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IFRS ILLUSTRATIVE CONSOLIDATEDFINANCIAL STATEMENTSFor the year ended 31 December 2015
THE POWER OF BEING UNDERSTOODAUDIT | TAX | CONSULTING
Audit and assurance | IFRS
IFRS Illustrative Consolidated Financial Statements RSM International Limited has prepared a model set of consolidated financial statements for a fictitious company called IFRS Statements Limited which, for the purpose of the exercise, is described as a company listed in Big City Stock Exchange and incorporated and domiciled in a fictitious country, Newland. No such company or jurisdiction exists and any preparers of financial statements will need to ensure that their financial statements comply with local laws as well as all relevant International Financial Reporting Standards (“IFRS”). The consolidated financial statements assume that IFRS Statements Limited is an existing IFRS preparer and is trading internationally as well as in its own country of incorporation and actively expanding. Accordingly, it is not a first-time adopter of IFRS. First-time adopters should instead refer to IFRS 1 First-time Adoption of International Financial Reporting Standards. The illustrative financial statements do not include separate financial statements for the parent, which may be required by local laws or regulations, or may be prepared voluntarily. Where an entity presents separate financial statements that comply with IFRS, the requirements of IAS 27 Separate Financial Statements will then apply to those separate financial statements. The IFRS consolidated financial statements have been prepared according to all relevant standards and interpretations in force as at 31 December 2015. Suggested disclosures are cross-referenced to the underlying requirements in the texts of the relevant standards and interpretations. References are generally to the version of the relevant standard or interpretation mandatorily effective for the 2015 financial statements. Whilst the illustrative financial statements illustrate many presentation and disclosure requirements for the consolidated financial statements of the fictitious group of companies that report under International Financial Reporting Standards, the financial statements do not purport to be all inclusive. No single set of example financial statements can illustrate all possible presentations or required disclosures. Common additional and alternative disclosures are illustrated in the appendices. In practice, many entities will have followed special transitional rules that depended on when individual new standards were adopted or IFRS were applied for the first time. The model financial statements represent one form of presentation. Alternative presentations of IFRS may be appropriate and acceptable. The preparation of financial statements complying with IFRS is the responsibility of the management of the relevant entity. Accordingly, the model financial statements provided cannot be taken as a definitive reference; they do not replace the need for professional judgement having regard to relevant standards and other requirements and all the relevant circumstances relating to the issue under review. For the avoidance of doubt, the model financial statements are not based on any actual legal framework in any one or more jurisdictions. Although the illustrative consolidated financial statements have been prepared by RSM International Limited, the views expressed are the consolidated views of a group of professionals known as “RSM IFRS Advisory Committee” and not those of any Member Firm of RSM International Limited itself. The copyright in this published work belongs to and vests in RSM International Association and all rights are reserved. No part of this publication may be reproduced, stored in any system or transmitted in any form or by any means whether electronic, mechanical, photocopying, recording or otherwise without the prior permission in writing of RSM International Association.
CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Statement of Profit or Loss 1
Consolidated Statement of Comprehensive Income 2
Consolidated Statement of Financial Position 3
Consolidated Statement of Changes in Equity 4
Consolidated Statement of Cash Flows 5
Notes 6
APPENDICES
APPENDIX 1 Consolidated Statement of Profit or Loss by nature of expense 60
APPENDIX 2 Consolidated Statement of Profit or Loss using a columnar approach to discontinued operations 62
APPENDIX 3 Consolidated Statement of Financial Position in order of liquidity 63
APPENDIX 4 Investment Properties 65
APPENDIX 5 Construction Contracts 67
KEY TO DISCLOSURE REFERENCES
IASXpY Paragraph Y of International Accounting Standard X
IFRSXpY Paragraph Y of International Financial Reporting Standard X
IFRICX International Financial Reporting Interpretations Committee number X
SIC-X Standing Interpretations Committee number X
These consolidated financial statements are presented in CU.
Unless otherwise stated, all amounts are expressed in thousands of CU.
Decimal symbol is dot (“.”) and digit-grouping symbol is comma (“,”)
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 1
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(b);10A CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2015
This illustrates the presentation of comprehensive income in two statements, by function of expense.
IAS1p10(ea)
2015 2014
IAS1p113;51(d),(e)
Notes CU'000 CU'000
IAS1p82(a) Revenue 3 22,803 15,160
IAS1p99;103 Cost of sales 4 (18,697) (11,720)
IAS1p85 GROSS PROFIT 4,106 3,440
IAS1p99;103 Distribution costs 4 (889) (747)
IAS1p99;103 Administrative expenses 4 (1,222) (1,015)
IAS1p99;103 Other operating expenses 4 (42) (130)
IAS1p82(b) Finance costs 5 (110) (111)
IAS1p85 Finance income 5 19 16
IAS1p82(c) Share of the profit (loss) of associates 13 140 300
IAS1p85;94 Gain (loss) on disposal of available-for-sale financial assets 6 63 18
IFRS3p42 Gain (loss) on revaluation of an associate becoming a subsidiary 17 490 -
IAS1p85 PROFIT BEFORE TAX 2,555 1,771
IAS1p82(d) Income tax expense 7 (682) (562)
IAS1p85 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 1,873 1,209
IAS1p82(ea) LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS 21 (110) (226)
IAS1p81A(a) PROFIT FOR THE YEAR 1,763 983
PROFIT FOR THE YEAR ATTRIBUTABLE TO:
IAS1p81B(a)(ii) Owners of the parent company 1,658 931
IAS1p81B(a)(i) Non-controlling interests 105 52
1,763 983
EARNINGS PER SHARE Cents Cents
BASIC 8
IAS33p66;67;67A Continuing operations 4.34 3.53
IAS33p68;68A;69 Discontinued operations (0.27) (0.69)
IAS33p66;67;67A Total basic earnings per share 4.07 2.84
DILUTED 8
IAS33p66;67;67A Continuing operations 4.25 3.30
IAS33p68;68A;69 Discontinued operations (0.26) (0.65)
IAS33p66;67;67A Total diluted earnings per share 3.99 2.65
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 2
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(b);10A CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(ea)
2015 2014
IAS1p113;51(d),(e)
Notes CU'000 CU'000
IAS1p10A;81A(a) PROFIT FOR THE YEAR 1,763 983
OTHER COMPREHENSIVE INCOME
IAS1p82A(a) ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS
IAS19p120(c) Remeasurement of the net defined benefit liability / asset 26 (100) (36)
(100) (36)
IAS1p82A(b) ITEMS THAT WILL BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS WHEN SPECIFIC CONDITIONS ARE MET
IAS1p82A Exchange translation difference 32 72 54
IAS1p82A Gains on available-for-sale financial assets 6 10 12
IAS1p92;94 Reclassification adjustments on disposal of available-for-sale financial assets2 6 (63) (18)
IAS1p82A Cash flow hedges 23 85 51
IAS1p82A Net investment hedge 23 87 61
IAS1p90;91(b) Income tax relating to items that may be reclassified1 7 (28) (17)
163 143
IAS1p81A(b) OTHER COMPREHENSIVE INCOME FOR THE YEAR - NET OF TAX 63 107
IAS1p81A(c) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,826 1,090
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO:
IAS1p81B(b)(ii) Owners of the parent company 1,731 1,047
IAS1p81B(b)(i) Non-controlling interests 95 43
1,826 1,090
IAS1p90
1Alternatively each component of other comprehensive income can be presented net of tax effect, with income tax relating to each component disclosed in the notes.
IAS1p94 2Alternatively reclassification adjustments may be presented in the notes.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 3
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(a) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2015
IAS1p10(ea)
2015 2014
IAS1p113;51(d),(e)
Notes CU'000 CU'000
ASSETS
IAS1p60 NON-CURRENT ASSETS
IAS1p54(a) Property, plant and equipment 10 5,800 5,520
IAS1p55 Goodwill 11 1,329 605
IAS1p54(c) Other intangible assets 12 2,414 803
IAS1p54(e) Investments in associates 13 281 249
IAS1p54(d) Available-for-sale financial assets 15 274 269
IAS1p54(o);56 Deferred tax assets 28 243 140
Total non-current assets 10,341 7,586
IAS1p60 CURRENT ASSETS
IAS1p54(g) Inventories 18 2,623 1,995
IAS1p54(h) Trade and other receivables 19 2,586 1,517
IAS1p54(i) Cash and cash equivalents 20 622 360
5,831 3,872
IAS1p54(j) Non-current assets classified as held for sale 21 1,016 -
Total current assets 6,847 3,872
TOTAL ASSETS 17,188 11,458
EQUITY AND LIABILITIES
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
IAS1p54(r) Capital 31 2,596 1,870
IAS1p54(r) Reserves 32 1,035 295
IAS1p54(r) Retained earnings 6,309 5,151
9,940 7,316
IAS1p54(q) NON-CONTROLLING INTERESTS 306 35
TOTAL EQUITY 10,246 7,351
IAS1p60 NON-CURRENT LIABILITIES
IAS1p55 Long-term borrowings 22 2,182 823
IAS1p54(m) Derivative financial instruments 23 17 10
IAS1p54(k) Trade and other payables 24 195 161
IAS1p55 Long-term retirement benefit obligations 26 466 250
IAS1p54(o);56 Deferred tax liabilities 28 780 297
IAS1p54(l) Long-term provisions 29 92 38
IAS1p55 Other non-current liabilities 30 60 156
Total non-current liabilities 3,792 1,735
IAS1p60 CURRENT LIABILITIES
IAS1p55 Short-term borrowings 22 964 748
IAS1p54(m) Derivative financial instruments 23 186 103
IAS1p54(k) Trade and other payables 24 1,017 1,045
IAS1p55 Short-term retirement benefit obligations 26 9 42
IAS1p54(n) Current tax payable 7 523 415
IAS1p54(l) Short-term provisions 29 151 19
2,850 2,372
IAS1p54(p) Liabilities directly associated with non-current assets classified as held for sale 21 300 -
Total current liabilities 3,150 2,372
TOTAL LIABILITIES 6,942 4,107
TOTAL EQUITY AND LIABILITIES 17,188 11,458
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 4
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(c);106 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2015
Capital Reserves Retained Earnings
Attributable to Owners
of the Parent
Non-controlling Interests
TOTAL EQUITY
IAS1p113;51(d),(e)
Notes CU’000 CU’000 CU’000 CU’000 CU’000 CU’000
At 1 January 2014 1,810 64 4,725 6,599 42 6,641
Profit for the year - - 931 931 52 983
Other comprehensive income for the year - 231 (115) 116 (9) 107
Total comprehensive income for the year 32 - 231 816 1,047 43 1,090
Share options 31 60 - 80 140 - 140
Equity dividends paid 9 - - (470) (470) (50) (520)
At 31 December 2014 1,870 295 5,151 7,316 35 7,351
Profit for the year - - 1,658 1,658 105 1,763
Other comprehensive income for the year - 192 (119) 73 (10) 63
Total comprehensive income for the year - 192 1,539 1,731 95 1,826
Ordinary shares issued on acquisition of subsidiary 31 774 - - 774 - 774
Share options 31 62 - 24 86 - 86
Issue of convertible bonds 32 - 548 - 548 - 548
Equity dividends paid 9 - - (405) (405) (384) (789)
Purchase of treasury shares 31 (110) - - (110) - (110)
Non-controlling interest adjustment due to an associate becoming a subsidiary 17 -
-
-
-
560
560
At 31 December 2015 2,596 1,035 6,309 9,940 306 10,246
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 5
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(d) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015
This illustrates the direct method of reporting cash flows from operating activities
IAS1p10(ea)
2015 2014
IAS1p113;51(d),(e)
Notes CU'000 CU'000
IAS7p10 CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 22,563 15,300
Payments to suppliers and employees (20,164) (12,857)
Net cash flow generated from operations 2,399 2,443
IAS7p31 Interest paid (115) (108)
IAS7p35 Income taxes paid (447) (250)
Net cash generated by operating activities 37 1,837 2,085
IAS7p10 CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiary (net of cash acquired) 17 (303) -
Delayed payment for earlier acquisition 30 (100) -
Disposal of subsidiary (net of cash disposed of) 21 306 -
Proceeds from sale of property, plant and equipment 10 76 198
Proceeds from sale of intangible assets 12 87 25
Purchase of property, plant and equipment 10 (1,761) (827)
Purchase of intangible assets 12 (1,713) (307)
Available-for-sale investments: 15
- bought (75) -
- sold 80 -
IAS7p31 Interest received 5 7 5
IAS7p31 Dividends received 5 12 11
Net cash used in investing activities (3,384) (895)
IAS7p10 CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 31 62 60
Proceeds from issue of convertible bonds 22 1,572 -
Purchase of treasury shares 31 (110) -
Proceeds of new bank loans and derivatives 22 648 -
Net fresh factor borrowings 22 123 92
Repayment of bank loans 22 - (599)
Finance lease repayments 22 (51) (44)
IAS7p31 Dividends paid to owners of the parent company 9 (500) (470)
Net cash generated by (used in) financing activities 1,744 (961)
CASH AND CASH EQUIVALENTS 20
At 1 January 223 (4)
Net increase in the year 197 229
IAS7p28 Effect of exchange rate changes on cash and cash equivalents held - (2)
At 31 December 420 223
COMPRISING
Cash in hand and at bank 334 285
Short-term investments 288 75
CASH AND CASH EQUIVALENTS PER THE STATEMENT OF FINANCIAL POSITION 622 360
Less bank overdrafts (202) (137)
CASH AND CASH EQUIVALENTS FOR THE STATEMENT OF CASH FLOWS PURPOSES 420 223
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
Page 6
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
NOTES
Page
1 General information 7
2 Summary of significant accounting policies 7
3 Segment information 21
4 Analysis of expenses by nature 25
5 Finance income and costs 25
6 Gain / loss on available-for-sale financial assets 26
7 Income tax expense 26
8 Earnings per share 28
9 Dividends on equity shares 28
10 Property, plant and equipment 28
11 Goodwill 29
12 Other intangible assets 31
13 Investments in associates 32
14 Joint arrangements 33
15 Available-for-sale financial assets 33
16 Subsidiaries 33
17 Business combinations 34
18 Inventories 35
19 Trade and other receivables 35
20 Cash and cash equivalents 36
21 Non-current assets classified as held-for-sale and discontinued operations 36
22 Borrowings 38
23 Derivative financial instruments and hedge accounting 39
24 Trade and other payables 40
25 Information on financial risks 41
26 Retirement benefit obligations 45
27 Share-based payments 48
28 Deferred tax 49
29 Provisions 50
30 Other non-current liabilities 51
31 Equity capital 51
32 Other reserves 52
33 Related party transactions 53
34 Key management compensation 54
35 Commitments 54
36 Contingent liabilities 55
37 Reconciliation of profit to net cash flow generated from operations 55
38 Events after the reporting period 56
39 Significant judgements and key sources of estimation uncertainty 56
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES FOR THE YEAR ENDED 31 DECEMBER 2015
Page 7
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p138 1 GENERAL INFORMATION
IAS24p13
IFRS Statements Limited is a corporation domiciled in, and registered under the laws of, the Republic of Newland, where the head office is located. IFRS Statements Limited together with its subsidiaries (“the Group”) is organised into three business segments: mechanical, electronic and chemicals. The Group operates in 40 countries worldwide, essentially in Europe, America and Asia. It includes 21 commercial subsidiaries across those three continents and 5 manufacturing plants in Europe and Asia. Markets where the Group is not present via a subsidiary and that are considered significant are served using local distributors. IFRS Statements Limited is listed on the Big City stock exchange in the Republic of Newland. The Group is ultimately controlled by Newmagic Corporation domiciled in Newland, which holds 51% of the ordinary shares of IFRS Statements Limited.
IAS1p117 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IAS1p116 (A) BASIS OF PREPARATION
IAS1p16;25
IAS1p99
IAS1p117(a)
IFRS13p9
IFRS13p61;67;69
IFRS13p72;73
IFRS13p95
These consolidated financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (“IFRS”), being standards and interpretations issued by the International Accounting Standards Board (“IASB”), in force at 31 December 2015. The consolidated financial statements comprise a statement of profit or loss, a statement of comprehensive income, a statement of financial position, a statement of changes in equity, a statement of cash flows, and notes. Income and expenses, excluding the components of other comprehensive income, are recognised in the statement of profit or loss. Other comprehensive income is recognised in the statement of comprehensive income and comprises items of income and expenses (including reclassification adjustments) that are not recognised in the statement of profit or loss, as required or permitted by IFRS. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods. Transactions with the owners of the Group in their capacity as owners are recognised in the statement of changes in equity. The Group presents the statement of profit or loss using the classification by function of expenses. The Group believes this method provides more useful information to the readers of the financial statements as it better reflects the way operations are run from a business point of view. The statement of financial position format is based on a current / non-current distinction. Measurement bases
The consolidated financial statements have been prepared under the historical cost convention, unless mentioned otherwise in the accounting policies below (eg certain financial instruments that are measured at fair value). Historical cost is generally based on the fair value of the consideration given in exchange for assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring the fair value of an asset or a liability, the Group uses market observable data to the extent possible. If the fair value of an asset or a liability is not directly observable, it is estimated by the Group (working closely with external qualified valuers) using valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs (eg by use of the market comparable approach that reflects recent transaction prices for similar items, discounted cash flow analysis, or option pricing models refined to reflect the issuer’s specific circumstances). Inputs used are consistent with the characteristics of the asset / liability that market participants would take into account. Fair values are categorised into different levels in a fair value hierarchy based on the degree to which the inputs to the measurement are observable and the significance of the inputs to the fair value measurement in its entirety:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Transfers between levels of the fair value hierarchy are recognised by the Group at the end of the reporting period during which the change occurred.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 8
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS8p28 Application of new and amended standards
For the preparation of these consolidated financial statements, the following new or amended standards are mandatory for the first time for the financial year beginning 1 January 2015 (the list does not include information about new or amended requirements that affect interim financial reporting or first-time adopters of IFRS since they are not relevant to IFRS Statements Limited).1
Amendment to IAS 16 and IAS 38 (Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013) – The amendment, applicable to annual periods beginning on or after 1 July 2014, clarifies how the gross carrying amount and the accumulated depreciation / amortisation are treated where an entity uses the revaluation model. As the Group does not use the revaluation model, there was no effect on its consolidated financial statements.
Amendments to IAS 19 titled Defined Benefit Plans: Employee Contributions (issued in November 2013) – The amendments, applicable to annual periods beginning on or after 1 July 2014, clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In particular, contributions that are independent of the number of years of service can be recognised as a reduction in the service cost in the period in which the related service is rendered (instead of attributing them to the periods of service). As the Group has no post-employment benefit plans requiring employees or third parties to meet some of the cost of the plan, the amendments had no effect on the Group’s consolidated financial statements.
Amendment to IAS 24 (Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013) - The amendment, applicable to annual periods beginning on or after 1 July 2014, clarifies how payments to entities providing key management personnel services are to be disclosed. This amendment had no effect on the Group’s consolidated financial statements.
Amendment to IAS 40 (Annual Improvements to IFRSs 2011–2013 Cycle, issued in December 2013) - The amendment, applicable to annual periods beginning on or after 1 July 2014, clarifies the application of IFRS 3 and IAS 40 in respect of acquisitions of investment property. IAS 40 assists preparers to distinguish between investment property and owner-occupied property, then IFRS 3 helps them to determine whether the acquisition of an investment property is a business combination. The amendment had no effect on the Group’s consolidated financial statements.
Amendment to IFRS 3 (Annual Improvements to IFRSs 2011–2013 Cycle, issued in December 2013) - The amendment, applicable prospectively to annual periods beginning on or after 1 July 2014, clarifies that IFRS 3 excludes from its scope the accounting for the formation of any joint arrangement in the financial statements of the joint arrangement itself. This had no effect on the Group’s consolidated financial statements.
Amendment to IFRS 8 (Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013) - The amendment, applicable to annual periods beginning on or after 1 July 2014, requires disclosure of the judgements made by management in applying the aggregation criteria to operating segments, and clarifies that reconciliations of the total of the reportable segments' assets to the entity's assets are required only if the segment assets are reported regularly. These clarifications had no effect on the Group’s consolidated financial statements.
Amendment to IFRS 13 (Annual Improvements to IFRSs 2011–2013 Cycle, issued in December 2013) - The amendment,
applicable to annual periods beginning on or after 1 July 2014, clarifies that the portfolio exception in IFRS 13 - allowing an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis - applies to all contracts (including non-financial) within the scope of IAS 39 / IFRS 9. This had no effect on the Group’s consolidated financial statements.
IAS8p30,31
New and amended standards in issue but not yet effective
The Group has not applied the following new or amended standards that have been issued by the IASB but are not yet effective for the financial year beginning 1 January 2015 (the list does not include information about new or amended requirements that affect interim financial reporting or first-time adopters of IFRS – eg IFRS 14 Regulatory Deferral Accounts (issued in January 2014) - since they are not relevant to IFRS Statements Limited).
1 Although many of these new / amended standards did not significantly affect IFRS Statements Limited, they are given for illustration purposes. Only those changes that have an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, are required to be disclosed. Also, when the retrospective changes in accounting policies, restatements or reclassifications of items have a material effect on the information in the Group’s statement of financial position at the beginning of the preceding period, a third statement of financial position as at 1 January 2014 should be presented (IAS1p40A; see illustration in RSM’s IFRS ILLUSTRATIVE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2013).
