is presented. Reconciliation of amounts in the statements of financial position are required for each date at which a statement of financial position is presented)

General Information

The factors used to identify reportable segments, including;

• The basis of organization (e.g. around products and services, geographical areas, regulatory environments, or a combination of factors and whether segments have been aggregated)

Information about profit or loss, assets and liabilities

The following must be reported for each reportable segment:

• A measure of profit or loss and total assets.
• A measure of liabilities if such an amount is regularly provided to the chief operating decision maker. (Note that segment cash flow information about is voluntary (IAS 7) and therefore unlikely to be produced as it would provide information to an acquirer to value and target for a takeover bid)

Profit or loss

• The following must also be disclosed if the specified amounts are regularly provided to the chief operating decision maker (even if not included in the measure of segment profit or loss)
• Revenue from external customers
• Intersegment revenues
• interest revenue (this interest revenue may be reported net of its interest expense if the majority of the segment's revenues are from interest and the chief operating decision maker relies primarily on reporting of net interest revenue.
• Interest expense
• Depreciation and amortization
• Other material items of income and expense required by IAS 1 - Presentation of Financial Statements (i.e. write-downs, restructurings, disposals, discontinued operations litigation settlements and reversals of provisions)
• Entity's interest in the profit or loss of associates and joint ventures accounted for by the equity method
• Income tax expense or income
• Material non-cash items other than depreciation and amortization (Impairment losses also have to be disclosed (but as an IAS 36 requirement))
• The following must also be disclosed if the specified amounts are regularly provided to the chief operating decision maker (even if not included in the measure of segment assets)
• The investments in associates and joint ventures accounted for by the equity method
• Additions to non-current assets (other than financial statements, deferred tax assets and post employment benefit assets

Basis of measurement

The amount of each segment item reported is the measure reported to the chief operating decision maker (Segment information is no longer required to confirm to the accounting policies adopted for preparing and presenting the consolidated financial statements)

If the chief operating decision maker uses more than one measure of an operating segment's profit or loss, the segment's assets or the segment's liabilities, the reported measures should be those that are most consistent with those used in the entity's financial statements.

An explanation of the measurements of segment profit or loss, segment assets and segment liabilities must disclose, as a minimum.

• The basis of accounting for intersegment transactions
• The nature of any differences between the measurement of the reportable segments and the entity's financial statements (if not apparent from the reconciliations required)
• Differences could include accounting policies and policies for allocations of centrally incurred costs, jointly used assets or jointly utilized liabilities
• The nature of any changes from prior periods in the measurement methods used and the effect, if any of those changes on the measure of segment profit or loss
• The nature and effect of any asymmetrical allocations to reportable segments
• For example, the allocation of depreciation expense with the related depreciable assets

Reconciliations

Reconciliation of the total of the reportable segments with the entity are required for all of the following

• Revenue
• Profit or loss (before tax and discontinued operations)
• Assets
• Liabilities (if applicable)
• Every other material item

All material reconciling items must be separately identified and described (e.g. arising from different accounting policies)

Restatement of previously reported information

• Where changes in the internal organization structure of an entity result in a change in the composition of reportable segments, corresponding information must be restated unless the information is not available and cost to develop it would be excessive
• An entity should disclose  whether corresponding items have been restated
• If not restated, the entity must disclose the current period segment information on both the old and new bases of segmentation, unless the necessary information is not available and the cost to develop it would be excessive

Entry-wide disclosures

All entities subject to this IFRS are required to disclose information about the following, if it is not provided as part of the required reportable segment information

• Products and services
• Geographical areas
• Major customers

Including those entities that have only a single reportable segment

The only exemption for not providing information about products and services and geographical areas is if the necessary information is not available and the cost to develop it would be excessive, in which case that fact must be disclosed

By product and service

Revenues from external customers for each product and service (or each group of similar products and services) based on the financial information used to produce the entity's financial statements.

