module 4: accounting for assets and liabilities (p2)

Module 4:Accounting for assets and liabilities (P2)

Fair value measurement – IFRS 13

Financial Instruments: Presentation – IAS 32,

Recognition and measurement – IFRS 9 and

Disclosure – IFRS 7

Provisions, contingent liabilities and contingent

assets – IAS 37

Events after the reporting period – IAS 10

Employee benefits – IAS 19

Income taxes – IAS 12

Shared-based payment – IFRS 2

Agriculture – IAS 41

What you will learn?

Definition

IFRS 13: Fair value measurement

Fair value

The price that would be

received to sell an asset or

paid to transfer a liability

in an orderly transaction between market

participants at the measurement date

Measurement


In order to measure fair value the entity must determine:

1. Asset or liability

2. Valuation premise that is appropriate for the measurement (non-financial asset)

3. Principal market or most advantageous market

4. Valuation technique

1. Asset or liability


the characteristics of the asset or liability should be considered

Example:

Greenfield Co owns land that is subject to a legal right for an

electricity company to run power lines across it. The land

could be sold for $3million without these lines and

$2.7million with them.

The legal right would be transferred to a purchaser of the

land and therefore it must be taken into account when

determining fair value.

Fair value is $2.7million.

2. Highest and best use


The fair value of a non-financial asset Highest and best use: physically possible, legally

permissible, financially feasible

Example:

Redletter Co owns land that is currently used for industrial

purposes. It could be sold for $1.5million on this basis.

Nearby sites have been developed as residential sites and

there is no legal restriction to prohibit Redletter Co from

selling the land for this purpose. Such a sale would achieve a

price of $1.8million.

The fair value is $1.8 million, based on the highest and best

use.

3. Principal or most advantageous market


market with the most volume of activity for

the asset or liability

market maximises the amount that would be

received to sell an asset

Fair value is determined Based on the principal market; No principal market, based on the most advantageous

market

Principle marketMost advantageous

market

3. Principal or most advantageous market


Example

China France

Price $40 $38

Transaction cost $1/item $3/item

Transport $8/item $5/item

IF France - the principal market: fair value of Bluebell Co's product would be $33 ($38 less $5 transport costs)

Advantageous marketChina: net proceeds per item = $31 ($40 - $1 - $8)France: net proceeds per item = $30 ($38 - $3 - $5) China – most advantageous marketFair value = $32 ($40 - $8)



Three valuation approaches

Market approaches

Cost approaches

Income approaches

Valuations based on recent sales prices

Valuations based on replacement cost

valuations based on financial forecasts



Inputs used to measure fair value

Level 1

Level 2

Level 3

Quoted prices for identical assets in active markets

Observable inputs other than those classified as level 1

Unobservable inputs



Example

Baklava has an investment property that is measured at fair

value. This property is rented out on short-term leases.

The directors wish to fair value the property by estimating

the present value of the net cash flows that the property will

generate for Baklava. They argue that this best reflects the

way in which the building will generate economic benefits

for Baklava. The building is unique, although there have

been many sales of similar buildings in the local area.

Discuss whether the valuation technique suggested by the

directors complies with International Financial Reporting

Standards.



Example

Valuation technique

suggested by the

directors

fair value the property by

estimating the present value of

the net cash flows – LEVEL 3

More reliable

technique

LEVEL 2 – there are observable

inputs (there have been many

sales of similar building in the

area)

Disclosure


the valuation techniques and inputs used to develop

those measurements

The effect of the measurements on profit or loss or other

comprehensive income for the period

Assets and liabilities that are measured at fair value

Measurements using significant unobservable inputs

Financial Instruments

IAS 32: Financial Instruments - Presentation

IFRS 7: Financial Instruments - Disclosure

IFRS 9: Financial Instrument - Recognition and measurement

Definitions

IAS 32: Presentation

Financial instrument

A contract gives rise to a financial asset of one entity & a financial liability/equity instrument

of another entity

Financial instrument

Financial asset

Financial liability

Equity instrument

Debt instruments

Equity instruments

Bonds

Example: Bond holderFinancial asset

Bond issuerFinancial liability

Shares

Share holderFinancial asset

Share issuerEquity instrument

Definitions


Financial asset

Financial liability

Equity

cash an equity instrument of another entity a contractual right to receive cash

a contractual obligation or another asset to another entity

contracts that evidences a residual interest in the assets of an entity after

deducting all of its liabilities

Financial asset or financial liability: Recognition


"An entity shall recognise a financial asset or

financial liability when the entity becomes a party

to the contractual provisions of the instrument."