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 9
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
The Directors anticipate that the new standards and amendments will be adopted in the Group's consolidated financial statements when they become effective. The Group has assessed, where practicable, the potential effect of all these new standards and amendments that will be effective in future periods.1
Amendments to IAS 1 titled Disclosure Initiative (issued in December 2014) – The amendments, applicable to annual
periods beginning on or after 1 January 2016, clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The amendments are not expected to have a material effect on the Group’s consolidated financial statements.
Amendments to IAS 16 and IAS 38 titled Clarification of Acceptable Methods of Depreciation and Amortisation (issued in May 2014) – The amendments add guidance and clarify that (i) the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset, and (ii) revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset; however, this presumption can be rebutted in certain limited circumstances. They are prospectively effective for annual periods beginning on or after 1 January 2016. The Directors do not anticipate any effect on the Group’s consolidated financial statements.
Amendments to IAS 16 and IAS 41 titled Agriculture: Bearer Plants (issued in June 2014) – The amendments, applicable to annual periods beginning on or after 1 January 2016, define bearer plants – ie living plants which are used solely to grow produce over several periods and usually scrapped at the end of their productive lives (eg grape vines, rubber trees, oil palms) - and include them within IAS 16’s scope while the produce growing on bearer plants remains within the scope of IAS 41. As the Group does not have agricultural activity, the Directors do not anticipate any effect on its consolidated financial statements.
Amendment to IAS 19 (Annual Improvements to IFRSs 2012–2014 Cycle, issued in September 2014) - The amendment, applicable to annual periods beginning on or after 1 January 2016, clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid. This is not expected to have an effect on the Group’s consolidated financial statements.
Amendments to IAS 27 titled Equity Method in Separate Financial Statements (issued in August 2014) – The amendments, applicable to annual periods beginning on or after 1 January 2016, reinstate the equity method option allowing entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. It is not applicable to the Group as it deals only with separate financial statements.
Amendment to IFRS 5 (Annual Improvements to IFRSs 2012–2014 Cycle, issued in September 2014) - The amendment, applicable prospectively to annual periods beginning on or after 1 January 2016, adds specific guidance when an entity reclassifies an asset (or a disposal group) from held for sale to held for distribution to owners, or vice versa, and for cases where held-for-distribution accounting is discontinued. This is not expected to have an effect on the Group’s consolidated financial statements.
Amendment to IFRS 7 (Annual Improvements to IFRSs 2012–2014 Cycle, issued in September 2014) - The amendment, applicable to annual periods beginning on or after 1 January 2016, adds guidance to clarify whether a servicing contract is continuing involvement in a transferred asset. This is not expected to have an effect on the Group’s consolidated financial statements.
IFRS 9 Financial Instruments (issued in July 2014) – This standard will replace IAS 39 (and all the previous versions of IFRS 9) effective for annual periods beginning on or after 1 January 2018. It contains requirements for the classification and measurement of financial assets and financial liabilities, impairment, hedge accounting and derecognition.
o IFRS 9 requires all recognised financial assets to be subsequently measured at amortised cost or fair value (through profit or loss or through other comprehensive income), depending on their classification by reference to the business model within which they are held and their contractual cash flow characteristics.
o For financial liabilities, the most significant effect of IFRS 9 relates to cases where the fair value option is taken: the amount of change in fair value of a financial liability designated as at fair value through profit or loss that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income
1 Since the list reflects new and amended standards issued up to 30 September 2015, it should be extended to include all such changes
up to the date of authorisation for issue of the 2015 financial statements.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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(rather than in profit or loss), unless this creates an accounting mismatch. o For the impairment of financial assets, IFRS 9 introduces an “expected credit loss” model based on the
concept of providing for expected losses at inception of a contract; it will no longer be necessary for there to be objective evidence of impairment before a credit loss is recognised.
o For hedge accounting, IFRS 9 introduces a substantial overhaul allowing financial statements to better reflect how risk management activities are undertaken when hedging financial and non-financial risk exposures.
o The derecognition provisions are carried over almost unchanged from IAS 39. The Directors anticipate that IFRS 9 will be adopted in the Group's consolidated financial statements when it becomes mandatory and that the application of the new standard might have a significant effect on amounts reported in respect of the Groups’ financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.
Amendments to IFRS 10 and IAS 28 titled Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued in September 2014) – The amendments, applicable prospectively to annual periods beginning on or after 1 January 2016, address a current conflict between the two standards and clarify that gain or loss should be recognised fully when the transaction involves a business, and partially if it involves assets that do not constitute a business. This is not expected to have an effect on the Group’s consolidated financial statements.
Amendments to IFRS 10, IFRS 12 and IAS 28 titled Investment Entities: Applying the Consolidation Exception (issued in December 2014) – The amendments, applicable to annual periods beginning on or after 1 January 2016, clarify the application of the consolidation exception for investment entities and their subsidiaries. This is not expected to have any effect on the Group’s consolidated financial statements.
Amendments to IFRS 11 titled Accounting for Acquisitions of Interests in Joint Operations (issued in May 2014) – The amendments, applicable prospectively to annual periods beginning on or after 1 January 2016, require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3) to apply all of the business combinations accounting principles and disclosure in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11. The amendments apply both to the initial acquisition of an interest in a joint operation, and the acquisition of an additional interest in a joint operation (in the latter case, previously held interests are not remeasured). This is not expected to have an effect on the Group’s consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers (issued in May 2014) - The new standard, effective for annual periods beginning on or after 1 January 20181, replaces IAS 11, IAS 18 and their interpretations (SIC-31 and IFRIC 13, 15 and 18). It establishes a single and comprehensive framework for revenue recognition to apply consistently across transactions, industries and capital markets, with a core principle (based on a five-step model to be applied to all contracts with customers), enhanced disclosures, and new or improved guidance (eg the point at which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract, etc.). The Directors anticipate that IFRS 15 will be adopted in the Group's consolidated financial statements when it becomes mandatory and that the application of the new standard might have a significant effect on amounts reported in respect of the Groups’ revenue. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed.
IAS18p35(a)
(B) REVENUE RECOGNITION
IAS18p14
Revenue from the sale of goods
Revenue from the sale of goods is recognised in the consolidated statement of profit or loss on the date that goods are delivered to the customer and legal title has passed. Revenue is the fair value of the consideration received or receivable for goods and is net of estimated returns, trade discounts and sales-based taxes (eg value added tax).
IAS18IE10
Installation fees
Installation fees are recognised by reference to the stage of completion of the installation activity at the reporting date, unless they are incidental to the sale of a product, in which case they are recognised when the goods are sold. In general, the stage of completion is based on man-hours or cost incurred, the appropriate method depending on the type of contract.
IAS18IE11
Servicing fees
Servicing fees are recognised over the term of the servicing contract.
1 On 22 July 2015, the IASB confirmed a one-year deferral of the effective date of the revenue Standard, initially set to 1 January 2017 (with
earlier application still permitted). The deferral is still to be issued formally as an amendment to IFRS 15.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IAS18p13
Multiple element arrangements
In certain circumstances, the products are sold together with other additional items (“package”). The package might include one or more of the following items: servicing, installation, future technical upgrades or other case-by-case items. In such cases, the recognition criteria specified above are applied to the separately identifiable components of the package in order to reflect the substance of the transaction.
IAS18p30(a)
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
IAS18p30(b)
Royalty income
Fixed fee royalty income is recognised, in accordance with the substance of the agreement, on a straight-line basis over the period of the sub-licences and sales-linked royalty income is recognised in profit or loss when the products are sold by the licensee.
IAS18p30(c)
Dividend income
Dividend income is recognised when the right to receive the dividend is established.
(C) BASIS OF CONSOLIDATION
Subsidiaries IFRS10AppendixA
IFRS10pB47;B22
IFRS10pB86;20
A subsidiary is an entity controlled by the Group, ie the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its current ability to direct the entity’s relevant activities (power over the investee). The existence and effect of potential voting rights that the Group has the practical ability to exercise (ie substantive rights) are considered when assessing whether the Group controls another entity. The Group’s financial statements incorporate the results, cash flows, assets and liabilities of IFRS Statements Limited and all of its directly and indirectly controlled subsidiaries. Subsidiaries are consolidated from the effective date of acquisition, which is the date on which the Group obtains control of the acquired business, until that control ceases. All intragroup transactions, balances, income and expenses are eliminated in full on consolidation.
IIFRS10p22
The non-controlling interests in the net assets and net results of consolidated subsidiaries are shown separately in the consolidated statement of financial position, consolidated statement of profit or loss, and consolidated statement of comprehensive income.
IFRS10pB94
Total comprehensive income (ie profit or loss and each component of other comprehensive income) is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
IFRS10p23;B96
Changes in the Group's ownership interest in a subsidiary that do not result in the Group losing control are accounted for as transactions with owners in their capacity as owners (ie equity transactions). The carrying amounts of the Group's and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent.
IFRS10pB98
Upon loss of control of a subsidiary, the Group’s profit or loss is calculated as the difference between (i) the fair value o f the consideration received and of any investment retained in the former subsidiary and (ii) the previous carrying amount of the assets (including any goodwill) and liabilities of the subsidiary and any non-controlling interests.
IFRS11p4;6;7;14
IFRS11AppendixA IFRS11p20
IFRS11AppendixA IFRS11p24
Joint arrangements
A joint arrangement (ie either a joint operation or a joint venture, depending on the rights and obligations of the jointly controlling parties to the arrangement), is one in which the Group is party to an arrangement of which two or more parties have joint control, which is the contractually agreed sharing of control of the arrangement; it exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. In a joint operation, the parties with joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. Therefore, the Group recognises its share of the operation’s assets, liabilities, income and expenses that are combined line by line with similar items in the Group’s financial statements. In a joint venture, the parties with joint control have rights to the net assets of the arrangement. The Group’s interests in joint ventures are recognised using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures (see next paragraph under “Associates”).
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IAS28p3
Associates
Associates are entities over which the Group has the power to participate in their financial and operating policy decisions, but which is not control or joint control. Associates are accounted for using the equity method of accounting.
IAS28p10
IAS28p32;42
IAS28p10
Under the equity method, the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of comprehensive income of the associate. On acquisition of the investment, the associate’s identifiable assets and liabilities are measured at fair value. Any excess of the cost of the investment over the Group’s share of the net fair value of the associate’s identifiable assets and liabilities is recorded as goodwill and included in the carrying amount of the investment. Goodwill is tested for impairment together with the investment at the end of each reporting period when there is objective evidence that the investment is impaired. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Distributions received from an investee reduce the carrying amount of the investment.
IAS28p38;39
If the Group’s share of losses of an associate equals or exceeds its interest in the associate, the Group does not provide for additional losses, unless it has incurred obligations or made payments on behalf of the associate.
IAS28p28
Profits / losses on Group transactions with associates are eliminated to the extent of the Group’s interest in the relevant associate.
Translation of financial statements of foreign entities IAS21p39
IAS21p40
IAS21p39(c)
The assets and liabilities of foreign operations are translated into CU using exchange rates at the reporting date. The components of shareholders’ equity are stated at historical value. Average exchange rates for the period are used to translate income and expense items of foreign operations. However, if exchange rates fluctuate significantly, the exchange rates at the dates of the transactions are used. All resulting exchange differences are recognised in other comprehensive income and accumulated in currency translation reserve, a separate component of equity.
IAS21p47
Any goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and, as such, translated at the closing rate.
IAS21p48;48A;48B
On the disposal of a foreign operation, all of the exchange differences accumulated in equity in respect of that operation that are attributable to the owners of the parent company are reclassified to profit or loss. The cumulative amount of the exchange differences relating to that foreign operation that had been attributed to the non-controlling interests are derecognised, but without reclassification to profit or loss. The same applies in case of loss of control, joint control or significant influence.
IAS21p48C
On the partial disposal without loss of control of a subsidiary that includes a foreign operation, the proportionate share of exchange differences accumulated in the separate component of equity are re-attributed to non-controlling interests (they are not recognised in profit or loss). For any other partial disposal of a foreign entity (ie associates or joint arrangements without loss of significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.
Business combinations IFRS3p4;18;21
The Group applies the acquisition method to account for all acquired businesses, whereby the identifiable assets acquired and the liabilities assumed are measured at their acquisition-date fair values (with few exceptions as required by IFRS 3 Business Combinations).
IFRS3p37
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, the liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group.
IFRS3p53
Acquisition-related costs (eg finder’s fees, consulting fees, administrative costs, etc.) are recognised as expenses in the periods in which the costs are incurred and the services are received.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IFRS3p32
On acquisition date, goodwill is measured as the excess of the aggregate of consideration transferred, any non-controlling interests in the acquiree, and acquisition-date fair value of the Group's previously held equity interest in the acquiree (if business combination achieved in stages) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
IFRS3p34;36
If, after appropriate reassessment, the amount as calculated above is negative, it is recognised immediately in profit or loss as a bargain purchase gain.
IFRS3p19
At acquisition date, non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at either fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree's identifiable net assets. This choice o f measurement is made separately for each business combination. Other components of non-controlling interests are measured at their acquisition-date fair values, unless otherwise required by IFRS.
IFRS3p39;45;58
The acquisition-date fair value of any contingent consideration is recognised as part of the consideration transferred by the Group in exchange for the acquiree. Changes in the fair value of contingent consideration that result from additional information obtained during the measurement period (maximum one year from the acquisition date) about facts and circumstances that existed at the acquisition date are adjusted retrospectively against goodwill. Other changes resulting from events after the acquisition date are adjusted at each reporting date, only when the contingent consideration is classified as an asset or a liability (ie not equity), and the adjustment is recognised in profit or loss.
IFRS3p42 In a business combination achieved in stages, the Group remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and any resulting gain or loss is recognised in profit or loss. If any, changes in the value of the Group’s equity interest in the acquiree that have been previously recognised in other comprehensive income are reclassified to profit or loss, if appropriate had that interest been disposed of directly.
(D) PROPERTY, PLANT AND EQUIPMENT
IAS16p15;16
IAS16p73(a)
On initial recognition, items of property, plant and equipment are recognised at cost, which includes the purchase price as well as any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. After initial recognition, items of property, plant and equipment are carried at cost less any accumulated depreciation and impairment losses.
IAS16p50;73(b),(c)
IAS16p51
Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over its useful economic life as follows: Buildings 2% straight line Plant and equipment 10-33% straight line Computer equipment 25% straight line Motor vehicles 25% straight line Land is not depreciated
Useful lives, residual values and depreciation methods are reviewed, and adjusted if appropriate, at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
IAS16p67;68
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Leased assets IAS17p8
Leases are classified as finance leases if substantially all the risks and rewards of ownership are transferred to the Group. All other leases are classified as operating leases.
IAS17p20
Assets and liabilities arising from finance lease contracts are initially recognised in the consolidated statement of financial position at their fair value at the inception of the lease or, if lower, at the present value of the minimum future lease rentals.
IAS17p27
After initial recognition, the depreciation policy applied is consistent with that for depreciable assets that are owned. As a result, the depreciation recognised is calculated in accordance with the useful life stated for property, plant and equipment (the Group does not hold leased intangible assets). In cases where there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IAS17p25
The interest element of rental obligations is charged to profit or loss over the period of the lease at a constant rate on the balance of finance lease obligations outstanding.
IAS17p33
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the lease term.
SIC-15
IAS37p66
Incentives to take out operating leases are credited to profit or loss, as a reduction of rental expense, on a straight-line basis over the lease term. Provision is made in the consolidated statement of financial position for the present value of the onerous element of operating leases. This typically arises when the Group ceases to use premises and they are left vacant to the end of the lease or are sub-let at rentals, which fall short of the amount payable by the Group under the lease.
(E) INTANGIBLE ASSETS
Goodwill IFRS3p32
IAS36p10(b)
Goodwill arising in a business combination is initially measured at its cost, being the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised.
Separately acquired intangible assets IAS38p24;27
IAS38p74;104
On initial recognition, intangible assets acquired separately are measured at cost. The cost of a separately acquired intangible asset comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates and any directly attributable cost of preparing the asset for its intended use. After initial recognition, intangible assets are carried at cost less any accumulated amortisation and impairment losses. The estimated useful life and amortisation method are revised at the end of each reporting period with the effect of any changes in estimate being accounted for on a prospective basis.
IAS38p112;113
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset - measured as the difference between the net disposal proceeds and the carrying amount of the asset - are recognised in profit or loss when the asset is derecognised.
Internally generated intangible assets IAS38p57
IAS38p71
Development costs represent typical internally generated intangible assets of relevance for the Group. Costs incurred in relation to individual projects are capitalised only when the future economic benefit of the project is probable and the following main conditions are met: (i) the development costs can be measured reliably, (ii) the technical feasibility of the product has been ascertained and (iii) management has the intention and ability to complete the intangible asset and use or sell it. When expenditure is initially recognised as an expense, for example where it cannot be determined whether future economic benefits are probable, it cannot later be recognised as part of the cost of an intangible asset. Internally generated intangible assets primarily relate to internally developed software and internally developed patented technology as well as processes or recipes.
IAS38p54
Research costs are expensed as incurred. After initial recognition, internally generated intangible assets follow the accounting policies of separately acquired intangible assets as stated above.
Intangible assets acquired in a business combination IAS38p34
Identifiable intangible assets acquired as part of a business combination are initially recognised separately from goodwill if the asset’s fair value can be measured reliably, irrespective of whether the asset had been recognised by the acquiree before the business combination. An intangible asset is considered identifiable only if it is separable or if it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. After initial recognition, intangible assets acquired as part of a business combination follow the accounting policies of separately acquired intangible assets as stated above.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IAS38p118(a),(b)
Amortisation
For intangible assets with finite useful lives, amortisation is calculated so as to write off the cost of the asset, less its estimated residual value, over its useful economic life as follows: Licences 5% straight line Customer lists 15 – 33% straight line Brands (except Brand Supervalve) 5% straight line Development costs 20% straight line Intangible assets with an indefinite useful life are not amortised, but subject to review for impairment as described below. Brand Supervalve was acquired as part of a business combination and its useful life was determined to be indefinite.
(F) IMPAIRMENT OF NON-FINANCIAL ASSETS
Impairment of property, plant and equipment and of intangible assets with finite useful lives IAS36p9;18;22
IAS36p30;55
IAS36p104;119
The carrying amounts of such assets are reviewed at each reporting date for indications of impairment and where an asset is impaired, it is written down as an expense through the consolidated statement of profit or loss to its estimated recoverable amount. Recoverable amount is the higher of value in use and the fair value less costs of disposal of the individual asset or the cash-generating unit. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs. Value in use is the present value of the estimated future cash flows of the asset / unit. Present values are computed using pre-tax discount rates that reflect the time value of money and the risks specific to the asset / unit whose impairment is being measured. Impairment losses for cash-generating units are allocated first against the goodwill of the unit and then pro rata amongst the other assets of the unit. Subsequent increases in the recoverable amount caused by changes in estimates are credited to profit or loss to the extent that they reverse the impairment.
Impairment of goodwill and of intangible assets with an indefinite useful life IAS36p10
Irrespective of whether there is any indication of impairment, such assets are tested for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired.
IAS36p80
For the purpose of impairment testing, goodwill is allocated to each cash-generating unit, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree were assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and is not larger than an operating segment.
IAS36p124
Goodwill impairment is not reversed in any circumstances.
IAS2p36(a)
(G) INVENTORIES
IAS2p6
Inventories are carried in the consolidated statement of financial position at the lower of cost and net realisable value. Cost is determined on a first-in first-out (FIFO) basis. The cost of work in progress and finished goods comprises materials, direct labour and attributable production overheads based on normal levels of activity. Write-down is made for obsolete and slow-moving items based on their expected future use and net realisable value. Net realisable value is the estimated sales price in the ordinary course of business after allowing for all further costs of completion and disposal.
IFRS7p21
(H) FINANCIAL INSTRUMENTS
IAS39p14;43
Initial recognition and measurement
The Group recognises a financial asset or a financial liability in the consolidated statement of financial position when, and only when, it becomes a party to the contractual provisions of the instrument. On initial recognition, the Group recognises all financial assets and financial liabilities at fair value. The fair value of a financial asset / liability on initial recognition is normally represented by the transaction price. The transaction price for financial assets / liabilities other than those classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition / issue of the financial instrument. Transaction costs incurred on acquisition of a financial asset and issue of a financial liability classified at fair value
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IFRS7pB5(c)
through profit or loss are expensed immediately. The Group recognises financial assets using settlement date accounting, thus an asset is recognised on the day it is received by the Group and derecognised on the day that it is delivered by the Group. Subsequent measurement of financial assets
Subsequent measurement of financial assets depends on their classification on initial recognition. The Group classifies financial assets in one of the following four categories:
IAS39p9
Financial assets at fair value through profit or loss (FVTPL) Assets are classified in this category when they are held principally for the purpose of selling or repurchasing in the near term (trading assets) or are derivatives (except for a derivative that is a designated and effective hedging instrument) or meet the conditions for designation in this category at initial recognition.
