ANTONIO CARONAN CO HUANG PEDRO. Scope › Equity Settled - transactions where goods and services are acquired as consideration for equity instruments

IFRS for SMEsSections 26, 27 and 28

Similarities and Differences of Full IFRS and IFRS for SMEs

ANTONIOCARONANCOHUANGPEDRO

Section 26

Share-Based Payments

Section 26 Share-Based Payments

Scope› Equity Settled- transactions where goods

and services are acquired as consideration for equity instruments

› Cash Settled- transactions where goods or services are acquired by incurring liabilities to the supplier for amounts that are based on the price (or value) of the entity’s shares or other equity instruments


IFRS for SMEs Full IFRS

Recognition Recognized when the entity obtains the goods or as services are received.

Same as IFRS for SMEs

Measurement– equity settledshare-basedTransactions WITH NON- EMPLOYEES

Measured at fair value of the goods or services received. If the entity cannot estimate reliably these fair values, at the fair value of the equity instruments granted, ignoring any service or non-market vesting conditions.




Measurement– equity settled

share-basedTransactions

WITH EMPLOYEES

Measured at the fair value of the instruments granted, ignoring any service or non-market vesting conditions. To measure FV of equity instrument:1. Use of observable

market prices.2. Use of specific

observable market data3. Use of a generally

accepted valuation technique

Measured at grant date

Measured at the fair value of the instruments granted, ignoring any service or non-market vesting conditions. To measure FV of equity instrument:1. Available market

prices2. Use valuation

technique

Measured at grant date



Measurement– cash settledshare-basedtransactions

Measured at the fair value of the liability.

Liability is re-measured at each reporting date and at the date of final settlement, with any changes in fair value recognized inprofit or loss.


Section 27

Impairment of Assets

Section 27 Impairment of Assets

Impairment- occurs when the carrying amount of an asset exceeds its recoverable amount.



Scope Assets not subject to impairment according to IFRS for SMEs:1. Deferred tax assets2. Employee benefit

assets3. Financial assets4. Investment property

carried at FV5. Biological Assets

carried at FV less estimated cost to sell

In addition to those stated in the IFRS for SMEs, assets not subject to impairment according to IAS 36:1. Inventories2. Deferred acquisition

costs3. Intangibles arising from

contractual rights under insurance contracts

4. Non-current assets classified as held for sale in accordance with IFRS5

*compared with IAS 36



Impairment formula

The recoverable amount of an asset is less than its carrying amount, the entity shall reduce the carrying amount of the asset to its recoverable amount.

If it is not possible, anentity shall estimate the recoverable amount of the cash-generating unit to which the asset belongs.


The impairment loss shall be allocated to reduce the carrying amount of the assets in the following order:

1. Reduce the goodwill of the CGU2. Then, to the other assets of the

CGU pro rata on the basis of the carrying amount of each asset


HOWEVER, an entity shall not reduce the carrying amount of any asset in the CGU below the highest of:

1. FV les cost to sell, if determinable

2. Value in use, if determinable3. Zero

ANY EXCESS is allocated to the other assets of the CGU pro rata based on the carrying amount.




Impairment losses

An impairment loss is recognized immediately in the profit or loss.

A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment, an investment property, or an intangible asset at, or before, the date of transition to this IFRS as its deemed cost at the revaluation date.

Same as IFRS for SMEs, unless the asset is carried at revalued amount in accordance with another standard. In this case, the impairment loss is treated as a revaluation decrease in accordance with that other standard.



Annual assessment of indicators

Assets (including goodwill) are tested for impairment when there is an indication that the asset may be impaired. The existence of impairment indicators is assessed at each reporting date.

The following assets are tested for impairment irrespective of whetherthere is indication of impairment:1. Intangible assets with

an indefinite useful life or an intangible asset not yet available for use.

2. Goodwill.

All other assets: same as IFRS for SMEs.



Indicators of ImpairmentEXTERNAL

INDICATORS

1. Market value has declined significantly

2. Significant changes with an adverse effect on the entity

3. market rates of return on investments have increased

4. The carrying amount of the net assets of the entity is more than the estimated fair value of the entity as a whole

Same as IFRS for SMEs. An additional indicator exists when the entity’s net asset value is above its market capitalization.



Indicators of ImpairmentINTERNAL

INDICATORS

1. Evidence is available of obsolescence or physical damage of an asset.

2. Significant changes with an adverse effect on the entity

3. Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.




Recoverable Amount

Recoverable amount is the higher of an asset’s (or CGU’s) fair value lesscosts to sell and its value in use. If either exceeds the carrying amount, it is not necessary to estimate the other amount.