By geographical area

Revenues from external customers attributed to

• The entity's country of domicile
• All foreign countries in total
• Individual foreign countries, if material

Similarly, non-current assets (other than financial instruments, deferred tax assets and post-employment benefit assets)

Again based on the financial information used to produce the entity's financial statemets

Major customers

An entity discloses the extent of its reliance on major customers by stating

• If revenues from a single external customer amount to 10% or more of the entity's total
• The total revenues from each such customer
• The segment(s) reporting the revenues

An entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer.

For the purposes of  this IFRS, a group of entities known to be under common control (including entities under the control of a government) is a single customer.

IFRS 6 - Exploration for and Evaluation of Mineral Resources

Introduction

The objective of this IFRS is to specify the financial reporting for the exploration for an evaluation of mineral resources.

In particular, the IFRS requires:

• Limited improvements to existing accounting practices for exploration and evaluation expenditures.
• Entities that recognize exploration and evaluation assets to assess such assets impairment in accordance with this IFRS and measure any impairment in accordance with IAS 36 Impairment assets.
• Disclosures that identify and explain the amounts in the entity's financial statements arising from the exploration for and evaluation of mineral resources and help users of those financial statements understand the amount, timing and certainty of future cash flows from any exploration and evaluation assets recognized.

Scope

An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.

An entity shall not apply the IFRS to expenditures incurred:

• Before the exploration for an evaluation of mineral resources, such as expenditures incurred before the entity has obtained the legal rights to explore a specific area.
• After the technical feasibility and commercial viability of extracting a mineral resources are demonstrable.

Recognition of exploration and evaluation assets

When developing its accounting policies, an entity recognizing exploration and evaluation assets shall apply IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and consider the criteria defined in that standard. (Please refer IAS 8)

Measurement of exploration and evaluation assets

Measurement at recognition

Exploration and evaluation assets shall be measured at cost. Subsequent measurement can be made either at cost of revaluation mode. The revaluation model may be either the revaluation model either at cost in IAS 16 - Property, Plant and Equipment or IAS 38 - Intangible Assets.

However, selected model should be consistently applied with the classification of the asset.

Elements of cost of exploration and evaluation assets

An entity shall determine an accounting policy specifying which expenditures are recognized as exploration and evaluation assets and apply the policy consistently. In making this determination, an entity considers the degree to which the expenditure can be associated with finding specific mineral resources.

Following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):

• Acquisition of rights to explore
• Topographical, geographical, geochemical and geophysical studies
• Exploratory drilling
• Trenching
• Sampling and activities in relation to evaluating the technical feasibility and commercial viability of extracting mineral resource

Classification of exploration and evaluation assets

Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount.

If the following indications are presents, then assets classified as exploration and evaluation assets should be tested for impairment. This list is not exhaustive.

• The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed
• Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned
• Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area
• Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale

Specifying the level at which exploration and evaluation assets are assessed for impairment

An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with IFRS 8 Operating Segments.

Disclosure

• An entity shall disclose information that identifies and explains the amounts recognized in its financial statements arising from the exploration for and evaluation of mineral resources
• Company's accounting policies for exploration ane evaluation expenditures including the recognition of exploration and evaluation assets
• The amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources
• An entity shall treat exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 or IAS 38 consistent with how the assets are classified

IFRS 5 - Non Current Assets Held for Sale and Discontinued Operations

Background

This standard prescribes the accounting for assets held sale, and the presentation and disclosure of discontinued operations. In particular, the standard require assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less cost to sell, and depreciation on such assets to cease and to be presented separately in the financial statements. The standard also requires the results of discontinued operations to be presented separately in the statement of income.

The standard adopts the classification "held for sale" and introduces the concept of a disposal group, being a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. This standard classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation. An entity shall not classify as held for sale a non-current asset that is to be abandoned, as its carrying amount will be recovered principally through continuing use.

Assets held for sale

Assets held for sale

In general, the following conditions must be met for an assets (or '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 exceptions)
• 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

The assets need to be disposed of through sale. Therefore, operations that are expected to be wound down or abandoned would not meet the definition but may be classified as discontinued once abandoned.