IAS39p55(a) IFRS7pB5(e)
Gains or losses arising on remeasurement of financial assets at FVTPL incorporate any dividend or interest earned, and are recognised in profit or loss. For the years that ended on 31 December 2015 and 2014, the Group did not classify any financial assets as held for trading or designated as at fair value through profit or loss.
IAS39p9;46(a)
Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets that the Group intends to sell immediately or in the near term cannot be classified in this category. These assets are carried at amortised cost using the effective interest method (except for short-term receivables where interest is immaterial) minus any reduction for impairment or uncollectibility. Typically trade and other receivables, bank balances and cash are classified in this category.
IAS39p9;46(b)
Held-to-maturity financial assets These are non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. Financial assets that upon initial recognition the Group designates as at fair value through profit or loss or available-for-sale and those that meet the definition of loans and receivables cannot be classified in this category. Similar to loans and receivables, these assets are carried at amortised cost using the effective interest method minus any reduction for impairment or uncollectibility. For the years that ended on 31 December 2015 and 2014, the Group did not classify any financial asset in this category.
IAS39p9;46 IAS39p46(c);AG81
IAS39p55(b);67
Available-for-sale (AFS) financial assets These are non-derivative financial assets that are designated as available for sale on initial recognition or are not classified in one of the previous categories. They are carried at their fair value. However, unquoted equity instruments are carried at cost, where it is not possible to reliably measure their fair value. Except for foreign exchange gains and losses on debt instruments, interest income and dividends that are recognised in profit or loss, changes in the carrying amount of AFS financial assets are recognised in other comprehensive income and accumulated in revaluation reserve, until the investment is disposed of or is determined to be impaired. At that time, the cumulative gain or loss previously accumulated in the revaluation reserve is reclassified to profit or loss.
IFRS7pB5(f)
Impairment of financial assets
IAS39p58;59
At the end of each reporting period, the Group assesses whether its financial assets (other than those at FVTPL) are impaired, based on objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows of the (group of) financial asset(s) have been affected. Objective evidence of impairment could include significant financial difficulty of the counterparty, breach of contract, probability that the borrower will enter bankruptcy, disappearance of an active market for that financial asset because of financial difficulties, etc.
IAS39p61
For AFS equity instruments, a significant or prolonged decline in the fair value of the investment below its cost is considered also to be objective evidence of impairment.
IAS39p64
IFRS7pB5(d)
In addition, for trade receivables that are assessed not to be impaired individually, the Group assesses them collectively for impairment, based on the Group's past experience of collecting payments, an increase in the delayed payments in the portfolio, observable changes in economic conditions that correlate with default on receivables, etc. Only for trade receivables, the carrying amount is reduced through the use of an allowance account and subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. For all other financial assets, the carrying amount is directly reduced by the impairment loss.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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IAS39p65
For financial assets measured at amortised cost, if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed (either directly or by adjusting the allowance account for trade receivables) through profit or loss. However, the reversal must not result in a carrying amount that exceeds what the amortised cost of the financial asset would have been had the impairment not been recognised at the date the impairment is reversed.
IAS39p69;70
For AFS debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss. In respect of AFS equity securities, an increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated in revaluation reserve; impairment losses are not reversed through profit or loss.
IAS39p17
Derecognition of financial assets
Irrespective of the legal form of the transactions, financial assets are derecognised when they pass the “substance over form” based derecognition test prescribed by IAS 39. That test comprises two different types of evaluations which are applied strictly in sequence:
Evaluation of the transfer of risks and rewards of ownership
Evaluation of the transfer of control Whether the assets are recognised / derecognised in full or recognised to the extent of the Group’s continuing involvement depends on accurate analysis which is performed on a specific transaction basis. Subsequent measurement of financial liabilities
Subsequent measurement of financial liabilities depends on how they have been categorised on initial recognition. The Group classifies financial liabilities in one of the following two categories:
IAS39p9;47(a)
Liabilities at fair value through profit or loss (FVTPL) Liabilities are classified in this category when they are held principally for
the purpose of selling or repurchasing in the near term (trading liabilities) or are derivatives (except for a derivative that is a designated and effective hedging instrument) or meet the conditions for designation in this category. All changes in fair value relating to liabilities at fair value through profit or loss are charged to profit or loss as they arise. For the years that ended on 31 December 2015 and 2014, the Group did not classify any financial liabilities as held for trading or designated as at fair value through profit or loss.
IAS39p9;47
Other financial liabilities All liabilities which have not been classified in the previous category fall into this residual category.
These liabilities are carried at amortised cost using the effective interest method. Typically, trade and other payables and borrowings are classified in this category. Items classified within trade and other payables are not usually remeasured, as the obligation is known with a high degree of certainty and settlement is short-term.
IAS32p18(a)
Preference shares
These are classified as liabilities in accordance with their substance rather than their legal form. Preference shares represent financial liabilities classified in the “other liabilities” category and are therefore carried at amortised cost. Dividends on preference shares are classified as an interest expense.
IAS39p39;41
Derecognition of financial liabilities
A financial liability is removed from the Group’s statement of financial position only when the liability is discharged, cancelled or expired (ie extinguished). The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss.
IAS39p86
IAS39p88
Hedging
The normal course of the Group’s business exposes it to currency and interest rate risks. In order to hedge these risks in accordance with the Board’s written treasury policies, the Group uses derivatives and other hedging instruments. IAS 39 allows 3 types of hedging relationships:
Fair value hedge
Cash flow hedge
Hedge of a net investment in a foreign operation The Group uses hedge accounting only when the following conditions at the inception of the hedge are satisfied:
The hedging instrument and the hedged item are clearly identified
Formal designation and documentation of the hedging relationship is in place. Such hedge documentation includes the hedge strategy and the method used to assess the hedge’s effectiveness; and
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 18
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
The hedge relationship is expected to be highly effective throughout the life of the hedge.
The above documentation is subsequently updated at each reporting date in order to assess whether the hedge is still expected to be highly effective over its remaining life.
IAS39p89;92
Fair value hedge The gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount (for a non-derivative hedging instrument) is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk is also recognised in profit or loss. If the hedge is terminated, no longer meets the criteria for hedge accounting or is revoked, the adjusted carrying amount of a hedged financial instrument for which the effective interest method is used is amortised to profit or loss.
IAS39p95
Cash flow hedge The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised (net of tax) in other comprehensive income and accumulated under hedging reserve, and the ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. No adjustment is made to the hedged item.
IAS39p97
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised in equity are reclassified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss.
IAS39p98(b);99
If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, or a forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, then the Group removes the associated gains and losses that were accumulated in equity and includes them in the initial cost or other carrying amount of the asset or liability (basis adjustment).
IAS39p102
Hedge of a net investment in a foreign operation Hedges of a net investment in a foreign operation are accounted for similarly to cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income and accumulated in the foreign currency translation reserve, whilst the ineffective portion is recognised immediately in profit or loss. The gain or loss on the hedging instrument that has been accumulated in equity is reclassified to profit or loss on disposal of the foreign operation.
Derivatives
All derivatives are initially recognised and subsequently carried at fair value. The Group policy is to use derivatives only for hedging purposes. Accounting for derivatives engaged in hedging relationships is described in the above section. Sometimes, the Group enters into certain derivatives in order to hedge some transactions but the strict hedging criteria prescribed by IAS 39 are not met. In those cases, even though the transaction has its economic and business rationale, hedge accounting cannot be applied. As a result, changes in the fair value of those derivatives are recognised in profit or loss and accounting for the hedged item follows the Group’s policies for that item.
IAS39p11
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
IAS7p6
IAS7p8
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, on demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to insignificant risk of changes in value. For the purpose of the statement of cash flows only, cash and cash equivalents include bank overdrafts repayable on demand. Since the characteristics of such banking arrangements are that the bank balance often fluctuates from being positive to overdrawn, they are considered an integral part of the Group’s cash management.
(I) DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
IFRS5p31-34
Discontinued operations
These are either separate major lines of business or geographical operations that have been sold or classified as held for sale. When held for use, discontinued operations were a cash-generating unit or a group of cash-generating units. They comprise operations and cash flows that can be clearly distinguished - operationally and for financial reporting purposes - from the rest of the entity. Their results are shown separately in the consolidated statement of profit or loss and comparative figures are restated to reclassify them from continuing to discontinued operations.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 19
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS5p6-8;15
IFRS5p25
Non-current assets (or disposal groups) held for sale
A non-current asset (or disposal group) held for sale represents an asset whose carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the sale must be highly probable and the non-current asset (or disposal group) must be available for immediate sale in its present condition. The appropriate level of management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from its classification. Disposal groups and non-current assets held for sale are included in the consolidated statement of financial position at fair value less costs to sell, if this is lower than the previous carrying amount. Once an asset is classified as held for sale or included in a group of assets held for sale, no further depreciation or amortisation is recorded.
IAS20p39(a)
(J) GOVERNMENT GRANTS
Government grants are recognised when the conditions for receipt are met and there is reasonable assurance that the grant wil l be received. Grants related to assets are initially taken to deferred income and then released to profit or loss on a systematic and rational basis over the useful lives of the related assets. The majority of grants received by the Group are to assist with the purchase of plant and machinery. Grants related to income are deducted in reporting the related expense. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.
IAS23p8
(K) BORROWING COSTS
Interest on borrowings to finance the purchase and development of a self-constructed qualifying asset (ie an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) is included in the cost of the asset until such time as the asset is substantially ready for use or sale. Such borrowing costs are capitalised net of any investment income earned on the temporary investment of funds that are surplus pending such expenditure. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
IAS21p23;28
(L) FOREIGN CURRENCY TRANSACTIONS
Foreign currency monetary assets and liabilities are translated into the functional currency of the concerned entity of the Group using the exchange rates at the reporting date. Gains and losses arising from changes in exchange rates after the date of the transaction are recognised in profit or loss (except when deferred in other comprehensive income as qualifying cash flow hedges). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency (eg available-for-sale equity instruments) are translated using the exchange rates at the date when the fair value is determined.
(M) RETIREMENT BENEFITS
The Group operates a defined benefit obligation scheme for some employees and various defined contribution schemes cover other employees.
IAS19p51
Defined contribution schemes
The annual contributions payable in respect of defined contribution schemes are charged to profit or loss in the period to which they relate. Any cumulative difference between amounts payable and amounts paid are shown in the statement of financial position as receivables or payables, but otherwise the assets and liabilities of those schemes are not included in the financial statements as the employer is not exposed to their risks and rewards, which instead lie with the members of those schemes.
IAS19p120(a),(b)
Defined benefit schemes
The defined benefit scheme offers retirement benefits that are linked to the service, age and remuneration of employees. The assets of the scheme are held in trust funds separately from those of the Group. Operating expenses in the consolidated statement of profit or loss include:
The service cost of the defined benefit plan (ie current service costs, past service costs (including curtailment gains or losses) and any gain or loss on settlement)
The net interest on the net defined benefit liability / asset.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 20
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS19p120(c );122 IAS19p127
IAS19p57;59;63;83
Remeasurements of the net defined benefit liability / asset are recognised in other comprehensive income, with no reclassification to profit or loss in a subsequent period. Remeasurements comprise all actuarial gains / losses, the effect of changes to the asset ceiling (where applicable) and the return on plan assets, excluding amounts included in net interest on the net defined benefit liability / asset. The Group’s consolidated statement of financial position includes the excess of the present value of the defined benefit obligations in respect of service up to the reporting date, over the fair value of the scheme assets. An independent qualified actuary annually advises the Group of the defined benefit obligation using the Projected Unit Credit Method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. In countries where there is no deep market in such bonds, the market rates on government bonds are used.
(N) SHARE-BASED PAYMENTS
IFRS2p15
Share-based payments of the Group are equity-settled share options granted to employees, for which an option pricing model is used to estimate the fair value at grant date. That fair value is charged on a straight-line basis as an expense in the consolidated statement of profit or loss over the period that the employee becomes unconditionally entitled to the options (vesting period), with a corresponding increase in equity.
IFRS2p19;20
The number of such options is adjusted annually to reflect best estimates of those expected to vest (ignoring purely market-based conditions) with consequent changes to the expense. Equity is also increased by the proceeds received, as and when employees choose to exercise their options.
IFRS2p27
If the Group modifies the terms and conditions on which the equity instruments were granted, as a minimum, the services received measured at the grant date fair value of the equity instruments granted (unless those equity instruments do not vest because of failure to satisfy a vesting condition other than a market condition) are charged to profit or loss.
IFRS2p28
Cancellations of grants of equity instruments during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied) are accounted for as an acceleration of vesting; therefore, the unrecognised remaining amount is recognised immediately in the consolidated statement of profit or loss.
(O) INCOME TAXES
IAS12p46
Tax currently payable is calculated using the tax rates in force or substantively enacted at the reporting date. Taxable profit differs from accounting profit either because some income and expenses are never taxable or deductible, or because the time pattern that they are taxable or deductible differs between tax law and their accounting treatment.
IAS12p15
Using the statement of financial position liability method, deferred tax is recognised in respect of all temporary differences between the carrying value of assets and liabilities in the consolidated statement of financial position and the corresponding tax base, with the exception of temporary differences arising from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
IAS12p47
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liabil ity is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.
IAS12p24;34
Deferred tax assets are recognised only to the extent that the Group considers that it is probable (ie more likely than not) that there will be sufficient taxable profits available for the asset to be utilised within the same tax jurisdiction.
IAS12p74
Deferred tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities, they relate to the same tax authority and the Group’s intention is to settle the amounts on a net basis.
IAS12p58;61A
IAS12p39
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except if it arises from transactions or events that are recognised in other comprehensive income or directly in equity. In this case, the tax is recognised in other comprehensive income or directly in equity, respectively. Where tax arises from the initial accounting for a business combination, it is included in the accounting for the business combination. Since the Group is able to control the timing of the reversal of the temporary difference associated with interests in subsidiaries, associates and joint arrangements, a deferred tax liability is recognised only when it is probable that the temporary difference will reverse in the foreseeable future mainly because of a dividend distribution.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 21
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
At present, no provision is made for the additional tax that would be payable if the subsidiaries in certain countries remitted their profits because such remittances are not probable, as the Group intends to retain the funds to finance organic growth locally. As far as joint arrangements and associates are concerned, the Group is not in a position to determine their dividend policies. As a result, all significant deferred tax liabilities for all such taxable temporary differences are recognised.
IAS37p14;36;47;72
(P) PROVISIONS
Where, at the reporting date, the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that the Group will settle the obligation, a provision is made in the statement of financial position. Provisions are made using best estimates of the amount required to settle the obligation and are discounted to present values using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Changes in estimates are reflected in profit or loss in the period they arise. Warranty provisions are measured using probability models based on past experience. Restructuring provisions are only recognised once the formal plan has been communicated to affected parties.
(Q) EQUITY
IAS32p11 Equity instruments are contracts that give a residual interest in the net assets of the Group. Ordinary shares are classified as equity. Equity instruments are recognised at the amount of proceeds received net of costs directly attributable to the transaction. To the extent those proceeds exceed the par value of the shares issued they are credited to a share premium account.
IAS10p12;13
Dividend distribution
Dividends are recognised as liabilities when they are declared (ie the dividends are appropriately authorised and no longer at the discretion of the entity). Typically, dividends are recognised as liabilities in the period in which their distribution is approved at the Shareholders’ Annual General Meeting. Interim dividends are recognised when paid.
IAS32p33
Treasury shares
The cost of treasury shares purchased is shown as a deduction from equity in the consolidated statement of financial position. When treasury shares are sold or reissued they are credited to equity. As a result, no gain or loss on treasury shares is included in the consolidated statement of comprehensive income.
IAS32p32
Convertible bonds
When convertible bonds are issued, the proceeds (net of issue costs) are split to separately identify a liability component (equal to the net present value of their scheduled future cash flows applying interest rates at the date of issue of similar bonds that do not have a conversion option). The remainder of the issue proceeds is deemed to relate to the conversion option and is credited to an equity reserve. The liability component is carried at amortised cost until extinguished on conversion of the option or maturity of the bond. The equity component is not subsequently remeasured.
3 SEGMENT INFORMATION
IFRS8p22
For management purposes, the Group is split into three major strategic units which operate in different industries and are managed separately: mechanical, electronic and chemical. Such structural organisation is determined by the nature of risks and returns associated with each business segment and defines the management structure as well as the internal reporting system. It represents the basis on which the Group reports its segment information. Business information regarding the three units is also analysed by the management on a country basis and sub-aggregated in 5 macro-regions: the Republic of Newland, the rest of Europe, North America, South America and Asia Pacific. Information provided by internal financial reporting comprises two major reports which include the same type of quantitative information analysed by business unit and by country. The segment analysis presented in these financial statements reflects operations analysed by business. This best describes the way the Group is managed and provides a meaningful insight into the business activities of the Group. The mechanical segment is a manufacturer of spring-loaded instruments, bicycles and clockwork equipment. The electronic segment is a manufacturer of sophisticated electronic equipment used in the automotive, aerospace and shipbuilding industries. The chemical segment is a manufacturer of plastic containers, which are sold in bulk to food packagers.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 22
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS8p27(a)
Inter-segment sales are measured on the basis that the entity actually uses to price the transfers. Internal transfer pricing policies of the Group are based on arm’s length prices. The discontinued operations relate to the disposal of the clockwork component of the mechanical segment (Note 21).
IFRS8p27(b)
The information disclosed in the tables below is derived directly from the internal financial reporting system used by the Board (ie chief operating decision maker) to monitor and evaluate the performance of the operating segments separately. The Group’s management reporting system evaluates performances based on a number of factors; however, the primary profitability measurement to evaluate segment’s operating results comprises two major financial indicators: i) earnings from operations before depreciation, amortisation, non-recurring items, interest and income taxes (called “Recurring EBITDA”) and ii) operating result before interests and income taxes (called “ORBIT”). Non-recurring items typically include restructuring costs and other costs originated by unexpected events which occur rarely and that cannot be controlled by the management. As described below (see considerations about cash discounts), some items are considered to be operating components when included in the internal reporting system, but are included within finance items when reported under IFRS.
IFRS8p23
The following tables illustrate the information about the reportable segments’ profit or loss, assets and liabilities at 31 December 2015 and 2014.
MECHANICAL ELECTRONIC CHEMICAL TOTAL
CU’000 CU’000 CU’000 CU’000
2015
REVENUE BY SEGMENT
IAS18p35(b) Sale of Goods 4,236 9,392 9,225 22,853
IAS18p35(b) Servicing and installation fees 443 - - 443
IAS18p35(b) Royalty income - 182 - 182
IAS18p35(b) Other 35 - - 35
IFRS8p23 Total Revenue by Segment 4,714 9,574 9,225 23,513
IFRS8p23(b) Inter-segment sales (127) (158) - (285)
IFRS8p23(a) External sales revenue 4,587 9,416 9,225 23,228
IFRS8p23 Recurring EBITDA 922 2,013 1,005 3,940
IFRS8p23(e) Depreciation (257) (559) (302) (1,118)
IFRS8p23(e) Amortisation (23) (198) (50) (271)
IFRS8p23(i) Impairment (244) - - (244)
Other non-recurring items (109) - - (109)
IFRS8p23 ORBIT 289 1,256 653 2,198
IFRS8p23 REPORTABLE SEGMENT ASSETS
IFRS8p23(g) Share of profit from associates - 140 - -
IFRS8p24 Investment in associates - 281 - -
Reportable segment assets 3,011 8,053 4,039 15,103
Expenditures for reportable non-current assets 412 3,498 721 4,656
IFRS8p23 REPORTABLE SEGMENT LIABILITIES
Reportable segment liabilities 529 1,263 312 2,104
MECHANICAL ELECTRONIC CHEMICAL TOTAL
CU’000 CU’000 CU’000 CU’000
2014
REVENUE BY SEGMENT
IAS18p35(b) Sale of Goods 4,368 5,262 5,462 15,092
IAS18p35(b) Servicing and installation fees 452 - - 452
IAS18p35(b) Royalty income - 160 - 160
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 23
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS18p35(b) Other 76 - - 76
IFRS8p23 Total Revenue by Segment 4,896 5,422 5,462 15,780
IFRS8p23(b) Inter-segment sales (101) (143) - (244)
IFRS8p23(a) External sales revenue 4,795 5,279 5,462 15,536
IFRS8p23 Recurring EBITDA 1,078 1,486 760 3,324
IFRS8p23(e) Depreciation (257) (559) (249) (1,065)
IFRS8p23(e) Amortisation (23) (198) (50) (271)
IFRS8p23(i) Impairment (244) - - (244)
Other non-recurring items - - - -
IFRS8p23 ORBIT 554 729 461 1,744
IFRS8p23 REPORTABLE SEGMENT ASSETS
IFRS8p23(g) Share of profit from associates - 300 - -
IFRS8p24 Investment in associates - 249 - -
Reportable segment assets 3,949 3,211 3,612 10,772
Expenditures for reportable non-current assets 360 453 366 1,209
IFRS8p23 REPORTABLE SEGMENT LIABILITIES
Reportable segment liabilities 283 1,189 277 1,749
IFRS8p28 The following tables illustrate the reconciliations of reportable segments’ revenue, profit or loss, assets and liabilities to the
Group’s corresponding amounts reported in the consolidated financial statements.
