IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors OverviewIAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors.The standard requires compliance with any specific IFRS applying to a transaction, event or condition, and provides guidance on developing accounting policies for other items that result in relevant and reliable information. Changes in accounting policies and corrections of errors are generally retrospectively accounted for, whereas changes in accounting estimates are generally accounted for on a prospective basis.IAS 8 was reissued in December 2005 and applies to annual periods beginning on or after 1 January 2005.Summary of IAS 8Key definitions [IAS 8.5] Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. A change in accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability. International Financial Reporting Standardsare standards and interpretations adopted by the International Accounting Standards Board (IASB). They comprise: International Financial Reporting Standards (IFRSs) International Accounting Standards (IASs) Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC) and approved by the IASB. Materiality. Omissions or misstatements of items are material if they could, by their size or nature, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements. Prior period errors are omissions from, and misstatements in, an entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available and could reasonably be expected to have been obtained and taken into account in preparing those statements. Such errors result from mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.Selection and application of accounting policiesWhen a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item must be determined by applying the Standard or Interpretation and considering any relevant Implementation Guidance issued by the IASB for the Standard or Interpretation. [IAS 8.7]In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. [IAS 8.10]. In making that judgement, management must refer to, and consider the applicability of, the following sources in descending order: the requirements and guidance in IASB standards and interpretations dealing with similar and related issues; and the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework. [IAS 8.11]Management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11. [IAS 8.12]Consistency of accounting policiesAn entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless a Standard or an Interpretation specifically requires or permits categorisation of items for which different policies may be appropriate. If a Standard or an Interpretation requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. [IAS 8.13]Changes in accounting policiesAn entity is permitted to change an accounting policy only if the change: is required by a standard or interpretation; or results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance, or cash flows. [IAS 8.14]Note that changes in accounting policies do not include applying an accounting policy to a kind of transaction or event that did not occur previously or were immaterial. [IAS 8.16]If a change in accounting policy is required by a new IASB standard or interpretation, the change is accounted for as required by that new pronouncement or, if the new pronouncement does not include specific transition provisions, then the change in accounting policy is applied retrospectively. [IAS 8.19]Retrospective application means adjusting the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. [IAS 8.22] However, if it is impracticable to determine either the period-specific effects or the cumulative effect of the change for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. [IAS 8.24] Also, if it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable. [IAS 8.25]Disclosures relating to changes in accounting policiesDisclosures relating to changes in accounting policy caused by a new standard or interpretation include: [IAS 8.28] the title of the standard or interpretation causing the change the nature of the change in accounting policy a description of the transitional provisions, including those that might have an effect on future periods for the current period and each prior period presented, to the extent practicable, the amount of the adjustment: for each financial statement line item affected, and for basic and diluted earnings per share (only if the entity is applying IAS 33) the amount of the adjustment relating to periods before those presented, to the extent practicable if retrospective application is impracticable, an explanation and description of how the change in accounting policy was applied.Financial statements of subsequent periods need not repeat these disclosures.Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29] the nature of the change in accounting policy the reasons why applying the new accounting policy provides reliable and more relevant information for the current period and each prior period presented, to the extent practicable, the amount of the adjustment: for each financial statement line item affected, and for basic and diluted earnings per share (only if the entity is applying IAS 33) the amount of the adjustment relating to periods before those presented, to the extent practicable if retrospective application is impracticable, an explanation and description of how the change in accounting policy was applied.Financial statements of subsequent periods need not repeat these disclosures.If an entity has not applied a new standard or interpretation that has been issued but is not yet effective, the entity must disclose that fact and any and known or reasonably estimable information relevant to assessing the possible impact that the new pronouncement will have in the year it is applied. [IAS 8.30]Changes in accounting estimatesThe effect of a change in an accounting estimate shall be recognised prospectively by including it in profit or loss in: [IAS 8.36] the period of the change, if the change affects that period only, or the period of the change and future periods, if the change affects both.However, to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it is recognised by adjusting the carrying amount of the related asset, liability, or equity item in the period of the change. [IAS 8.37]Disclosures relating to changes in accounting estimatesDisclose: the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods if the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact. [IAS 8.39-40]ErrorsThe general principle in IAS 8 is that an entity must correct all material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by: [IAS 8.42] restating the comparative amounts for the prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.However, if it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity must restate the opening balances of assets, liabilities, and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). [IAS 8.44]Further, if it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity must restate the comparative information to correct the error prospectively from the earliest date practicable. [IAS 8.45]Disclosures relating to prior period errorsDisclosures relating to prior period errors include: [IAS 8.49] the nature of the prior period error for each prior period presented, to the extent practicable, the amount of the correction: for each financial statement line item affected, and for basic and diluted earnings per share (only if the entity is applying IAS 33) the amount of the correction at the beginning of the earliest prior period presented if retrospective restatement is impracticable, an explanation and description of how the error has been corrected.Financial statements of subsequent periods need not repeat these disclosures.IFRS 5 Non-current Assets Held for Sale and Discontinued Operations OverviewIFRS 5 Non-current Assets Held for Sale and Discontinued Operations outlines how to account for non-current assets held for sale (or for distribution to owners). In general terms, assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position. Specific disclosures are also required for discontinued operations and disposals of non-current assets.IFRS 5 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005.Summary of IFRS5BackgroundIFRS5 achieves substantial convergence with the requirements of US SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets with respect to the timing of the classification of operations as discontinued operations and the presentation of such operations. With respect to long-lived assets that are not being disposed of, the impairment recognition and measurement standards in SFAS 144 