Intermediate Financial Reporting: An Ifrs Perspective

912 Pages·2009·7.697 MB·English

by  Nelson Chi Yuen Lam, Nelson Lam

Intermediate
Financial
Reporting
An IFRS Perspective
Nelson Lam
Peter Lau
Singapore • Boston • Burr Ridge, IL • Dubuque, IA • Madison, WI • New York • San Francisco
St. Louis • Bangkok • Kuala Lumpur • Lisbon • London • Madrid • Mexico City
Milan • Montreal • New Delhi • Seoul • Sydney • Taipei • Toronto
Intermediate Financial Reporting
An IFRS Perspective
Education

Copyright © 2009 by McGraw-Hill Education (Asia). All rights reserved. No part of this publication may
be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system,
without the prior written permission of the publisher.
Cover and interior images: Copyright © iStockphoto.com
1 2 3 4 5 6 7 8 9 10 CTF SLP 20 11 10 09
When ordering this title, use ISBN 978-007-127424-1 or MHID 007-127424-3
Printed in Singapore
Contents in Brief
About the Authors xvi PART IV FINANCIAL INSTRUMENTS
Preface xvii 15 Financial Instruments –
PART I CONCEPTUAL AND REGULATORY FRAMEWORK An Introduction 493
16 Financial Assets 518
1 Financial Reporting and International
17 Financial Liabilities and
Financial Reporting Standards 3
Derecognition 583
2 Framework for International Financial
18 Financial Instruments – Presentation
Reporting 18
and Disclosure 617
PART II ELEMENTS OF FINANCIAL STATEMENTS –
PART V PRESENTATION OF FINANCIAL STATEMENTS
ASSETS
AND RELATED TOPICS
3 Property, Plant and Equipment 43
19 Presentation of Financial
4 Leases 73
Statements 671
5 Investment Property 117
20 Accounting Policies, Changes
6 Intangible Assets 152
in Accounting Estimates and
7 Borrowing Costs 190
Errors 731
8 Impairment of Assets 219
21 Events after the Reporting
9 Inventories 263
Period 761
10 Construction Contracts 292
22 Non-current Assets Held for Sale and
PART III ELEMENTS OF FINANCIAL STATEMENTS – Discontinued Operations 788
LIABILITIES, EQUITY, INCOME AND EXPENSES 23 The Effects of Changes in Foreign
11 Revenue 325 Exchange Rates 821
12 Employee Benefits 366 24 Statement of Cash Flows 848
13 Income Taxes 419
14 Provisions and Contingencies 463 Index 881
iii
Contents
About the Authors xvi 2.2.1 Decision-useful Financial
Preface xvii Information 22
2.2.2 Financial Position,
PART I CONCEPTUAL AND REGULATORY
Performance and Cash
FRAMEWORK
Flows 22
1 Financial Reporting and International
2.2.3 Underlying Assumptions –
Financial Reporting Standards 3
Accrual Basis and Going
1.1 Objective of Financial Reporting
Concern 23
and the IFRSs 4
2.3 Qualitative Characteristics of
1.2 History and Structure – From the
Financial Statements 23
IASC to the IASB 5
2.3.1 Understandability 24
1.2.1 Changing Role and New
2.3.2 Relevance 24
Objectives 6
2.3.3 Reliability 24
1.2.2 Current Structure 7
2.3.4 Comparability 26
1.3 IFRSs, IASs and Interpretations 8
2.3.5 Constraints on
1.3.1 IFRSs in Issue 8
Relevant and Reliable
1.3.2 Coverage and Approach
Information 27
of Intermediate
2.3.6 True and Fair View or
Accounting Textbook 10
Fair Presentation 27
1.4 Authority of IFRSs 11
2.4 The Elements of Financial
1.4.1 Due Process for
Statements and Their
IFRSs 11
Definitions 27
1.4.2 National Accounting