Disposal Group

A 'disposal group' is a group of assets, possibly with some associated liabilities, which an entity intends to dispose of in a single transaction. The measurement basis required for non-current assets classified as held for sale applied to the group as a whole, and any resulting impairment loss reduces the carrying amount of the non-current assets in the disposal group in the order of allocation required by IAS 36.

Measurement

The following principles apply;

At the time of classification as held for sale

Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measured in accordance with applicable IASs. Resulting adjustments are also recognized in accordance with applicable IASs.

After classification as held for sale

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.

Impairment

Impairment must be considered voth at the time of classification as held for sale and subsequently:

• At the time of classification as held for sale. Immediately prior to classifying an asset or disposal group as held for dale, measure and recognize impairment in accordance with the applicable IASs (generally IAS 16, IAS 36). Any impairment loss is recognized in profit or loss unless the asset had been measured at revalued amount under IAS 16, in which case the impairment is treated as a revaluation decrease.
• After classification as held for sale. Calculate any impairment loss based on the difference between the adjusted carrying amounts of the asset / disposal group and fair value less costs to sell. Any impairment loss that arises by using the measurement principles in IFRS 5 must be recognized in profit or loss even for assets previously carried at revalued amounts.

Assets carried at fair value prior to initial classification

For such assets, the requirement to deduct costs to sell from fair value will result in an immediate charge to profit or loss.

Subsequent increases in fair value

A gain for any subsequent increase in fair value less cost to sell of an asset can be recognized in the profit or loss to the extent that is not in excess of the cumulative impairment loss that has been recognized in accordance with IFRS 5 or previously in accordance with IAS 36.

Depreciation

Non-current assets or disposal groups that are classified as held for sale not be depreciated.

Balance sheet presentation

Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separately on the face of the balance sheet.

Disclosures of non-current assets held for sale

• Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale must be disclosed separately from other assets in the balance sheet.
• The liabilities of of a disposal group classified as held for sale must also be disclosed separately from other liabilities in the balance sheet.
• There are also several other additional disclosures including a description of the nature of assets held and the facts and circumstances surrounding the sale.

Subsidiaries for disposal

IFRS 5 applies to accounting for an investment in a subsidiary for which control is intended to be temporary because the subsidiary was acquired and is held exclusively with a view to its subsequent disposal in the near future. For such subsidiary, if it is highly probable that the sale will be completed within 12 months then the parent should account for its investment in the subsidiary under IFRS 5 as an asset held for sale, rather than consolidate it under IAS 27.

However, IAS 27 still requires that if a subsidiary that had previously been consolidated is now being held for sale, the parent must continue to consolidate such a subsidiary until it is actually disposed of. It is not excluded from consolidation and reported as an asset held for sale under IFRS 5.

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 recognized on the measurement to fair value less cost to sell or fair value adjustments on the disposal of the assets (or disposal group) should be presented as a single amount on the face of the income statement. Detailed disclosure of revenue, expenses, pre-tax profit or loss, and related income taxes is required either in the notes or on the face of the income statement in a section distinct from continuing operations. Such detailed disclosures must over both the current and all prior periods presented in the financial statements.

Cash flow statement presentation

In addition to the income statement and cash flow statement presentations noted above, the following disclosures are required:

• Adjustments made in the current period to amounts disclosed as a discontinued operation in prior periods must be separately disclosed
• If an entity ceases to classify a component as held for sale, the results of that component previously presented in discontinued operations must be reclassified and included in income from continuing operations for all periods presented.

Latest amendments

Some of the significant amendments brought into IFRS 3

Acquisition costs

Costs of issuing debt or equity instruments are accounted for under IAS 39. All other costs associated with the acquisition must be expensed, including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder's fees; and general administrative costs, including the costs of maintaining an internal acquisitions departmet.

Contingent consideration

If the amount of contingent consideration changes as a result of a post-acquisition event (such as meeting an earnings target), accounting for the change in consideration depends on whether the additional consideration is an equity instrument or cash or other assets paid or owned. If it is equity, the original amount is not re-measured. If the additional consideration is cash or other assets paid or owed, the chnaged amount is recognized in profit or loss. If the amount of consideration changes because of new information about the fair value of the amount of consideration at acquisition date (rather than because of a post-acquisition event) then retrospective restatement is required.