are significantly different from those in IAS36Impairment of Assets. However those differences were not addressed in the short-term IASB-FASB convergence project.Key provisions of IFRS5 relating to assets held for saleHeld-for-sale classificationIn general, the following conditions must be met for an asset (or 'disposal group') to be classified as held for sale: [IFRS5.6-8] management is committed to a plan to sell the asset is available for immediate sale an active programme to locate a buyer is initiated the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions) the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawnThe assets need to be disposed of through sale. Therefore, operations that are expected to be wound down or abandoned would not meet the definition (but may be classified as discontinued once abandoned). [IFRS5.13]An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS5 classifies all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale. [IFRS5.8A]Held for distribution to owners classificationThe classification, presentation and measurement requirements of IFRS5 also apply to a non-current asset (or disposal group) that is classified as held for distribution to owners. [IFRS5.5A and IFRIC 17] The entity must be committed to the distribution, the assets must be available for immediate distribution and the distribution must be highly probable. [IFRS 5.12A]Disposal group conceptA 'disposal group' is a group of assets, possibly with some associated liabilities, which an entity intends to dispose of in a single transaction. The measurement basis required for non-current assets classified as held for sale is applied to the group as a whole, and any resulting impairment loss reduces the carrying amount of the non-current assets in the disposal group in the order of allocation required by IAS 36. [IFRS5.4]MeasurementThe following principles apply: At the time of classification as held for sale. Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measured in accordance with applicable IFRSs. Resulting adjustments are also recognised in accordance with applicable IFRSs. [IFRS5.18] After classification as held for sale. Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell (fair value less costs to distribute in the case of assets classified as held for distribution to owners). [IFRS5.15-15A] Impairment.Impairment must be considered both at the time of classification as held for sale and subsequently: At the time of classification as held for sale. Immediately prior to classifying an asset or disposal group as held for sale, impairment is measured and recognised in accordance with the applicable IFRSs (generally IAS16Property, Plant and Equipment, IAS36Impairment of Assets, IAS38Intangible Assets, and IAS39Financial Instruments: Recognition and Measurement/IFRS9Financial Instruments). Any impairment loss is recognised in profit or loss unless the asset had been measured at revalued amount under IAS 16 or IAS 38, in which case the impairment is treated as a revaluation decrease. After classification as held for sale. Calculate any impairment loss based on the difference between the adjusted carrying amounts of the asset/disposal group and fair value less costs to sell. Any impairment loss that arises by using the measurement principles in IFRS5 must be recognised in profit or loss [IFRS5.20], even for assets previously carried at revalued amounts. This is supported by IFRS5 BC.47 and BC.48, which indicate the inconsistency with IAS 36. Assets carried at fair value prior to initial classification. For such assets, the requirement to deduct costs to sell from fair value may result in an immediate charge to profit or loss. Subsequent increases in fair value. A gain for any subsequent increase in fair value less costs to sell of an asset can be recognised in the profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognised in accordance with IFRS5 or previously in accordance with IAS 36. [IFRS5.21-22] No depreciation. Non-current assets or disposal groups that are classified as held for sale are not depreciated. [IFRS5.25]The measurement provisions of IFRS5 do not apply to deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS9Financial Instruments, non-current assets measured at fair value in accordance with IAS41Agriculture, and contractual rights under insurance contracts. [IFRS5.5]PresentationAssets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separately on the face of the statement of financial position. [IFRS5.38]DisclosuresIFRS 5 requires the following disclosures about assets (or disposal groups) that are held for sale: [IFRS5.41] description of the non-current asset or disposal group description of facts and circumstances of the sale (disposal) and the expected timing impairment losses and reversals, if any, and where in the statement of comprehensive income they are recognised if applicable, the reportable segment in which the non-current asset (or disposal group) is presented in accordance with IFRS 8Operating SegmentsDisclosures in other IFRSs do not apply to assets held for sale (or discontinued operations, discussed below) unless those other IFRSs require specific disclosures in respect of such assets, or in respect of certain measurement disclosures where assets and liabilities are outside the scope of the measurement requirements of IFRS5. [IFRS5.5B]Key provisions of IFRS5 relating to discontinued operationsClassification as discontinuingA discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and: [IFRS5.32] represents either a separate major line of business or a geographical area of operations is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of control.IFRS5 prohibits the retroactive classification as a discontinued operation, when the discontinued criteria are met after the end of the reporting period. [IFRS5.12]Disclosure in the statement of comprehensive income The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less cost to sell or fair value adjustments on the disposal of the assets (or disposal group) is presented as a single amount on the face of the statement of comprehensive income. If the entity presents profit or loss in a separate statement, a section identified as relating to discontinued operations is presented in that separate statement. [IFRS5.33-33A].Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income taxes is required either in the notes or in the statement of comprehensive income in a section distinct from continuing operations. [IFRS5.33] Such detailed disclosures must cover both the current and all prior periods presented in the financial statements. [IFRS5.34]Cash flow informationThe net cash flows attributable to the operating, investing, and financing activities of a discontinued operation is separately presented on the face of the cash flow statement or disclosed in the notes. [IFRS5.33]DisclosuresThe following additional disclosures are required: adjustments made in the current period to amounts disclosed as a discontinued operation in prior periods must be separately disclosed [IFRS5.35] if an entity ceases to classify a component as held for sale, the results of that component previously presented in discontinued operations must be reclassified and included in income from continuing operations for all periods presented [IFRS5.36]IFRS 3 Business Combinations OverviewIFRS 3 Business Combinations outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger). Such business combinations are accounted for using the 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date.A revised version of IFRS 3 was issued in January 2008 and applies to business combinations occurring in an entity's first annual period beginning on or after 1 July 2009.Summary of IFRS 3BackgroundIFRS 3 (2008) seeks to enhance the relevance, reliability and comparability of information provided about business combinations (e.g. acquisitions and mergers) and their effects. It sets out the principles on the recognition and measurement of acquired assets and liabilities, the determination of goodwill and the necessary disclosures.IFRS 3 (2008) resulted from a joint project with the US Financial Accounting Standards Board (FASB) and replaced IFRS 3 (2004). FASB issued a similar standard in December 2007 (SFAS 141(R)). The revisions result in a high degree of convergence between IFRSs and US GAAP in the accounting for business combinations, although some potentially significant differences remain.Key definitions[IFRS 3, Appendix A]business combinationA transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as 'true mergers' or 'mergers of equals' are also business combinations as that term is used in [IFRS 3]