2015 2014
IFRS8p28(a) RECONCILIATION OF REPORTABLE SEGMENTS' REVENUE CU'000 CU'000
Total revenue for reportable segments 23,513 15,780
Cash discounts (425) (376)
Elimination of inter-segment revenue (285) (244)
Group’s revenue from continuing operations 22,803 15,160
Receivables collection policies vary depending on the type of industry, type of client and the country where customers are
domiciled. In the vast majority of cases, receivables are due for collection between 30 and 90 days after the invoice has been issued. However, in order to speed up the cash collection, it is the Group’s policy to provide cash discounts to clients that agree to pay receivables within 15 days from the date of issuance of the invoice. For internal reporting purposes, these discounts are presented as an operating component but are considered a finance component for the preparation of the IFRS financial statements.
2015 2014
IFRS8p28(b) RECONCILIATION OF REPORTABLE SEGMENTS' PROFIT CU'000 CU'000
Operating result for reportable segments (ORBIT) 2,198 1,744
Cash discounts (425) (376)
Finance costs (110) (111)
Finance income
19 16
Other corporate expense 180 180
Share of profit (loss) of associates 140 300
Gain on sale of investments 63 18
Gain (loss) on revaluation of an associate becoming a subsidiary 490 -
Group’s profit before tax from continuing operations 2,555 1,771
See above information with regard to cash discounts and ORBIT.
See Note 13 for Share of profit or loss of associates and Note 6 for Gain on sale of investments.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 24
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
IFRS8p28(c) RECONCILIATION OF REPORTABLE SEGMENTS' ASSETS CU'000 CU'000
Total assets for reportable segments 15,103 10,772
Corporate assets (Headquarters) 478 455
Other 591 231
Total assets for the statement of financial position (except non-current assets classified as held for sale) 16,172 11,458
Corporate assets are mainly represented by the Property, plant and equipment of the Headquarters in Newland. Unallocated
assets are represented by Deferred tax assets, Available-for-sale investments and Cash and cash equivalents which are typically managed by central treasury and tax departments at corporate level.
2015 2014
IFRS8p28(d) RECONCILIATION OF REPORTABLE SEGMENTS' LIABILITIES CU'000 CU'000
Total liabilities for reportable segments 2,104 1,749
Corporate liabilities (Headquarters) 89 75
Other 4,449 2,283
Total liabilities for the statement of financial position (except liabilities directly associated with non-current assets classified as held for sale) 6,642 4,107
Corporate liabilities are mainly represented by pension schemes and other miscellaneous employee payables
relating to corporate personnel. Unallocated liabilities are represented by borrowings and current and deferred tax liabilities which are typically managed by central treasury and tax departments at a corporate level. Geographical information
The segmental information below is based on the segment revenue from external customers by country of domicile of customers. The global scale operations of the Group are divided into five principal geographical areas. In each geographical area the Group has all the three business segments described above. In Europe, information for Newland is reported separately.
2015 2014
IFRS8p33(a) REVENUE FROM EXTERNAL CUSTOMERS CU'000 CU'000
Newland 3,420 2,890
Europe 2,159 1,247
Asia Pacific 3,702 3,852
North America 7,543 3,420
South America 5,979 3,751
Group’s revenue from continuing operations 22,803 15,160
2015 2014
IFRS8p33(b) NON-CURRENT ASSETS CU'000 CU'000
Newland 3,103 1,278
Europe 1,230 959
Africa - 1,124
Asia Pacific 879 831
North America 2,848 1,650
South America 1,560 1,149
Unallocated 721 595
Total non-current assets 10,341 7,586
IFRS8p34 Revenues totalling approximately CU 3,400 (2014: CU 2,900) thousands and relating to the electronic segment are originated
by sale transactions carried out across the globe with one multinational group.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 25
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
4 ANALYSIS OF EXPENSES BY NATURE
IAS1p104 The following table illustrates the breakdown by nature of cost of sales, distribution costs and other administrative expenses.
2015 2014
CU'000 CU'000
IAS1p104 EMPLOYEE BENEFITS EXPENSE
Wages and salaries 7,424 6,143
Social security costs 778 650
IAS19p53 Defined contribution costs 40 36
Defined benefit obligation costs 780 665
Share-based payments: equity settled 24 80
Groups’ revenues from continuing operations
9,046 7,574
IAS1p104 INTANGIBLE ASSETS
Impairment of goodwill 100 120
Impairment of other intangible assets 24 -
Amortisation of other intangible assets 271 256
Research and development 550 501
945 877
IAS1p104 PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment 1,165 1,126
Impairment of property, plant and equipment 120 -
Loss on disposal of property, plant and equipment 12 13
1,297 1,139
Operating leases 108 95
Foreign exchange differences 21 12
Consumables and raw materials used 7,177 1,986
Write-down of inventories (net of reversal) 16 11
Freight costs expense 87 26
Transportation costs 567 643
Advertising costs 322 104
Write-off and provision of doubtful receivables - net 19 14
Other expenses 1,245 1,131
TOTAL COST OF SALES, DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES 20,850 13,612
Employee benefits costs are stated net of government grants obtained as a result of the delivery of a training programme on new safety and security laws that will be in force in Newland starting from the beginning of 2018. The Group decided to implement such resolutions earlier and therefore was granted by the government a special contribution amounting to CU 20,000. All conditions attached to the government programme have been fulfilled.
5 FINANCE INCOME AND COSTS
The following table analyses the total amounts of finance income and costs classified by underlying category of financial assets and liabilities.
2015 2014
CU'000 CU'000
IFRS7p20(b) Interest expense on financial liabilities measured at amortised cost 110 111
FINANCE COSTS 110 111
IFRS7p20(b) Interest income on financial assets measured at amortised cost 7 5
Dividend income from available-for-sale investments (Note 6) 12 11
FINANCE INCOME 19 16
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 26
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
During 2015 and 2014, the Group has not classified financial assets as held-to-maturity and financial assets or liabilities at fair value through profit or loss. The following table analyses the amount of total interest expense for financial liabilities measured at amortised cost.
2015 2014
IFRS7p20(b) INTEREST EXPENSE ON FINANCIAL INSTRUMENTS MEASURED AT AMORTISED COST CU'000 CU'000
Finance leases 26 22
Factored debts 42 37
Bank borrowings 10 24
Preference share dividends 25 25
Convertible bonds 12 -
Provisions: discount unwinding 4 3
IAS23p26 Borrowing costs capitalised at 6% (9) -
Total interest expense on financial liabilities measured at amortised cost 110 111
6 GAIN / LOSS ON AVAILABLE-FOR-SALE FINANCIAL ASSETS
IFRS7p20(a)(ii)
The following table analyses the amount of total gain or loss generated by available-for-sale investments.
2015 2014
CU'000 CU'000
NET INCOME (LOSS) RECOGNISED IN THE STATEMENT OF PROFIT OR LOSS
Income recognised directly in profit or loss (Note 5) 12 11
Gain reclassified to profit or loss from equity 63 18
75 29
NET INCOME (LOSS) RECOGNISED IN EQUITY (NOTE 32)
Income recognised in other comprehensive income 10 12
Gain reclassified to profit or loss from equity (63) (18)
(53) (6)
7
INCOME TAX EXPENSE
2015 2014
CU'000 CU'000
Current taxes 619 452
Deferred taxes 63 110
TOTAL INCOME TAX EXPENSE 682 562
The following table illustrates the detail of the tax charged to profit or loss.
2015 2014
TAX CHARGE ON CONTINUING OPERATIONS CU'000 CU'000
CURRENT
IAS12p80(a) Current tax for the year 638 472
IAS12p80(b) Adjustments recognised in the year for current tax of prior periods (19) (20)
619 452
DEFERRED
IAS12p80(d) Change in tax rates 5 -
IAS12p80(c) Temporary differences 58 110
63 110
TOTAL INCOME TAXES ON CONTINUING OPERATIONS 682 562
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 27
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
TAX CHARGE ON DISCONTINUED OPERATIONS CU'000 CU'000
Current (37) (29)
Deferred - (21)
TOTAL INCOME TAXES ON DISCONTINUED OPERATIONS (37) (50)
IAS12p81(d)
On 30 November 2015, local tax authorities of the Republic of Dryland have approved a tax reform that will result in the increase of the corporate tax rate from the year 2017. This change has resulted in additional deferred tax liabilities of CU 5,000.
2015 2014
IAS12p81(c) TAX EXPENSE RECONCILIATION CU'000 CU'000
Profit for the year 2,555 1,771
Corporation tax charge thereon at 30% (2014 at 30%) 766 531
ADJUSTED FOR THE EFFECTS OF:
Expenses not deductible for tax purposes 28 53
Change in tax rates 5 -
Different tax rates in foreign jurisdictions 31 43
Income not liable to tax (122) (71)
Not deductible goodwill impairment 30 36
Adjustments to tax in respect of previous periods (19) (20)
Other minor items (37) (10)
INCOME TAX EXPENSE FOR THE YEAR 682 562
EFFECTIVE TAX RATE 26.7% 31.7% The amount of income taxes outstanding as of 31 December 2015 was CU 523,000 (2014: CU 415,000). Such an amount is net
of tax advances, which, according to the tax rules of certain jurisdictions, were paid before the year end.
IAS12p81(g),(h)
IAS12p81(a)
IAS12p81(ab)
Note 21 provides additional details with regard to current and deferred tax on discontinued operations and Note 28 provides additional details with regard to deferred tax at the reporting date. The effective tax rate for 2015 was 26.7% (31.7% in 2014). The theoretical income taxes are determined by applying the domestic corporate tax rate in Republic of Newland, where the parent is domiciled. The effective tax rate is calculated including the share of post-tax results of associates. This calculation is consistent with that used in prior years. Total income tax recognised directly in equity amounts to CU 234,000 (2014: nil). The following table sets out the tax relating to each component of other comprehensive income.
2015 2014
CU'000 CU'000
Deferred tax on cash flow hedges gains (25) (10)
Deferred tax on hedge transfer to inventory (3) (5)
Deferred tax on hedge transfer to profit (2) (4)
Deferred tax on revaluation of investments (3) (4)
Deferred tax on realised on disposal 5 6
INCOME TAX RELATING TO ITEMS OF OTHER COMPREHENSIVE INCOME (28) (17)
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 28
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
8 EARNINGS PER SHARE
The following table illustrates the numerators and denominators used to calculate basic and diluted earnings per share of continuing and discontinued operations at years ended 31 December.
2015 2014
IAS33p70(a) NUMERATORS: EARNINGS ATTRIBUTABLE TO EQUITY CU'000 CU'000
Continuing operations: profit for the year 1,873 1,209
Non-controlling interests (105) (52)
Continuing operations attributable to owners of the parent company 1,768 1,157
Discontinued operations: loss for the year (110) (226)
TOTAL BASIC EARNINGS 1,658 931
Interest on convertible bonds 12 -
Current and deferred tax on convertible bond interest (3) -
DILUTED EARNINGS 1,667 931
IAS33p70(b) DENOMINATORS: WEIGHTED AVERAGE NUMBER OF EQUITY SHARES No.’000 No.’000
BASIC 40,700 32,750
Dilutive share options effect 708 2,347
Conversion of convertible bonds to equity 370 -
DILUTED 41,778 35,097
The weighted average number of equity shares refers to shares in circulation during the period that is after the neutralisation of
treasury shares. The dilutive effect derives from two categories of transaction: share options (Note 27) and convertible bonds (Note 22).
9 DIVIDENDS ON EQUITY SHARES
2015 2014
IAS1p107 DIVIDENDS PAID ON EQUITY SHARES CU'000 CU'000
Final [0.5 cents (2014: 0.9531 cents) per share] 165 305
Interim [0.5 cents (2014: 0.5 cents) per share] 240 165
TOTAL DIVIDENDS PAID IN THE YEAR 405 470
Since the year end, the Directors have proposed a final dividend in respect of 2015 of 0.8 cents per share which it is estimated
will total CU 384,000.
10 PROPERTY, PLANT AND EQUIPMENT
PROPERTY PLANT VEHICLES COMPUTER EQUIPMENT
TOTAL
CU’000 CU’000 CU’000 CU’000 CU’000
COST
IAS16p73(d) AT 1 JANUARY 2014 2,966 2,391 1,757 364 7,478
IAS16p73(e) Exchange adjustments (36) (20) (2) (2) (60)
IAS16p73(e) External additions - 363 327 212 902
IAS16p73(e) Disposals (120) (298) (335) (74) (827)
IAS16p73(d) AT 31 DECEMBER 2014 2,810 2,436 1,747 500 7,493
IAS16p73(e) Exchange adjustments 50 32 8 20 110
IAS16p73(e) Acquisitions (Note 17) 121 214 158 107 600
IAS16p73(e) External additions 1,058 402 270 111 1,841
IAS16p73(e) Transfer to held for sale (Note 21) (800) (51) - (10) (861)
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 29
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY PLANT VEHICLES COMPUTER EQUIPMENT
TOTAL
CU’000 CU’000 CU’000 CU’000 CU’000
IAS16p73(e) Disposals - (20) (183) (40) (243)
IAS16p73(d) AT 31 DECEMBER 2015 3,239 3,013 2,000 688 8,940
DEPRECIATION AND IMPAIRMENT
IAS16p73(d) AT 1 JANUARY 2014 241 420 548 203 1,412
IAS16p73(e) Exchange adjustments (12) (8) (2) (2) (24)
IAS16p73(e) Depreciation for the year 60 592 393 81 1,126
IAS16p73(e) Impairment for the year (Note 11) - - - - -
IAS16p73(e) Disposals - (168) (320) (53) (541)
IAS16p73(d) AT 31 DECEMBER 2014 289 836 619 229 1,973
IAS16p73(e) Exchange adjustments 27 17 4 4 52
IAS16p73(e) Depreciation for the year 69 495 444 157 1,165
IAS16p73(e) Impairment for the year (Note 11) - 120 - - 120
IAS16p73(e) Transfer to held for sale (Note 21) - (10) - (5) (15)
IAS16p73(e) Disposals - (15) (110) (30) (155)
IAS16p73(d) AT 31 DECEMBER 2015 385 1,443 957 355 3,140
NET CARRYING AMOUNT
At 1 January 2014 2,725 1,971 1,209 161 6,066
At 31 December 2014 2,521 1,600 1,128 271 5,520
AT 31 DECEMBER 2015 2,854 1,570 1,043 333 5,800
IAS17p31(a)
INCLUDES FINANCE LEASES WITH NET CARRYING AMOUNT
At 31 December 2014 - 285 - - 285
AT 31 DECEMBER 2015 - 330 - - 330
The impairment relates to the clockwork division which is part of the mechanical segment. As described in Note 11, such
impairment test was carried out while preparing the interim financial statements as at 30 June 2015.
IAS16p74(b)
Property includes buildings in the course of construction that have a cost of CU 258,000 (2014: Nil).
IAS16p74(a)
All of the Group’s property is pledged as security for its bank loans. Impairment charges and amortisation have been charged entirely to cost of sales.
IAS17p31(c),(e)
IAS7p43
The Group leases some plants located in the Republic of Newland under non-cancellable lease agreements. Interest rates applied to such agreements are variable. All such lease arrangements include a purchase option that can be exercised at the end of the lease term. Contingent rents recognised as an expense in the period amounted to CU 21,000 (2014: CU 18,000). Additions to property, plant and equipment of CU 80,000 during the year (2014: CU 75,000) were financed by finance leases.
IAS16p79(b)
Fully depreciated plant still in use had a cost of CU 250,000 (2014: CU 262,000).
11 GOODWILL
The Group carried out the impairment test of goodwill for the interim period that ended on 30 June 2015. In particular, the decreasing performance of the clockwork division was considered sufficient evidence to trigger the impairment test of the cash-generating unit. As detailed below, the impairment test resulted in the recognition of a loss.
IAS36p130
The impairment loss relates to the entire goodwill of the clockwork component, which is part of the mechanical cash-generating unit. It has suffered from a fall in demand. Accordingly, the mechanical cash-generating unit has been written down to its value in use of CU 2,238,000 (2014: 3,546,000).
IAS36p126(a)
The impairment charge has been accounted for in cost of sales.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 30
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
The test has been repeated as of 31 December 2015, with no impairment charges recognised; the carrying amounts of all cash-generating units were lower than their recoverable amounts.
IFRS3pB67(d)
2015 2014
CU'000 CU'000
GROSS AMOUNT AT 1 JANUARY 723 738
Exchange adjustments 20 (15)
Acquisitions (Note 17) 809 -
BALANCE AT 31 DECEMBER 1,552 723
ACCUMULATED IMPAIRMENT AT 1 JANUARY 118 -
Exchange adjustments 5 (2)
Recognised in the year 100 120
BALANCE AT 31 DECEMBER 223 118
NET CARRYING AMOUNT 1,329 605
IAS36p134
For the purpose of impairment testing, the carrying amounts of goodwill and other assets have been allocated to cash-generating units as follows:
2015 2014
CU’000 CU’000 CU’000 CU’000 CU’000 CU’000
At 31 December At 31 December
Mechanical Electronic Chemical Mechanical Electronic Chemical
ASSETS ALLOCATION (PRIOR TO IMPAIRMENT CHARGE FOR THE PERIOD)
Goodwill 100 1,234 95 220 410 95
Intangible assets with indefinite useful life - 1,125 - - 122 -
Other intangible assets 256 801 256 129 274 278
Property, plant and equipment 869 2,960 1,670 1,939 1,680 1,420
TOTAL 1,225 6,120 2,021 2,288 2,486 1,793
IMPAIRMENT CHARGE FOR THE YEAR
Goodwill (100) - - (120) - -
Intangible assets with indefinite useful life - - - - - -
Intangible assets (24) - - - - -
Property, plant and equipment (120) - - - - -
TOTAL (244) - - (120) - -
Impairment charges for the year 2015 resulted from the impairment test carried out in relation to the preparation of the interim
financial statements as at 30 June 2015.
IAS36p134(c)
In each case, a recoverable amount has been determined based on a value in use calculation.
IAS36p134(d)
The principal assumptions made in determining value in use of each cash-generating unit are consistent with those used for the calculation performed as at 30 June 2015 and are analysed as follows: Mechanical The impairment test has been carried out using a Discounted Cash Flow unlevered model covering a 10-year
period. Cash flow projections are based on the next three years budgets and plans approved by management; cash flow projections beyond that three-year period have been extrapolated on the basis of a 2% growth rate. Such a growth rate does not exceed the long-term average growth rate of the sector. The discount rate applied (pre-tax Weighted Average Cost of Capital “WACC”) is 8% per annum (in 2015 and 2014). Electronic The impairment test has been carried out using a Discounted Cash Flow unlevered model covering an 8-year period. Cash flow projections are based on the next three years budgets and plans approved by management; cash flow projections beyond that three-year period have been extrapolated on the basis of a zero growth rate. The discount rate applied (pre-tax WACC) is 10% per annum (in 2015 and 2014). Management believes that any reasonably
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 31
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
possible change in the key assumptions on which mechanical division’s recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. Chemical The impairment test has been carried out using a Discounted Cash Flow unlevered model covering a 10-year period. Cash flow projections are based on the next three years budgets and plans approved by management; cash flow projections beyond that three-year period have been extrapolated on the basis of a 5% growth rate. Such a growth rate does not exceed the long-term average growth rate of the sector. The discount rate applied (pre-tax WACC) is 8% per annum (in 2015 and 2014). Management believes that any reasonably possible change in the key assumptions on which mechanical division’s recoverable amount is based would not cause the carrying amount to exceed its recoverable amount.
IAS36p134(f)
If the revised estimated pre-tax discount rate applied to the discounted cash flows had been 10% less favourable than management’s estimates, the Group would need to reduce pro-rata the carrying value of property, plant and equipment and intangible assets by CU 16,000. If the actual gross margin and the pre-tax discount rate had been more favourable than management’s estimates, the Group would be able to reverse any impairment losses that arose on previously impaired assets other than goodwill (IAS 36 does not permit reversing an impairment loss for goodwill).
12 OTHER INTANGIBLE ASSETS
LICENCES CUSTOMER
LISTS BRANDS
DEVELOPMENT COSTS
TOTAL
CU’000 CU’000 CU’000 CU’000 CU’000
COST
IAS38p118(c) AT 1 JANUARY 2014 203 158 331 651 1,343
IAS38p118(e) Exchange adjustments (9) (5) - (2) (16)
IAS38p118(e) External additions 10 52 108 - 170
IAS38p118(e) Internally developed additions - - - 137 137
IAS38p118(e) Disposals (21) - (15) - (36)
IAS38p118(c) AT 31 DECEMBER 2014 183 205 424 786 1,598
IAS38p118(e) Exchange adjustments 25 6 3 3 37
IAS38p118(e) Acquisitions (Note 17) 126 115 59 202 502
IAS38p118(e) External additions 180 22 1,421 - 1,623
IAS38p118(e) Internally developed additions - - - 90 90
IAS38p118(e) Transfer to held for sale (Note 21) (112) (123) - (145) (380)
IAS38p118(e) Disposals (187) - - - (187)
IAS38p118(c) AT 31 DECEMBER 2015 215 225 1,907 936 3,283
AMORTISATION AND IMPAIRMENT
IAS38p118(c) AT 1 JANUARY 2014 147 88 100 222 557
IAS38p118(e) Exchange adjustments (4) (2) - (1) (7)
IAS38p118(e) Amortisation for the year 20 49 87 100 256
IAS38p118(e) Impairment for the year (Note 11) - - - - -
IAS38p118(e) Disposals (11) - - - (11)
IAS38p118(c) AT 31 DECEMBER 2014 152 135 187 321 795
IAS38p118(e) Exchange adjustments 5 3 - 1 9
IAS38p118(e) Amortisation for the year 12 51 106 102 271
IAS38p118(e) Impairment for the year (Note 11) 17 7 - - 24
IAS38p118(e) Transfer to held for sale (Note 21) (51) (75) - (84) (210)
IAS38p118(e) Disposals (20) - - - (20)
IAS38p118(c) AT 31 DECEMBER 2015 115 121 293 340 869
NET CARRYING AMOUNT
At 1 January 2014 56 70 231 429 786
At 31 December 2014 31 70 237 465 803
AT 31 DECEMBER 2015 100 104 1,614 596 2,414
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 32
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS38p118(d)
Impairment charges and amortisation have been charged entirely to cost of sales.