Goodwill and non-controlling interest

An option is added to IFRA 3 to permit an entity to recognize 100% of the goodwill of the acquired entity, not just the acquiring entity's portion of the goodwill, with the increased amount of goodwill also increasing the non-controlling interest (new term for "minority interest") in the net assets of the acquired entity. This is known as the "full goodwill method". Such non-controlling interest in reported as part of consolidated equity. The "full goodwill" option may be elected on a transaction-by-transaction basis.

Pre-existing relationships and reacquired rights

If the acquirer and acquiree were parties to a pre-existing relationship (for instance, the acquirer had granted the acquiree a right to use its intellectual property), this must be accounted for separately from the business combination. In most cases, this will lead to the recognition of a gain or loss for the amount of the consideration transferred to the vendor, which effectively represents a "settlement" of the pre-existing relationship. The amount of the gain or loss is measured as follows:

• For pre-existing non-contractual relationships (for example, a lawsuit): by reference to fair value
• For pre-existing contractual relationships: at the lesser of (a) the favourable / unfavourable contract position and (b) any stated settlement provisions in the contract available to the counterparty to whom the contract is unfavourable.

However, where the transaction effectively represents a re-acquired right, an intangible asset is recognized and measured on the basis of the remaining contractual term of the related contract excluding any renewals. The asset is then subsequently amortised over the remaining contractual term, again excluding any renewals.

Intangible assets

Must always be recognized and measured. There is no "reliable measurement" exception.

Step acquisition

Prior to sontrol being obtained, the investment is accounted for under IAS 28, IAS 31 or IAS 39 as appropriate. On the date that control is obtained, the fair values of the acquired entity's assets and liabilities, including goodwill, are measured (with the option to measure full goodwill or only the acquirer's percentage of goodwill). Any resulting adjustments to previously recognized asstes and liabilities are recognized in profit or loss. Thus, attaining control triggers re-measurement.

Scope changes

The revised standard must generally be applied on a prospective basis, with some exceptions. The prospective application will impact post-transition changes in ownership interests in subsidiaries and deferred taxes, but will not impact accounting for contingent consideration related to business combinations with an acquisition date prior to the date of transition.

IFRS 3 - Business Combinations

Background

This standard aims to enhance the relevance, reliability and comparability of the information that an entity provides in its financial statements about a business combination and its effects. It establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The standard also recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

An acquirer of a business recognizes the assets acquired and liabilities assumed at their acquisition-date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition.

Business combinations

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. A business is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return directly to investors or other owners, members or participants.

Scope

IFRS 3 applies to all business combinations except combinations of entities under common control, and formations of joint ventures. Also, IFRS 3 does not apply to the acquisition of an asset or a group of assets that do not constitute a business. Such a transaction does not give rise to goodwill.

Method of accounting for business combinations

Acquisition method

All business combinations within the scope of IFRS 3 must be accounted for using the purchase method.

Steps in applying the acquisition method are:

• Identification of the acquirer which is the combining entity that obtains control of the acquiree.
• determination of the acquisition date which is the date on which the acquirer obtains control of the acquiree.
• Recognition and measurement of the identifiable assets acquired the liabilities assumed and any minority interest in the acquiree.
• Recognition and measurement of goodwill or a gain from a bargain purchase.

Identification of an acquirer

Under revised IFRS 3, an acquirer must be identified for all business combinations.

The acquirer is the combining entity that obtains control of the other combining entities or businesses. IFRS 3 provides considerable guidance for identifying the acquirer.

Control is presumed when the parent acquires more than half of the voting rights of the enterprise. Even when more than one half of the voting rights is not acquired, control may be evidenced by power:

• Over more than one half of the voting rights by virtue of an agreement with other investors; or
• To govern the financial and operating policies of the other enterprise under a statute or an agreement; or
• To appoint or remove the majority of the members of the board of directors; or to cost the majority of votes at a meeting of the board of directors.