2.4.1 Elements for Financial
Standard Setters 11
Position (in the Balance
1.5 Application and Use of IFRSs 12
Sheet) 28
1.5.1 Contents and Structure
2.4.2 Elements for Financial
of IFRSs 12
Performance (in the
1.5.2 Application to Profit-
Income Statement) 30
oriented Entities 12
2.5 Recognition of the Elements of
1.6 Current Trends and Future
Financial Statements 31
Challenges of IFRSs 13
2.5.1 Criteria for
1.7 Summary 15
Recognition 31
2.6 Measurement of the Elements of
2 Framework for International Financial
Financial Statements 34
Reporting 18
2.7 Concept of Capital and Capital
2.1 Purpose and Scope of the
Maintenance 35
Framework 19
2.8 Development of a Single
2.2 Objective of Financial Statements
Converged Framework 36
and Underlying Assumptions 20
2.9 Summary 37
iv
v
CCoonntteennttss
PART II ELEMENTS OF FINANCIAL STATEMENTS – 4.3 Classification of Leases of Land
ASSETS and of Buildings 84
4.3.1 Lease of Land 84
3 Property, Plant and Equipment 43
4.3.2 Lease of Land and
3.1 Meaning of Property, Plant and
Building 85
Equipment 45
4.4 Leases in the Financial Statements
3.2 Applicable Standard and Scope 45
of Lessees 89
3.3 Recognition 46
4.4.1 Finance Leases in the
3.3.1 Initial Cost and
Financial Statements of
Subsequent Cost 46
Lessees 89
3.4 Measurement at Recognition 48
4.4.2 Operating Leases in the
3.4.1 Elements of Cost 49
Financial Statements of
3.5 Measurement after Recognition 52
Lessees 95
3.5.1 Cost Model 52
4.5 Leases in the Financial Statements
3.5.2 Revaluation Model 52
of Lessors 98
3.6 Depreciation 59
4.5.1 Finance Leases in the
3.6.1 Separate Depreciation on
Financial Statements of
Significant Parts 59
Lessors 98
3.6.2 Depreciation
4.5.2 Operating Leases in the
Charges 60
Financial Statements of
3.6.3 Commencement and
Lessors 105
Cessation of
4.6 Sale and Leaseback
Depreciation 60
Transactions 107
3.6.4 Depreciable
4.6.1 Leaseback in Finance
Amount 60
Lease 108
3.6.5 Depreciation on Land
4.6.2 Leaseback in Operating
and Building 63
Lease 108
3.6.6 Depreciation Method 63
4.6.3 Disclosure on Sale and
3.7 Impairment 64
Leaseback 111
3.8 Derecognition 65
4.7 Summary 111
3.8.1 Disposal 65
3.8.2 Replacement 65
5 Investment Property 117
3.8.3 Gain or Loss on
5.1 Applicable Standard and
Derecognition 66
Scope 118
3.9 Disclosure 66
5.2 Property Classified As Investment
3.10 Summary 68
Property 119
5.2.1 Mode of Usage 120
4 Leases 73
5.2.2 Mode of Ownership 124
4.1 Applicable Standard and
5.2.3 Portion of Property Not
Scope 74
Held As Investment
4.2 Classification of Leases 75
Property 126
4.2.1 Inception and
5.2.4 Property Leased or
Commencement of a
Occupied by Group
Lease 76
Companies 126
4.2.2 Indicators of Finance
5.3 Recognition 126
Lease 78
5.4 Measurement at Recognition 127
vi
Contents
5.4.1 Initial Cost of Property 6.3.2 Separate
Interest Held under a Acquisition 157
Lease 128 6.3.3 Acquisition As Part
5.5 Measurement after of a Business
Recognition 128 Combination 158
5.5.1 Exemptions and 6.3.4 Acquisition by Way of a
Restrictions 128 Government Grant 160
5.5.2 Cost Model 131 6.3.5 Exchanges of
5.5.3 Fair Value Model 132 Assets 160
5.5.4 Particular Cases in Fair 6.3.6 Internally Generated
Value Model 136 Goodwill 161