Equity and liability


Financial Instruments used to raised funds must be classified as either equity or liability

Ordinary shares

No contractual evidence to pay dividend

Equity

Preference shares

Redeemable Financial liability

Irredeemable

Financial liability (obligation to deliver cash)

Equity(no obligation to

deliver cash)



Convertible instruments

Two components Accounted separately

Liability

Equity

calculated as the present value of the repayments

the difference between the cash proceeds from the issue of the

instrument and the value of the liability component

Nominal interest rate and Market interest rate


Nominal interest rate Market interest rate

Stated interest rate of a bond or loan, which signifies the

actual monetary price borrowers pay lenders to use

their money

Rates of interest paid on deposits and other

investment, determined by the interaction of the supply of and demand for funds in

the money market



Example

On 1 Jan 20X0, an entity issues convertible loan notes for $500,000. Interest is payable annually in arrears at 6%. The market rate of interest for similar loan notes with no conversion rights attached is 7%. The loan notes are redeemable on 31 December 20X3.

The liability component is initially measured at:

Date Cash Flow Discount factor Present value

31.12.X0 (30,000) 1/1.07 $28,037

31.12.X1 (30,000) 1/1.072 $26,203

31.12.X2 (30,000) 1/1.073 $24,489

31.12.X3 (530,000) 1/1.074 $404,334

Equity component $500,000 - $483,063 = $16,937

$483,063(Liability)

DR Cash $500,000

CR Financial liability $483,063

CR Equity $16,937

Liability - SOFP

Other equity - SOFP



Example

Amortised cost calculating financial liability

Date BF Interest Payment CF

X0 483,063 33,814 (30,000) 486,877

X1 486,877 34,081 (30,000) 491,958

X2 491,958 34,437 (30,000) 496,395

X3 496,395 34,747 (30,000) 500,000

DR Finance Expense $33,814

CR Cash $30,000

CR Liability $3,814

Expense - SOPL

Liability - SOFP

Main categories

IFRS 7: Disclosure

An entity must group its financial instruments into

classes of similar instruments

Two main categories of disclosures required

Information about the

significance of

financial instruments

Information about the

nature and extent of

risks arising from

financial instruments

Financial assets

Amorised costFair value through

OCI(FVTOCI)

Fair value through profit or loss

(FVTPL)

Financial assets: Recognition

IFRS 9: Recognition and measurement

Asset is held within a business for

which the objective is to

collect contractual cash flows

contractual terms of the asset give rise to cash flows on specific dates

(solely payments of principal and interest – SPPI)

Asset is held within a business model for which

the objective is to collect contractual cash flows and sell

financial assets

Do not meet criteria of neither

amortised costnor FVTOCI

To avoid

accounting

mismatch

Financial assets: Initial Measurement


Initial measurement

Amortised cost FVTPL

Fair value

Fair value only(transaction cost is expensed in P&L)

FVTOCI

Transaction cost

+

Fair value

Transaction cost

+

Financial assets: Subsequent measurement


Subsequent measurement

Amortised cost

+ Interest

income charged to P&L (using effective of

interest), and

- nominal

interest receipt(similar to

example in slide 22)

FVTOCI FVTPL

Change in FV

recognized in

OCI

Change in FV

recognized in

P&L

Example


In February 20X8 Bonce Co purchased 20,000 $1 listed equity

shares at a price of $4 per share. Transaction costs were $2,000. At

the year end of 31 December 20X8, these shares were trading at

$5.50. A dividend of $20c per share was received on 30 September

20X8.

Show the financial statement extracts of Bonce Co at 31 December

20X8 relating to this investment on the basis that:

a. The shares were brought for trading (conditions for FVTOCI

have not been met)

b. Conditions for FVTOCI have been met

Example


a) FVPL $

SOPLInvestment income (20,000 x (5.5 – 4.0)) 30,000

Dividend income (20,000 x 20c) 4,000

Transaction costs (2,000)

SOFPInvestments in equity instruments (20,000 x 5.5) 110,000

b) FVOCI $

SOPLDividend income 4,000

Other comprehensive incomeGain on investment in equity instruments(20,000 x 5.5) – ((20,000 x 4) + 2,000) 28,000

SOFPInvestments in equity instruments (20,000 x 5.5) 110,000

Would be the same (b) if an irrevocable election for FVTOCI had been made

Interest, Dividend, Gain or Loss


Interest and dividend revenue on all financial assets is recognised in profit or loss