businessAn integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants

acquisition dateThe date on which the acquirer obtains control of the acquiree

acquirerThe entity that obtains control of the acquiree

acquireeThe business or businesses that the acquirer obtains control of in a business combination

ScopeIFRS 3 must be applied when accounting for business combinations, but does not apply to: The formation of a joint venture* [IFRS 3.2(a)] The acquisition of an asset or group of assets that is not a business, although general guidance is provided on how such transactions should be accounted for [IFRS 3.2(b)] Combinations of entities or businesses under common control (the IASB has a separate agenda project on common control transactions) [IFRS 3.2(c)] Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss under IFRS10Consolidated Financial Statements. [IFRS 3.2A]* Annual Improvements to IFRSs 20112013 Cycle, effective for annual periods beginning on or after 1 July 2014, amends this scope exclusion to clarify that is applies to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.Determining whether a transaction is a business combinationIFRS 3 provides additional guidance on determining whether a transaction meets the definition of a business combination, and so accounted for in accordance with its requirements. This guidance includes: Business combinations can occur in various ways, such as by transferring cash, incurring liabilities, issuing equity instruments (or any combination thereof), or by not issuing consideration at all (i.e. by contract alone) [IFRS 3.B5] Business combinations can be structured in various ways to satisfy legal, taxation or other objectives, including one entity becoming a subsidiary of another, the transfer of net assets from one entity to another or to a new entity [IFRS 3.B6] The business combination must involve the acquisition of a business, which generally has three elements: [IFRS 3.B7] Inputs an economic resource (e.g. non-current assets, intellectual property) that creates outputs when one or more processes are applied to it Process a system, standard, protocol, convention or rule that when applied to an input or inputs, creates outputs (e.g. strategic management, operational processes, resource management) Output the result of inputs and processes applied to those inputs.Method of accounting for business combinationsAcquisition methodThe acquisition method (called the 'purchase method' in the 2004 version of IFRS 3) is used for all business combinations. [IFRS 3.4]Steps in applying the acquisition method are: [IFRS 3.5]1. Identification of the 'acquirer'2. Determination of the 'acquisition date'3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly called minority interest) in the acquiree4. Recognition and measurement of goodwill or a gain from a bargain purchaseIdentifying an acquirerThe guidance in IFRS10Consolidated Financial Statements is used to identify an acquirer in a business combination, i.e. the entity that obtains 'control' of the acquiree. [IFRS 3.7]If the guidance in IFRS 10 does not clearly indicate which of the combining entities is an acquirer, IFRS 3 provides additional guidance which is then considered: The acquirer is usually the entity that transfers cash or other assets where the business combination is effected in this manner [IFRS 3.B14] The acquirer is usually, but not always, the entity issuing equity interests where the transaction is effected in this manner, however the entity also considers other pertinent facts and circumstances including: [IFRS 3.B15] relative voting rights in the combined entity after the business combination the existence of any large minority interest if no other owner or group of owners has a significant voting interest the composition of the governing body and senior management of the combined entity the terms on which equity interests are exchanged The acquirer is usually the entity with the largest relative size (assets, revenues or profit) [IFRS 3.B16] For business combinations involving multiple entities, consideration is given to the entity initiating the combination, and the relative sizes of the combining entities. [IFRS 3.B17]Acquisition dateAn acquirer considers all pertinent facts and circumstances when determining the acquisition date, i.e. the date on which it obtains control of the acquiree. The acquisition date may be a date that is earlier or later than the closing date. [IFRS 3.8-9]IFRS 3 does not provide detailed guidance on the determination of the acquisition date and the date identified should reflect all relevant facts and circumstances. Considerations might include, among others, the date a public offer becomes unconditional (with a controlling interest acquired), when the acquirer can effect change in the board of directors of the acquiree, the date of acceptance of an unconditional offer, when the acquirer starts directing the acquiree's operating and financing policies, or the date competition or other authorities provide necessarily clearances.

