ifrs pocket book

For private circulation only

CONTENTS

Preface .....................................................................1

FAQs .....................................................................4

Section

1 DefinitionofSmallandMedium-sized Entities ........................................................9

2 ConceptsandPervasivePrinciples...........10

3 FinancialStatementPresentation .............13

4 StatementofFinancialPosition(SFP) ......15

5 StatementofComprehensiveIncome andIncomeStatement ..............................16

6 StatementofChangesinEquity andStatementofIncomeand RetainedEarnings.....................................18

7 StatementofCashFlows ..........................18

8 NotestotheFinancialStatements ............19

9 ConsolidatedandSeparateFinancial Statements ................................................20

10 AccountingPolicies,Estimates andErrors ..................................................22

11 BasicFinancialInstruments .......................23

12 OtherFinancialInstrumentsIssues...........27

13 Inventories..................................................28

14 InvestmentsinAssociates ..........................29

Section 15 InvestmentsinJointVentures ....................30

16 InvestmentProperty ...................................31

17 Property,PlantandEquipment ..................31

18 IntangibleAssetsotherthanGoodwill ........33

19 BusinessCombinationsandGoodwill ........34

20 Leases........................................................35

21 ProvisionsandContingencies ....................39

22 LiabilitiesandEquity ..................................41

23 Revenue .....................................................44

24 GovernmentGrants....................................46

25 BorrowingCosts .........................................47

26 Share-basedPayment ...............................47

27 ImpairmentofAssets..................................49

28 EmployeeBenefits .....................................50

29 IncomeTax .................................................52

30 ForeignCurrencyTranslation .....................53

31 Hyperinflation .............................................55

32 EventsaftertheEndoftheReporting Period .........................................................57

33 RelatedPartyDisclosures ..........................57

34 SpecialisedActivities ..................................58

35 TransitiontotheIFRSforSMEs ................60

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PocketBookonIFRSforSMEs

PREFACE

This pocket book is prepared by Jitendra CharteredAccountants, a Division of Jitendra Consulting Groupand Member of JCA International for simple and firsthandunderstandingof InternationalFinancialReportingStandard (IFRS) for Small and Medium sized Entities(SMEs);issuedbytheInternationalAccountingStandardBoard(IASB)inJuly2009.

This standard represents the first set of internationalaccountingrequirementsdevelopedspecificallyforSMEs.AspertheIASB,morethan95%ofallbusinessentitiesfromacrosstheglobefallundertheSMEcategory.

IFRS for SMEs is a unique and stand-alone standard.ThoughithasbeenpreparedonthesamelinesasafullsetofInternationalFinancialReportingStandards(IFRS)& International Accounting Standards (IAS), it is stillseparate&independentfromthedetailedIFRS.

IFRS for SMEs help to simplify and offer cost benefitconsiderations that reflect the needs of users of thefinancialstatementspreparedbySMEs.Itissuitableforall entities, except those whose securities are publiclytraded or financial institutions such as banks andinsurancecompanies.Whencomparedto thefull IFRS,itofferssimplificationinthefollowingways:

1. Topics not relevant to SMEs have been omittedcompletely.

2.While the full IFRSallowsaccountingpolicychoices,theIFRSforSMEsonlyallowssimpleoptions.

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3.Manyoftheprinciplesusedtoidentify,recognizeandmeasure assets, liabilities, income and expenses inthefullIFRShavebeensimplified.

4.Thedisclosurerequirementformanyitemshaveeitherbeensimplifiedorreducedsignificantly.

5. To further reduce the reporting burden for SMEs,revisionstotheIFRSforSMEshavebeenlimitedtoonceeverythreeyears.

Moreimportantly,thestandardhasbeenwritteninasimple,clear & easily comprehensible manner. The 230-pagestandardisaresultofextensiveresearchanddevelopmentbyIASBalongwithconsultationofSMEsfromtheworldover. The IFRS for SMEs has been categorized basedon the topics, with each topic presented in a separatesection.All the paragraphs of the standard have equalauthority. The standard is accompanied by a guidancenote that consists of illustrative financial statements aswellasapresentationanddisclosurechecklist.

TheIFRSforSMEscanbeadoptedbyanyjurisdictionintheworld,irrespectiveofthefactwhetherithadpreviouslyadopted the full IFRSornot. It isup toeachcountry todeterminethecriterionforthetypeofentitiesthatwouldusethisstandard.

Thestandardissuitableforfinancialstatementspreparedforgeneraluseaswellasotherfinancialreportsofprofit-oriented small and medium sized entities. Financialstatementspreparedforgeneralusecatertothecommonfinancialinformationneedsofawiderangeofuserssuchas government agencies, tax authorities, regulators,

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owners,minorityshareholders,creditors,banks&financialinstitutions,employees,etc.

Herein, is our endeavor to give a gist of the newlyestablished IFRS for SMEs in a simple yet interestingmannerforreaderstogetaclearunderstandingaswellasabird’seyeviewofthecompletedocument.However,forpracticalimplementation,useofthecompletestandardalongwiththeguidancenoteandotherrelevantmaterialisadvisable.

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FAQs

♦ WhatareIFRS? International Financial Reporting Standards (IFRS)

areasetofaccountingstandardsdevelopedby theInternationalAccountingStandardsBoard(IASB)thatisbecomingtheglobalstandardforthepreparationofpubliccompanyfinancialstatements.

♦ WhatisIASB? The IASB is an independent accounting standard-

setting body, based in London. It consists of 15members from nine countries. The IASB beganoperationsin2001whenitsucceededtheInternationalAccountingStandardsCommittee(IASC).Itisfundedbycontributionsfrommajoraccountingfirms,privatefinancialinstitutionsandindustrialcompanies,centraland development banks, national funding regimes,andotherinternationalandprofessionalorganizationsthroughouttheworld.

♦ WhatisInternationalFinancialReportingStandardfor Small- andMedium-Sized Entities (“IFRS forSMEs”)?

IFRS for SMEs is a modification and simplificationof full IFRSaimedatmeeting theneedsofusersofprivate company financial reports and easing thefinancial reporting burden on private companiesthrough a cost-benefit approach. IFRS for SMEsis a self-contained global accounting and financialreportingstandardapplicabletothegeneral-purposefinancial statementsof,andotherfinancial reportingby,entitiesthatinmanycountriesareknownassmall-

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and medium-sized entities. Full IFRS and IFRS forSMEsarepromulgatedbytheInternationalAccountingStandardsBoard(“IASB”).

♦ Whatismeantbysmall-andmedium-sizedentities(“SMEs”)?

IFRSforSMEsisintendedtobeusedbySMEs,whichare entities that publish general purpose financialstatementsforexternalusersbutdonothavepublicaccountability. An entity has public accountabilityundertheIASB’sdefinitionifitfiles,orisintheprocessof filing, its financial statements with a securitiescommission or other regulatory organization for thepurposeofissuinganyclassofinstrumentsinapublicmarket;oritholdsassetsinafiduciarycapacityforabroadgroupofoutsiders.Examplesofentitiesthatholdassetsinafiduciarycapacityincludebanks,insurancecompanies,brokersanddealersinsecurities,pensionfundsandmutualfunds.ItisnottheIASB’sintentiontoexcludeentitiesthatholdassetsinafiduciarycapacityfor reasons incidental to their primary business (forexample, travel agents, schools and utilities) fromutilizingIFRSforSMEs.DefinitionofSMEsdifferfromcountry to country.

Practically speaking, IFRS for SMEs is viewed asan accounting framework for entities neither havingthesizenor the resources touse full IFRS.Today intheworldmorethan95%ofbusinessentitiescomesunderthiscategoryofSMEs.

♦ WhathastheInternationalAccountingStandardsBoardaccomplishedbyissuingIFRSforSMEs?