Debt investment at FVTOCI

OCI (but reclassified to profit or loss on disposal of the investment)

Equity investment at FVTOCI

OCI (but not reclassified to profit or loss on disposal of the investment)

FVTPL Profit or loss

Financial assets

Impairment losses on all financial assets are recognised in profit or loss

Financial liabilities: Recognition


Financial liabilities

Those held for trading or designated at fair

value through profit or loss (FVTPL)

Any other financial liability

(Amortised cost)

Financial liabilities: Initial Measurement


Initial measurement

FVTPL Amortised costs

Fair value(transaction cost is expensed in P&L)

Fair value

Transaction cost

-

Interest, dividends, Gain or Loss


Interest, dividends, losses and gains relating to a

financial instrument classified as a financial liability

should be recognised as income or expense in profit

or loss.

Financial liabilities: Subsequent measurement


Subsequent measurement

Held for trading or designated at FVTPL

Change in FV recognized in P&L

Any other financial liabilities

Remeasure at each reporting date

Interest charge to P&L

(using effective interest rate)

Interest paid (using nominal interest rate)

Impairment of financial assets: Measurement


At initial recognition, 12 month expected credit losses are recognised

Beyond this, a 3 stage approach is taken:

Stage 1

Stage 2

Stage 3

If credit risk has not increased significantly since initial recognition, recognise 12 month expected

credit losses

If credit risk has increased significantly since initial recognition, recognise lifetime expected credit losses, calculate interest on gross asset

Exist evidence of impairment at the reporting date, recognise lifetime expected credit losses, calculate interest on asset net of impairment

Example


Example

January 20X4, Barkers Co purchased a debt investment,

measuring it at par of $500,000. There is a 3% probability that

the borrower will default, resulting in a 100% loss.

31 December 20X4 it is expected that the borrower will

breach loan covenants and there is a 30% probability of them

defaulting over the remainder of the term.

Example


At 1 January 20X4 an impairment allowance of

3% x $500,000 = $15,000 is recognised (12 month credit

losses).

31 December 20X4, there is a significant increase in the risk of

default -> the impairment allowance is based on lifetime

credit losses. It is increased to 30% x $500,000 = $150,000.

Interest revenue would have been calculated based on:

$500,000 - $150,000 = $350,000

Definitions: Provisions

IAS 37: Provisions and Contingencies

Provision

Liability

A liability of uncertain timing or amount

Present obligation as a result of past events

Settlement is expected to result in an outflow of resources

Probable

Constructive obligation

Onerous contract

a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it

obligation that derives from an entity's actions where the entity has created a valid expectation on the part of those other parties that it has accept certain responsibilities and will discharge those responsibilities

more likely than not to occur

Legal obligation

an obligation that the entity must follow because of law enforcement

Recognition and measurement: Provisions


A provision

can only be

recognised if

There is a present obligation as a result of a past event

It will result in a probable outflow of economics benefits

A reliable estimate can be made on the obligation



The best estimate of a provision will be:

the most likely amount payable for a single obligation

an expected value for a large population of items

Example 1: Provisions


Store Co operates clothes shops in a country where laws

require that goods can be returned by customers for a refund

within 30 days of purchase. Store Co's advertising slogan is

'Satisfaction guaranteed, but 90 days to return if not’.

Shoud any provisions is made in this case?



Store Co has a liability of uncertain timing and amount: at any given date it may have refund goods sold in the previous 90 days.

A legal obligation exists to refund goods sold in the previous 30 days and a constructive obligation exists in respect of the other 60 days.

Related past events are sales to customers. Assuming that customer refunds are probable and a reliable estimate can be made of the amount (based on past experience).

A provision should be made



A customer has brought a lawsuit against Bone Co and is

claiming $800,000 in damages. Bone Co’s legal advisors have

assessed the probability of Bone Co losing and having to pay

the damages at 80%.

There is single obligation and provision is measured at the single most likely outcome $800,000

The provision is not measured at 80% x $800,000 = $640,000 because there is not a large population of items



Parker Co sells goods with a warranty under which customers

are covered for the cost of repairs of any manufacturing

defect that becomes apparent within the first six months of

purchase. The company's past experience and future

expectations indicate the following pattern of likely repairs.