Cost of a business combination

Measurement

Consideration for the acquisition includes the acquisition-date fair value of contingent consideration. Changes to contingent consideration resulting from events after the acquisition date must be recognized in profit or loss.

Acquisition costs

Costs of issuing debt or equity instruments are accounted for under IAS 32 and IAS 39. All other costs associated with the acquisition must be expensed. Including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder's fees; advisory, legal, accunting, valuation and other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal acquisitions department.

Contingent consideration

Contingent consideration is required to be recognizes at fair value even if it is not deemed to be probable of payment at the date of the acquisition. All subsequent changes in debt contingent consideration are recognized in the income statement, rather than against goodwill as it is deemed to be a liability recognized under under IAS 32 ans IAS 39. An increase in the liability for good performance by the subsidiary results in an expense in the income statement and under-performance against targets will result in the reduction in the expected and will be recorded as a gain in the income statement. These changes were previously recorded against goodwill.

The nature of the contingent consideration is important as it may may meet the definition of a liability or equity. If it meets the definition of the latter there will be no re-measurement as per IAS 32 and IAS 39. The new requirement that contingent consideration is fair valued at acquisition and, unless it is equity, is subsequently re-measured through earnings rather than the historic practice of re-measuring through goodwill, is likely to increase the focus and attention on the opening fair value calculation and subsequent re-measurements. The standard also requires any gain on a "bargain purchase" (negative goodwill) to be recorded in the income statement as in the previous standard.

Further acquisition

Purchase consideration includes the fair value of all interests that the acquirer may have held previously in the acquired business. This includes any interest in an associate or joint venture or other equity interests of the acquired business. Any previous stake is seen as being "given up" to acquire the entity and a gain or loss is recorded on its disposal.

In the acquirer already held an interest in the acquired entity before acquisition, the standard requires the existing stake to be re-measured to fair value at the date of acquisition, taking any movement to the income statement together with any gains previously recorded in equity that relate to the existing holding.

If the value of the stake has increased, there will be a gain recognized in the statement of comprehensive income (income statement) of the acquirer at the date of the business combination. A loss would only occur if the existing interest has a book value in excess of the proportion of the fair value of the business obtained and no impairment had been recorded previously. This loss situation is expected to occur infrequently.

Transaction cost

Transaction costs no longer form a part of the acquisition price; they are expensed as incurred. Transaction costs are deemed not to be part of what is paid to the seller of a business. They are also not deemed to be assets of the purchased business that should be recognized on acquisition. The standard requires entities to disclose the amount of transaction costs that have been incurred.

Employee share based payments

The standard clarifies accounting for employee share-based payments by providing additional guidence on valuation, as well as how to decide whether share awards are part of the consideration for the business combination or compensation for future services.

Recognition and measurement of identifiable acquired assets and liabilities

Recognition of acquired assets and liabilities

The acquirer recognizes separately, at the acquisition date, the acquiree's identifiable assets, liabilities and contingent liabilities that satisfy the following recognition criteria at that date, regardless of what they had been previously recognizes in the acquiree's financial statements.

The revised standard has introduced some changes to the assets and liabilities recognizes in the acquisition balance sheet. The existing requirement to recognize all  of the identifiable assets and liabilities of the acuiree is retained. Most assets are recognize at fair value, with exceptions for certain items such as deferred tax and pension obligations. The standard has provided additional clarify that may well result in more intangible assets being recognizes. Acquirers are required to recognize brands, licences and customer relationships, and other intangible assets.

There is very little change to current standard as regards contingencies. Contingent assets are not recognized, and contingent liabilities are measured at fair value. After the date of the business combination, contingent liabilities are re-measured at the higher of the original amount and the amount under the relevant standard.

Reorganization provision

The acquirer can seldom recognize a reorganization provision at the date of the business combination. There is no change from the previous guidance in the new standard: the ability of an acquirer to recognize a liability for terminating or reducing the activities of the acquiree is severely restricted. A restructuring or reducing the activities of the acquiree is severely restricted. A restructuring provision can be recognized in a business combination only when the acquiree has, at the acquisition date, an existing liability, for which there are detailed conditions are unlikely yo exist at the acquisition date in most business combinations.