The types and needs of users of SME financial

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statementsareoftendifferentfromthetypesandneedsofusersofpubliccompanyfinancialstatementsandotherentitiesthatwouldlikelyusefullIFRS.FullIFRSweredesignedtomeettheneedsofequityinvestorsincompanies inpubliccapitalmarkets.Usersof thefinancial statements of SMEs don’t generally havethose same needs. Rather, users of the financialstatementsofSMEsaremorefocusedonshorter-termcashflows, liquidity,balancesheetstrength, interestcoverageandsolvencyissues.Also,fullIFRSimposeaburdenonSMEpreparersinthatfullIFRScontainstopics and detailed implementation guidance thatgenerallyarenotrelevanttoSMEs.Thisburdenhasbeengrowingas IFRShavebecomemoredetailed.Assuch,asignificantneedexistedforanaccountingandfinancialreportingstandardforSMEsthatwouldmeet the needs of their financial statement userswhilebalancingthecostsandbenefitsfromapreparerperspective. IFRS for SMEs was designed to meetthatneed.WiththeissuanceofIFRSforSMEs,manySMEsaroundtheworld,includingprivatecompanieswillhavetheoptionofusingamuchsimplified,IFRS-basedaccountingframeworktopreparetheirfinancialstatements.

♦ WhatdoesonedowhenanentityhasatransactionnotaddressedinIFRSforSMEs?

If IFRS for SMEs does not specifically address atransaction, other event or condition, an entity’smanagement shall use its judgment in developingand applying an accounting policy that results ininformationthatis:

(a)Relevant to theeconomicdecision-makingneedsof

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users,and

(b)Reliable,inthatthefinancialstatements;(i) Representfaithfullythefinancialposition,financial

performanceandcashflowsoftheentity.(ii) Reflecttheeconomicsubstanceoftransactions,

othereventsandconditions,andnotmerelythelegalform.

(iii) Areneutral(inotherwords,freefrombias).(iv) Areprudent;and(v) Arecompleteinallmaterialrespects.

Inmaking the judgmentdescribedabove,managementshould refer to, and consider the applicability of, thefollowingsourcesindescendingorder:

(a)The requirements and guidance in IFRS for SMEsdealingwithsimilarandrelatedissues,and

(b)Thedefinitions,recognitioncriteriaandmeasurementconceptsforassets,liabilities,incomeandexpensesandthepervasiveprinciplesin

♦ Inmakingthejudgmentdescribedabove,managementmayalsoconsidertherequirementsandguidanceinfullIFRSdealingwithsimilarandrelatedissues.

♦ Howwidespread is theadoptionof IFRSaroundtheworld?

Approximately 120 nations permit or require IFRSfor domestic listed companies, including listedcompanies in theEuropeanUnion.Other countries,includingCanadaandIndia,areexpectedtotransitiontoIFRSby2014.MexicoplanstoadoptIFRSforalllistedcompaniesstartingin2012.Someestimatethat

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thenumberofcountriesrequiringoracceptingIFRScouldgrow to150 in thenext fewyears.Japanhasintroducedaroadmapforadoptionthat itwilldecideonin2012(withadoptionplannedfor2016).Stillothercountrieshaveplanstoconverge(eliminatesignificantdifferences) between their national AccountingStandardsorGAAP(GenerallyAcceptedAccountingPrinciples)withIFRS.

♦ WhataretheadvantagesofconvertingtoIFRSforSMEs?

ByadoptingIFRS,abusinesscanpresentitsfinancialstatementsonthesamebasisasitsforeigncompetitors,makingcomparisonseasier.Furthermore,companieswith subsidiaries in countries that require or permitIFRSmay be able to use one accounting languagecompany-wide.CompaniesalsomayneedtoconverttoIFRSiftheyareasubsidiaryofaforeigncompanythatmustuseIFRS,oriftheyhaveaforeigninvestorthatmustuseIFRS.CompaniesmayalsobenefitbyusingIFRSiftheywishtoraisecapitalabroad.

♦ Whatisthedifferencebetweenconvergenceandadoption?

Adoption wouldmean that sets a specific timetablewhencompanieswouldbe required touse IFRSasissuedbytheIASB.ConvergencemeansthatGAAPof that country would continue working together todevelophighquality,compatibleaccountingstandardsover time. More convergence will make adoptioneasierandlesscostlyandmayevenmakeadoptionofIFRSunnecessary.Supportersofadoption,however,believethatconvergencealonewillnevereliminateallofthedifferencesbetweenthetwosetsofstandards.

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SECTION1DefinitionofSmallandMedium-sizedEntities

Smallandmedium-sizedentitiesareentitiesthat:

(a) Donothavepublicaccountability,and(still).

(b) Publish general purpose financial statements forexternal users.Examples of external users includeownerswhoarenotinvolvedinmanagingthebusiness,existing and potential creditors, banks & financersandcreditratingagencies.Generalpurposefinancialstatements are those that present fairly financialpositionasonparticulardate,operatingresultsforaperiodendingonthatdate,cashflowsandnotesonfinancialstatementsincludingaccountingpoliciesforthatperiod.

Anentityhaspublicaccountabilityif:

(a) Its debt or equity instruments are traded in apublicmarketor it is intheprocessof issuingsuchinstrumentsfortradinginapublicmarket(adomesticor foreign stock exchange or an over-the-countermarket,includinglocalandregionalmarkets),or

(b) It holds assets in a fiduciary capacity for a broadgroupofoutsidersasoneofitsprimarybusinesses.This is typically the case for banks, credit unions,insurance companies, securities brokers/dealers,mutualfundsandinvestmentbanks.

If an entity holds assets in a fiduciary capacityas an incidental part of its business, that does not

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makeitpubliclyaccountable.Entitiesthatfallintothiscategorymayincludepublicutilities, travelandrealestateagents,schools,andcharities.

♦ The standard does not contain a limit on thesize of an entity that may use the IFRS forSMEs provided that it does not have publicaccountability.

♦ Nor is therea restrictionon itsusebyapublicutility,not-for-profitentity,orpublicsectorentity.

♦ A subsidiary whose parent or group uses fullIFRSsmayusetheIFRSforSMEsifthesubsidiaryitselfdoesnothavepublicaccountability.

♦ The standard does not require any specialapprovalby theownersofanSME for it tobeeligibletousetheIFRSforSME.

♦ Companies;nomatterhowsmall;whosestocksorsecuritiesarepubliclytraded,cannotusetheIFRSforSMEs.

SECTION2ConceptsandPervasivePrinciples

♦ This section includes pervasive (universallyapplicable) recognition and measurementprinciples.ItisasourceofguidanceifaspecificissueisnotaddressedintheIFRSforSMEs.

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ObjectiveoffinancialstatementsofSMEs: ♦ Toprovideinformationaboutfinancialposition,

operationalperformanceandcashflows.

♦ Also shows results of stewardship ofmanagementoverresources.

♦ Qualitative characteristics required are easyunderstanding,relevance,materiality,reliability,substanceoverform,prudence,completeness,comparability,timelinessandbalancebetweenbenefitandcost.

Definitions:

♦ Asset:Resourcewithfutureeconomicbenefits.

♦ Liability: Present obligation arising from pastevents.

♦ Income: Inflows of resources (other thanowner’s)thatincreaseequity.

♦ Expenses: Outflows of resources (other thanowner’swithdrawals)thatdecreaseequity.

♦ Financial position: the relationship of assetsandliabilitiesataspecificdate.

♦ Performance: the relationship of income andexpensesduringareportingperiod.

♦ Total comprehensive income: differencebetweenincomeandexpenses.

♦ Profit or loss: difference between incomeandexpenses other than those items of incomeor expense that are classified as 'othercomprehensiveincome'.

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Thereareonly3 itemsofothercomprehensive income(OCI)intheIFRSforSMEs:

♦ Foreign exchange gains and losses relatingtoanetinvestmentinaforeignoperation(seeSection30).

♦ Changes in fairvaluesofhedging instruments(hedgeaccountingisoptionalforSMEs).

♦ Some actuarial gains and losses (reportingactuarialgainsandlossesinOCIisoptional).

Basicrecognitionconcept

An item that meets the definition of an asset, liability,income or expense is recognised in the financialstatementsif:

♦ It is probable that future benefits associatedwiththeitemwillflowtoorfromtheentity,and

♦ The item has a cost or value that can bemeasuredreliably.

Basicmeasurementconcepts

• Historicalcostandfairvaluearedescribed• Basic financial assets and liabilities are

generallymeasuredatamortisedcost.• Other financial assets and liabilities are

generally measured at fair value throughprofitorloss.