Value in use The value in use is defined as the present value of the future cash flows expected to be derived from anasset or CGU. Future cash flows are estimated for the asset in its current condition.Cash inflows or outflows from

financing activities and income tax receipts or payments are not included.

Same as IFRS for SMEs, but more extensive guidance about future cash flows estimation.

The computation fro value in use shall not include:

1. Cash flows from financing activities2. Income tax receipts and payments

Cash flows measured based on current condition, so the following are not considered

3. Future restructuring4. Enhancements and Improvements


The discount rate should be:1. Pretax and reflects the time value2. Reflects the risks specific to the asset




Fair value lesscosts to sell

The fair value less costs tosell based on a hierarchy:1. A price in a binding sale

agreement in an arm’s length or market price in an active market, less costs of disposal.

2. Best available information to reflect the amount that an entity could obtain at the reporting date from disposal of the asset in an arm’s length transaction less costs of disposal.




Allocation ofgoodwill

Goodwill is allocated to the CGUs that are expected to benefit from the synergies of the combination.If such allocation is not possible and the reporting entity has not integrated the acquired business, the acquired entity is measured as a whole when testing goodwill impairment.

If the acquired business is integrated, the entire group of entities is considered when testing goodwill impairment.


Note: ‘integrated’ means that the acquired business has been restructured or dissolved into the reporting entity or other subsidiaries



Reversal of Impairment

At each reporting date afterrecognition of the impairment loss, an entity assesses whether there is any indication that an impairment loss may have decreased or may no longerexist. The impairment loss is reversed if the recoverable amount of an asset (CGU) exceeds its carrying amount.The amount of the reversal is subject to certain limitations.

Goodwill impairment can never be reversed.

Similar to IFRS for SMEs; However, includes more detailed guidance and distinction of reversal of impairment for an individual asset, a CGU and goodwill.

Limitation for reversal of impairment for an individual asset:

The reversal shall not increase the carrying amount above what it would have been, after depreciation and amortization, had no impairment loss been recognized in the previous periods.


For a CGU:Reversal shall not increase the carrying

amount of any asset above the lower of:1. Its recoverable amount2. The carrying amount that would have

been determined, after depreciation and amortization, had no impairment loss been recognized in the previous periods


Section 28

Employee Benefits

Section 28 Employee BenefitsIFRS for SMEs Full IFRS

Employeebenefits

Employee benefits are all forms of consideration given by an entity in exchange for services rendered by its employees. • Short-term employee benefits (such as wages, salaries, profit-sharing and bonuses).• Termination benefits (such asseverance and redundancy pay).• Post-employment benefits (such as retirement benefit plans).• Other long-term employee benefits (such as long-term service leave and jubilee benefits).

Same as IFRS for SMEs.


Short-termemployeebenefits

The costs of short-term employee benefits are recognised as a liabilityafter deducting the amounts that have been paid to the employees in the period in which the employees haverendered their service.

The amounts recognised are measured at the undiscounted amount of benefits expected to be paid in exchange for that service.

Similar to IFRS for SMEs.


Post-employment

benefits

Post-employment benefits are provided to employees either through defined contribution plans or defined benefit plans.



Distinctionbetweendefinedcontribution(DC) plansand definedbenefit (DB)plans

A DC plan is a post-employment plan under which the reporting entity pays fixed contribution into a separate entity. The reporting entity has no legal or constructive obligation to pay further contributions if the plan does not hold sufficient assets to pay all employees the benefits relating to employee service in the current or prior periods.A DB plan is a post-employment plan that is not a DC plan.



Measurementof defined

contributionplans

The contribution payable for a period by the employer to the fund is recognised as a liability for a DC plan after deducting any amount already paid.

Similar to IFRS for SMEs; however, if the contributions to a DC plan do not fall due wholly within 12 months after the end of the period, the future contributions are discounted.


Definedbenefit plans

An entity recognises a liability for its obligation under DB plans net of plan assets; it recognises the net changein that liability during the period as the cost of its DB plans during the period.

Actuarial gains or losses can be recognised immediately or deferredusing the ‘corridor’ method(whereby gains and losses areamortised into profit or loss over the expected remaining lives ofparticipating employees).• Past-service costs are recognised in profit or loss on a straight-linebasis over the average period until the plan amendments vest.


Definedbenefit liability

The DB liability is the net total of:• The present value of the DB obligation at the end of the reporting period;• Less the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.