5.5.5 Change in Accounting 6.3.7 Internally Generated
Policy 137 Intangible Assets 161
5.6 Transfers 137 6.4 Recognition of Internally
5.6.1 Transfers under Cost Generated Intangible Assets 161
Model 139 6.4.1 Research Phase 161
5.6.2 Transfers under Fair 6.4.2 Development Phase 162
Value Model 139 6.4.3 Cost of an Internally
5.7 Derecognition 141 Generated Intangible
5.7.1 Disposal by Sale or by Asset 164
Entering into Finance 6.4.4 Internally Generated
Lease 141 Intangible Assets Cannot
5.7.2 Derecognition by Be Capitalised 165
Replacement 142 6.5 Recognition of an Expense 166
5.7.3 Gains or Losses 142 6.6 Measurement after
5.7.4 Compensation from Third Recognition 166
Parties 142 6.6.1 Cost Model 166
5.8 Disclosure 142 6.6.2 Revaluation Model 167
5.8.1 Applicable to Both 6.7 Useful Life 172
Fair Value and Cost 6.7.1 Determination of Useful
Model 142 Life 173
5.8.2 Fair Value Model 143 6.8 Intangible Assets with Finite
5.8.3 Cost Model 144 Useful Lives 176
5.9 Summary 145 6.8.1 Amortisation Period 177
6.8.2 Amortisation
6 Intangible Assets 152 Method 177
6.1 Applicable Standard and 6.8.3 Residual Value 177
Scope 153 6.8.4 Review at Least at Each
6.2 Meaning of Intangible Asset 154 Financial Year-end 178
6.2.1 Identifiability 155 6.9 Intangible Assets with Indefinite
6.2.2 Control 155 Useful Lives 180
6.2.3 Future Economic 6.9.1 Review of Useful Life
Benefits 155 Assessment 181
6.3 Recognition and Measurement 156 6.10 Impairment Losses 181
6.3.1 Recognition Criteria and 6.11 Retirements and Disposals 182
Initial Measurement 156 6.11.1 Disposal 182
vii
Contents
6.11.2 Replacement 182 8.4.1 Fair Value Less Costs to
6.12 Disclosure 182 Sell 226
6.12.1 General Disclosure 182 8.4.2 Value in Use 228
6.12.2 Intangible Assets 8.4.3 Intangible Asset with
under the Revaluation Indefinite Useful
Model 184 Life 234
6.12.3 Research and 8.4.4 Fair Value Less Costs
Development to Sell vs. Value in
Expenditure 185 Use 235
6.12.4 Other Information 185 8.5 Recognising an Impairment
6.13 Summary 185 Loss 236
8.6 Cash-generating Units 238
7 Borrowing Costs 190 8.6.1 Lowest Aggregation of
7.1 Applicable Standard and Assets 240
Scope 191 8.6.2 Recoverable Amount and
7.2 Transitional Arrangement 193 Carrying Amount of a
7.3 Recognition 194 Cash-generating
7.3.1 Borrowing Costs Eligible Unit 242
for Capitalisation 195 8.6.3 Corporate Assets 243
7.3.2 Commencement of 8.6.4 Impairment Loss for
Capitalisation 203 a Cash-generating
7.3.3 Suspension of Unit 246
Capitalisation 206 8.7 Reversing an Impairment
7.3.4 Cessation of Loss 249
Capitalisation 208 8.7.1 Identifying Any
7.3.5 Excess of the Carrying Indications of Impairment
Amount of the Qualifying Reversal 249
Asset over Recoverable 8.7.2 Ascertaining the Sources
Amount 209 of Change 250
7.4 Disclosure 209 8.7.3 Reversing an Impairment
7.5 Summary 210 Loss for an Individual
Asset 251
8 Impairment of Assets 219
8.7.4 Reversing an Impairment
8.1 Applicable Standard and
Loss for a Cash-generating
Scope 221
Unit 253
8.2 General Approach in Assessing
8.8 Disclosure 253
Impairment 221
8.8.1 Disclosure for Specific
8.3 Identifying Any Indication of
Cash-generating
Impairment 223
Units 254