• Non-financial assets are generallymeasuredusingacost-basedmeasure

• Non-financial liabilities are generallymeasuredatsettlementamount.

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• Offsetting of assets and liabilities or ofincomeandexpensesisprohibitedunlessexpresslyrequiredorpermitted.

SECTION3FinancialStatementPresentation

♦ Fairpresentation:presumedtoresultiftheIFRSforSMEsisfollowed.Theremaybeaneedforsupplementaldisclosures.

♦ StatecompliancewithIFRSforSMEsonlyifthefinancialstatementscomplyintotality.

♦ IFRSforSMEspresumesthereportingentityisagoingconcern.

♦ SMEsshallpresentacompletesetoffinancialstatementsatleastannually.

♦ Comparativeprior period financial figuresandnotesshouldbeincluded.

♦ Presentationandclassificationofitemsshouldbeconsistentfrompreviousperiodtothenext.

♦ Must justify and disclose any change inpresentationorclassificationofitemsinfinancialstatements.

♦ Materiality: an omission or misstatement ismaterialifitcouldinfluenceeconomicconditionofcompletesetoffinancialstatements:• Statementoffinancialposition.• Eitherasinglestatementofcomprehensive

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income, or two statements: an incomestatementandastatementofcomprehen-siveincome.

• Statementofchangesinequity.• Statementofcashflows.• Notes.

♦ Iftheonlychangestoequityarisefromprofitorloss,paymentofdividends,correctionsoferrors,and changes in accounting policy, an entitymaypresentasingle(combined)statementofincome and retained earnings instead of theseparatestatementsofcomprehensiveincomeandofchangesinequity(seeSection6).

♦ Anentitymaypresentonlyanincomestatement(no statement of comprehensive income) if ithas no items of other comprehensive income(OCI).

♦ TheonlyOCI itemsunder the IFRSforSMEsare:• Some foreignexchangegainsand losses

relating to a net investment in a foreignoperation(seeSection30).

• Some changes in fair values of hedginginstruments – in a hedge of variableinterest rate riskofa recognisedfinancialinstrument, foreign exchange risk orcommoditypriceriskinafirmcommitmentorhighlyprobableforecast transaction,oranetinvestmentinaforeignoperation(seeSection12).

• Some actuarial gains and losses (seeSection28).

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SECTION4StatementofFinancialPosition(SFP)

♦ SFPcanbecalled'balancesheet'.

♦ Current/non-current split is not required ifthe entity concludes that a liquidity approachproducesmorerelevantinformation.

♦ Some minimum line items required. Theseinclude:• Cashandequivalents.• Receivables.• Financialassets.• Inventories.• Property,plant,andequipment.• Investmentpropertyatfairvalue.• Intangibleassets.• Biologicalassetsatcost.• Biologicalassetsatfairvalue.• Investmentinassociates.• Investmentinjointventures.• Payables.• Financialliabilities.• Currenttaxassetsandliabilities.• Deferredtaxassetsandliabilities.• Provisions.• Non-controllinginterest.• Equityofownersofparent.

♦ Andsomerequireditemsmaybepresentedinthestatementorinthenotes.• Categoriesofproperty,plant,andequipment.

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• Info about assets with binding saleagreements.

• Categoriesofreceivables.• Categoriesofinventories.• Categoriesofpayables.• Employeebenefitobligations.• Classes of equity, including OCI and

reserves.• Detailsaboutsharecapital.

♦ Sequencing, format, and titles are notmandated.

SECTION5StatementofComprehensiveIncome

andIncomeStatement

♦ One-statement or two-statement approach– either a single statement of comprehensiveincome,ortwostatements:anincomestatementandastatementofcomprehensiveincome.

♦ Mustsegregatediscontinuedoperations.

♦ Mustpresent'profitorloss'subtotaliftheentityhasanyitemsofothercomprehensiveincome.

♦ Bottom line ('profit or loss' in the incomestatement and 'total comprehensive income'in the statement of comprehensive income)is before allocating those amounts to non-controllinginterestandownersoftheparent.

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♦ Noitemmaybelabelled'extraordinary'.

• But unusual items can be separatelypresented.

• Expenses may be presented by nature(depreciation, purchases of materials,transportcosts,employeebenefits,etc.)orbyfunction(costofsales,distributioncosts,administrativecosts,etc.)eitheronfaceofthe statement of comprehensive income(orincomestatement)orinthenotes.

Singlestatementofcomprehensiveincome:

♦ Revenue.

♦ Expenses,showingseparately:• Financecosts.• Profit or loss from associates and jointly

controlledentities.• Taxexpense.• Discontinuedoperations.

♦ Profitorloss(mayomitifnoOCI).

♦ Itemsofothercomprehensiveincome.

♦ Totalcomprehensiveincome(mayuseProfitorLossifnoOCI).

Separatestatementsofincomeandcomprehensiveincome:

IncomeStatement:

♦ Bottomlineisprofitorloss(asabove)

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StatementofComprehensiveIncome:

♦ Beginswithprofitorloss.

♦ Shows each item of other comprehensiveincome.

♦ BottomlineisTotalComprehensiveIncome.

SECTION6StatementofChangesinEquityandStatement

ofIncomeandRetainedEarnings

♦ Showsallchangestoequityincluding.• Totalcomprehensiveincome.• Owners’investments.• Dividends.• Owners’withdrawalsofcapital.• Treasurysharetransactions.

♦ Canomitthestatementofchangesinequityiftheentityhasnoownerinvestmentsorwithdrawalsother than dividends and elects to present acombinedstatementofcomprehensiveincomeandretainedearnings.

SECTION7StatementofCashFlows

♦ Presentsinformationaboutanentity'schangesincashandcashequivalentsforaperiod.

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• Cash equivalents are short-term, highlyliquid investments (expected to beconvertedtocashinthreemonths)heldtomeetshort-termcashneedsratherthanforinvestmentorotherpurposes.

♦ Cashflowsareclassifiedasoperating,investing,andfinancingcashflows.

♦ Optiontousetheindirectmethodorthedirectmethodtopresentoperatingcashflows.

♦ Interestpaidandinterestanddividendsreceivedmaybeoperating,investing,orfinancing.

♦ Dividendspaidmaybeoperatingorinvesting.

♦ Income tax cash flows are operating unlessspecificallyidentifiedwithinvestingorfinancingactivities.

♦ Separate disclosure is required of some non-cash investing and financing transactions (forexample, acquisition of assets by issue ofdebt).

♦ Reconciliationofcomponentsofcash.

SECTION8NotestotheFinancialStatements

♦ Notesarenormallyinthissequence:• Basisofpreparation(i.e.IFRSforSMEs).• Summaryofsignificantaccountingpolicies,

including.

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- Informationaboutjudgements.- Information about key sources of

estimationuncertainty.• Supportinginformationforitemsinfinancial

statements.• Otherdisclosures.

♦ Comparativepriorperiodamountsarerequiredby Section 3 (unless another section allowsomissionofpriorperiodamounts).

SECTION9ConsolidatedandSeparateFinancialStatements

♦ Consolidatedfinancialstatementsarerequiredwhenaparentcompanycontrolsanotherentity(asubsidiary).

♦ Control:Powertogovernfinancialandoperatingpoliciestoobtainbenefits.

♦ More than 50% of voting power: controlpresumed.

♦ Control exists when entity owns less than50% but has power to govern by agreementor statute,orpower toappointmajorityof theboard, or power to cast majority of votes atboardmeetings.

♦ Controlcanbeachievedbycurrentlyexercisableoptions that, if exercised, would result incontrol.

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♦ Asubsidiaryisnotexcludedfromconsolidationbecause:

• Investorisaventurecapitalorganisation.• Subsidiary’s business activities are

dissimilar to those of parent or othersubsidiaries.

• Subsidiary operates in a jurisdiction thatimposes restrictions on transferring cashorotherassetsoutofthejurisdiction.