Measurement of non-controlling interest (NCI)

IFRS 3 allows an accounting policy choice, available on a transaction by transaction basis, to measure NCI either at:

• Fir value (sometimes called the full goodwill method), or
• The NCI's proportionate share of net assets of the acquiree (option is available on a transaction by transaction basis)

Goodwill

Goodwill is measured as the difference between:

• The aggregate of (i) the acquisition date fair value of the consideration transferred, (ii) the amount of any NCI, and (iii) in a business combination achieved in stages, the acquisition date fair value of the acquirer's previously-held equity interest in the acquiree; and
• The net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed.

If the difference above is negative, the resulting gain is recognized as a bargain purchase in profit or loss.

Business combination achieved in stages (step acquisitions)

Prior to control being obtained, the investment is accounted for under IAS 28, IAS 31 or IAS 39, as appropriate. On the date that control is obtained, the fair value of the acquired entity's assets and liabilities, including goodwill, are measured (with the option to measure full goodwill or only the acquirer's percentage of goodwill) Any resulting adjustments to previously recognized assets and liabilities are recognized in profit or loss. Thus, attaining control triggers re-measurement.

Pre-existing relationships and reacquired rights

If the acquirer and acquiree were parties to a pre-existing relationship (for instance, the acquirer had granted the acquiree a right to use its itellectual property), this must be accounted for separately from the business combination. In most cases, this will lead to the recognition of a gain or loss for the amount of the consideration transferred to the vendor which effectively represents a 'settlement' of the pre-existing relationship. The amount of the gain or loss is measured as follows.

• For pre-existing non-contractual relationships (for example, a lawsuit) by reference to fair value
• For pre-contractual relationships: at the lesser of (a) the favourable / unfavourable contract available to the counterparty to whom the contract is unfavourable.

However, where the transaction effectively represents a reacquired right, an intangible asset is recognized and measured on the basis of the remaining contralectual term of the related contract excluding any renewals. The asset is then subsequently amortised over the remaining contractual term, again excluding any renewals.

Provisional accounting

If the initial accounting for a business combination can be determined only provisional by the end of the first reporting period, account for the combination using provisional values. The adjustment period ends when the acquirer has gathered all the necessary information, subject to the one year maximum.

An acquirer has a maximum period of 12 months to finalize the acquisition accounting. There is no exemption from the 12 month rule for deferred tax assets or changes in the amount of contingent consideration. The revised standard will only allow adjustments against goodwill within this one-year period. No adjustments after one year except to correct an error in accordance with IAS 8.

Disclosure

Disclosure of information about current business combinations

The acquire disclose information that users of its financial statements to evaluate the nature and financial effect of a business combination that occurs either during the current reporting period or after the end of the period but before the financial statements are authorized for issue.

Among the disclosures required to meet the foregoing objective are the following:

• Name and a description of the acquiree
• Acquisition date
• Percentage of voting equity interests acquired
• Primary reasons for the business combination and a description of how the acquirer obtained control of the acquiree. Description of the factors that makeup the goodwill recognized.
• Qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining operations, intangible assets that do not qualify for separate recognition
• Acquisition date fair vale of the total consideration transferred and the acquisition date fair value of each major class of consideration
• Details of contingent consideration arrangements and indemnification assets
• Details of acquired receivables
• The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed
• Details of contingent liabilities recognized
• Total amount of goodwill that is expected to be deductible for tax purposes
• Details of any transactions that are recognized separately from the acquisition of assets and assumption of liabilities in the business combination
• Information about a bargain purchase (negative goodwill)
• For each business combination in which the acquirer holds less than 100 per cent of the equity interest in the acquiree at the acquisition date, various disclosures are required
• Details about a business combination achieved in stages
• Information about the acquiree's revenue and profit or loss
• Information about a business combination whose acquisition date is after the end of the reporting period but before the financial statements are authorized for issue

Disclosure of information about adjustments of past business combinations

The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods.