IAS38p126
Research and development costs not recognised as assets amounted to CU 550,000 (2014: CU 501,000).
IAS38p122(a)
Brands include the brand Supervalve which was separately acquired during 2015 and whose carrying value is CU 1,125,000. It has an indefinite useful life, thus not amortised but has passed its annual impairment test together with the goodwill in the Electronic cash-generating unit, which it forms part of. Its recoverable amount was determined as shown in Note 11. The Group earns royalty income from allowing the local manufacture of brand Supervalve under licence in countries where the Group is not represented. The brand is a leader in its markets, where it has been established for over 50 years and as sales continue to rise even when competitor products are launched, there is no sign of its life being limited.
IAS38p128(b)
International Financial Reporting Standards do not permit the recognition of internally generated brands in the statement of financial position. The Group’s portfolio of globally recognised brands includes brand Superpaste and brand Superscrew.
IAS38p128(a)
Software that is still in use includes fully depreciated software that costs CU 21,000 (2014: CU 21,000).
13 INVESTMENTS IN ASSOCIATES
2015 2014
IFRS12pB14(b) GROUP INTEREST CU'000 CU'000
AT 1 JANUARY 249 79
Exchange adjustments 2 (5)
Share of the profit (loss) for the year 140 300
Dividends (40) (125)
Other equity movements - -
Transfer to subsidiary (Note 17) (70) -
BALANCE AT 31 DECEMBER 281 249
As a result of a step acquisition completed in 2015, Fine Products Inc. became a subsidiary and has been therefore fully consolidated (Note 17).
IFRS12p21
IFRS12pB12;B14
The remaining associates are Paste Inc. (incorporated in Newland) and SuperDrill Ltd (incorporated in Wonderland), both local distributors of chemical products. They are accounted for in the Group’s consolidated financial statements using the equity method. Dividends received by the Group from Paste Inc. amount to CU 30,000 (2014: CU 95,000) and from SuperDrill Ltd to CU 10,000 (2014: CU 30,000). The summarised financial information detailed below, with reconciliation to the carrying amount of the Group’s interest in the associates, is based on each associate’s financial statements prepared in accordance with IFRS.
2015 2014
PASTE INC. CU'000 CU'000
Current assets
990 757
Non-current assets
896 750
Current liabilities
(631) (618)
Non-current liabilities
(412) (357)
Net assets of the associate
843 532
Proportion of the Group’s ownership interest in the associate 28% 28%
Carrying amount of the Group’s interest in the associate 236 149
Revenue
2,543 2,461
Profit (or loss) from continuing operations
321 857
Profit for the year
321 857
Total comprehensive income for the year
321 857
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 33
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
SUPERDRILL LTD
Current assets
196 203
Non-current assets
208 188
Current liabilities
(97) (132)
Non-current liabilities
(103) (122)
Net assets of the associate
204 137
Proportion of the Group’s ownership interest in the associate
22% 22%
Carrying amount of the Group’s interest in the associate
45 30
Revenue
605 595
Profit or loss from continuing operations
68 91
Profit for the year
68 91
Total comprehensive income for the year
68 91
IFRS12p21(b)(iii)
Investment in Paste Inc.’s fair value (based on the Big City Stock Exchange quoted price) is CU 384,000 (2014: CU 356,000). SuperDrill Ltd is not a listed entity.
FRS12p22(a)
There are no significant restrictions on the ability of Paste Inc. and SuperDrill Ltd to transfer funds to the Group in the form of cash dividends.
14 JOINT ARRANGEMENTS
IFRS12p7(b),(c) IFRS12p21(a)
The only significant joint arrangement is a 25% interest in JointCPU, a partnership located in Jointland and active in the production of special purpose-built CPUs for the aerospace sector. JointCPU is jointly controlled with three other parties as a result of a contractual agreement involving sharing of control over the relevant activities of JointCPU. Since the contractual arrangement specifies that the parties have rights to the assets and obligations for the liabilities relating to the arrangement, the Group is assessed to be party to a joint operation.
15 AVAILABLE-FOR-SALE FINANCIAL ASSETS
IFRS7p31
Balances as of 31 December 2015 include a portfolio of equity securities listed on the New York Stock Exchange that is spread across various industrial and geographical sectors to reduce exposure to price risk. These equity instruments have been bought to invest temporary excess funds.
2015 2014
CU'000 CU'000
BALANCE AT 1 JANUARY 269 257
Additions 75 -
Disposals (80) -
Changes in fair value recognised in other comprehensive income 10 12
BALANCE AT 31 DECEMBER 274 269
IFRS7p34(c)
All securities listed above are denominated in USD.
16 SUBSIDIARIES
IFRS12p7(a);9(b)
Included in the Group is FarEast Co., 40% owned since its inception in 2013. Even though only 40% of the shares are still currently owned by Group companies, FarEast Co. is consolidated due to the fact that control is obtained through potential voting rights. The Group has an agreement with another shareholder, an investment bank, which owns a further 11% of the voting shares. According to this agreement, the Investment Bank has agreed always to vote in the same way as the Group. The nature of this agreement results in the Group having the power to influence FarEast Co.’s variable returns.
IFRS12p10(b);13
There are no particular significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances, except for restrictions regarding subsidiaries located in the Republic of Dryland as explained in Note 20.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 34
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS12p4;10(a)(i) The composition of the Group at the end of the reporting period was as follows.
Region of incorporation and operation Number of wholly-owned
subsidiaries Number of non-wholly-owned
subsidiaries
2015 2014 2015 2014
Europe 6 7 2 2
Asia Pacific 2 2 3 3
North America 5 5 2 1
South America 2 2 4 4
15 16 11 10
IFRS12p10(a)(ii)
There are no subsidiaries that have non-controlling interests that are considered material to the Group.
17 BUSINESS COMBINATIONS
IFRS3p59(a);B64
On 30 June 2015, the Group acquired a further 20% of the share capital of Fine Products Inc. (incorporated in Oceanland) taking it’s holding to 60% and from that date the Group gained control, holding shares that carry 60% of its votes. Thus, Fine Products Inc. ceased to be an associate and became a subsidiary in the electronic segment specialising in aerospace products. It had been a 40% associate since its inception. For the 6-month period as a subsidiary it contributed CU 170,000 to Group profit. For the 12 months to 31 December 2015 it had revenue of CU 3,460,000 and profits of CU 250,000. The assembled workforce, high existing profitability and the synergies that the Group will obtain all contributed to the amount paid for goodwill. Those assets do not meet the recognition criteria prescribed by IFRS 3 Business Combinations and therefore have not been recognised as separate intangible assets, but subsumed in goodwill. The fair values shown below for Fine Products Inc. are provisional as the allowed hindsight period has not yet expired. A detailed expert report on the fair value of provisions is expected to be available in time for the next set of interim financial statements.
PRE-ACQUISITION CARRYING AMOUNT
UNDER IFRS
PROVISIONAL FAIR VALUE
ASSETS CU'000 CU'000
Licences - 126
Customer lists - 115
Brands - 59
Development costs 100 202
Property 95 121
Plant 195 214
Vehicles 150 158
Computer equipment 95 107
Inventories 315 340
Receivables 367 367
Cash and cash equivalents 10 12
Groups’ revenues from continuing operations 1,327 1,821
LIABILITIES
Borrowings 15 15
Trade payables 172 172
Defined benefit obligations 40 57
Deferred tax 18 115
Provisions 62 62
Groups’ revenues from continuing operations 307 421
NET ASSETS 1,020 1,400
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 35
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Net assets acquired by the Group in the year (20%) 280
Goodwill recognised on those 20% 809
Cost of the additional 20% 1,089
Satisfied by:
14,000,000 shares issued at market price (less issue costs of CU 26,000) 774
Cash paid 315
Total cost of the combination in the year 1,089
Carrying value of net assets of 40% when was associate 70
Revaluation to fair values at the date of becoming a subsidiary 490
FAIR VALUE OF THE 40% OF NET ASSETS ON BECOMING A SUBSIDIARY 560
GOODWILL RECONCILIATION
Goodwill on acquisition of 40% -
- Cash paid 40
- Total cost of 40% investment 40
- Fair value of 40% net assets at the time they were acquired by the Group 40
Goodwill on acquisition of further 20% in the year as calculated above 809
TOTAL GOODWILL RECOGNISED IN CONNECTION WITH ACQUISITION OF FINE PRODUCTS INC. 809
18 INVENTORIES
2015 2014
CU'000 CU'000
IAS2p36(b) Raw materials 821 792
IAS2p36(b) Work in progress 1,042 624
IAS2p36(b) Finished goods 760 579
BALANCE AT 31 DECEMBER 2,623 1,995
IAS2p36(d)
The amount of inventories recognised as an expense during the period amounted to CU 18,697,000 (2014: CU 11,720,000).
IAS2p36(e)
Write down of inventories to their net realisable value amounted to CU 14,000 (2014: CU 16,000) and mostly relate to finished products.
IAS2p36(f)
The amount of reversals of any write-down recognised as a reduction in the amount of inventories recognised as an expense was nil in 2015 (2014: CU 5,000).
IAS2p36(h)
There are no inventories pledged as security for liabilities.
19 TRADE AND OTHER RECEIVABLES
2015 2014
CU'000 CU'000
Gross trade receivables 2,363 1,413
Allowance for impairment losses (46) (27)
Net trade receivables 2,317 1,386
Other receivables 106 49
Prepayments and accrued income 163 82
IAS1p78(b) BALANCE AT 31 DECEMBER 2,586 1,517
IFRS7p29(a)
There is no material difference between the fair value of receivables and their carrying amount.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 36
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS7p42B(a);42D
Included within trade receivables are factored receivables of CU 946,000 (2014: CU 801,000). The related advance from the factoring company of CU 683,000 (2014: CU 560,000) is included in borrowings (Note 22). Since those receivables did not meet the IAS 39 derecognition requirements, they are recognised as receivables even though they were legally sold without recourse. Amongst other clauses there was a deferred purchase price clause, under which a portion of transferred receivables were paid to the Group only upon full collection of the receivables. This resulted in substantial risks and rewards not being transferred to the transferee and therefore the IAS 39 derecognition criteria were not met.
IFRS7p16 The table below analyses changes in the allowance for impairment losses in the period.
2015 2014
IFRS7p20(e) ALLOWANCE FOR IMPAIRMENT LOSSES CU'000 CU'000
BALANCE AT 1 JANUARY 27 13
Provision for the year 43 28
Utilised in the year (19) (9)
Reversed in the year on collection of receivables (5) (5)
BALANCE AT 31 DECEMBER 46 27
Provisions, write-off of uncollectible receivables and utilisation of the allowance for impairment losses are presented in the
consolidated statement of profit or loss within administrative expenses.
20 CASH AND CASH EQUIVALENTS
IAS7p45
2015 2014
CU'000 CU'000
Cash in hand 51 45
Bank balances 283 240
Short term deposits (under 30 days maturity) 288 75
BALANCE AS STATED IN THE STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 622 360
Less bank overdrafts shown as liabilities in the statement of financial position (202) (137)
BALANCE AS STATED IN THE STATEMENT OF CASH FLOWS AT 31 DECEMBER 420 223
IAS7p8 As described in the accounting policies, bank overdrafts repayable on demand fluctuate from being positive to overdrawn and are considered an integral part of the Group’s cash management for statement of cash flow purposes. Foreign exchange restrictions in the Republic of Dryland prevent the remittance to the parent of cash balances of CU 27,000 (2014: CU 18,000). However, such cash balances can be used in order to meet short-term cash commitments in relation to transaction undertaken within the Republic of Dryland. There is no material difference between the fair value and the carrying amount of cash and cash equivalents. Short term deposits represent temporary excess of liquidity invested in low-risk short-term bank deposits with a maturity not
exceeding 30 days.
IAS7p48
IFRS7p29(a)
21 NON-CURRENT ASSETS CLASSIFIED AS HELD-FOR-SALE AND DISCONTINUED OPERATIONS
IFRS5p30;41(a)
On 15 July 2015, the Board decided to sell the clockwork component of the mechanical division. On 15 September 2015, the Group closed the sale with a private investor. As a result, the entire clockwork component was sold except for the African clockwork component which is included in non-current assets held for sale at 31 December 2015.
IFRS5p33(b)
The table below analyses key amounts relating to the discontinued clockwork component.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 37
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
CU'000 CU'000
Revenue 1,110 2,108
Expenses (1,234) (2,384)
Loss before tax (124) (276)
Income taxes 30 50
LOSS AFTER TAX BEFORE DISPOSAL LOSS (94) (226)
Loss on disposal of subsidiary (23) -
Tax on disposal loss 7 -
AFTER TAX DISPOSAL LOSS (16) -
TOTAL LOSS ON DISCONTINUED OPERATIONS (110) (226) IFRS5p33(c)
IFRS5p38
Before disposal, the discontinued operations contributed CU 255,000 (2014: CU 8,000 outflow from) to operating cash inflows, CU 32,000 (2014: CU 12,000) to investing cash outflows and CU 103,000 (2014: CU 205,000) to financing cash outflows. The following table summarises the carrying value of the clockwork component’s assets and liabilities that were sold on 15 September 2015.
ASSETS CU'000
Licences 167
Plant 10
Vehicles 43
Computer equipment 5
Inventories 102
Receivables 107
Cash and equivalents 5
439
LIABILITIES
Borrowings (85)
Trade payables (15)
Deferred tax (5)
(105)
Net assets disposed of 334
Cash proceeds (311)
LOSS ON DISPOSAL 23
IFRS5p41(c)
The loss on disposal was included in loss on discontinued operations in the consolidated statement of profit or loss. The sale of the remaining African clockwork unit of the mechanical segment is expected to take place before the next interim consolidated financial statements are published. It is currently estimated that the unit will realise its carrying amount (net of disposal costs).
IFRS5p38
The following table summarises the carrying amount of the African clockwork component after classification as held for sale.
ASSETS CU'000
INTANGIBLES
- Licences 61
- Customer lists 48
- Development costs 61
170
PROPERTY, PLANT AND EQUIPMENT 846
TOTAL ASSETS AT 31 DECEMBER 2015 1,016
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 38
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
LIABILITIES
Trade and other payables 191
Long term provisions 109
TOTAL LIABILITIES AT 31 DECEMBER 2015 300
NET CARRYING AMOUNT OF DISPOSAL GROUP AT 31 DECEMBER 2015 716
22 BORROWINGS
2015 2014
CURRENT PORTION CU'000 CU'000
Bank loans and overdrafts 202 137
Finance leases 55 51
Advance from factoring company 683 560
Debt element of convertible bonds 24 -
BALANCE AT 31 DECEMBER 964 748
IFRS7p29(a)
The bank overdrafts are unsecured and repayable on demand. There is no material difference between the carrying amount and the fair value of the Group’s current portion of borrowings.
2015 2014
NON-CURRENT PORTION CU'000 CU'000
Bank loans (secured on Group property) 680 32
Finance leases 236 291
Debt element of convertible bonds 766 -
Preference shares 500 500
BALANCE AT 31 DECEMBER 2,182 823
The following table illustrates the estimated fair value of liabilities classified within borrowings.
2015 2014
IFRS7p25 FAIR VALUE OF NON-CURRENT BORROWINGS CU'000 CU'000
Bank loans (secured on Group property) 678 32
Finance leases 239 288
Debt element of convertible bonds 758 -
Preference shares 495 505
BALANCE AT 31 DECEMBER 2,170 825
IFRS13p97
IFRS13p93(b);(d) Fair values
The Group uses the following valuation techniques to determine the fair value of financial instruments that are not traded in an active market:
The fair value of non-current bank loans was estimated by discounting the future cash flows payable under the terms of the loan using the year-end market interest rate applicable to loans of similar terms and conditions (Level 2).
The fair value of finance leases was estimated by discounting the future cash flows payable under the terms of the leases using the year-end interest rate applicable to similar finance leases (Level 2).
The fair value of the debt element of convertible bonds was estimated by discounting the future cash flows payable under the terms of the loan using the year-end market interest rate applicable to similar loans without a conversion option (Level 2).
The preference shares are unquoted, so their fair value is computed by discounting the future scheduled cash flows on the assumption that dividends and redemption payments will continue to be made in accordance with the terms of issue (Level 3).
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 39
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Bank loans IFRS7p31
The bank loans are all nominally at floating rates linked to interest rates in the countries concerned. However, as described below, an interest rate swap has been entered into that effectively converts some of them to fixed rates.
IAS7p50(a)
The Group had undrawn floating rate borrowing facilities available of CU 3,098,000 (2014: CU 3,831,000). These facilities expire in 3 years (2014: 4 years’ time).
Finance leases
2015 2014
IAS17p31 FINANCE LEASES: MINIMUM LEASE PAYMENTS CU'000 CU'000
Within one year 77 77
Over one year but within 5 years 279 279
After 5 years 65 142
TOTAL PAYABLE 421 498
Future finance charges (130) (156)
BALANCE AT 31 DECEMBER 291 342
Presented as current borrowings 55 51
Presented as non-current borrowings 236 291
- due later than one year and not later than five years 181 253
- due later than five years 55 38
Additional information about leased assets is shown in Note 10.
Debt element of convertible bonds
The 3% convertible bonds issued in the year have a face value of CU 1,572,000 and are repayable in full in 10-years’ time to the extent that the holders have not exercised their annual right to convert to equity at a rate of 1 ordinary share per CU of loan. Preference shares
2015 2014
PREFERENCE SHARES CU'000 CU'000
AUTHORISED, ISSUED AND FULLY PAID: 500,000 PREFERENCE SHARES OF 1 CU EACH 500 500
IAS1p79
The preference shares have a right to a fixed cumulative dividend of 5% per annum and are redeemable at their issue price of CU 1 each in 2017. They rank ahead of ordinary shares in the event of liquidation, both for their entitlement to a return of capital and for any arrears of dividend. The preference shares are non-voting unless dividends become in arrears.
23 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
At 31 December 2015, the Group has in place derivatives held for cash flow hedging purposes only. The table below summarises the fair value of derivatives engaged in cash flow hedge relationships at 31 December.
2015 2014
CASH FLOW HEDGES CU'000 CU'000
CONTRACTS WITH NEGATIVE FAIR VALUE
Forward foreign currency contracts (122) (101)
Interest rate swaps (76) (12)
(198) (113)
CONTRACTS WITH POSITIVE FAIR VALUE - -
Net balance at 31 December (198) (113)
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 40
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Forward foreign currency contracts IFRS7p22
At 31 December 2015, the Group had in place forward currency contracts with a fair value of CU 122,000 (2014: CU 101,000). The purpose of these contracts is to mitigate the fluctuations of expected sales and purchases (forecast transactions) denominated in USD and primarily relating to the US market. The forward exchange contracts are put in place in order to hedge the excess of anticipated sales over purchases that will be made in USD over the next year. The Group prepares sales and purchase forecasts in USD for the following year on a monthly basis and designates as the hedged item the part of monthly sales exceeding the purchases of the month.
IFRS7p23(a)
Cash flows are expected to occur and affect the consolidated statement of comprehensive income in the month concerned. Interest rate swaps
IFRS7p22;31
The notional amount of the interest rate swaps is CU 754,000 (2014: CU 123,000). They are designed to convert floating rate borrowings to fixed rate exposure for the next two years at 7.5 % (2014: 7.6 %). Hedge of foreign net investments
IFRS7p22
There are Euro borrowings with a fair value of CU 1,078,000 (2014: CU 410,000) which have been designated to hedge a portion of the Group’s currency exposure arising from its investment in the net assets of its US Dollars area subsidiaries. The effective portion of the foreign exchange gain of CU 87,000 (2014: CU 61,000) has been taken to other comprehensive income. The movements to the hedging reserve in equity that occurred during the years ended 31 December 2015 and 2014 are set out in Note 32.
IFRS7p24(c)
IFRS13p93(d)
All the hedges were deemed to be effective during 2015 and 2014 and any hedge ineffectiveness recognised in profit or loss was not material. Fair value measurement
Neither the forward currency contracts nor the interest rate swaps are traded in an active market. As a result, their fair value is based on valuation techniques that are consistent with generally accepted valuation methodologies for pricing financial instruments and they incorporate all factors and assumptions that market participants would consider in setting the price. The fair value of forward currency contracts is based on the current value of the difference between the contractual exchange rate and the market rate at the reporting date. The fair value of interest rate swaps is determined on the basis of the current value of the difference between the contractual interest rate and the market rate at the reporting date.