♦ However, consolidated financial statementsare not required, even if a parent-subsidiaryrelationshipexistsif:• Subsidiary was acquired with intent to

disposewithinoneyear.• Parent itself isasubsidiaryanditsparent

orultimateparentusesIFRSsorIFRSforSMEs.

♦ Mustconsolidateallcontrolledspecial-purposeentities(SPEs).

♦ Consolidationprocedures:• Eliminate intra-company transactions and

balances.• Uniform reporting date unless

impracticable.• Uniformaccountingpolicies.• Non-controlling interest is presented as

partofequity.• Lossesareallocatedtoasubsidiaryevenif

non-controllinginterestgoesnegative.

♦ Guidanceonseparatefinancialstatements(buttheyarenotcompulsory).

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• Inaparent’sseparatefinancialstatements,itmayaccountforsubsidiaries,associates,and joint ventures that are not held forsaleatcostorfairvaluethroughprofitandloss.

♦ Guidance on combined financial statements(buttheyarenotrequired).

♦ If investor loses control but continues to holdsomeinvestment:

• If the subsidiary becomes an associate,followSection14.

• Ifthesubsidiarybecomesajointlycontrolledentity,followSection15.

• Ifinvestmentdoesnotqualifyasanassociateorjointlycontrolledentity,treatitasafinancialassetunderSections11and12.

SECTION10AccountingPolicies,EstimatesandErrors

♦ If the IFRSforSMEsaddressesan issue, theentitymustfollowtheIFRSforSMEs.

♦ IftheIFRSforSMEsdoesnotaddressanissue:

• Choose policy that results in the mostrelevantandreliableinformation.

• TrytoanalogisefromstandardsintheIFRSforSMEs.

• Or use the concepts and pervasiveprinciplesinSection2.

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• Entitymay look to guidance in full IFRSs(butnotrequired).

♦ Changeinaccountingpolicy:• Ifmandated,followthetransitionguidance

asmandated.• Ifvoluntary,retrospective.

♦ Changeinaccountingestimate:prospective.

♦ Correction of prior period error: restate priorperiodsifpracticable.

SECTION11BasicFinancialInstruments

♦ IFRS for SMEs has two sections on financialinstruments:• Section11onBasicFinancialInstruments.• Section12onOtherFITransactions.

♦ Option to followIAS39 insteadofsections11and12.

♦ EvenifIAS39isfollowed,makeSection11and12disclosures(notIFRS7disclosures).

♦ Essentially,Section11isanamortisedhistoricalcostmodel.• Exceptforequityinvestmentswithquoted

price or readily determinable fair value.Thesearemeasuredatfairvaluethroughprofitorloss.

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♦ ScopeofSection11includes:• Cash.• Demandandfixeddeposits.• Commercialpaperandbills.• Accounts and notes receivable and

payable.• Debt instruments where returns to the

holder are fixed or referenced to anobservablerate.

• Investments in non-convertible and non-puttableordinaryandpreferenceshares.

• Mostcommitmentstoreceivealoan.

♦ Initialmeasurement:• Basic financial assets and financial

liabilities are initially measured at thetransaction price (including transactioncosts except in the initial measurementof financial assets and liabilities that aremeasured at fair value through profit orloss) unless the arrangement constitutes,in effect, a financing transaction. Afinancing transactionmay be indicated inrelation to the sale of goods or services,forexample,ifpaymentisdeferredbeyondnormalbusinesstermsor isfinancedatarateofinterestthatisnotamarketrate.Ifthe arrangement constitutes a financingtransaction, measure the financial assetor financial liability at the present valueof the future payments discounted at amarket rate of interest for a similar debtinstrument.

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• Measurementsubsequent to initial recogni-tion.

• Debt instruments at amortised cost usingtheeffectiveinterestmethod.

• Debt instruments that are classified ascurrent assets or current liabilities aremeasuredat theundiscountedamount ofthecashorotherconsiderationexpectedtobepaidorreceived(i.e.netofimpairment)unlessthearrangementconstitutes,ineffect,afinancingtransaction.Ifthearrangementconstitutes a financing transaction, theentityshallmeasurethedebtinstrumentatthe present value of the future paymentsdiscountedatamarketrateofinterestforasimilardebtinstrument.

• Investmentsinnon-convertiblepreferenceshares and non-puttable ordinary orpreferenceshares:- Ifthesharesarepubliclytradedortheir

fair value canotherwisebemeasuredreliably, measure at fair value withchanges in fair value recognised inprofitorloss.

- Measureallothersuchinvestmentsatcostlessimpairment.

♦ Must test all amortised cost instruments forimpairmentoruncollectibility.

♦ Previously recognised impairment is reversedifaneventoccurringaftertheimpairmentwasfirstrecognisedcausestheoriginalimpairmentlosstodecrease.

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♦ Guidanceisprovidedondeterminingfairvaluesoffinancialinstruments.• Themost reliable is a quotedprice in an

activemarket.• When a quoted price is not available the

most recent transaction price providesevidenceoffairvalue.

• Ifthereisnoactivemarketorrecentmarkettransactions,avaluationtechniquemaybeused.

♦ Guidance is provided on the effective interestmethod.

♦ Derecogniseafinancialassetwhen:• Thecontractualrightstothecashflowsfrom

thefinancialassetexpireoraresettled.• Theentitytransferstoanotherpartyallof

thesignificantrisksandrewardsrelatingtothefinancialasset;or

• The entity, despite having retained somesignificantrisksandrewardsrelatingtothefinancialasset,hastransferredtheabilitytoselltheassetinitsentiretytoanunrelatedthirdpartywhoisabletoexercisethatabilityunilaterallyandwithoutneedingtoimposeadditionalrestrictionsonthetransfer.

♦ Derecognise a financial liability when theobligationisdischarged,cancelled,orexpires.

♦ Disclosures:• Categoriesoffinancialinstruments.• Detailsofdebtandotherinstruments.

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• DetailsofDerecognition.• Collateral.• Defaultsandbreachesonloanspayable.• Itemsofincomeandexpense.

SECTION12OtherFinancialInstrumentsIssues

♦ Financial instruments not covered by Section11 (and, therefore, arewithin Section 12) aremeasured at fair value through profit or loss.Thisincludes:

• Investments in convertible and puttableordinaryandpreferenceshares.

• Options, forwards, swaps, and otherderivatives.

• FinancialassetsthatwouldotherwisebeinSection11butthathave‘exotic’provisionsthatcouldcausegain/losstotheholderorissuer.

♦ Hedgeaccountinginvolvesmatchingthegainsandlossesonahedginginstrumentandhedgeditem.

• Itisallowedonlyforthefollowingkindsofrisks:- Interest rate risk of a debt instrument

measuredatamortisedcost.- Foreignexchangeorinterestrateriskin

afirmcommitmentorahighlyprobableforecasttransaction.

- Priceriskofacommoditythatitholdsor

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inafirmcommitmentorhighlyprobableforecasttransactiontopurchaseorsellacommodity.

- Foreign exchange risk in a netinvestmentinaforeignoperation.

• Section 12 defines the type of hedginginstrumentrequiredforhedgeaccounting.

• Hedgesmust be documented up front toqualifyforhedgeaccounting.

• Section12providesguidanceformeasuringandassessingeffectiveness.

• Specialdisclosuresarerequired.

SECTION13Inventories

♦ Inventoriesincludeassetsforsaleintheordinarycourseofbusiness,beingproducedforsale,ortobeconsumedinproduction.

♦ Measured at the lower of cost or estimatedsellingpricelesscoststocompleteandsell.

♦ Costisdeterminedusing:

• Specific identification is required for largeitems.

• OptiontochooseFIFOorweightedaverageforothers.

• LIFOisnotpermitted.

♦ Inventorycostincludescoststopurchase,costsof conversion,andcosts tobring theasset topresentlocationandcondition.

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♦ Inventory cost excludes abnormal waste andstorage,administrative,andsellingcosts.

♦ If a production process creates joint productsand/orby-products,thecostsareallocatedonaconsistentandrationalbasis.

♦ A manufacturer allocates fixed productionoverheads to inventories based on normalcapacity.

♦ Standard costing, retail method, and mostrecentpurchasepricemaybeusedonlyif theresultapproximatesactualcost.