% of goods sold DefectsCost of repairs if all items

from these defects

$m

75 None -

20 Minor 1.0

5 Major 4.0

Provision required Cost is found using “expected value” (75% x $nil) + (20% x $1.0m) + (5% x $4.0m) = $400,000

Possible provisions


Possible provisions

Warranty

Guarantees

Onerous contract

Environmental provisions

Restructuring provisions

Not future operating losses

Note:Future operating losses/ future repairs are not provision because they arise in the future and can be avoided – no obligtion exists



If a provision is increased or decreased

Expenditure to settle a provision may be recoverable

from a third party

corresponding entry is made to profit or loss

Reimbursement is recognised as an asset



Oil Co constructed an oil platform in 20X2 at a cost of $12

million. The company is also legally required to decommission

the platform at the end of its useful life at a cost with present

value of $2million. The company is also legally required to

restore the seabed at this time. This is gradually eroded as oil

extracted. Restoration costs are estimated at $10 per barrel

extracted. At 31 December 20X2, 50,000 barrels had been

extracted.

A provision is recognised at the time of construction for $2 million – Total cost of the oil platform is $14 million

Additional provision is made as barrels of oil are extracted.At 31 Dec 20X2, it amounts to $10 x 50,000 = $500,000

Definition: Contingencies


Contingent liability

Contingent asset

Possible obligation depending on certainty of future event occurs, or

Present obligation that is not probable or cannot be measured reliably

Possible asset that arises from past events

Whose existence will be confirmed only by the (non)occurrence of uncertain future events

Recognition: Contingencies


Degree of probability

Outflow Inflow

Virtually certain(≥ 90%)

Recognise liability

Recognise asset

Probable(50% ≤ X < 90%)

Recognise provision

Disclose contingent asset

Possible(5% ≤ X < 50%)

Disclose contingent

liabilityIgnore

Remote(X < 5%)

Ignore Ignore

Restructuring provisions


'A restructuring is a programme that is planned and controlled by management, and materially changes either:

the scope of a business undertaken by an entity, or the manner in which that business is conducted

provision may only be made if:

a detailed, formal and approved plan exists, and

the plan has been announced to those affected.

The provision should

IncludeDirect expenditure arising from restructuring

ExcludeCosts associated with ongoing activities

Example: Restructuring provisions


On 14 June 20X5 a decision was made by the board of an

entity to close down a division. The decision was not

communicated at that time to any of those affected and no

other steps were taken to implement the decision by the year

end of 30 June 20X5. The division was closed in September

20X5.

Should a provision be made at 30 June 20X5 for the cost of

closing down the division?

No constructive obligation exists

This is a board decision, which can be reversed

No provision can be made

Definitions

IAS 10: Events after reporting period

Events, both favourable and unfavourable, that occur

between the end of the reporting period and the date on

which the financial statements are authorised for issue

Reporting date

FSs issued

Events after repoting date

Definitions


Two types of events that occur after the reporting date

Adjusting events Non-adjusting events

Provide the information on conditions that

existed at the reporting date

Provide information on conditions that arose

after the reporting date

Adjust the financial statements

Do not adjust the financial statements

Disclose if material

Adjusting events


Examples

The subsequent determination of the purchase price or the proceeds of sale of assets purchased or sold before the year

end.

A valuation which provides evidence of a permanent diminution in value

The settlement of a court case that confirms a present obligation at the reporting date

The discovery of fraud or errors meaning the financial statements are incorrect

Non-adjusting events


Examples

Acquisition or disposal of subsidiaries

Announcement of plan to close a division

If dividends on ordinary

shares are declared after

the reporting date

Non-adjusting

Should not be recognised

as liabilities

Should be disclosed

Purchases or disposals of asset

Definition

IAS 19: Employee Benefits

Employee benefits

All forms of consideration given by an entity in

exchange for services rendered or for the termination

of the employment

Types of employee benefits


Employee benefits

Short-term employee benefits

Termination benefits

Post-employment benefits (Pensions)

Other long-term benefits

Short-term employee benefits


Include bonus, sick pay, holiday pay and meternity leaveare recognised

Expenses

When the employee

provides benefit

Liability

To the extent they are

paid

Termination benefits


Are recognised as liability and expense at the earlier of

When the entity can no longer withdraw from the offer of

termination benefits and

When the entity recognises costs for restructuring in line

with IAS 37



Defined contribution Defined benefit

Employer contributionsinto the pension plan are

fixed

Employer contributionsinto the pension plan are

variable

Pensions paid out are variable

Pensions paid out are a guaranteed amount

Employer (sometimes employee) contribute to a pension plan throughout the employee’s working life. Employee retires –

entitled to a pension



Defined contribution

plans

Defined benefits plans

(net defined benefit pension asset/ liability recognised in

SoFP)