Acquired assets and liabilitiesIFRS 3 establishes the following principles in relation to the recognition and measurement of items arising in a business combination: Recognition principle. Identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree, are recognised separately from goodwill [IFRS 3.10] Measurement principle. All assets acquired and liabilities assumed in a business combination are measured at acquisition-date fair value. [IFRS 3.18]Exceptions to the recognition and measurement principles

The following exceptions to the above principles apply: Contingent liabilities the requirements of IAS 37Provisions, Contingent Liabilities and Contingent Assets do not apply to the recognition of contingent liabilities arising in a business combination [IFRS 3.22-23] Income taxes the recognition and measurement of income taxes is in accordance with IAS 12Income Taxes [IFRS 3.24-25] Employee benefits assets and liabilities arising from an acquiree's employee benefits arrangements are recognised and measured in accordance with IAS 19Employee Benefits (2011) [IFRS 2.26] Indemnification assets - an acquirer recognises indemnification assets at the same time and on the same basis as the indemnified item [IFRS 3.27-28] Reacquired rights the measurement of reacquired rights is by reference to the remaining contractual term without renewals [IFRS 3.29] Share-based payment transactions - these are measured by reference to the method in IFRS 2Share-based Payment Assets held for sale IFRS 5Non-current Assets Held for Sale and Discontinued Operations is applied in measuring acquired non-current assets and disposal groups classified as held for sale at the acquisition date.

In applying the principles, an acquirer classifies and designates assets acquired and liabilities assumed on the basis of the contractual terms, economic conditions, operating and accounting policies and other pertinent conditions existing at the acquisition date. For example, this might include the identification of derivative financial instruments as hedging instruments, or the separation of embedded derivatives from host contracts.[IFRS 3.15] However, exceptions are made for lease classification (between operating and finance leases) and the classification of contracts as insurance contracts, which are classified on the basis of conditions in place at the inception of the contract. [IFRS 3.17]Acquired intangible assets must be recognised and measured at fair value in accordance with the principles if it is separable or arises from other contractual rights, irrespective of whether the acquiree had recognised the asset prior to the business combination occurring. This is because there is always sufficient information to reliably measure the fair value of these assets. [IAS 38.33-37] There is no 'reliable measurement' exception for such assets, as was present under IFRS 3 (2004).GoodwillGoodwill is measured as the difference between: the aggregate of (i) the value of the consideration transferred (generally at fair value), (ii) the amount of any non-controlling interest (NCI, see below), and (iii) in a business combination achieved in stages (see below), the acquisition-date fair value of the acquirer's previously-held equity interest in the acquiree, and the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed (measured in accordance with IFRS 3). [IFRS 3.32]This can be written in simplified equation form as follows:

Goodwill=Consideration transferred+Amount of non-controlling interests+Fair value of previous equity interests-Net assets recognised

If the difference above is negative, the resulting gain is a bargain purchase in profit or loss, which may arise in circumstances such as a forced seller acting under compulsion. [IFRS 3.34-35] However, before any bargain purchase gain is recognised in profit or loss, the acquirer is required to undertake a review to ensure the identification of assets and liabilities is complete, and that measurements appropriately reflect consideration of all available information. [IFRS 3.36]Choice in the measurement of non-controlling interests (NCI)IFRS 3 allows an accounting policy choice, available on a transaction by transaction basis, to measure non-controlling interests (NCI) either at: [IFRS 3.19] fair value (sometimes called the full goodwill method), or the NCI's proportionate share of net assets of the acquiree.The choice in accounting policy applies only to present ownership interests in the acquiree that entitle holders to a proportionate share of the entity's net assets in the event of a liquidation (e.g. outside holdings of an acquiree's ordinary shares). Other components of non-controlling interests at must be measured at acquisition date fair values or in accordance with other applicable IFRSs (e.g. share-based payment transactions accounted for under IFRS2Share-based Payment). [IFRS 3.19]ExampleP pays 800 to acquire an 80% interest in the ordinary shares of S. The aggregated fair value of 100% of S's identifiable assets and liabilities (determined in accordance with the requirements of IFRS 3) is 600, and the fair value of the non-controlling interest (the remaining 20% holding of ordinary shares) is 185.The measurement of the non-controlling interest, and its resultant impacts on the determination of goodwill, under each option is illustrated below:

NCI based onfair valueNCI based onnet assets

Consideration transferred800800

Non-controlling interest185 (1)120 (2)

985920

Net assets(600)(600)

Goodwill385320

(1) The fair value of the 20% non-controlling interest in S will not necessarily be proportionate to the price paid by P for its 80% interest, primarily due to any control premium or discount [IFRS 3.B45](2) Calculated as 20% of the fair value of the net assets of 600.

Business combination achieved in stages (step acquisitions)Prior to control being obtained, an acquirer accounts for its investment in the equity interests of an acquiree in accordance with the nature of the investment by applying the relevant standard, e.g. IAS28Investments in Associates and Joint Ventures (2011), IFRS11Joint Arrangements, IAS39Financial Instruments: Recognition and Measurement or IFRS9Financial Instruments. As part of accounting for the business combination, the acquirer remeasures any previously held interest at fair value and takes this amount into account in the determination of goodwill as noted above [IFRS 3.32] Any resultant gain or loss is recognised in profit or loss or other comprehensive income as appropriate. [IFRS 3.42]The accounting treatment of an entity's pre-combination interest in an acquiree is consistent with the view that the obtaining of control is a significant economic event that triggers a remeasurement. Consistent with this view, all of the assets and liabilities of the acquiree are fully remeasured in accordance with the requirements of IFRS 3 (generally at fair value). Accordingly, the determination of goodwill occurs only at the acquisition date. This is different to the accounting for step acquisitions under IFRS 3(2004).Measurement periodIf the initial accounting for a business combination can be determined only provisionally by the end of the first reporting period, the business combination is accounted for using provisional amounts. Adjustments to provisional amounts, and the recognition of newly identified asset and liabilities, must be made within the 'measurement period' where they reflect new information obtained about facts and circumstances that were in existence at the acquisition date. [IFRS 3.45] The measurement period cannot exceed one year from the acquisition date and no adjustments are permitted after one year except to correct an error in accordance with IAS 8. [IFRS 3.50]Related transactions and subsequent accountingGeneral principlesIn general: transactions that are not part of what the acquirer and acquiree (or its former owners) exchanged in the business combination are identified and accounted for separately from business combination the recognition and measurement of assets and liabilities arising in a business combination after the initial accounting for the business combination is dealt with under other relevant standards, e.g. acquired inventory is subsequently accounted under IAS2Inventories. [IFRS 3.54]When determining whether a particular item is part of the exchange for the acquiree or whether it is separate from the business combination, an acquirer considers the reason for the transaction, who initiated the transaction and the timing of the transaction. [IFRS 3.B50]Contingent considerationContingent consideration must be measured at fair value at the time of the business combination and is taken into account in the determination of goodwill. If the amount of contingent consideration changes as a result of a post-acquisition event (such as meeting an earnings target), accounting for the change in consideration depends on whether the additional consideration is classified as an equity instrument or an asset or liability: [IFRS 3.58] If the contingent consideration is classified as an equity instrument, the original amount is not remeasured If the additional consideration is classified as an asset or liability that is a financial instrument, the contingent consideration is measured at fair value and gains and losses are recognised in either profit or loss or other comprehensive income in accordance with IFRS 9Financial Instruments or IAS 39Financial Instruments: Recognition and Measurement If the additional consideration is not within the scope of IFRS 9 (or IAS 39), it is accounted for in accordance with IAS 37Provisions, Contingent Liabilities and Contingent Assets or other IFRSs as appropriate.Note: Annual Improvements to IFRSs 20102012 Cycle changes these requirements for business combinations for which the acquisition date is on or after 1 July 2014. Under the amended requirements, contingent consideration that is classified as an asset or liability is measured at fair value at each reporting date and changes in fair value are recognised in profit or loss, both for contingent consideration that is within the scope of IFRS 9/IAS 39 or otherwise.Where a change in the fair value of contingent consideration is the result of additional information about facts and circumstances that existed at the acquisition date, these changes are accounted for as measurement period adjustments if they arise during the measurement period (see above). [IFRS 3.58]Acquisition costsCosts of issuing debt or equity instruments are accounted for under IAS32Financial Instruments: Presentation and IAS39Financial Instruments: Recognition and Measurement/IFRS9Financial Instruments. All other costs associated with an acquisition must be expensed, including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder's fees; advisory, legal, accounting, valuation and other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal acquisitions department. [IFRS 3.53]Pre-existing relationships and reacquired rightsIf the acquirer and acquiree were parties to a pre-existing relationship (for instance, the acquirer had granted the acquiree a right to use its intellectual property), this must must be accounted for separately from the business combination. In most cases, this will lead to the recognition of a gain or loss for the amount of the consideration transferred to the vendor which effectively represents a 'settlement' of the pre-existing relationship. The amount of the gain or loss is measured as follows: for pre-existing non-contractual relationships (for example, a lawsuit): by reference to fair value for pre-existing contractual relationships: at the lesser of (a) the favourable/unfavourable contract position and (b) any stated settlement provisions in the