24 TRADE AND OTHER PAYABLES
2015 2014
CU'000 CU'000
Trade payables 818 802
Other payables 218 234
Accrued liabilities 96 110
Deferred income 80 60
BALANCE AT 31 DECEMBER 1,212 1,206
Presented as:
- Current 1,017 1,045
- Non-current 195 161
2015 2014
OTHER PAYABLES COMPRISE: CU'000 CU'000
Social security 102 82
Taxes other than income taxes 98 84
Miscellaneous minor items 18 68
BALANCE AT 31 DECEMBER 218 234
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 41
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Accrued liabilities and deferred income represent miscellaneous contractual liabilities that relate respectively to expenses that were incurred but not paid for at the year-end and to income received during the period for which the Group had not supplied the goods or services at the end of the year.
IFRS7p29(a)
The carrying amount of trade and other payables, accrued liabilities and deferred income is considered to be in line with their fair value at the reporting date.
25 INFORMATION ON FINANCIAL RISKS
IFRS7p31;33
In performing its operating, investing and financing activities, the Group is exposed to the following financial risks:
Credit risk: the possibility that a debtor will not repay all or a portion of a loan or will not repay in a timely manner and therefore will cause a loss to the Group.
Liquidity risk: the risk that the Group may not have, or may not be able to raise, cash funds when needed and therefore encounter difficulty in meeting obligations associated with financial liabilities.
Market risk: the risk that the value of a financial instrument will fluctuate in terms of fair value or future cash flows as a result of a fluctuation in market prices. Basically, the Group is exposed to three market risk components:
- Interest rate risk - Currency risk - Equity price risk
In order to effectively manage those risks, the Board of Directors has approved specific strategies for the management of
financial risks, which are in line with corporate objectives. These strategies set up guidelines for the short and long term objectives and action to be taken in order to manage the financial risks that the Group faces.
The major guidelines are the following:
Minimise interest rate, currency and price risks for all kinds of transactions
Maximise the use of “natural hedge” favouring as much as possible the natural off-setting of sales and costs and payables and receivables denominated in the same currency, and therefore put in place hedging strategies only for the excess balance. The same strategy is pursued with regard to interest rate risk
Enter into derivatives or any other similar instrument solely for hedging purposes
All financial risk management activities are carried out and monitored at central level
All financial risk management activities are carried out on a prudent and consistent basis and following the best market practices
The Group can invest in shares or similar instruments only in the case of temporary excess of liquidity and such transactions have to be authorised by the Board of Directors.
The Group employs a corporate treasurer who reports to the treasury sub-committee of the Board of Directors. Internal audits are conducted to ensure that the Group’s policies and procedures are followed in practice. In particular, with regard to derivatives, the Group’s risk management policies are as follows:
Document carefully all derivatives including the relationship between them and the hedged items at inception and throughout their life
Recognise ineffectiveness in profit or loss as soon as it arises
Assess effectiveness at the inception of the hedge and at each reporting date ensuring that IAS 39 criteria are met
Use only high quality financial institutions as counterparties for derivatives. The following table summarises the carrying amount of financial assets and financial liabilities recorded by category.
2015 2014
IFRS7p8 FINANCIAL ASSETS CU'000 CU'000
Cash and cash equivalents 622 360
Available-for-sale investments 274 269
Loans and Receivables: Trade and other receivables 2,586 1,517
BALANCE AT 31 DECEMBER 3,482 2,146
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 42
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
IFRS7p8 FINANCIAL LIABILITIES CU'000 CU'000
Derivative financial instruments 203 113
Measured at amortised cost:
- Borrowings 3,146 1,571
- Trade and other payables1 994 972
BALANCE AT 31 DECEMBER 4,343 2,656 1 Excludes other payables (non-contractual liabilities). See Note 24.
IFRS13p93(a),(b) IFRS13p94
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the significant inputs used to determine fair value are observable.
FAIR VALUE MEASUREMENT AT END OF THE REPORTING PERIOD USING:
ASSETS MEASURED AT FAIR VALUE AS OF 31 DECEMBER 2015 LEVEL 1 LEVEL 2 LEVEL 3
Available-for-sale investments (Equity investments) 274 - -
Forward foreign currency contracts - 122 -
Interest rate swaps - 81 -
TOTAL 274 203 -
ASSETS MEASURED AT FAIR VALUE AS OF 31 DECEMBER 2014 LEVEL 1 LEVEL 2 LEVEL 3
Available-for-sale investments (Equity investments) 269 - -
Forward foreign currency contracts
101
Interest rate swaps - 12 -
TOTAL 269 113 -
IFRS13p93(c)
Available-for-sale assets comprise a portfolio of equity securities listed on the New York Stock Exchange (Note 15). The Group does not carry any financial liability classified in the category “at fair value through profit or loss”. There were no transfers between Levels 1 and 2 in the period (2014: nil).
Credit risk IFRS7p33;36(c)
The Group controls its exposure to credit risk by setting limits on its exposure to individual customers and these are disseminated to operating companies; compliance is monitored by the Central Treasury Department. As part of the process of setting customer credit limits, different external credit reference agencies are used, according to the country of the customer. The Group has adopted a policy of dealing only with creditworthy counterparties.
IFRS7p34(c)
There are no significant concentrations of credit risk.
IFRS7p36(a)
The maximum credit risk to which the Group is exposed is summarised in the following table.
2015 2014
CU'000 CU'000
Cash and cash equivalents 571 315
Trade and other receivables 2,586 1,517
BALANCE AT 31 DECEMBER 3,157 1,832
As explained in Note 20, cash and cash equivalents balances represent bank balances and short term deposits with a less than
30-day maturity.
IFRS7p36(b)
The Group does not hold collateral for any of its receivables.
IFRS7p37
All the receivables that are past due at reporting date are impaired as appropriate. Note 19 provides an analysis of the allowance for doubtful receivables. All of the available-for-sale assets are in the form of investments in equity securities and therefore they have no exposure to credit risk.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 43
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS7p39
Liquidity risk - Financial liabilities’ maturity analysis
The Group manages liquidity risk on the basis of expected maturity dates.
IFRS7pB11;B11D
The following tables analyse financial liabilities by remaining contractual maturity (contractual and undiscounted cash flows).
BORROWINGS DERIVATIVES TRADE AND
OTHER PAYABLES
TOTAL
CU'000 CU'000 CU'000 CU'000
Less than 1 year 964 132 849 1,945
1 - 3 years 1,488 85 201 1,774
3 - 5 years 139 - - 139
Over 5 years 805 - - 805
BALANCE AT 31 DECEMBER 2015 3,396 217 1,050 4,663
Less than 1 year 748 71 856 1,675
1 - 3 years 611 38 188 837
3 - 5 years 198 9 - 207
Over 5 years 107 - - 107
BALANCE AT 31 DECEMBER 2014 1,664 118 1,044 2,826
IAS7p50(a)
IFRS7p39(a) IFRS7pB11C(c)
IFRS7p33(a)
At present, the Group expects to pay all liabilities at their contractual maturity. In order to meet such cash commitments, the Group expects the operating activity to generate sufficient cash inflows. In addition, the Group holds financial assets for which there is a liquid market and that are readily available to meet liquidity needs. At the reporting date, there are undrawn borrowing facilities of CU 3,098,000 (2014: CU 3,831,000) available for operating activities and to settle capital commitments. The Group maintains substantial borrowing facilities to ensure that it can manage to fund its budgeted operations and take advantage of expansion opportunities as they arise. The finance director provides the Board with a monthly schedule showing the maturity of financial liabilities and unused borrowing facilities to assist the Board in monitoring liquidity risk. At reporting date, the Group had no financial guarantee contracts on issue (2014: Nil). Interest rate risk
The Group’s exposure to interest rate risk mainly concerns financial liabilities which are floating rate. At present, the Group does not hold loans and receivables that are long-term in nature. The following table analyses the breakdown of liabilities (excluding derivatives) by type of interest rate.
2015 2014
FINANCIAL LIABILITIES CU'000 CU'000
Fixed rate 2,653 1,092
Floating rate 493 479
Non-interest bearing 994 972
BALANCE AT 31 DECEMBER 4,140 2,543
IFRS7p33(b)
IFRS7p40
In order to manage the interest rate risk, the Group enters into interest rate swaps. Note 23 explains the interest rate hedging activities in place at 31 December 2015.
Sensitivity analysis
IFRS7pB18; B19
The analysis has been performed for floating interest rate financial liabilities. Management considers that a change in interest rates of 100 basis points in the year ending 31 December 2015 is reasonably possible. The impact of such a change in interest rates on floating interest rate financial liabilities, had it occurred at the end of the current reporting period, has been assessed in terms of changing of their cash flows and therefore in terms of the impact on net expenses and has been quantified as follows:
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 44
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS7p33
An increase / decrease in interest rates by 100 basis points on a parallel yield curve would cut / increase profits after tax by CU 28,000 (2014: CU 13,000).
Foreign currency risk
Since the Group operates internationally, it is exposed to foreign currency risk as part of its normal industrial and commercial business. In particular, the Group is significantly exposed to USD risk due to the large value of sales made in the United States. In this respect, the Group enters into foreign currency contracts on a rollover basis for the purpose of hedging the excess of anticipated sales in USD over purchases in USD. The Group’s overseas operations are partly financed by local currency loans and the equity element is largely hedged by long-term foreign currency borrowings. In addition, forward currency contracts are used as cash flow hedges of exposures on certain net foreign currency sales exposures as described below.
IFRS7p34
Financial assets by currency Financial assets as at 31 December are analysed by currency as follows:
AVAILABLE-FOR-SALE
TRADE AND OTHER RECEIVABLES
CASH AND CASH EQUIVALENTS
TOTAL
CU'000 CU'000 CU'000 CU'000
CU - 756 123 879
Japanese Yen - 405 46 451
Euro - 326 145 471
British Pound - 688 79 767
US Dollars 274 213 120 607
Other - 198 109 307
BALANCE AT 31 DECEMBER 2015 274 2,586 622 3,482
CU - 509 123 632
Japanese Yen - 296 4 300
Euro - 330 80 410
British Pound - 105 33 138
US Dollars 269 102 95 466
Other - 175 25 200
BALANCE AT 31 DECEMBER 2014 269 1,517 360 2,146
IFRS7p34
Financial liabilities by currency The following table analyses the breakdown of liabilities by currency.
BORROWINGS TRADE AND
OTHER PAYABLES
TOTAL
CU'000 CU'000 CU'000
CU 1,410 192 1,602
Japanese Yen - 210 210
Euro 1,078 156 1,234
British Pound - 180 180
US Dollars 658 132 790
Other - 124 124
BALANCE AT 31 DECEMBER 2015 3,146 994 4,140
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 45
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
BORROWINGS
TRADE AND OTHER
PAYABLES TOTAL
CU'000 CU'000 CU'000
CU 701 192 893
Japanese Yen - 185 185
Euro 410 123 533
British Pound - 155 155
US Dollars 460 227 687
Other - 90 90
BALANCE AT 31 DECEMBER 2014 1,571 972 2,543
IFRS7p33
IFRS7p40
In order to manage the foreign currency risk, the Group enters into forward currency contracts. Note 23 explains the foreign currency hedging activities in place at 31 December 2015. Sensitivity analysis
A 10% increase / decrease in the exchange rate of the CU against the Euro would cut / increase profits after tax by CU 82,000 (2014: CU 21,000). A 10% increase / decrease in the exchange rate of the CU against the USD would cut / increase profits after tax by CU 76,000 (2014: CU 25,000). A 10% increase / decrease in the exchange rate of the CU against the Japanese Yen would cut / increase profits after tax by CU 12,000 (2014: CU 6,000). A 10% increase / decrease in the exchange rate of the CU against all other currencies would cut / increase profits after tax by CU 195,000 (2014: CU 58,000).
The analysis above has been carried out on the following basis:
Management’s estimate of what is reasonably possible for changes in exchange rates (ie 10%) in the year ending 31 December 2015.
Hedged transactions were not taken into consideration. It is reasonable to expect that fluctuations on the value of hedged items are almost fully offset by hedging items.
The currency risk relating to available-for-sale investments in companies listed on the New York Stock Exchange was taken into consideration (see below).
IFRS7p42
IFRS7p33
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the year-end exposure does not reflect the exposure during the year. Actually, CU denominated sales are seasonal, with lower volumes in the last quarter of the year resulting in low CU receivables at year end. Equity price risk
As stated in the Group financial risk policies approved by the Board of Directors, the Group can invest temporary excess liquidity in shares or similar instruments. Investments in derivatives for speculative purposes are banned. As at 31 December 2015, the Group holds some available-for-sale shares in companies listed on the New York Stock Exchange (Note 15). As a result, such investments are exposed to both currency risk and changes in fair value risk. Sensitivity analysis
IFRS7p40
Listed entities on the New York Stock Exchange are subject to fair value risk. The fair value of those assets as at 31 December 2015 amounted to CU 274,000 (2014: CU 269,000). A 10% decrease / increase in the fair value of those assets – being the change reasonably possible in the year ending 31 December 2015 as estimated by Management - would result in a loss / gain of CU 27,400 (2014: CU 26,900) (such loss / gain would be recognised in other comprehensive income). This figure does not reflect the currency risk, which has been considered in the foreign currency risks analysis section only.
26 RETIREMENT BENEFIT OBLIGATIONS
IAS19p139(a)
The Group operates a funded defined benefit plan for qualifying employees. Under this plan, the employees are entitled to retirement benefits of 1/80th of final salary for each year of service and a half pension to surviving spouses. Final salary is the average of the last three year’s remuneration before retirement of the employee concerned. The scheme is constituted as a trust and the assets are kept separate from those of the Group.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 46
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS19p139(b)
The plan exposes the Group to actuarial risks, in particular:
Salary risk: any increase in the plan participants’ salary will increase the plan’s liability.
Longevity risk: any increase in the plan participants’ life expectancy will increase the plan’s liability.
Investment risk: if the actual return on plan assets is below the discount rate used in calculating the defined benefit plan liability, a plan deficit will arise; however, the composition of plan assets is balanced enough not to expose the Group to significant concentrations of investment risk.
Interest rate risk: a decrease in the bond interest rate will increase the plan liability (however, partially counterbalanced by an increase in the return on the plan’s debt investments).
IAS19p144
The principal actuarial assumptions used for the purpose of the actuarial valuation at 31 December were as follows:
2015 2014
Discount rate 5.00% 5.25%
Expected rate of salary increases 4.75% 5.20%
Average longevity at retirement age for current and future pensioners 26.9 26.5
IAS19p81
IAS19p145(a)
IAS19p145(b)
IAS19p135(b)
The assumptions relating to longevity used to compute the defined benefit obligation liabilities are based on the Group’s best estimate of the mortality of plan members both during and after employment. For each of the above significant actuarial assumptions, a sensitivity analysis has been determined based on reasonably possible changes of the assumption occurring at the end of the reporting period, while holding all other assumptions constant:
If the discount rate is 1% higher (lower), the defined benefit obligation would decrease by CU 53,000 (increase by CU 51,500).
If the expected rate of salary growth increases (decreases) by 1%, the defined benefit obligation would increase by CU 40,000 (decrease by CU 41,000).
If the average life expectancy increases (decreases) by one year, the defined benefit obligation would increase by CU 61,000 (decrease by CU 63,000).
For the above sensitivity analysis, the present value of the defined benefit obligation has been determined using the Projected Unit Credit Method at the end of the reporting period, which is the same as that applied in the statement of financial position. Such sensitivity analysis might not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another.
The following table analyses the components of defined benefit costs recognised in comprehensive income.
2015 2014
CU'000 CU'000
Current service cost 636 562
Past service cost and loss arising from settlements
52 -
Net interest expense 92 103
COMPONENTS OF DEFINED BENEFIT COSTS RECOGNISED IN PROFIT OR LOSS (CHARGED TO COST OF SALES)
780 665
Return on plan assets (excluding amounts included in net interest expense) (1,062) (784)
Actuarial losses arising from changes in demographic assumptions
904 759
Actuarial gains arising from changes in financial assumptions
(28) (22)
Actuarial losses arising from experience adjustments
286 83
COMPONENTS OF DEFINED BENEFIT COSTS RECOGNISED IN OTHER COMPREHENSIVE INCOME
100 36
880 701
IAS19p140;141
The following tables analyse the movements in plan liabilities and assets.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 47
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
PRESENT VALUE OF DEFINED BENEFIT OBLIGATIONS (WHOLLY OR PARTLY FUNDED) CU'000 CU'000
Current service cost 636 562
Net interest expense 92 103
Past service cost and loss arising from settlements 52 -
Actuarial losses arising from changes in demographic assumptions 904 759
Actuarial gains arising from changes in financial assumptions
(28) (22)
Actuarial losses arising from experience adjustments
286 83
Obligations assumed in business combinations (Note 17) 169 -
Exchange differences on foreign plans (2) (6)
Benefits paid (224) (207)
Increase during the year 1,885 1,272
At 1 January 10,292 9,020
BALANCE AT 31 DECEMBER 12,177 10,292
2015 2014
FAIR VALUE OF PLAN ASSETS CU'000 CU'000
Return on plan assets (excluding amounts included in net interest expense) 1,062 784
Employer contributions 750 550
Assets acquired in business combinations 112 -
Exchange differences on foreign plans 2 3
Benefits paid (224) (207)
Increase during the year 1,702 1,130
At 1 January 10,000 8,870
BALANCE AT 31 DECEMBER 11,702 10,000
IAS19p147(b)
IAS19p147(c)
The best estimate of contributions expected to be paid to the plan during 2015 is CU 700,000. The average duration of the benefit obligation at 31 December 2015 is 15.8 years (2014: 15.1 years).
IAS19p142
The following table analyses the major categories of plan assets and the composition of the fair value of the plan assets at 31 December.
2015 2014
ANALYSIS OF THE FAIR VALUE OF PLAN ASSETS CU'000 CU'000
Equity investments by industry
Manufacturing 2,913 2,095
Financial institutions 2,198 1,997
Oil and gas 2,612 2,232
7,723 6,324
Debt investments by type of issuer
Government bonds 1,859 1,403
High quality corporate bonds 949 912
2,808 2,315
Real estate by nature
Residential properties 675 728
Commercial properties 496 633
1,171 1,361
TOTAL 11,702 10,000
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 48
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS19p142
Only the fair values of the equity and debt instruments are determined based on quoted market prices in active markets.
27 SHARE-BASED PAYMENTS
IFRS2p45(a)
IFRS2p45(b),(c)
During March 2011, the Board of Directors approved an equity-settled stock option plan, which provides certain managers across the Group with the option to purchase ordinary shares of IFRS Statements Limited at a fixed price. Management are eligible after 3-years’ service to join the share option scheme under which they are granted options which, provided they remain within the Group’s employment for an additional 1 year, are exercisable over a fixed period of time of 7 years from the vesting date at the market price of the shares. No performance conditions were attached to the plan. The table below summarises the number of options that were outstanding, their weighted average exercise price as at 31 December, as well as the movements during the period.
Weighted average exercise price
2015 2014 2015 2014
No.'000 No.'000 cents cents
At 1 January 1,920 2,950 32.5 22.1
Granted 200 120 130.0 125.0
Exercised (1,000) (1,000) 6.2 6.0
Forfeited (120) (150) 135.0 135.0
Expired - - - -
BALANCE AT 31 DECEMBER 1,000 1,920 66.1 32.5
IFRS2p51(a)
IFRS2p46;47
In 2015, the Board of Directors cancelled 120,000 share-options granted to top management that had not yet vested. The grant date fair value of the options as originally priced and not yet charged to profit or loss has been taken immediately to profit or loss. During 2015, the total charge to profit or loss amounted to CU 24,000 (2014: CU 80,000). Such amounts include CU 5,000 (2014: Nil) recorded immediately in profit or loss because of the abovementioned cancellation.
The estimate of the grant date fair value of each option issued is based on a binomial lattice model. In order to approximate the expectations that would be reflected in a current market or negotiated exchange price for these options, the calculation takes into consideration factors like behavioural considerations and non-transferability of the options granted (ie exercise restrictions including the probability of meeting market conditions attached to the option, if applicable). Inputs to the model included the following:
2015 2014
Grant date exercise price shown below shown below
Historical and expected volatility 40% 40%
Dividend yield 2.5% 2.0%
Risk-free interest rate 4.0% 4.0%
Forfeiture probability: leaving pre-vesting 28% 25%
Expected volatility was determined taking into consideration the volatility of the company’s share price over a five-year period
prior to each award date. Dividends used are those last known at the date the plan was approved.
IFRS2p45(d)
The outstanding number of options at 31 December in 2015 and 2014 was as follows:
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 49
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Number of shares outstanding on 31
December
2015 2014
EXERCISE PRICE GRANTED ON EXERCISE PERIOD No.’000 No.’000
6.2 Cents 31 March 2011 From 31 March 2012 to 31 March 2019 500 1,500
120 Cents 31 March 2012 From 31 March 2013 to 31 March 2020 100 100
125 Cents 31 March 2013 From 31 March 2014 to 31 March 2021 200 200
130 Cents 31 March 2014 From 31 March 2015 to 31 March 2022 - 120
135 Cents 31 March 2015 From 31 March 2016 to 31 March 2023 200 -
TOTAL AT 31 DECEMBER 1,000 1,920
28 DEFERRED TAX
The following table illustrates the deferred tax balances recognised in the consolidated statement of financial position.