Among the disclosures required to meet the foregoing objective are following:

• Details when the initial accounting for a business combination is incomplete for particular assets, liabilities, non-controlling interests or items of consideration (and the amounts recognized in the financial statements for the business combination thus have been determined only provisionally)
• Follow-up information on contingent consideration
• Follow-up information about contingent liabilities recognized in a business combination
• A reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period, with various details shown separately
• The amount and an explanation of any gain or loss recognized in the current reporting period the both;

1. Relates to the identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period, and
2. is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity's financial statements

LATEST AMENDMENTS

IFRS 2 - Share Based Payments

Definition

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 (a) equity, (b) cash or (c) equity or cash.

Scope

The concept of share-based payment is broader than employee share options. IFRS 2 encompasses the issuance of shares, or rights to shares, in return for services and goods. Examples of items included in the scope of IFRS 2 are share appreciation rights, employee share purchase plans, employee share ownership plans, share option plans and plans where the issuance of shares (or rights to shares) may depend on market or non-market related conditions.

IFRS 2 applies to all entries. There is no exemption for private or smaller entries. Furthermore subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the standard.

There are two exemptions to the general scope principle.

• First, the issuance of shares in a business combination should be accounted for under IFRS 3 Business Combinations. However, care should be taken to distinguish share-based payments related to the acquisition from those related to employee services.
• Second, IFRS 2 does not address share-based payments within the scope of paragraphs 8-10 of IAS 32 Financial Instruments: Disclosure and Presentation, or paragraphs 5-7 of IAS 39 Financial Instruments: Recognition and Measurement. Therefore, IAS 32 and 39 should be applied for commodity-based derivative contracts that may be settled in shares or rights to shares.

IFRS 2 does not apply to share-based payment transactions other than for the acquisition of goods and services. Share dividends, the purchase of treasury shares, and, ans the issuance of additional shares are therefore outside its scope.

Types of share-based payment

Three types of transactions are defined:

• Equity-settled share-based payment transactions, in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options)
• Cash-settled share-based payment transactions, in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the pirce (or value) of the entity's shares or other equity instruments of the entity. Transactions involving share appreciation rights (SARs) full into this category: and
• Transactions in which the entity receives or aquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments.

IFRS 2 includes separate measurement requirements for each of these, which are discussed in the remainder of this guide. Business combinations and certain arrangements within the scope of IAS 32 are excluded from the scope of IFRS 2.

If the equity instruments granted do not vest until the counterparty completes a specified period of service, it is presumed that the service period equals the vesting period. The services are accounted for as they are rendered by the counterparty during this vesting period, with a corresponding increase in equity.

Recognition and Measurement

The goods or services received or acquired in a share-based payment transaction are recognized when the goods are obtained or as the services are received. A corresponding increase inequity is recognized if the goods or services were received in an equity-settled transaction. A liability is recognized if the goods or services were acquired in a cash-settled transaction.

The goods or services received in a share-based payment transaction may qualify for recognition as an asset. If not, they are recognized as an expense.

The goods or services involved in a share-based payment transaction should be recognized when they are acquired / received. It will normally be relatively straightforward to as certain when goods are received, but this is not necessarily so when services are involved.

Equity-settled share-based payment transactions

If equity instruments vest immediately then, in the absence of evidence to the contrary, it is presumed that the consideration for the instruments (e.g. employee services) has been received. The consideration (i.e. an expense or asset, as appropriate) should, therefore, be recognized in full, with a corresponding increase in equity.

Vest

To become an entitlement. Under a share-based payment arrangement, a counterparty's right to receive cash, other assets, or equity instruments of the entity vests upon satisfaction of any specified vesting conditions.

Vesting conditions

The conditions that must be satisfies for the counterparty to become entitled to receive cahs, other assets or equity instruments of the entity, under a share-based payemnt arrangement. Vesting conditions includeservice conditions, which require specified performance targets to be met (such as a specified increase in the entity's profit over a specified period of time)

Vesting period

The period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied.