8.3.1 Impairment Test for
8.9 Summary 257
Specific Intangible Assets
and Goodwill 223 9 Inventories 263
8.3.2 Indications of 9.1 Applicable Standard and
Impairment 224 Scope 265
8.4 Measuring Recoverable 9.2 Measurement of
Amount 226 Inventories 266
viii
Contents
9.2.1 Cost of Inventories 266 11.5.3 Inflow of Economic
9.2.2 Cost Formulas 273 Benefits to the Seller 338
9.2.3 Net Realisable 11.5.4 Matching of Revenue and
Value 278 Expenses 338
9.3 Recognition As an Expense 281 11.5.5 Other Specific
9.4 Disclosure 281 Transactions 339
9.5 Summary 283 11.6 Rendering of Services 342
11.6.1 Stage of Completion
10 Construction Contracts 292 Method 343
10.1 Applicable Standard and 11.6.2 Flow of Economic
Scope 293 Benefits to the Seller 344
10.2 Combining and Segmenting 11.6.3 Reliability of
Construction Contracts 295 Estimates 344
10.3 What Is Contract Revenue? 298 11.6.4 Indeterminate Number
10.4 What Are Contract Costs? 300 of Acts and Significant
10.5 Recognition of Contract Revenue Specific Act 344
and Expenses 302 11.6.5 Outcome of Services Not
10.5.1 When Outcome of Estimated Reliably 345
Contract Can Be 11.6.6 Other Specific
Estimated Reliably 302 Transactions 345
10.5.2 Percentage of Completion 11.7 Customer Loyalty
Method 304 Programmes 350
10.5.3 When Outcome of 11.8 Interest, Royalties and
Contract Cannot Be Dividends 354
Estimated Reliably 307 11.8.1 Interest 355
10.6 Recognition of Expected 11.8.2 Dividends 356
Losses 309 11.8.3 Licence Fees and
10.7 Changes in Estimates 309 Royalties 356
10.8 Disclosure 309 11.8.4 Collectibility of Amount
10.9 Summary 313 Recognised 357
PART III ELEMENTS OF FINANCIAL STATEMENTS – 11.9 Disclosure 357
LIABILITIES, EQUITY, INCOME AND EXPENSES 11.10 Summary 357
11 Revenue 325 12 Employee Benefits 366
11.1 Applicable Standard and 12.1 Applicable Standard and
Scope 326 Scope 367
11.2 What Is Revenue? 328 12.2 Short-term Employee
11.3 Measurement of Revenue 329 Benefits 368
11.4 Identification of Transactions 331 12.2.1 Recognition and
11.5 Sale of Goods 332 Measurement 369
11.5.1 Entity Retains 12.2.2 Disclosure 372
Significant Risks of 12.3 Termination Benefits 372
Ownership 334 12.3.1 Recognition and
11.5.2 Entity Retains Only Measurement 372
Insignificant Risks of 12.3.2 Disclosure 373
Ownership 337 12.4 Post-employment Benefits 374
ix
Contents
12.4.1 Distinction between 13.5 Recognition of Deferred Tax
Defined Contribution Liabilities 435
Plans and Defined Benefit 13.5.1 Goodwill Exception 436
Plans 374 13.5.2 Initial Recognition
12.4.2 Defined Contribution Exception 438
Plans 377 13.5.3 Investment Exception
12.4.3 Defined Benefit on Deferred Tax
Plans 378 Liability 441
12.5 Other Long-term Employee 13.6 Recognition of Deferred Tax
Benefits 409 Assets 442
12.6 Summary 409 13.6.1 Probable Criterion 443
13.6.2 Initial Recognition
13 Income Taxes 419 Exception 445
13.1 Applicable Standard and 13.6.3 Investment Exception
Scope 421 on Deferred Tax
13.2 Recognition and Measurement of Asset 445
Current Tax Liabilities and Current 13.6.4 Reassessment of
Tax Assets 421 Unrecognised Deferred
13.2.1 Recognition of Tax Assets 445
Current Tax Liabilities 13.7 Measurement of Deferred Tax