Contributions are recognised as an

expense in the period they are

payable

The fair value of the pension plan

assets at the reporting date

The present value of the defined

benefit obligation at the reporting

date

the difference between



Plan assets

PV of obligation

Journal

At the start of year

X X

Contributions XDebit: Plan assetsCredit: Cash

Paid out as pensions

(X) (X)Debit: ObligationCredit: Plan assets

Current service cost

XDebit: Profit/Loss Credit: Obligation

Net interest X XDebit: Plan assetsCredit: ObligationDebit/Credit: P/L

Remeasurement(balancing figure)

X/(X) X/(X)Debit/Credit: Plan assetsDebit/Credit: ObligationDebit/Credit: OCI

At the end of year

X X



Net interest is calculated on the value of the assets and obligation at the start of the year.

It represents

The expected return on the investments that form the plan assets

The unwinding of the discount on the obligation



Remeasurements – the difference between: calculated plan assets and defined benefit obligation

Represent:

The difference between the actual and expected return on plan assets

The effect of changes in actuarial assumptions in the case of obligation

These are never reclassified to profit or loss

Example: Pensions


The following information is relevant to an entity’s defined

benefit pension scheme:

The net deficit reported at the start of the year was

$2.4million

The net deficit reported at the end of the year as advised

by actuaries was $2.25million

Company contributions in the year were $2million and the

current service cost was $1.3million

The relevant interest rate is 10%

What amounts are recognised in the SoPL in relation to the

scheme in the year?

Example: Pensions


$000

Net deficit at start of year (2,400)

Company contribution 2,000

Current service cost (1,300)

Net interest (10% x 2.4m) (240)

Remeasurement (balancing figure) (310)

Net deficit at end of year 2,250

The company contribution is not recognised in profit or loss

DR Pension scheme

CR Bank

Remeasurements are recognised in OCI. In this case there is a measurement loss

Other long-term benefits


Other long-term benefits are recognised in the same way as

post-employee benefits however all amounts are recognised in

profit or loss, including measurements

Definition

IAS 12: Income taxes

Accounting profitNet profit or loss for a period before deducting tax expense

Taxable profit (tax loss)

The profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable)

Tax expense (tax income)

The aggregate amount included in the determination of net profit or lossfor the period in respect of current tax and deferred tax

Tax expense (tax income)

Current tax expense (income)

Deferred tax expense (income)

Definition


Deferred tax

Deferred tax is an accounting adjustment to take

account of the future tax impact of an asset or

liability currently recognised in the statement of

financial position

Definition


Deferred taxTwo approaches

Income approach Balance sheet approach

Take difference between the tax base and carrying

amount

Take difference between accounting profit and

taxable profit

Calculation


Determine the tax base of the asset or liability

The difference between this amount and the carrying amount is a temporary difference

The temporary difference is either

Taxable Deductable

Apply tax rate to give

deffered tax liability

Apply tax rate to give

defferred tax asset

Tax base


Tax base

the amount that is attributed to an asset or liability for tax purposes

In the case of asset

the amount that will

be deductible for tax

purposes in the future

In the case of liability

usually the carrying

amount less any

amount that will be

deductible for tax

purpose in the future

Calculation


Taxable temporary

differences

Deductible

temporary

differences

The applicable tax

rate

arise where the carrying amount of

an item exceeds its tax base

arise where the carrying amount of

an item is less than its tax base

is that which is expected to apply

when the carrying amount of the

item is recovered

Example


Luella Co buys an item of plant on 1 January 20X7 at a cost of

$400,000. The plant has a useful life of 10 years and benefits

form a 20% writing down allowance (on a reducing balance

basis) for tax purposes. Luella has a year end of 31 December

and pays tax at a rate of 30%.

There is no deferred tax impact on acquisition of the asset

because carrying amount is equal to tax base at $400,000.

Example


At 31 December 20X7:

The carrying amount of the asset is

9/10 x $400,000 = $360,000

The tax base of the asset is 80% x $400,000 = $320,000

There is therefore a temporary difference of $40,000

This is a taxable temporary difference because carrying

amount exceeds tax base

It results in a deferred tax liability of

30% x $40,000 = $12,000

Accounting for deferred taxes


DEBIT Tax charge in profit or loss $12,000

CREDIT Deferred tax liability $12,000

The deferred tax impact of a revaluation is recognised in OCI

The deferred tax impact of dividends is recognised in profit or loss

Example: Accounting for deferred taxes


Zebra Co owns a property which has a carrying amount at

the beginning of 20X9 of $1,500,000. At the year end it has

revalued the property as $1,800,000. The tax rate is 30%.