♦ Impairment–writedowntonetrealisablevalue(selling price less costs to complete and sell–seeSection27).

SECTION14InvestmentsinAssociates

♦ Associates are investments where significantinfluenceexists.Significantinfluenceisdefinedasthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheassociatebutwhere there isneithercontrolnor jointcontroloverthosepolicies.Presumptionthatsignificantinfluenceexistsifinvestorowns20%ormoreofthevotingshares.

♦ Optiontouse:• Cost-impairmentmodel (except if there is

apublishedquotation–thenmustusefair

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valuethroughprofitorloss).• Equity method (investor recognises its

share of profit or loss of the associate–detailedguidanceisprovided).

• Fairvaluethroughprofitorloss.

♦ Investmentsinassociatesarealwaysclassifiedasnon-currentassets.

SECTION15InvestmentsinJointVentures

♦ For investments in jointly controlled entities,thereisanoptionfortheventurertouse:• Costmodel(exceptifthereisapublished

quotation–thenmustusefairvaluethroughprofitorloss).

• Equity method (using the guidance inSection14).

• Fairvaluethroughprofitorloss.

♦ Proportionateconsolidationisprohibited.

♦ For jointly controlled operations, the venturershould recognise assets that it controls andliabilitiesitincursaswellasitsshareofincomeearnedandexpensesthatareincurred.

♦ Forjointlycontrolledassets,theventurershouldrecogniseitsshareoftheassetsandliabilitiesitincursaswellasincomeitearnsandexpensesthatareincurred.

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SECTION16InvestmentProperty

♦ Investment property is investments in land,buildings (or part of buildings), and somepropertyinterestsinfinanceleasesheldtoearnrentalsorforcapitalappreciationorboth.

♦ Property interests that are held under anoperating lease may be classified as aninvestment property provided the propertywouldotherwisehavemet thedefinitionofaninvestmentproperty.

♦ Mixedusepropertymustbeseparatedbetweeninvestmentandoperatingproperty.

♦ If fair value can bemeasured reliablywithoutunduecostoreffort,usethefairvaluethroughprofitorlossmodel.

♦ Otherwise, an entity must treat investmentpropertyasproperty,plantandequipmentusingSection17.

SECTION17Property,PlantandEquipment

♦ Historical cost-depreciation-impairment modelonly.

♦ The revaluation model (as in IAS 16) is notpermitted.

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♦ Section17appliestomostinvestmentpropertyaswell(butiffairvalueofinvestmentpropertycanbemeasuredreliablywithoutunduecostoreffort then the fair valuemodel in Section 16applies).

♦ Section 17 applies to property held for sale–thereisnospecialsectiononassetsheldforsale.Holdingforsaleisanindicatorofpossibleimpairment.

♦ Measurementisinitiallyatcost,includingcoststoget theproperty ready for its intendeduse.Subsequent toacquisition, theentityuses thecost-depreciation-impairment model, whichrecognisesdepreciationandimpairmentofthecarryingamount.

♦ The carrying amount of an asset, lessestimated residual value, is depreciated overtheasset'santicipateduseful life.Themethodof depreciation shall be themethod that bestreflectstheconsumptionoftheasset'sbenefitsover its life. Separate significant componentsshouldbedepreciatedseparately.

♦ Componentdepreciationonly ifmajorpartsofan item of PP&E have 'significantly differentpatternsofconsumptionofeconomicbenefits'.

♦ Review useful life, residual value, anddepreciation rate only if there is a significantchange in the asset or how it is used. Anyadjustment isachange inestimate (prospect-ive).

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♦ Impairment testing and reversal – follow Section27.

SECTION18IntangibleAssetsotherthanGoodwill

♦ Norecognitionofinternallygeneratedintangibleassets.Therefore:

• Chargeallresearchanddevelopmentcoststoexpense.

• Charge the following items to expensewhen incurred: Costs of internallygenerated brands, logos, and masthead,start-up costs, training costs, advertising,andrelocatingofadivisionorentity.

♦ Amortisation model for intangibles that arepurchased separately, acquired in a businesscombination, acquired by grant, and acquiredbyexchangeofotherassets.

♦ Amortiseoverusefullife.Iftheentityisunabletoestimateusefullife,thenuse10years.Reviewusefullife,residualvalue,anddepreciationrateonlyifthereisasignificantchangeintheassetorhowitisused.Anyadjustmentisachangeinestimate(prospective).

♦ Impairmenttesting–followSection27.

♦ Any revaluation of intangible assets isprohibited.

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SECTION19BusinessCombinationsandGoodwill

♦ Section does not apply to combinations ofentitiesundercommoncontrol.

♦ Acquisition (purchase) method. Under thismethod:

• Anacquirermustalwaysbeidentified.• The cost of the business combination is

measured.Costisthefairvalueofassetsgiven, liabilities incurred or assumed,andequity instruments issued,pluscostsdirectlyattributabletothecombination.

• Attheacquisitiondate,thecostisallocatedto the assets acquired and liabilitiesand provisions for contingent liabilitiesassumed.Theidentifiableassetsacquiredandliabilitiesandprovisionsforcontingentliabilities assumed are measured at theirfair values. Any difference between costand amounts allocated to identifiableassetsandliabilities(includingprovisions)is recognised as goodwill or so-called‘negativegoodwill’.

♦ All goodwill must be amortised. If the entityis unable to estimate useful life, then use 10years.

♦ 'Negative goodwill' – first reassess theoriginal accounting. If that is acceptable, thenimmediatelycredittoprofitorloss.

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♦ Impairment testing of goodwill – follow Section27.

♦ Reversal of goodwill impairment is notpermitted.

SECTION20Leases

♦ Scope includes arrangements that contain alease[IFRIC4].

♦ Leasesareclassifiedaseitherfinance leasesoroperatingleases.

• Financeleasesresultinsubstantiallyalltherisksand rewards incidental toownershipbeing transferred between the parties,whileoperatingleasesdonot.

• Substantially all risks and rewards ofownershiparepresumedtransferredif:- The lease transfers ownership of the

asset to the lessee by the end of theleaseterm.

- The lessee has a ‘bargain purchaseoption’.

- Theleasetermisforthemajorpartofthe economic life of the asset even iftitleisnottransferred.

- Attheinceptionoftheleasethepresentvalueof theminimumleasepayments

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amounts toat leastsubstantiallyallofthefairvalueoftheleasedasset.

- The leased assets are of such aspecialised nature that only thelessee can use them without majormodifications.

- The lessee bears the lessor losses ifcancelled.

- A secondary rental period at belowmarketrates.

- Theresidualvalueriskisbornebythelessee.

♦ Lessees–financeleases:• The rights and obligations are to be

recognisedasassetsand liabilitiesat fairvalue,or,iflower,thepresentvalueoftheminimumleasepayments.Anydirectcostsofthelesseeareaddedtotheassetamountrecognised. Subsequently, payments aretobesplit betweenafinancechargeandreductionof the liability.Theassetshouldbedepreciatedeitherovertheusefullifeortheleaseterm.

♦ Lessees–operatingleases:• Payments are to be recognised as an

expenseonthestraight linebasis,unlesspaymentsarestructuredtoincreaseinlinewithexpectedgeneral inflationoranothersystematicbasisisbetterrepresentativeofthetimepatternoftheuser’sbenefit.

♦ Lessor–financeleases:

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• Therightsaretoberecognisedasassetsheld, i.e. as a receivable at an amountequal to the net investment in the lease.Thenetinvestmentinaleaseisthelessor’sgross investment in the lease (includingunguaranteed residual value) discountedattheinterestrateimplicitinthelease.

• For finance leases other than thoseinvolving manufacturer or dealer lessor,initial direct costs are included in theinitial measurement of the finance leasereceivable and reduce the amount ofincomerecognisedovertheleaseterm.

• If thereisanindicationthattheestimatedunguaranteed residual value used incomputing the lessor’s gross investmentintheleasehaschangedsignificantly,theincome allocation over the lease term isrevised, and any reduction in respect ofamountsaccruedisrecognisedimmediatelyinprofitorloss.