contract available to the counterparty to whom the contract is unfavourable. [IFRS 3.B51-53]However, where the transaction effectively represents a reacquired right, an intangible asset is recognised and measured on the basis of the remaining contractual term of the related contract excluding any renewals. The asset is then subsequently amortised over the remaining contractual term, again excluding any renewals. [IFRS 3.55]Contingent liabilitiesUntil a contingent liability is settled, cancelled or expired, a contingent liability that was recognised in the initial accounting for a business combination is measured at the higher of the amount the liability would be recognised under IAS37Provisions, Contingent Liabilities and Contingent Assets, and the amount less accumulated amortisation under IAS18Revenue. [IFRS 3.56]Contingent payments to employees and shareholdersAs part of a business combination, an acquirer may enter into arrangements with selling shareholders or employees. In determining whether such arrangements are part of the business combination or accounted for separately, the acquirer considers a number of factors, including whether the arrangement requires continuing employment (and if so, its term), the level or remuneration compared to other employees, whether payments to shareholder employees are incremental to non-employee shareholders, the relative number of shares owns, linkages to valuation of the acquiree, how the consideration is calculated, and other agreements and issues. [IFRS 3.B55]Where share-based payment arrangements of the acquiree exist and are replaced, the value of such awards must be apportioned between pre-combination and post-combination service and accounted for accordingly. [IFRS 3.B56-B62B]Indemnification assetsIndemnification assets recognised at the acquisition date (under the exceptions to the general recognition and measurement principles noted above) are subsequently measured on the same basis of the indemnified liability or asset, subject to contractual impacts and collectibility. Indemnification assets are only derecognised when collected, sold or when rights to it are lost. [IFRS 3.57]Other issuesIn addition, IFRS 3 provides guidance on some specific aspects of business combinations including: business combinations achieved without the transfer of consideration, e.g. 'dual listed' and 'stapled' arrangements [IFRS 3.43-44] reverse acquisitions [IFRS 3.B19] identifying intangible assets acquired [IFRS 3.B31-34]DisclosureDisclosure of information about current business combinationsAn acquirer is required to disclose information that enables users of its financial statements to evaluate the nature and financial effect of a business combination that occurs either during the current reporting period or after the end of the period but before the financial statements are authorised for issue. [IFRS 3.59]Among the disclosures required to meet the foregoing objective are the following: [IFRS 3.B64-B66] name and a description of the acquiree acquisition date percentage of voting equity interests acquired primary reasons for the business combination and a description of how the acquirer obtained control of the acquiree description of the factors that make up the goodwill recognised qualitative description of the factors that make up the goodwill recognised, such as expected synergies from combining operations, intangible assets that do not qualify for separate recognition acquisition-date fair value of the total consideration transferred and the acquisition-date fair value of each major class of consideration details of contingent consideration arrangements and indemnification assets details of acquired receivables the amounts recognised as of the acquisition date for each major class of assets acquired and liabilities assumed details of contingent liabilities recognised total amount of goodwill that is expected to be deductible for tax purposes details about any transactions that are recognised separately from the acquisition of assets and assumption of liabilities in the business combination information about a bargain purchase information about the measurement of non-controlling interests details about a business combination achieved in stages information about the acquiree's revenue and profit or loss information about a business combination whose acquisition date is after the end of the reporting period but before the financial statements are authorised for issueDisclosure of information about adjustments of past business combinationsAn acquirer is required to disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognised in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods. [IFRS 3.61]Among the disclosures required to meet the foregoing objective are the following: [IFRS 3.B67] details when the initial accounting for a business combination is incomplete for particular assets, liabilities, non-controlling interests or items of consideration (and the amounts recognised in the financial statements for the business combination thus have been determined only provisionally) follow-up information on contingent consideration follow-up information about contingent liabilities recognised in a business combination a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period, with various details shown separately the amount and an explanation of any gain or loss recognised in the current reporting period that both: relates to the identifiable assets acquired or liabilities assumed in a business combination that was effected in the current or previous reporting period, and is of such a size, nature or incidence that disclosure is relevant to understanding the combined entity's financial statements.Deloitte guide to IFRS 3 and IAS 27In July 2008, the Deloitte IFRS Global Office has published Business Combinations and Changes in Ownership Interests: A Guide to the Revised IFRS 3 and IAS 27. This 164-page guide deals mainly with accounting for business combinations under IFRS 3(2008). Where appropriate, it deals with related requirements of IAS 27(2008) particularly as regards the definition of control, accounting for non-controlling interests, and changes in ownership interests. Other aspects of IAS 27 (such as the requirements to prepare consolidated financial statements and detailed procedures for consolidation) are not addressed. Click to download the new Guide to IFRS 3 and IAS 27 (PDF 647k).