Cash-settled share-based payment transactions

The principles discussed above also apply to cash-settled share-based payments. The consideration for such payment is recognized when it is received (i.e. immediately or over any vesting period), with a corresponding liability.

The liability is remeasured at each reporting date and at settlement date. Any charges in the fair value of the liability are recognized as personnel expense in profit or loss.

Measurement guidance

Depending on the type of share-based payment, fair value may be determined by the value of the shares or rights to shares given up, or by the value of the goods or services received:

General fair value measurement principle

In principle, transactions in which goods or services are received as consideration for equity instruments of the entity should be measured at the fair value of the goods or services received. Only if the fair value of the goods or services cannot be measured reliably would the fair value of the equity instruments granted be used.

Measuring employee share options

For transactions with employees and other providing similar services, the entity is required to measure the fair value of the equity instruments granted, because it is typically not possible to estimate reliably the fair value of employee services received.

When to measure fair value-options

For transactions measured at the fair value of the equity instruments granted (such as transactions with employees), fair value should be estimated at grant date.

When to measure fair value-goods and services

For transactions measured at the fair value of the goods or services received, fair value should be estimated at the date of receipt of those goods or services.

Measurement guidance

For goods or services measured by reference to the fair value of the equity instruments granted, IFRS 2 specifies that, in general, vesting conditions are not taken into accounts when estimating the fair value of the shares or options at the relevant measurement date (as specified above) Instead, vesting conditions are taken into account by adjusting the number of equity instruments included in the measurements of the transaction amount so that, ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted is based on the number of equity instrument that eventually vest.

More measurement guidance

IFRS 2 requires the fair value of equity instruments granted to be based on market prices, if available, and to take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties. The standard does not specify which particular model should be used.

If fair value can not be reliably measured, IFRS 2 requires the share-based payment transaction to be measured at fair value for both listed and unlisted entities. IFRS 2 permits the use of intrinsic value (that is, fair value of the shares less exercise price) in those "rare cases" in which fair value of the equity instruments cannot be reliably measured. However this is not simply measured at the date of grant. An entity would have to remeasure intrinsic value at each reporting date until final settlement.

Performance conditions

IFRS 2 makes a distinction between the handling of market based performance features from non-market features. Market conditions are those related to the market price of an entity's equity, such as achieving a specified share price or a specified target based on a comparison of the entity's share price with an index of share prices of other entities. Market based performance features should be included in the grant-date fair value measurement. However, the fair value of the equity instruments should not be reduced to take into consideration non-market based performance features or other vesting features.

Modifications, Cancellations and Settlements

The determination of whether a change in terms and conditions has an effect on the amount recognized depends on whether the fair value of the new instruments is greater than the fair value of the original instruments (both determined at the modification date)

Modification of the terms on which equity instruments were granted may have an effect on the expense that will be recorded. IFRS 2 clarifies that the guidance on modifications also applies to instruments modified after their vesting date. If the fair value of the new instruments is more than the fair value of the old instruments (e.g. by reduction of the exercise price or issuance of additional instruments), the incremental amount is recognized over the remaining vesting period an a manner similar to the original amount. If the fair value of the new instruments is less than the fair value of the old instruments, the original fair value for the equity instruments granted should be expensed as if the modification never occurred.

The cancellation or settlement of equity instruments is accounted for as an acceleration of the vesting period and therefore any amount unrecognized that would otherwise  have been charged should be recognized immediately. Any payments made with the cancellation or settlement (up to the fair value of the equity instruments) should be accounted for as the repurchase of an equity interest. Any payment in excess of the fair value of the equity instruments granted is recognized as an expense.

New equity instruments granted may be identified as a replacement of cancelled equity instruments. In those cases, the replacement equity instruments should be accounted for as a modification. The fair value of the replacement equity instruments is determined at grant date, while the fair value of the cancelled instruments is determined at the date of cancellation, less any cash payment on cancellation that is accounted for as a deduction from equity.

Disclosure

Required disclosures include:

• The nature and extent of share-based payment arrangements that existed during the period.
• How the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined; and
• The effect of share-based payment transactions on the entity's profit or loss for the period and on its financial position.