2015 2014
CU’000 CU’000
DEFERRED TAX ON CONTINUING OPERATIONS
Deferred tax assets 243 140
Deferred tax liabilities (780) (297)
NET BALANCE AT 31 DECEMBER (537) (157)
DEFERRED TAX ON DISCONTINUED OPERATIONS
Deferred tax assets - -
Deferred tax liabilities - (5)
NET BALANCE AT 31 DECEMBER - (5)
IAS12p81(g)
The tables below illustrate, in respect of each type of temporary difference, the movements of deferred tax assets and liabilities on continuing operations recognised in the period.
Recognised in
DEFERRED TAX ASSETS
OTHER COMPREHENSIVE INCOME
PROFIT OR LOSS
TOTAL
AS AT 1 JANUARY 2014 7 50 57
Tax losses - 15 15
Provisions - 19 19
Cash flow hedges 19 - 19
Other - 30 30
AS AT 31 DECEMBER 2014 26 114 140
Tax losses - - -
Provisions - 62 62
Cash flow hedges 30 - 30
Other - 11 11
AS AT 31 DECEMBER 2015 56 187 243
IAS12p81(e);82
The tax losses are recognised as assets because insofar as they exceed taxable profits from the reversal of existing temporary differences, sufficient taxable profits are expected in the tax jurisdictions concerned and a significant amount of those tax losses have unlimited expiry. As a result, there are no unused tax losses for which deferred tax assets have not been recognised.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 50
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Recognised in
DEFERRED TAX LIABILITIES
OTHER COMPREHENSIVE
INCOME
PROFIT OR
LOSS EQUITY ACQUISITIONS TOTAL
AS AT 1 JANUARY 2014 30 95 - - 125
Defined benefit obligations - 13 - - 13
Property, plant and equipment - 132 - - 132
Available-for-sale investments (2) 6 - - 4
Other - 23 - - 23
AS AT 31 DECEMBER 2014 28 269 - - 297
Defined benefit obligations - 28 - - 28
Property, plant and equipment - 45 - - 45
Acquisitions (Note 17) - - - 115 115
Available-for-sale investments (2) 5 - - 3
Convertible debt - 1 234 - 235
Other - 57 - - 57
AS AT 31 DECEMBER 2015 26 405 234 115 780
IAS12p81(f)
IAS 12p82A
As explained in the accounting policies with regard to joint arrangements and associates, the Group is not currently in a position to determine their dividend policy. However, no deferred tax liability has been recognised for all their taxable temporary differences because they are not significant. With regard to subsidiaries, deferred tax on the undistributed earnings have not been provided for, since the Group is able to control the timing of the distribution and it is probable that they will not be distributed in the foreseeable future.
Under the Income Tax law of the Republic of Newland, if the entire retained earnings were paid out as dividends to shareholders, a further CU 162,000 of income tax would become payable.
29 PROVISIONS
IAS37p84
RESTRUCTURING LITIGATION WARRANTIES
ONEROUS LEASES TOTAL
CU’000 CU’000 CU’000 CU’000 CU’000
BALANCE AT 1 JANUARY 2014 2 - - - 2
Discount unwinding - - - - -
Additional provisions - - - 55 55
Utilised - - - - -
BALANCE AT 31 DECEMBER 2014 2 - - 55 57
Acquisitions (Note 17) - - 62 - 62
Discount unwinding - - - 4 4
Additional provisions 109 50 - - 159
Utilised (2) (15) (5) (17) (39)
BALANCE AT 31 DECEMBER 2015 109 35 57 42 243
2015 2014
Presented as: CU'000 CU'000
- Current liability 151 19
- Non-current liability 92 38
BALANCE AT 31 DECEMBER 243 57
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 51
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS37p85
Restructuring
The restructuring of the Group’s clockwork operations is expected to be completed within a year. The restructuring provision includes the estimated amounts of benefit payable to employees on termination of CU 67,000, costs relating to exiting activit ies of CU 32,000 and other administration costs for CU 10,000.
IAS37p85
Litigation
All litigation in which the Group is involved is analysed at each reporting date. When necessary, legal advice is sought and provisions are recorded. As at 31 December 2015, the provision booked refers to a legal action against a former Director that is expected to come to court within 2 years. The provision includes expected costs up to and including a first hearing, but not for any appeal.
IAS34p26
On legal advice, the estimated provision of CU 60,000 that was reported in the 30 June 2015 interim consolidated financial statements has been revised downwards to CU 50,000 following the discovery of further documents relating to the case and it was subsequently utilised for CU 15,000.
IAS37p85
Warranties
Certain products made by Fine Products Inc. before it entered the Group have on occasions failed within the 5-year warranty period. The expected cost of supplying replacements to the customers who bought that discontinued product line has been provided for on a statistical basis. The warranty period expires within 3 years and replacements are expected to be supplied evenly over that period as the product failure is random, not related to particular batches.
IAS37p85
Onerous leases
Expansion by organic growth and acquisition led the Group to construct a new centralised manufacturing facility. One of the old disused sites has so far proved difficult to sub-let at an appropriate rent. Whilst the head lease has 10 years to run, the provision only covers the present value of the next 3 years rent at CU 17,000 per annum. This reflects the advice of the Group’s new real estate agents on the expected time before a tenant willing to pay the full rent can be found. The Directors have been advised that a short term sub-let at less than the head lease rental is unlikely to generate as large a net present value. The provision has been determined by discounting risk adjusted and pre-tax cash flows using an interest rate of 8.5%.
30 OTHER NON-CURRENT LIABILITIES
2015 2014
CU'000 CU'000
Deferred consideration - 100
Other liabilities 60 56
BALANCE AT 31 DECEMBER 60 156
Other liabilities comprise miscellaneous amounts owed to various authorities that will be settled in 2-5 years. In most of the
cases, such liabilities bear interest that is determined by contractual or statutory obligations. The effect of discounting would be negligible.
31 EQUITY CAPITAL
IAS1p79
ORDINARY 5C SHARES
SHARE CAPITAL
SHARE PREMIUM
TREASURY SHARES TOTAL
No.’000 CU’000 CU’000 CU’000 CU’000
At 1 January 2014 32,000 1,600 210 - 1,810
Exercise of share options 1,000 50 10 - 60
At 31 December 2014 33,000 1,650 220 - 1,870
Acquisition (Note 17) 14,000 700 74 - 774
Exercise of share options 1,000 50 12 - 62
Treasury shares purchased - - - (110) (110)
At 31 December 2015 48,000 2,400 306 (110) 2,596
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 52
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
CU'000 CU'000
Authorised:
60,000,000 ordinary shares of 5 cents each 3,000 3,000
Allotted, issued and fully paid:
48,000,000 ordinary shares of 5 cents each 2,400 1,650
As approved by the General Shareholders’ Meeting, 100,000 treasury shares were acquired in the period on the Newland Stock
Exchange in order to serve the current stock option plan awarded to Group managers (Note 27) for a consideration of CU 110,000. As at 31 December 2015, they have a market value of CU 115,000.
IAS1p134;135
The Group’s long-term policy is that net debt should be in the range of 12-25% of total capital resources equity. This policy aims to ensure that the Group both maintains its BB credit rating and lowers its net of tax weighted average cost of capital. The table below illustrates the gearing ratio at 31 December 2015 and 2014.
2015 2014
CAPITAL RESOURCES CU'000 CU'000
Borrowings (Note 22) 3,146 1,571
Less Cash and cash equivalent (Note 20) (622) (360)
Net debt 2,524 1,211
Total equity 10,246 7,351
Total capital resources 12,770 8,562
Gearing ratio 19.8% 14.1%
The only externally imposed capital requirement for the Group is, in order to maintain its listing on the Newland Stock Exchange,
to have share capital of at least CU 1 million and a free float of at least 25% of the shares. The Group met the capital requirement on its initial listing and the rules limiting treasury share purchases mean it will automatically continue to satisfy that requirement, as it did throughout the year. Management receives a report from the registrars weekly on substantial share interests showing the non-free float and it demonstrated continuing compliance with the 25% limit throughout the year. At the year-end, 32% of the shares were in public hands.
32 OTHER RESERVES
IAS1p106A
CURRENCY TRANSLATION
HEDGING RESERVE
REVALUATION RESERVE
CONVERTIBLE BOND
SHARE-BASED PAYMENTS TOTAL
CU’000 CU’000 CU’000 CU’000 CU’000 CU’000
AT 1 JANUARY 2014 (67) 47 70 - 14 64
Exchange difference 54 - - - - 54
Net investment hedge - 61 - - - 61
Gains on cash flow hedges - 30 - - - 30
- deferred tax thereon - (10) - - - (10)
Hedge transfer to inventory - 17 - - - 17
- deferred tax thereon - (5) - - - (5)
Hedge transfer to profit - 12 - - - 12
- deferred tax thereon - (4) - - - (4)
Revaluation of investments - - 12 - - 12
- deferred tax thereon - - (4) - - (4)
Realised on disposal - - (18) - - (18)
- deferred tax thereon - - 6 - - 6
Share-based payments:
Service provided - - - - 80 80
AT 31 DECEMBER 2014 (13) 148 66 - 94 295
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 53
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Exchange difference 72 - - - - 72
Net investment hedge - 87 - - - 87
Gains on cash flow hedges - 75 - - - 75
- deferred tax thereon - (25) - - - (25)
Hedge transfer to inventory - 9 - - - 9
- deferred tax thereon - (3) - - - (3)
Hedge transfer to profit - 6 - - - 6
- deferred tax thereon - (2) - - - (2)
Revaluation of investments - - 10 - - 10
- deferred tax thereon - - (3) - - (3)
Realised on disposal - - (63) - - (63)
- deferred tax thereon - - 5 - - 5
Equity element of the issue - - - 782 - 782
- deferred tax thereon - - - (234) - (234)
Share-based payments:
Service provided - - - - 24 24
AT 31 DECEMBER 2015 59 295 15 548 118 1,035
The currency translation reserve accumulates all foreign exchange differences on translating the results and net assets of
foreign operations that the Group controls. The hedging reserve (net of deferred tax) accumulates after tax gains and losses on cash flow hedges. The revaluation reserve (net of deferred tax) arises from the annual revaluation of available-for-sale financial assets. It is not distributable until it is reclassified to the statement of profit or loss on the disposal of the investments. The convertible bond reserve represents the equity component of the instrument (net of tax). If and when the option to convert to equity is exercised, a transfer will be made from this reserve and from debt to share capital and share premium accounts. Reserves classified on the face of the consolidated statement of financial position as retained earnings represent accumulated earnings and are distributable. All the other reserves are non-distributable.
33 RELATED PARTY TRANSACTIONS
IAS24p13
The Group is controlled by Newmagic Corporation domiciled in The Republic of Newland, which holds 51% of the ordinary shares of the Group. Newmagic Corporation is controlled by Mr Mechanic who is the ultimate controlling party of the Group. Newmagic Corporation produces financial statements available for public use.
IAS24p18;19
2015 2014
WITH OTHER ENTITIES CU'000 CU'000
AMOUNT OF TRANSACTIONS:
Sales to associates 102 83
Sales to close members of Newmagic Corporation 15 10
Sales to entities controlled by key management 21 13
Purchases from associates 25 7
Purchases from entities controlled by Group’s parent 17 18
OUTSTANDING BALANCES AT 31 DECEMBER:
RECEIVABLES
Associates 33 19
Close members of Newmagic corporation 3 2
Entities controlled by key management 4 3
Entities controlled by Group’s parent 3 3
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 54
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
PAYABLES
Associates 25 -
Entities controlled by key management 1 1
Entities controlled by Group’s parent 2 3
The above transactions were made on the same terms as equivalent transactions with unrelated parties.
IAS24p18;19 The following table illustrates the transactions with key management that occurred during the period concerned.
2015 2014
WITH KEY MANAGEMENT CU'000 CU'000
Sales of goods to key management 5 6
OUTSTANDING LIABILITY ON SUCH SALES (UNSECURED)
Gross 5 2
Doubtful debt allowance - -
NET LIABILITY AT 31 DECEMBER 5 2
34
KEY MANAGEMENT COMPENSATION1
IAS24p17
2015 2014
CU'000 CU'000
Wages, salaries and short-term benefits 740 614
Post-employment benefits 75 66
Share–based payments (Note 27) 24 80
TOTAL AT 31 DECEMBER 839 760
35 COMMITMENTS
IAS17p35(d)
The Group entered into various non-cancellable operating leases relating to offices, industrial buildings and warehouses as well as motor vehicles used by the sales force. The lease agreements have an average life of 7–15 years and include various terms such as renewable rights and inflation features.
IAS17p35(a) The following table shows the total of future minimum operating lease payments.
PROPERTY MOTOR VEHICLES
2015 2014 2015 2014
CU’000 CU’000 CU’000 CU’000
ON LEASES EXPIRING:
Within one year 124 96 233 228
More than 1 year but within 5 years 289 340 716 704
After 5 years 441 475 87 102
IAS17p35(c)
Operating lease payments recognised as an expense in 2015 amounted to CU 108,000 (2014: CU 95,000).
The following table illustrates the amount of capital expenditure contracted for, but not provided for in the consolidated financial statements.
1 This disclosure could be grouped in a single note with Related Parties.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 55
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
2015 2014
CU'000 CU'000
IAS16p74(c) Group property, plant and equipment 307 248
IAS38p122(e) Group intangible assets 21 7
36 CONTINGENT LIABILITIES
IAS20p39(c) IAS37p86
IFRS12p23(b)
The Group might have to repay government grants of CU 20,000 (2014: CU 20,000) to the Republic of Dryland unless its factory in Dryland remains open until the end of 2016. The Groups’ share of contingent liabilities relating to other entities incurred jointly with other investors is as follows:
2015 2014
CU'000 CU'000
Associates 17 15
IAS37p86
Other contingent liabilities are not disclosed because the possibility of an outflow of resources embodying economic benefits is considered by the Directors to be remote.
37 RECONCILIATION OF PROFIT TO NET CASH FLOWS GENERATED FROM OPERATIONS
2015 2014
CASH FLOWS GENERATED FROM OPERATIONS CU'000 CU'000
Profit for the year 1,763 983
Adjustments for:
Income Tax expense recognised in profit 645 612
Share of the profit of associates (140) (300)
Gain on sale of investments (63) (18)
Gain on revaluation of associate becoming a subsidiary (490) -
Loss on disposal of subsidiary 23 -
Finance costs - net 91 95
Amortisation of other intangible assets 271 231
Depreciation of property, plant and equipment 1,165 1,243
Loss on disposal of property, plant and equipment 12 13
Impairment of property, plant and equipment 120 -
Impairment of financial assets 19 14
Impairment of intangible assets 124 120
Foreign exchange losses 21 12
Defined benefit obligations (95) -
Share-based payment 24 80
Increase in inventories (655) (454)
Increase in receivables (1,069) (520)
Increase / (Decrease) in payables (28) 40
Increase / (Decrease) in provisions 99 (66)
NET CASH FLOWS FROM OPERATIONS 1,837 2,085
IAS7p50(c)
An estimated cash inflow of CU 1,400,000 (2014: CU 1,300,000) is needed to maintain operating capacity and the balance of the Group’s cash flows can be used to expand operating capacity.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
Page 56
ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
38 EVENTS AFTER THE REPORTING PERIOD
IAS10p17
These consolidated financial statements were authorised for issue by the Board of Directors on 15 February 2016.
IAS10p21 IFRS3p59(b)
In order to expand its activities in Eastern Europe, on 31 January 2016 the Group provisionally acquired 100% voting shares (all shares have voting power) of WaterPump, a manufacturer of electric water pumps used in dishwashers and washing machines industry. WaterPump’s headquarter and all industrial premises are based in the Republic of Eastland. WaterPump was bought in cash for an amount of CU 420,000. The authorisation from the Eastland antitrust authority is still pending, however it is expected to be received by the end of the first quarter of 2016. By that date, it is also expected the transaction will be finalised. At the date of issue of these consolidated financial statements, the purchase price allocation process is not yet completed. However, it is expected that at the end of the process, the Group will recognise goodwill as a result of cost synergies that the Group will obtain from combining WaterPump activities with those of the Group. The Group foresees that this acquisition will also give the opportunity to expand in new sectors and therefore existing operations of the Group will not be disposed of or reduced in terms of production capacity as a result of the acquisition. For the year that ended in 2014, WaterPump posted a net profit of CU 13,000 and revenue for CU 512,000. Profit and revenue for the year that ended as at 31 December 2015 are expected to be substantially in line with those of the year 2014.
IAS10p21
In January 2016, a fire destroyed a manufacturing site used by the Group in Oldland. There should be no major loss to the Group as spare capacity on another site enabled the Group to resume normal production within two weeks. The loss of the facility should be covered by insurance and so should the loss of profits caused by the short interruption to business, although it is too early to quantify the exact financial effect.
IAS1p122;125;129 39 SIGNIFICANT JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY1
In preparing its consolidated financial statements, the Group has made significant judgements, estimates and assumptions that impact on the carrying value of certain assets and liabilities, income and expenses as well as other information reported in the notes. The Group periodically monitors such estimates and assumptions and makes sure they incorporate all relevant information available at the date when financial statements are prepared. However, this does not prevent actual figures differing from estimates. The judgements made in the process of applying the Group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements, and the estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Revenue recognition
The Group makes provisions for trade discounts, volume rebates and charge back for product returns allowed by the sale contracts when recognising the revenue derived from goods and services. Such deductions represent estimates, which are subject to judgements and assumptions based on past experience as well as the Group’s knowledge available at the time the estimate is made. In certain circumstances, the Group enters into multiple element arrangements (“packages”). As described in Note 2(B) above, the package might include one or more items which are subject to different recognition criteria. In this case, separate measurement of the fair value of each component is required. The estimate of the fair value of each component involves estimates and assumptions which affect the way revenue is recognised. Allowance for doubtful receivables
The determination of the recoverability of the amount due from customers involves the identification of whether there is any objective evidence of impairment. Bad debts are written off when identified, to the extent that it is feasible that impairment and uncollectibility are determined individually for each item. In cases where that process is not feasible, a collective evaluation of impairment is performed. As a consequence, the way individual and collective evaluations are carried out and the timing relating to the identification of objective evidence of impairment require significant judgement and may materially affect the carrying amount of receivables at the reporting date (as reflected in Note 19). Asset impairment tests
A financial asset or a group of financial assets, other than those categorised at fair value through profit or loss, are
1 The disclosures required in this area are dictated by the circumstances of each reporting entity and by the significance of judgements and estimates made (these are only examples). Also, instead of disclosing this information in a separate note, it could be included in the relevant asset and liability notes.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IFRS13p93(d),(g)
assessed for indicators of impairment at the end of each reporting period. Impairment exists only when the Group ascertains that a “loss event” affecting the estimated future cash flows of the financial asset has occurred. It may not be possible to identify a single, discrete event that caused the impairment, and moreover to determine when a loss event has occurred might involve the exercise of significant judgement. The amount of impairment loss recognised for financial assets carried at amortised cost is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. With regard to equity investments categorised as available-for-sale, the Group considers those assets to be impaired when there has been a significant or prolonged decline in the fair value below cost. The determination of what is “significant” or “prolonged” requires significant judgement. The impairment analysis of goodwill and tangible and other intangible assets requires an estimation of the value in use of the asset or the cash-generating unit to which the assets are allocated. Estimation of the value in use is primarily based on discounted cash flow models which require the Group to make an estimate of the expected future cash flows from the asset or the cash-generating unit and also to choose an appropriate discount rate in order to calculate the present value of the cash flows. Net realisable value of inventories
Inventories are stated at the lower of cost and net realisable value. The cost of inventories is written down to their estimated realisable value when their cost may no longer be recoverable, such as when inventories are damaged or become wholly or partly obsolete or their selling prices have declined. In any case, the realisable value represents the best estimate of the recoverable amount, is based on the most reliable evidence available at the reporting date and inherently involves estimates regarding the future expected realisable value. The benchmarks for determining the amount of write-downs to net realisable value include ageing analysis, technical assessment and subsequent events. In general, such an evaluation process requires significant judgement and may materially affect the carrying amount of inventories at the reporting date (as reflected in Note 18). Fair value measurements
Some of the Group’s assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available (eg for unquoted investments), the Group works closely with external qualified valuers who perform the valuation, based on agreed appropriate valuation techniques and inputs to the model (eg use of the market comparable approach that reflects recent transaction prices for similar instruments, discounted cash flow analysis, option pricing models refined to reflect the issuer’s specific circumstances). Prices determined then by the valuers are used by the Group without adjustment. Changes in the fair value of assets and liabilities and their causes are quarterly analysed by the Group’s valuation sub-committee of the Board of Directors. Such valuations require the Group to select among a range of different valuation methodologies and to make estimates about expected future cash flows and discount rates.