♦ Lessor–finance leasesbyamanufacturerordealer:• A finance lease of an asset by a

manufacturerordealerlessorgivesrisetotwotypesofincome:- Profit or loss equivalent to the profit

or loss resulting froman outright saleof the asset being leased, at normalsellingprices,reflectinganyapplicablevolumeortradediscounts;and

- Financeincomeovertheleaseterm.

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• The sales revenue recognised at thecommencement of the lease term by amanufacturer or dealer lessor is the fairvalueoftheassetor, if lower,thepresentvalue of the minimum lease paymentsaccruing to the lessor, computed at amarketrateofinterest.

• The cost of sale recognised at thecommencement of the lease term is thecost,orcarryingamountifdifferent,oftheleased property less the present valueof the unguaranteed residual value. Thedifferencebetweenthesalesrevenueandthecostofsaleisthesellingprofit,whichisrecognisedinaccordancewiththeentity’spolicyforoutrightsales.

• Ifartificiallylowratesofinterestarequoted,sellingprofitshallberestrictedtothatwhichwouldapplyifamarketrateofinterestwerecharged.Costsincurredbymanufacturerordealerlessorinconnectionwithnegotiatingandarrangingaleaseshallberecognisedas an expense when the selling profit isrecognised.

♦ Lessor–operatingleases:• Lessor retain the assets on their balance

sheetandpaymentsaretoberecognisedasincomeonthestraightlinebasis,unlesspaymentsarestructuredtoincreaseinlinewithexpectedgeneral inflationoranothersystematicbasisisbetterrepresentativeofthetimepatternoftheuser’sbenefit.

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♦ Saleandleaseback:• Ifasaleandleasebackresultsinafinance

lease,thesellershouldnotrecogniseanyexcessasaprofit,butrecognisetheexcessovertheleaseterm.

• If a sale and leaseback results in anoperating lease, and the transaction wasatfairvalue,thesellershallrecogniseanyprofitsimmediately.

SECTION21ProvisionsandContingencies

♦ Provisions:• Provisions are recognised only when (a)

there is a present obligation as a resultofapastevent, (b) it isprobable that theentitywillberequiredtotransfereconomicbenefits, and (c) the amount can beestimatedreliably.

• The obligationmay arise due to contractor law or when there is a constructiveobligationduetovalidexpectationshavingbeencreated frompastevents.However,these do not include any future actionsthat may create an expectation. Nor canexpected future losses be recognised asprovisions.

• Initially recognised at the best possibleestimateat the reportingdate.Thisvalueshould take intoany timevalueofmoney

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if this is consideredmaterial.Whenall orpart of a provision may be reimbursedby a third party, the reimbursement is tobe recognised separately only when it isvirtuallycertainpaymentwillbereceived.

• Subsequently,provisionsaretobereviewedateachreportingdateandadjustedtomeetthebestcurrentestimate.Anyadjustmentsarerecognisedinprofitandlosswhileanyunwindingofdiscountsistobetreatedasafinancecost.

♦ Mustaccrueprovisionsfor(examples):• Onerouscontracts.• Warranties.• Restructuring if legal or constructive

obligationtorestructure.• Salesrefunds.

♦ Maynotaccrueprovisionsfor(examples):• Future operating losses, no matter how

probable.• Possible future restructuring (planbutnot

yetalegalorconstructiveobligation).

♦ Contingentliabilities:• Thesearenotrecognisedasliabilities.• Unless remote, disclose an estimate of

the financial effect, indications of theuncertaintiesrelating to timingoramount,andthepossibilityofreimbursement.

♦ Contingentassets:• Thesearenotrecognisedasassets.

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• Discloseadescriptionofthenatureandthefinancialeffect.

SECTION22LiabilitiesandEquity

♦ Guidance on classifying an instrument asliabilityorequity.

♦ Aninstrumentisaliabilityiftheissuercouldberequiredtopaycash.

♦ Puttable financial instruments are onlyrecognisedasequityifithasallofthefollowingfeatures:• The holder is entitled to a pro-rata share

of the entity’s net assets in the event ofliquidation.

• The instrument is the most subordinateclass.

• All financial instruments in the mostsubordinateclasshaveidenticalfeature.

• Apart from the puttable features theinstrument includes no other financialinstrumentfeatures.

• Thetotalexpectedcashflowsattributableto the instrument over the life of theinstrumentarebasedsubstantiallyon thechangeinthevalueoftheentity.

♦ Members' shares in co-operative entities andsimilarinstrumentsareonlyclassifiedasequity

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iftheentityhasanunconditionalrighttorefuseredemption of the members' shares or theredemptionisunconditionallyprohibitedbylocallaw,regulationortheentity'sgoverningcharter.If the entity could not refuse redemption, themembers'sharesareclassifiedasliabilities.

♦ CoverssomematerialnotcoveredbyfullIFRSs,including:• Original issuance of shares and other

equity instruments. Shares are onlyrecognisedasequitywhenanotherpartyisobligedtoprovidecashorotherresourcesin exchange for the instruments. Theinstrumentsaremeasuredatthefairvalueofcashorresourcesreceived,netofdirectcosts of issuing the equity instruments,unlessthetimevalueofmoneyissignificantinwhichcaseinitialmeasurementisatthepresent value amount. When shares areissuedbeforethecashorotherresourcesare received, the amount receivable ispresented as an offset to equity in thestatementoffinancialpositionandnotasanasset.Anysharessubscribedforwhichnocashisreceivedarenotrecognisedasequitybeforethesharesareissued.

• Salesofoptions,rightsandwarrants.• Stock dividends and stock splits – these

donotresultinchangestototalequitybut,rather, reclassification of amounts withinequity.

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♦ 'Split accounting' is required to account forissuanceofconvertibleinstruments.• Proceedsonissueofconvertibleandother

compound financial instruments are splitbetween liability component and equitycomponent. The liability is measured atits fair value, and the residual amountis the equity component. The liability issubsequentlymeasuredusingtheeffectiveinterestrate,withtheoriginalissuediscountamortisedasaddedinterestexpense.

• A comprehensive example of splitaccountingisincluded.

♦ Treasury shares (an entity's own shares thatarereacquired)aremeasuredatthefairvalueof the consideration paid and are deductedfrom theequity.Nogainor loss is recognisedonsubsequentresaleoftreasuryshares.

♦ Minority interest changes that do not affectcontrol do not result in a gain or loss beingrecognised in profit and loss.Theyareequitytransactionsbetweentheentityanditsowners.

♦ Dividends paid in the form of distribution ofassets other than cash are recognised whentheentityhasanobligationtodistributethenon-cashassets.Thedividendliabilityismeasuredatthefairvalueoftheassetstobedistributed.

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SECTION23Revenue

♦ Revenueresultsfromthesaleofgoods,servicesbeingrendered,constructioncontracts incomebythecontractorandtheusebyothersofyourassets.

♦ Sometypesofrevenueareexcludedfromthissectionanddealtwithelsewhere:

• Leases(section20).• Dividends from equity accounted entities

(section14and15).• Changes in fair value of financial

instruments(section11and12).• Initial recognition and subsequent re-

measurementofbiologicalassets(section34) and initial recognition of agriculturalproduce(section34).

♦ Principle for measurement of revenue is thefair value of the consideration received orreceivable, taking into account any possibletrade discounts or rebates, including volumerebatesandpromptsettlementdiscounts.

♦ Ifpaymentisdeferredbeyondnormalpaymentterms, there is a financing component to thetransaction.Inthatcase,revenueismeasuredat thepresentvalueofall futurereceipts.Thedifferenceisrecognisedasinterestrevenue.

♦ Recognition - sale of goods: An entity shall

45


recogniserevenuefromthesaleofgoodswhenallthefollowingconditionsaresatisfied:

(a) Theentityhastransferredtothebuyerthesignificantrisksandrewardsofownershipofthegoods.

(b) The entity retains neither continuingmanagerial involvement to the degreeusually associated with ownership noreffectivecontroloverthegoodssold.

(c) Theamountofrevenuecanbemeasuredreliably.

(d) It is probable that the economic benefitsassociatedwiththetransactionwillflowtotheentity.

(e) The costs incurred or to be incurred inrespectofthetransactioncanbemeasuredreliably.