Overview of differences between IFRS 3 (2008) and IFRS 3 (2004)The table below summarises some of key differences in accounting for business combinations under IFRS 3 (2008) and IFRS 3 (2004). The table is not exhaustive.AreaHigh-level overview of changes

Transaction costs acquisition costs such as advisers fees, stamp duty and similar costs cannot be included in the measurement of goodwill

Calculation of goodwill pre-existing ownership interests are measured fair valued at acquisition date option to measure non-controlling interests on the basis of fair value or net assets (transaction by transaction)

Contingent consideration (e.g. earn-outs) fair value accounting at the acquisition date subsequent changes do not impact goodwill but are accounted for separately

Transactions arising in conjunction with business combinations new detailed guidance on the split between compensation and consideration for replacement share-based payment awards settlement of pre-existing relationships (contracts, legal cases, etc.) can result in a gain/loss unrecognised deferred taxes no longer impact goodwill on subsequent measurement

Recognition and measurement 'reliable measurement' exclusion for intangible assets removed new guidance on indemnification assets and assets not expected to be used

Changes in ownership interests(see IFRS10) buying or selling minority interests in a subsidiary only impacts equity loss of control requires fair valuing of retained holding and recycling of reserves

IFRS 10 Consolidated Financial Statements OverviewIFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns and the ability to affect those returns through power over an investee.IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.Summary of IFRS 10ObjectiveThe objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. [IFRS 10:1]The Standard: [IFRS 10:1] requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements defines the principle of control, and establishes control as the basis for consolidation set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee sets out the accounting requirements for the preparation of consolidated financial statements defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity*.* Added by Investment Entities amendments, effective 1 January 2014.Key definitions[IFRS 10:Appendix A]Consolidated financial statementsThe financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity

Control of an investeeAn investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee

Investment entity*An entity that:1. obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services2. commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both, and3. measures and evaluates the performance of substantially all of its investments on a fair value basis.

ParentAn entity that controls one or more entities

PowerExisting rights that give the current ability to direct the relevant activities

Protective rightsRights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate

Relevant activitiesActivities of the investee that significantly affect the investee's returns