Deferred tax estimation
Recognition of deferred tax assets and liabilities involves making a series of assumptions. As far as deferred tax assets are concerned, their realisation ultimately depends on taxable profits being available in the future. Deferred tax assets are recognised only when it is probable that taxable profits will be available against which the deferred tax asset can be utilised and it is probable that the entity will earn sufficient taxable profit in future periods to benefit from a reduction in tax payments. This involves the Group making assumptions within its overall tax-planning activities and periodically reassessing them in order to reflect changed circumstances as well as tax regulations. Moreover, the measurement of a deferred tax asset or liability reflects the manner in which the entity expects to recover the asset’s carrying value or sett le the liability. Provisions for liabilities and charges
Provisions can be distinguished from other liabilities because there is uncertainty about the timing and / or amount of settlement. The more common provisions recorded by the Group arise from obligations in relation to manufacturer’s warranties, refunds, guarantees, onerous contracts, outstanding litigation and business restructuring. The recognition and measurement of provisions require the Group to make significant estimates with regard to the probability (if the event is more likely than not to occur) that an outflow of resources will be required to settle the obligation and make assumptions whether a reliable estimate can be made of the amount of the obligation. Moreover, the Group’s accounting policy requires recognition of the best estimate of the amount that would be required to settle an obligation and the estimate may be based on information that produces a range of amounts. Since the measurement is based on present value, it involves making estimates around the appropriate discount rate in order to reflect the risks specific to the liability. In particular, as far as restructuring provisions are concerned, considerable judgement is required to determine whether an obligating event has occurred. All the available evidence must be assessed to determine whether a plan is detailed enough
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
IAS1p10(e);112 NOTES (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
to create a valid expectation of management’s commitment to the restructuring by starting to implement the plan or announce its main features to those affected by it. Contingencies
Contingent liabilities of the Group are not recognised but disclosed, unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent liabilities represent possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. They are not recognised because it is not probable that an outflow of resources will be required to settle the obligation and the amount of the obligation cannot be measured with sufficient reliability. Inevitably, the determination that the possibility that an outflow of resources embodying economic benefits is remote and that the occurrence or non-occurrence of one or more uncertain future events is not wholly within the control of the Group requires significant judgement. Actuarial assumptions on defined benefit retirement plans
Accounting for defined benefit plans may be complex because actuarial assumptions are required to measure the obligation and the expense, with the possibility that actual results differ from the assumed results. These differences are known as actuarial gains and losses. Defined benefit obligations are measured using the Projected Unit Credit Method (PUCM), according to which the Group has to make a reliable estimate of the amount of benefits earned in return for services rendered in current and prior periods, using actuarial techniques. In addition, in cases where defined benefit plans are funded, the Group has to estimate the fair value of plan assets. As a result, the use of the PUCM involves a number of actuarial assumptions. These assumptions include demographic assumptions such as mortality, turnover and retirement age and financial assumptions such as discount rates, salary and benefit levels. Such assumptions are subject to judgements and may develop materially differently than expected and therefore may result in significant impacts on defined benefit obligations. Share-based payments
Share-based payments are measured at grant date fair value. For share options granted to employees, in many cases market prices are not available and therefore the fair value of the options granted shall be estimated by applying an option pricing model. Option pricing models need input data such as expected volatility of the share price, expected dividends or the risk-free interest rate for the life of the option. The overall objective is to approximate the expectations that would be reflected in a current market or negotiated exchange price for the option. Such assumptions are subject to judgements and may turn out to be significantly different than expected. Fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. The estimate of the number of equity instruments expected to vest is revised by the Group at the end of each reporting period through settlement. Revisions of the original estimates, if any, is recognised in profit or loss so that the cumulative expense includes the revised estimate, with the corresponding adjustment to the reserve for employee equity-settled benefits.
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDICES
ALTERNATIVE FINANCIAL STATEMENT LAYOUTS Page
APPENDIX 1 Consolidated Statement of Profit or Loss by nature of expense (two-statement approach) 60
APPENDIX 2 Consolidated Statement of Profit or Loss columnar approach to discontinued operations (two- statement approach)
62
APPENDIX 3 Consolidated Statement of Financial Position in order of liquidity 63
POLICIES AND DISCLOSURES FOR AREAS NOT RELEVANT TO IFRS STATEMENTS LIMITED
APPENDIX 4 Investment Properties 65
APPENDIX 5 Construction Contracts 67
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX 1 CONSOLIDATED STATEMENT OF PROFIT OR LOSS PRESENTED USING THE “BY NATURE
OF EXPENSE” METHOD
IAS 1 paragraph 99 states that “An entity shall present an analysis of expenses recognised in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant.” Under the “nature of expense” approach, the IFRS preparer should aggregate expenses within profit or loss according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits, advertising costs), and not reallocate them among various functions within the entity. Based on the “function of expense” approach, cost of sales is shown separately on the face of the statement of profit or loss and other income and expenses are categorised in accordance with their function (for example, costs of distribution or of administrative activities). In both cases, IAS 1 does not provide a strict definition of how and when to categorise income and expense items. As a result, a certain degree of judgement must be exercised. It is worth mentioning that the guidelines in IAS 1 paragraph 99 must be combined with the requirements of IAS 1 paragraphs 81B and 82 which require, as a minimum, the following line items to be shown on the face of the statement of profit or loss:
a) Revenue b) Finance costs c) Share of the profit or loss of associates and joint ventures accounted for using the equity method d) Tax expense e) A single amount for the total of discontinued operations f) Profit or loss for the period and its allocation as attributable to:
i) non-controlling interests, and ii) owners of the parent.
IFRS preparers that choose to present expenses using the “by function” approach must disclose additional information on the nature of expenses, including depreciation and amortisation expense and employee benefits expense. IAS 1 paragraph 105 provides some guidelines in order to assist IFRS preparers in choosing between the “function of expense” and the “nature of expense” methods, such as considering historical and industry factors as well as the nature of the entity. However, since both methods of presentation have merit for different types of entities, ultimately the choice should be driven by the aim to present information in a way that best complies with the principles of relevance and reliability illustrated in the Framework. Below we provide an example of the statement of profit or loss by nature of expenses. Only the statement of profit or loss is presented, simulating a two-statement approach with regard to comprehensive income.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(ea)
2015 2014
IAS1p113;51(d),(e)
Notes CU'000 CU'000
IAS1p82(a) REVENUE X1 22,803 15,160
IAS1p99 Changes in inventories of finished goods and work in progress X 599 569
IAS1p99 Raw materials and consumables used X (8,574) (3,229)
IAS1p99 Employee benefit expense X (9,046) (7,574)
IAS1p99 Depreciation and amortisation X (1,436) (1,382)
IAS1p99 Impairment of property plant and equipment X (120) -
IAS1p99 Impairment of goodwill and other intangibles X (124) (120)
Other expenses X (2,149) (1,876)
IAS1p82(b) Finance costs X (110) (111)
IAS1p85 Finance income X 19 16
IAS1p82(c) Share of the profit (loss) of associates X 140 300
IAS1p85 Gain (loss) on sale of financial assets X 63 18
IFRS3p42 Gain (loss) on revaluation of an associate becoming a subsidiary X 490 -
IAS1p85 PROFIT BEFORE TAX X 2,555 1,771
IAS1p82(d) Income tax expense X (682) (562)
IAS1p85 PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 1,873 1,209
IAS1p82(ea) LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS X (110) (226)
IAS1p81A(a) PROFIT FOR THE YEAR 1,763 983
Attributable to:
IAS1p81B(a)(ii) Owners of the parent company X 1,658 931
IAS1p81B(a)(i) Non-controlling interests X 105 52
1,763 983
EARNINGS PER SHARE Cents Cents
BASIC X
IAS33p66;67;67A Continuing operations 4.34 3.53
IAS33p68;68A;69 Discontinued operations (0.27) (0.69)
IAS33p66;67;67A Total 4.07 2.84
DILUTED X
IAS33p66;67;67A Continuing operations 4.25 3.30
IAS33p68;68A;69 Discontinued operations (0.26) (0.65)
IAS33p66;67;67A Total 3.99 2.65
1 Notes will have to be re-arranged in order to reflect the new statement of profit or loss format.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX 2 CONSOLIDATED STATEMENT OF PROFIT OR LOSS PRESENTED BY FUNCTION OF
EXPENSE AND IN A COLUMNAR APPROACH TO DISCONTINUED OPERATIONS
IFRS 5 paragraph 33 allows the presentation of discontinued operations in the statement of profit or loss as a single amount or with a more detailed analysis (alternatively, the detailed analysis could be presented in the notes). In any case, discontinued operations shall be presented on the face of the statement of profit or loss in a separate section identified as relating to discontinued operations in order to clearly distinguish them from continuing operations. Moreover, IFRS 5 paragraph 34 states that comparatives for the prior period(s) shall be re-presented so that the disclosures relate to all operations that have been discontinued by the reporting date for the latest period presented. IFRS 5 provides an illustrative example of how to present discontinued operations on the face of the statement of profit or loss as a single amount, but does not provide an example on how that single amount should be further analysed on the face of the statement of profit or loss. Below we provide an example using a columnar format regarding how such an analysis could be provided. Only the statement of profit or loss is presented, simulating a two-statement approach with regard to comprehensive income.
FOR THE YEAR ENDED FOR THE YEAR ENDED
IAS1p10(ea)
31 December 2015 31 December 2014
Continuing Discontinued Total Continuing Discontinued Total
IAS1p113;51(d),(e)
Notes CU'000 CU'000 CU'000 CU'000 CU'000 CU'000
IAS1p82(a) REVENUE 3 22,803 1,110 23,913 15,160 2,108 17,268
IAS1p99;103 Cost of sales 4 (18,697) (984) (19,681) (11,720) (2,000) (13,720)
IAS1p85 GROSS PROFIT 4,106 126 4,232 3,440 108 3,548
IAS1p99;103 Distribution costs 4 (889) (45) (934) (747) (101) (848)
IAS1p99;103 Administrative expenses 4 (1,222) (64) (1,286) (1,015) (142) (1,157)
IAS1p99;103 Other operating expenses 4 (42) (3) (45) (130) (20) (150)
IAS1p82(b) Finance costs 5 (110) (138) (248) (111) (121) (232)
IAS1p85 Finance income 5 19 - 19 16 - 16
IAS1p82(c) Share of the profit or loss of associates 13 140 - 140 300 - 300
IAS1p85 Gain on sale of financial assets 6 63 - 63 18 - 18
Loss on disposal of subsidiary 21 - (23) (23) - - -
IFRS3p42 Gain on revaluation of an associate becoming a subsidiary 17 490 - 490 - - -
IAS1p85 PROFIT (LOSS) BEFORE TAX 2,555 (147) 2,408 1,771 (276) 1,495
IAS1p82(d) Income tax expense (682) 37 (645) (562) 50 (512)
IAS1p81A(a);82(ea) PROFIT (LOSS) FOR THE YEAR 1,873 (110) 1,763 1,209 (226) 983
Attributable to:
IAS1p81B(a)(ii) Owners of the parent company 1,768 (110) 1,658 1,157 (226) 931
IAS1p81B(a)(i) Non-controlling interests 105 - 105 52 - 52
1,873 (110) 1,763 1,209 (226) 983
IAS33p66-69 EARNINGS PER SHARE 8 Cents Cents Cents Cents Cents Cents
BASIC 4.34 (0.27) 4.07 3.53 (0.69) 2.84
DILUTED 4.25 (0.26) 3.99 3.30 (0.65) 2.65
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX 3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION WITH ASSETS AND LIABILITIES
PRESENTED IN ORDER OF LIQUIDITY
IAS 1 paragraph 60 states that an IFRS preparer shall present assets and liabilities on the face of the statement of financial position using the current / non-current distinction approach, unless presentation of assets and liabilities in order of liquidity is reliable and more relevant (eg for financial institutions). However, the choice between those two approaches is not entirely elective. In fact, the current / non-current distinction is preferable and the liquidity presentation can be chosen only when it provides information that is reliable and is more relevant than a current / non-current presentation. IAS 1 paragraph 60 clarifies that “when that exception applies, an entity shall present all assets and liabilities in order of liquidity”. The order of liquidity can be either increasing or decreasing. Most interestingly, IAS 1 paragraph 64 allows entities to use also a “mixed format”. In fact, an IFRS preparer is “permitted to present some of its assets and liabilities using a current / non-current classification and others in order of liquidity when this provides information that is reliable and more relevant. The need for a mixed basis of presentation might arise when an entity has diverse operations”. In any case, IFRS preparers should bear in mind that the ultimate goal is to choose the format that provides users of the financial statements with best information about expected dates of realisation of assets and liabilities and therefore helps to adequately assess the liquidity and solvency of the entity. If ‘order of liquidity’ is chosen, IAS 1 paragraph 61 still requires disclosure of the amounts expected to be recovered or settled after more than 12 months for each asset or liability line item. As explained by IAS 1 paragraph 65, such disclosures should be achieved in conjunction with the disclosures required by IFRS 7 Financial instruments: Disclosures. Below we provide an example of a statement of financial position prepared in increasing order of liquidity.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS1p10(ea)
31/12/15 31/12/14
IAS1p113;51(d),(e) ASSETS Notes CU'000 CU'000
IAS1p54(a) Property, plant and equipment 10 5,800 5,520
IAS1p55 Goodwill 11 1,329 605
IAS1p54(c) Other intangible assets 12 2,414 803
IAS1p54(e) Investments in associates 13 281 249
IAS1p54(d) Available-for-sale financial assets 15 274 269
IAS1p54(o) Deferred tax assets 28 243 140
IAS1p54(g) Inventories 18 2,623 1,995
IAS1p54(h) Trade and other receivables 19 2,586 1,517
IAS1p54(i) Cash and cash equivalents 20 622 360
16,172 11,458
IAS1p54(j) Non-current assets classified as held for sale 21 1,016 -
TOTAL ASSETS 17,188 11,458
EQUITY
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
IAS1p54(r) Capital 31 2,596 1,870
IAS1p54(r) Other reserves 32 1,035 295
IAS1p54(r) Retained earnings 6,309 5,151
9,940 7,316
IAS1p54(q) NON-CONTROLLING INTERESTS 306 35
TOTAL EQUITY 10,246 7,351
LIABILITIES
IAS1p55 Retirement benefit obligations 26 475 292
IAS1p55 Borrowings 22 3,146 1,571
IAS1p54(l) Provisions 29 243 57
IAS1p54(m) Derivative financial instruments 23 203 113
IAS1p54(o) Deferred tax liabilities 28 780 297
IAS1p54(k) Trade and other payables 24 1,212 1,206
IAS1p55 Other liabilities 30 60 156
IAS1p54(n) Current tax payables 7 523 415
6,642 4,107
IAS1p54(p) Liabilities directly associated with non-current assets classified as held for sale 21 300 -
TOTAL LIABILITIES 6,942 4,107
TOTAL EQUITY AND LIABILITIES 17,188 11,458
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX 4 INVESTMENT PROPERTIES
Overview of investment properties under IAS 40
Investment properties are a distinct class of assets held to earn rentals and / or for capital appreciation to be shown separately on the face of the statement of financial position with full movements shown in the notes. Investment properties are initially recognised at cost. For subsequent measurement, IAS 40 offers a choice between the fair value model and the cost model. The accounting policies need to clearly state which model is used. Under the cost model, investment properties are measured in accordance with IAS 16. That is, investment properties shall be carried at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation and impairment are charged to the statement of profit or loss. The attractions of accounting for investment properties using the fair value model under IAS 40 include the strength of having the statement of financial position directly showing up-to-date values. Any fresh revaluation gains are treated as income for the year. Under the IAS 40 fair value model, investment properties are not subjected to an annual depreciation charge. The IAS 40 fair value model is different to the IAS 16 revaluation model. Under IAS 16, changes in fair value of the asset are recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus, while depreciation and impairment are recognised in profit or loss. Disclosure of accounting policy
Investment properties are held to earn rental income and / or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. The cost comprises the purchase price and any directly attributable expenditure (eg professional fees for legal services, property transfer taxes).
IAS40p75(a),(e) Subsequently, investment properties are carried at fair value at the reporting date and, unlike operational properties, they are
not depreciated. Fair value is based on active market prices adjusted as necessary to reflect the specific assets’ location and condition. In cases where active market prices are not available, the Group engages independent valuers who hold a recognised and relevant professional qualification. Changes in fair value are recognised in the statement of profit or loss.
IAS40p75(b)
Leased assets are not classified and accounted for as investment properties. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. Presentation on the face of the statement of financial position and statement of profit or loss
According to IAS 1 paragraph 54(b), investment properties have to be separately presented on the face of the statement of financial position. No separate presentation on the face of the statement of profit or loss is required for gains / losses generated by investment properties, unless such presentation is relevant to an understanding of the entity’s financial performance (IAS 1 paragraph 85). Presentation in the notes
The table below illustrates the movements that occurred during the year.
2015 2014
IAS40p76 INVESTMENT PROPERTIES CU'000 CU'000
BALANCE AT 1 JANUARY 723 510
Business combination addition 102 -
Additional properties acquired in the year 246 191
Enhancement expenditure capitalised 53 25
Exchange adjustments 20 3
Increase / (decrease) in fair value 87 (6)
Transfer to non-current assets held for sale (120) -
BALANCE AT 31 DECEMBER 1,111 723
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
IAS40p75(e)
IFRS13p91(a) IFRS13p93(d),(i)
IFRS13p93(a),(b)
The fair value of the Group’s investment property at the reporting date is measured by external professionally qualified Chartered Surveyors ABC & Co. based on a comparison with market evidence of recent transaction prices for similar properties. In estimating the fair value of the properties, their highest and best use is their current use. There has been no change to the valuation technique during the year. The Group’s investment properties and fair value hierarchy as at 31 December are as follows:
Level 1 Level 2 Level 3 Total Fair Value
CU'000 CU'000 CU'000 CU'000
Residential property units in Propland - 2015 - 1,111 - 1,111
Residential property units in Propland - 2014 - 723 - 723
IFRS13p93(c) There were no transfers between Levels 1 and 2 during the year (2014: nil).
2015 2014
IAS40p75(f) INCOME AND EXPENDITURE RELATING TO INVESTMENT PROPERTIES CU'000 CU'000
Rental income 79 67
Direct operating expenses of properties that generated income (12) (10)
Direct operating expenses of properties that generated no income (3) (2)
BALANCE AT 31 DECEMBER 64 55
IAS40p75(g)
There are no restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX 5 CONSTRUCTION CONTRACTS
Overview of construction contracts under IAS 11
IAS 11 paragraph 3 defines a construction contract as “a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use”. As explained in the Objective of IAS 11, “because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed”. Entities need to be able to identify and disclose revenue from all construction contracts under IAS 11. The revenue (ie turnover) disclosure relates to both short-term and long-term construction contracts. At a glance, the following major disclosures are required by IAS 11:
Numerical disclosures relating to construction contracts that were in progress at the reporting date. Total advances (ie money received before work is performed) are separately disclosed and these liabilities are not netted off any other asset balances on the same contract. At each year-end, entities are required to look at each construction contract in progress and work out whether it gives rise to an asset due from or a liability due to the customer.
All contracts that represent a net asset are aggregated and shown as assets (gross amount due from customers for contract work). On the other hand, all the contracts that represent net liabilities are similarly aggregated and shown as liabilities (gross amount due to customers for contract work).
Disclosure of retentions for construction contracts in progress. These are defined as progress billings for work performed on construction contracts in progress at the reporting date that are not paid until the satisfaction of conditions specified in the contract or until defects are remedied.
For construction contracts in progress at the reporting date, the following disclosure: costs incurred + recognised profits - recognised losses to date. These costs include goods delivered to site but not used by the period-end.
Disclosure of accounting policy
IAS11p39(b),(c)
Revenue from construction contracts is recognised as the sales value of work performed in the period. The Group uses the “percentage-of-completion method” to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract. Contract costs are expensed in the period as incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Contract variations, claims and incentive payments are only recognised as revenue when the customer has agreed their value.
Presentation on the face of the statement of financial position and statement of profit or loss
Construction contracts are not required to be separately presented on the face of the statement of financial position, unless such presentation is relevant to an understanding of the entity’s financial position (IAS 1 paragraph 55). No separate presentation on the face of the statement of profit or loss is required for gains / losses generated by construction contracts, unless such presentation is relevant to an understanding of the entity’s financial performance (IAS 1 paragraph 85).
IAS1p51(a) IFRS STATEMENTS LIMITED IAS1p49;51(b),(c) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015
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ILLUSTRATIVE IFRS CONSOLIDATED FINANCIAL STATEMENTS
Presentation in the notes
Disclosures to the statement of profit or loss includes the following:
2015 2014
CU'000 CU'000
IAS11p39(a) Revenue from construction contracts recognised in the year 1,300 1,240
IAS11p40(a) Contract expenses and expected losses recognised (1,285) (1,300)
PROFIT (LOSS) FROM CONTRACTS 15 (60)
Disclosures to Trade and other receivables include the following additional lines:
2015 2014
CU'000 CU'000
IAS11p42(a) Gross amount due from customers for contract work 220 135
IAS11p40(c) Retentions 50 30
Disclosures to Trade and other payables include the following additional lines:
2015 2014
CU'000 CU'000
IAS11p42(b) Gross amount due to customers for contract work (70) (15)
IAS11p40(b) Advances received (125) -
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