♦ Recognition - sale of services: Use thepercentageofcompletionmethodiftheoutcomeof the transaction can be estimated reliably.Otherwiseusethecost-recoverymethod.

♦ Recognition - construction contracts: Use thepercentageofcompletionmethodiftheoutcomeof the contract can be estimated reliably.Otherwiseusethecost-recoverymethod.

♦ Recognition - interest: Interest shall berecognisedusingtheeffective interestmethodasdescribedinSection11.

♦ Recognition - royalties: Royalties shall berecognisedonanaccrualbasis inaccordancewiththesubstanceoftherelevantagreement.

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♦ Recognition - dividends: Dividends shall berecognised when the shareholder's right toreceivepaymentisestablished.

♦ Appendix of examples of revenue recognitionundertheprinciplesinSection23.

• Award credits or other customer loyaltyplan awards need to be accounted forseparately.The fair valueofsuchawardsreduces the amount of revenue initiallyrecognised and, instead, is recognisedwhenawardsareredeemed.

SECTION24GovernmentGrants

♦ Thissectiondoesnotapplytoany'grants'intheformofincometaxbenefits.

♦ Allgrantsaremeasuredatthefairvalueoftheassetreceivedorreceivable.

♦ Recognitionasincome:• Grants without future performance

conditionsare recognised inprofitor losswhenproceedsarereceivable.

• If there are performance conditions, thegrant is recognised in profit or loss onlywhentheconditionsaremet.

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SECTION25BorrowingCosts

♦ Borrowing costs are interest and other costsarising on an entity's financial liabilities andfinanceleaseobligations.

♦ All borrowing costs are charged to expensewhenincurred–nonearecapitalised.

SECTION26Share-basedPayment

♦ Basicprinciple:allshare-basedpaymentmustberecognised.

♦ Equity-settled:• Transactions with other than employees

arerecordedatthefairvalueofthegoodsand services received, if these can beestimatedreliably.

• Transactionswithemployeesorwherethefair valueofgoodsandservices receivedcannotbereliablymeasuredaremeasuredwithreferencetothefairvalueoftheequityinstrumentsgranted.

♦ Cash-settled:• Liability is measured at fair value on

grantdateandateachreportingdateandsettlement date, with each adjustment

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throughprofitorloss.• For employees where shares only vest

afteraspecificperiodofservicehasbeencompleted, recognise theexpenseas theserviceisrendered.

♦ Share-basedpaymentwithcashalternatives:• Account forall such transactionsascash

settled,unlesstheentityhasapastpracticeofsettlingbyissuingequityinstrumentsorthe option has no commercial substancebecausethecashsettlementamountbearsnorelationshipto,andislikelytobelowerin value than, the fair value of the equityinstrument.

♦ Fairvalueofequityinstrumentsgranted:(a) Observablemarketpriceifavailable.(b) If no observable price, use entity-specific

market data such as a recent sharetransactionorvaluationoftheentity.

(c) If (a) and (b) are impracticable, directorsmustuse their judgement toestimate fairvalue.

♦ Certaingovernment-mandatedplansprovideforequityinvestors(suchasemployees)toacquireequitywithoutprovidinggoodsorservicesthatcan be specifically identified (or by providinggoodsorservicesthatareclearlylessthanthefair value of the equity instruments granted).Theseareequity-settledshare-basedpaymenttransactionswithinthescopeofthissection.

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SECTION27ImpairmentofAssets

♦ Inventories–writedown,inprofitorloss,tolowerofcostandsellingpricelesscoststocompleteand sell, if below carrying amount.When thecircumstances that led to the impairment nolongerexist,theimpairmentisreversedthroughprofitorloss.

♦ Otherassets–writedown, inprofitor loss, torecoverableamount,ifbelowcarryingamount.When the circumstances that led to theimpairment no longer exist, the impairment isreversedthroughprofitorloss.

♦ Recoverableamountisthegreateroffairvaluelesscoststosellandvalueinuse.

♦ If recoverable amount of an individual assetcannot be determined, measure recoverableamountofthatasset'scashgeneratingunit.

♦ If an impairment indicator exists, the entityshouldreviewtheusefullifeandthedepreciationmethodseven thoughan impairmentmaynotberecognised.

♦ Simplified guidance on computing impairmentofgoodwillwhengoodwillcannotbeallocatedtocashgeneratingunits.

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SECTION28EmployeeBenefits

♦ Short-termbenefits:• Measured at an undiscounted rate and

recognisedastheservicesarerendered.• Other costs such as annual leave are

recognised as a liability as services arerenderedandexpensedwhentheleaveistakenorused.

• Bonuspaymentsareonlyrecognisedwhenanobligationexistsandtheamountcanbereliablyestimated.

♦ Post-EmploymentBenefits-DefinedContribut-ionPlans:• Contributionsare recognisedasa liability

oranexpensewhenthecontributionsaremadeordue.

♦ Post-Employment Benefits – Defined benefitplans• Recognise a liability based on the net of

presentvalueofdefinedbenefitobligationsless the fair value of any plan assets atbalancesheetdate.

• The projected unit credit method is onlyused when it could be applied withoutunduecostoreffort.

• Otherwise, an entity can simplify itscalculation:

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- Ignoreestimatedfuturesalaryincreases.- Ignorefutureserviceofcurrentemploye-

es(assumeclosureofplan).- Ignorepossiblefuturein-servicemortal-

ity.• Plan introductions,changes,curtailments,

settlements:• Immediaterecognition(nodeferrals).• Forgroupplans,consolidatedamountmay

beallocatedtoparentandsubsidiariesonareasonablebasis.

• Actuarial gains and losses may berecognisedinprofitorlossorasanitemofothercomprehensiveincome;but- Nodeferralofactuarialgainsorlosses,

includingnocorridorapproach.- All past service cost is recognised

immediatelyinprofitorloss.

♦ OtherLong-Termbenefits:• Theentityshallrecognisea liabilityat the

presentvalueofthebenefitobligationlessanyfairvalueofplanassets.

♦ Terminationbenefits:• These are recognised in profit and

loss immediately as there are no futureeconomicbenefitstotheentity.

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SECTION29IncomeTax

♦ Requires a temporary difference approach,similartoIAS12.

♦ Currenttax:• Recogniseacurrenttaxliabilityifthecurrent

tax payable exceeds the current tax paidat thatpoint in time.Recogniseacurrenttax asset when current tax paid exceedscurrenttaxpayableortheentityhascarriedalossforwardfromtheprioryearandthiscanbeused to recovercurrent tax in thecurrent year.

• Currenttaxassetsandliabilitiesforcurrentandpriorperiodsaremeasuredattheactualamount that is owed or the entity owesusing the applicable tax rates enacted orsubstantivelyenactedatthereportingdate.Themeasurementmust includetheeffectofthepossibleoutcomesofareviewbythetaxauthorities.

♦ Deferredtax:• Ifanassetorliabilityisexpectedtoaffect

taxableprofitifitrecoveredorsettledforitscarryingamount,thenadeferredtaxassetorliabilityisrecognised.

• If the entity expects to recover an assetthrough sale, and capital gains tax iszero, then no deferred tax is recognised,becauserecoveryisnotexpectedtoaffect

53


taxableprofit.• Temporarydifferencearisesifthetaxbasis

ofsuchassetsorliabilitiesisdifferentfromcarryingamount.

• Tax basis assumes recovery by sale.Exception:Nodeferred taxonunremittedearningsofforeignsubsidiariesandjointlycontrolledentities.

• Recognisedeferredtaxassetsinfull,withavaluationallowance.

• Criterionisthatrealisationisprobable.• Takeuncertaintyintoaccountinmeasuring

allcurrentanddeferredtaxes–assumetaxauthoritieswillexaminereportedamountsand have full knowledge of all relevantinformation.

• Deferred taxes are all presented as non-current.

♦ Recognitionof changes in currentordeferredtaxmustbeallocatedtotherelatedcomponentsof profit or loss, other comprehensive incomeandequity.

SECTION30ForeignCurrencyTranslation

♦ FunctionalcurrencyapproachsimilartothatinIAS21.