The DB liability is the net total of:• The present value of the DB obligation at the end of the reporting period;• Plus any actuarial gains (less any actuarial losses) not recognised due to the corridor method;• Minus any unrecognised past service costs;• Minus the fair value at the reporting date of plan assets (if any) out ofwhich the obligations are to be settled directly.


Actuarialvaluationmethod

The use of an accrued benefit valuation method is required if the information that is needed to make such a calculation is already available, or can be obtained without undue cost or effort.

If not, an alternative method is permitted in which future salary progression, future service and possible mortality during an employee’s period of service are not considered.

The use of an accrued benefit valuationmethod is required for calculating DB obligations.


Expectedreturn on planassets

No distinction between expected and actual return on plan assets. Allchanges in the fair value of plan assets are recorded in profit or loss.

The expected return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the related obligation. It reflects changes in the fair value of plan assets as a result of actual contributions and benefits paid. The difference between actual and expected returns on plan assets is an actuarial gain or loss.


Componentsof the costof a definedbenefit plans

Defined benefit plan expense includes:• Current-service cost.• Interest cost.• The actual return on plan assets.• Actuarial gains and losses (on liabilities) arising in the period• The effect of a new plan or changes to an existing plan during the period.• The effect of any curtailments or settlements.

Similar to IFRS for SMEs; except that the return on plan assets is splitbetween the expected return and an actuarial gain/loss.


Actuarial gainsand losses

Actuarial gains and losses on liabilities are recognised in full in profit or loss or in other comprehensive income(without recycling) in the period in which they occur.

Actuarial gains and losses arise on both assets and liabilities. They maybe recognised immediately (either inprofit or loss or in other comprehensiveincome) or amortised into profit or loss over a period not exceeding the expected remaining working lives ofparticipating employees.


Past-servicecosts

Past-service costs are recognised infull in profit or loss in the period inwhich they occur.

Past-service costs are recognised as an expense on a straight-line basisover the average period until the planamendments vest.To the extent that benefits are vested as of the date of the plan amendment,the cost of those benefits is recognised immediately in profit or loss.


Curtailmentsandsettlements

Gains and losses on the curtailment or settlement of a defined benefit plan are recognised in profit or loss when the curtailment or settlement occurs.

Similar to IFRS for SMEs. However, fullIFRS includes more detailed guidancein clarifying the term ‘curtailment’ and‘settlement’.Full IFRS also requires the accelerationof related unrecognised gains/losses.


Termination benefits

Termination benefits are recorded when management is demonstrably committed to the reduction inworkforce. Management is demonstrably committed to a termination when it has a detailed formal plan forthe termination and is without realistic possibility of withdrawal.

Full IFRS includesfurther guidance on theminimum requirement of adetailed plan.

Section 28 Employee Benefits

Areas covered in IFRS but not in IFRS for SMEs include:

• Defined benefit plans that share risks between various entities under common control.• Asset ceiling test.• Detailed guidance on the measurement of defined benefit

obligation.

Section 26-28

Game

Question

True or False

Liabilities arising from cash settled share based transactions are re-measured at each reporting date but not on the date

of final settlement.

Answer

FALSE

Re-measured at each reporting date and at the date of final settlement.

IFRS for SMEs 26.14

Question

True or False

The full IFRS, like the IFRS for SMEs, provides a three tier hierarchy for

measuring the fair value of the equity instrument.

Answer

False

Only in the IFRS for SMEsIFRS for SMEs 26.9 to 26.10

Question

The following are indicators of impairment for SMEs except:

a) Significant decline in an asset’s market value

b) Entity’s net asset value is above its market capitalization

c) Increases in market interest ratesd) Obsolescence

Answer

b. Entity’s net asset value is above its market capitalization

Only for Full IFRS.IAS 36.12

Question

True or False

In the IFRS for SMEs, goodwill is tested for impairment irrespective of whether there is an indicator.

Answer

False

Assets (including goodwill) are tested for impairment when there is an indication at each reporting date that the asset may be impaired.

IFRS for SMEs 27.7

Question

True or False

The defined benefit liability of SMEs is the net total of the present value of the DB obligation at the end of the reporting period less the fair value at the reporting date of plan assets (if any) out of which the obligations

are to be settled directly.

Answer

True

IFRS for SMEs 28.15

Question

True or False

For both full IFRS and IFRS for SMEs, actuarial gains and losses on

liabilities are recognised in full in profit or loss or in other

comprehensive income (without recycling) in the period in which they

occur.

Answer

False

Different treatment. IAS 19.92-19.93D

Documents

ANTONIO CARONAN CO HUANG PEDRO. Scope › Equity Settled - transactions where goods and services are acquired as consideration for equity instruments