and Current Tax Liabilities and Deferred Tax
Assets 421 Assets 446
13.2.2 Measurement of Current 13.7.1 Appropriate Tax
Tax Liabilities and Rates 446
Current Tax Assets 422 13.7.2 Discounting
13.3 Balance Sheet Liability Method Prohibited 449
and Tax Base 422 13.7.3 Review of Deferred Tax
13.3.1 Balance Sheet Liability Assets Recognised 450
Method 423 13.8 Recognition of Current and
13.3.2 Tax Base 425 Deferred Tax 450
13.4 Temporary Differences 428 13.8.1 Effect in the Income
13.4.1 Rationale Behind Statement 451
Temporary 13.8.2 Items Credited or
Differences 429 Charged Directly to
13.4.2 Relationship of Tax Equity 452
Base and Temporary 13.8.3 Deferred Tax Arising
Differences 430 from a Business
13.4.3 Circumstances Resulting Combination 454
in Taxable Temporary 13.9 Presentation 455
Differences 432 13.9.1 Offset 455
13.4.4 Circumstances Resulting 13.9.2 Tax Expense (Income)
in Deductible Temporary Related to Profit or
Differences 433 Loss from Ordinary
13.4.5 Temporary Differences Activities 455
and Deferred Tax 13.10 Disclosures 456
Liabilities/Assets 433 13.11 Summary 458
x
Contents
14 Provisions and Contingencies 463 15.2.1 Definition of Financial
14.1 Applicable Standard and Asset 497
Scope 465 15.2.2 Definition of Financial
14.2 Provisions and Other Liability 498
Liabilities 467 15.2.3 Definition of Equity
14.3 Recognition of Provisions 467 Instrument 500
14.3.1 Present Obligation 467 15.2.4 Definition of
14.3.2 Past Events 468 Derivative 501
14.3.3 Probable Outflow of 15.3 Initial Recognition of
Resources Embodying Financial Assets and Financial
Economic Benefits 469 Liabilites 503
14.3.4 Reliable Estimate of the 15.3.1 Initial Recognition at
Obligation 470 Trade Date 503
14.4 Contingent Liabilities 470 15.3.2 Regular Way Purchase
14.5 Contingent Assets 471 or Sale of Financial
14.6 Measurement 472 Asset 504
14.6.1 Best Estimates 472 15.4 Initial Measurement of
14.6.2 Risks and Financial Assets and Financial
Uncertainties 474 Liabilities 505
14.6.3 Present Value 474 15.4.1 Fair Value on Initial
14.6.4 Future Events 475 Recognition 505
14.6.5 Expected Disposal of 15.5 Compound Financial Instruments
Assets 476 and Embedded Derivatives 508
14.7 Reimbursements 476 15.5.1 Compound Financial
14.8 Changes in Provisions 477 Instruments under
14.9 Use of Provisions 478 IAS 32 508
14.10 Application of the Recognition and 15.5.2 Embedded Derivative
Measurement Rules 478 under IAS 39 510
14.10.1 Future Operating 15.6 Summary 514
Losses 478
14.10.2 Onerous Contracts 478 16 Financial Assets 518
14.10.3 Restructuring 479 16.1 Subsequent Measurement of
14.11 Disclosure 482 Financial Assets 519
14.12 Summary 484 16.2 Categories of Financial Assets 520
16.2.1 Investments in Equity
PART IV FINANCIAL INSTRUMENTS
Instruments without Fair
15 Financial Instruments – An Value 522
Introduction 493 16.2.2 Financial Assets at Fair
15.1 Applicable Standard and Value through Profit or
Scope 494 Loss 525
15.1.1 Loan Commitments 16.2.3 Available-for-sale
within IAS 39 496 Financial Assets 534
15.1.2 Contracts to Buy or Sell 16.2.4 Loans and
Non-financial Items 496 Receivables 536
15.2 Meaning of Financial 16.2.5 Held-to-maturity
Instruments 497 Investments 545