♦ Anentity's functionalcurrency, is thecurrency

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oftheprimaryeconomicenvironmentinwhichitoperates.

♦ It isamatterof fact,notanaccountingpolicychoice.• Achangeinfunctionalcurrencyisapplied

prospectivelyfromthedateofthechange.

♦ To recorda foreigncurrency transaction inanentity'sfunctionalcurrency:• Oninitialrecognition,recordthetransaction

byapplyingthespotrateatthedateofthetransaction.Anaverageratemaybeused,unless therearesignificantfluctuations intherate.

• At reporting date, translate foreigncurrencymonetaryitemsusingtheclosingrate. For non-monetary items measuredathistoricalcost,usetheexchangeatthedateof thetransaction.Fornon-monetaryitems measured at fair value, use theexchangeat thedatewhen the fair valuewasdetermined.

• For monetary and non-monetary itemtranslations,gainsorlossesarerecognisedwheretheywereinitiallyrecognised–eitherinprofitorloss,comprehensiveincome,orequity.

♦ Exchangedifferencesarisingfromamonetaryitem that forms part of the net investment ina foreign operation are recognised in equityandarenot 'recycled'throughprofitorlossondisposaloftheinvestment.

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♦ Goodwill arising on acquisition of a foreignoperation is deemed to be an asset of thesubsidiary,andtranslatedattheclosingrateatyearend.

♦ Anentitymaypresentitsfinancialstatementsinacurrencydifferentfromitsfunctionalcurrency(a'presentationcurrency').Iftheentity'sfunctionalcurrency isnothyperinflationary, translationofassets, liabilities, income, and expense fromfunctional currency into presentation currencyisdoneasfollows:

• Assetsandliabilitiesforeachstatementoffinancialpositionpresentedaretranslatedat the closing rate at the date of thatstatementoffinancialposition.

• Income and expenses are translatedat exchange rates at the dates of thetransactions.

• All resulting exchange differences arerecognised in other comprehensiveincome.

SECTION31Hyperinflation

♦ An entity must prepare general price-leveladjustedfinancialstatementswhenitsfunctionalcurrencyishyperinflationary.

♦ IFRS for SMEs provides indicators ofhyperinflation but not an absolute rate.

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One indicator is where cumulative inflationapproaches or exceeds 100% over a 3 yearperiod.

♦ In price-level adjusted financial statements,all amounts are stated in terms of the(hyperinflationary) presentation currency atthe end of the reporting period. Comparativeinformation and any information presented inrespectofearlierperiodsmustalsoberestatedinthepresentationcurrency.

♦ All assets and liabilities not recorded at thepresentationcurrencyattheendofthereportingperiodmustberestatedbyapplyingthegeneralpriceindex(generallyanindexpublishedbythegovernment).

♦ Allamountsinthestatementofcomprehensiveincomeandstatementofcashflowsmustalsoberecordedatthepresentationcurrencyattheendofthereportingperiod.Theseamountsarerestated by applying the general price indexfromthedateswhentheywererecorded.

♦ Thegainorlossontranslatingthenetmonetaryposition is included inprofitor loss.However,that gain or loss is adjusted for those assetsand liabilities linkedbyagreement tochangesinprices.

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SECTION32EventsaftertheEndoftheReportingPeriod

♦ Adjustfinancialstatements to reflectadjustingevents – events after the balance sheet datethatprovidefurtherevidenceofconditionsthatexistedattheendofthereportingperiod.

♦ Donotadjustfornon-adjustingevents–eventsor conditions that arose after the end of thereporting period. For these, the entity mustdisclosethenatureofeventandanestimateofitsfinancialeffect.

♦ Ifanentitydeclaresdividendsafterthereportingperiod, the entity shall not recognise thosedividendsasaliabilityattheendofthereportingperiod.Thatisanon-adjustingevent.

SECTION33RelatedPartyDisclosures

♦ Disclose parent-subsidiary relationships,includingthenameoftheparentand(ifany)theultimatecontrollingparty.

♦ Disclose key management personnelcompensationintotalforallkeymanagement.Compensation includes salaries, short-termbenefits,post-employmentbenefits,otherlong-termbenefits, termination benefits and share-

58

basedpayments.Keymanagementpersonnelarepersonsresponsibleforplanning,directingand controlling the activities of an entity, andincludeexecutiveandnon-executivedirectors.

♦ Disclosethefollowingfortransactionsbetweenrelatedparties:• Natureoftherelationship.• Information about the transactions and

outstanding balances necessary tounderstand the potential impact on thefinancialstatements.

• Amountofthetransaction.• Provisionsforuncollectiblereceivables.• Anyexpenserecognisedduringtheperiod

inrespectofanamountowedbyarelatedparty.

♦ Governmentdepartmentsandagenciesarenotrelatedpartiessimplybyvirtueof theirnormaldealingswithanentity.

SECTION34SpecialisedActivities

Agriculture:

♦ If the fair value of a class of biological assetis readily determinable without undue cost oreffort, use the fair value throughprofitor lossmodel.

♦ If the fairvalue isnot readilydeterminable,or

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isdeterminableonlywithunduecostoreffort,measurethebiologicalassetsatcostlessandaccumulateddepreciationandimpairment.

♦ At harvest, agricultural produce is beingmeasuredatfairvaluelessestimatedcoststosell.Thereafteritisaccountedforaninventory.

Extractiveindustries:

♦ Not required to charge exploration costs toexpense,butmusttestforimpairment.

♦ Expenditure on tangible or intangible assetsused in extractive activities is accounted forunderSection17Property, Plant and Equipment and Section 18 Intangible Assets other than Goodwill.

♦ Anobligation todismantleor remove itemsorrestoresitesisaccountedforusingSection17andSection21ProvisionsandContingencies.

Serviceconcessionarrangements:

♦ Guidance is provided on how the operatoraccountsforaserviceconcessionarrangement.Theoperatoreitherrecognisesafinancialassetor an intangible asset depending on whetherthe grantor (government) has provided anunconditionalguaranteeofpaymentornot.

♦ Afinancialassetisrecognisedtotheextentthatthe operator has an unconditional contractualrighttoreceivecashoranotherfinancialassetfrom or at the direction of the grantor for theconstructionservices.

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♦ Anintangibleassetisrecognisedtotheextentthat theoperatorreceivesarightor licensetochargeusersforthepublicservice.

SECTION35TransitiontotheIFRSforSMEs

♦ First-time adoption is the first set of financialstatementsinwhichtheentitymakesanexplicitand unreserved statement of compliancewiththe IFRS for SMEs, in conformity with theInternational Financial Reporting Standard forSmallandMedium-sizedEntities'.

♦ Canbeswitchingfrom:• NationalGAAP.• FullIFRSs.• Or never published General Purpose

FinancialStatementsinthepast.

♦ Dateoftransitionisbeginningofearliestperiodpresented.

♦ Select accounting policies based on IFRS forSMEs at end of reporting period of first-timeadoption.• Manyaccountingpolicydecisionsdepend

oncircumstances–not‘freechoice’.• Butsomearepure‘freechoice’.

♦ Prepare current year and one prior year'sfinancialstatementsusingtheIFRSforSMEs

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♦ But there aremany exceptions from restatingspecificitems.• Someexceptionsareoptional.• Someexceptionsaremandatory.

♦ Andageneralexemptionforimpracticability.

♦ All of the special exemptions in IFRS 1 areincludedintheIFRSforSMEs.

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Disclaimer

ThisPocketBookonIFRSforSMEsisdesignedonlyforpreliminaryandbasic introduction of the standard to the general readers.While everyefforthasbeenmadetoensureaccuracy,someinformationthatmayberelevant toaparticular readermaynotbecomprehensiveormayhavebeenomitted.Thispocketbook isnot intendedasabook forprofessionalpracticeofthestandard.Thepocketbookisnotasubstituteforreadingthestandardwhendealingwithpointsofdoubtordifficulty.No responsibility for loss toanypersonactingor refraining fromactingas a result of anymaterial in this publication can be accepted by JCAInternationalandJitendraCharteredAccountants.Receipientsshouldnotactonthebasisofthispublicationwithoutseekingprofessionaladvice.

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