How will this be shown in financial statements?

Example: Accounting for deferred taxes


$000

Profit for the year X

Other comprehensive income:

Gains on property revaluation 300

Income tax relating to components of OCI (300 x 30%) (90)

Other comprehensive income for the year net of tax 210

Statement of profit or loss and other comprehensive income (extract)

Debit Credit

$’000 $’000

Property, plant and equipment 300 -

Deferred tax 90

Revaluation surplus 210

The deferred tax has been deducted from revaluation surplus rather than being charged to profit or loss

Definition

IFRS 2: Share-Based Payment

Share-based payment occurs when an entity buys

goods or services from other parties and:

settles the amounts payable by issuing shares or

share options or

incurs liabilities for cash payments based on its

share price

Definition


Equity-settled

share-based

payments

Cash-settled

share-based

payments

the entity acquires goods or

services in exchange for equity

instruments of the entity

the entity acquires goods or

services in exchange for amounts

of cash measured by reference to

the entity’s share price

Equity-settled share-based payments


DEBIT Expense/Asset

CREDIT Equity

The entry to equity is normally reported in other components of equity

Share capital is not affected until the share-based payment has 'vested'.



Is the transaction with employees or others providing similar services?

Measure at the fair value of the equity

instruments granted at grant date

Can the fair value of the goods and services

received be measured reliably?

Measure at the fair value of the goods and services received at the date they were received

Measure at the fair value of the equity

instruments granted at grant date

Yes No

No Yes

Example


A company grants three directors 200 share options on 1.Jan.20X6, and these vest (i.e. the director becomes entitled to them) after two years, providing that the director still works for the company. This is expected to be the case. Each option has a fair value of $3 at the grant date.

The total expense to be recognised is $1,800 (3 directors x 200 options x $3). This is spread over the two year vesting period giving an expense of $900 in each year.

At the end of year 1 the balance in equity is $900; at the end of year two it is $1,800. Assuming that the options are exercised, the equity balance is transferred to the share capital account.



The measurement of equity-settled share-based payments

must take into account the number of instruments expected to

vest (become an entitlement).

Cash-settled share-based payments


DEBIT Expense/asset

CREDIT Liability

The fair value of the liability is re-measured at each reporting date as the amount of cash expected to be paid

Example


On 1 January 20X4 a company grants a director share

appreciation rights whereby she is entitled to cash equivalent

to 1,000 shares on 31 December 20X5, assuming she remains

in employment. The share price is $3.40 on 31 December 20X4

and $4.05 on 31 December 20X5.

Recognition:

At 31 December 20X4 a liability and expense are

recognised of $1,700 (1,000 x $3.40 x 1/2 years).

At 31 December 20X5 the total liability is $4,050

(1,000 x $4.05).

Therefore the year 2 expense is $2,350 ($4,050 - $1,700).

Share-based payments with a choice of settlement


Where the counterparty - choice of settlement, the entity is

deemed to have granted a compound instrument and a

separate equity and liability component are recognised

Where the entity - choice of settlement, the whole transaction

is treated as either equity-settled or cashsettled depending on

whether the entity has an obligation to settle in cash

Definition

IAS 41: Agriculture

Biological assets

Agricultural produce

Costs to sell

living plants and animals

the produce harvested from the biological assets

(thereafter it becomes inventory)

incremental costs directly attributable to the disposal of

an asset excluding finance costs and taxation

Recognition

IAS 41: Agriculture

An entity should recognise a biological asset or agricultural produce only when the entity

controls the asset

as a result of past events

It is probable that future economic inflows will result

the asset and inflows are capable of reliable measurement

Initial Measurement

IAS 41: Agriculture

fair valueestimated costs to

sell

Gains and losses may arise in profit or loss when a biological asset is first recognised

−

Subsequent Measurement

IAS 41: Agriculture

At each reporting date, biological assets are revalued to fair value less costs to sell

Gains and losses arising from changes in fair value are recognised in profit or loss for the period in which they

arise

Biological assets are presented separately on the face of the statement of financial position within non-current

assets

module 4: accounting for assets and liabilities (p2)

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