* Added by Investment Entities amendments, effective 1 January 2014.ControlAn investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. [IFRS 10:5-6; IFRS 10:8]An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7] power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant activities (the activities that significantly affect the investee's returns) exposure, or rights, to variable returns from its involvement with the investee the ability to use its power over the investee to affect the amount of the investor's returns.Power arises from rights. Such rights can be straightforward (e.g. through voting rights) or be complex (e.g. embedded in contractual arrangements). An investor that holds only protective rights cannot have power over an investee and so cannot control an investee [IFRS 10:11, IFRS 10:14].An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control the investee. Such returns must have the potential to vary as a result of the investee's performance and can be positive, negative, or both. [IFRS 10:15]A parent must not only have power over an investee and exposure or rights to variable returns from its involvement with the investee, a parent must also have the ability to use its power over the investee to affect its returns from its involvement with the investee. [IFRS 10:17].When assessing whether an investor controls an investee an investor with decision-making rights determines whether it acts as principal or as an agent of other parties. A number of factors are considered in making this assessment. For instance, the remuneration of the decision-maker is considered in determining whether it is an agent. [IFRS 10:B58, IFRS 10:B60]Accounting requirementsPreparation of consolidated financial statementsA parent prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances. [IFRS 10:19]However, a parent need not present consolidated financial statements if it meets all of the following conditions: [IFRS 10:4(a)] it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets) it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market, and its ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with IFRSs.Investment entities are prohibited from consolidating particular subsidiaries (see further information below).Furthermore, post-employment benefit plans or other long-term employee benefit plans to which IAS19Employee Benefits applies are not required to apply the requirements of IFRS 10. [IFRS 10:4(b)]Consolidation proceduresConsolidated financial statements: [IFRS 10:B86] combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary (IFRS 3Business Combinations explains how to account for any related goodwill) eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full).A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it gains control until the date when the reporting entity ceases to control the subsidiary. Income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date. [IFRS 10:B88]The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional financial information prepared by subsidiary, unless impracticable. Where impracticable, the most recent financial statements of the subsidiary are used, adjusted for the effects of significant transactions or events between the reporting dates of the subsidiary and consolidated financial statements. The difference between the date of the subsidiary's financial statements and that of the consolidated financial statements shall be no more than three months [IFRS 10:B92, IFRS 10:B93]Non-controlling interests (NCIs)A parent presents non-controlling interests in its consolidated statement of financial position within equity, separately from the equity of the owners of the parent. [IFRS 10:22]A reporting entity attributes the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The proportion allocated to the parent and non-controlling interests are determined on the basis of present ownership interests. [IFRS 10:B94, IFRS 10:B89]The reporting entity also attributes total comprehensive income 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. [IFRS 10:B94]Changes in ownership interestsChanges in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (i.e. transactions with owners in their capacity as owners). When the proportion of the equity held by non-controlling interests changes, the carrying amounts of the controlling and non-controlling interests area 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.[IFRS 10:23, IFRS 10:B96]If a parent loses control of a subsidiary, the parent [IFRS 10:25]: derecognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant IFRSs. That fair value is regarded as the fair value on initial recognition of a financial asset in accordance with IFRS 9Financial Instruments or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture recognises the gain or loss associated with the loss of control attributable to the former controlling interest.Investment entities consolidation exemption[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.]IFRS 10 contains special accounting requirements for investment entities. Where an entity meets the definition of an 'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS3Business Combinations when it obtains control of another entity. [IFRS 10:31]An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. IFRS 10 provides that an investment entity should have the following typical characteristics [IFRS10:28]: it has more than one investment it has more than one investor it has investors that are not related parties of the entity it has ownership interests in the form of equity or similar interests.The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity.An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in accordance with IFRS9Financial Instruments or IAS39Financial Instruments: Recognition and Measurement. However, an investment entity is still required to consolidate a subsidiary where that subsidiary provides services that relate to the investment entitys investment activities. [IFRS10:31-32]Because an investment entity is not required to consolidate its subsidiaries, intragroup related party transactions and outstanding balances are not eliminated [IAS 24.4, IAS 39.80].Special requirements apply where an entity becomes, or ceases to be, an investment entity. [IFRS10:B100-B101]The exemption from consolidation only applies to the investment entity itself. Accordingly, a parent of an investment entity is required to consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity. [IFRS 10:33]DisclosureThere are no disclosures specified in IFRS 10. Instead, IFRS 12Disclosure of Interests in Other Entities outlines the disclosures required.Applicability and early adoptionNote: This section has been updated to reflect the amendments to IFRS 10 made in June 2012 and October 2012.IFRS 10 is applicable to annual reporting periods beginning on or after 1 January 2013 [IFRS 10:C1].Retrospective application is generally required in accordance with IAS 8Accounting Policies, Changes in Accounting Estimates and Errors [IFRS 10:C2]. However, an entity is not required to make adjustments to the accounting for its involvement with entities that were previously consolidated and continue to be consolidated, or entities that were previously unconsolidated and continue not to be consolidated at the date of initial application of the IFRS [IFRS 10:C3].Furthermore, an entity is not required to present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the date of initial application of the standard (the beginning of the annual reporting period for which IFRS 10 is first applied) [IFRS 10:C2A-C2B]. However, an entity may choose to present adjusted comparative information for earlier reporting periods, any must clearly identify any unadjusted comparative information and explain the basis on which the comparative information has been prepared [IFRS 10.C6A-C6B].IFRS 10 prescribes modified accounting on its first application in the following circumstances: an entity consolidates an entity not previously consolidated [IFRS 10:C4-C4C] an entity no longer consolidates an entity that was previously consolidated [IFRS 10:C5-C5A] in relation to certain amendments to IAS 27 made in 2008 that have been carried forward into IFRS 10 [IFRS 10:C6].An entity may apply IFRS 10 to an earlier accounting period, but if doing so it must disclose the fact that is has early adopted the standard and also apply: IFRS 11Joint Arrangements IFRS 12Disclosure of Interests in Other Entities IAS 27Separate Financial Statements (as amended in 2011) IAS 28Investments in Associates and Joint Ventures (as amended in 2011).The amendments made by Investment Entities are applicable to annual reporting periods beginning on or after 1 January 2014 [IFRS 10:C1B]. At the date of initial application of the amendments, an entity assesses whether it is an investment entity on the basis of the facts and circumstances that exist at that date and additional transitional provisions apply [IFRS 10:C3BC3F].IAS 16 Property, Plant and Equipment OverviewIAS 16 Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. Property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model, and depreciated so that its depreciable amount is allocated on a systematic basis over its useful life.IAS 16 was reissued in December 2003 and applies to annual periods beginning on or after 1 January 2005.Summary of IAS 16Objective of IAS 16The objective of IAS 16 is to prescribe the accounting treatment for property, plant, and equipment. The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and impairment losses to be recognised in relation to them.ScopeIAS 16 applies to the accounting for property, plant and equipment, except where another standards requires or permits differing accounting treatments, for example: assets classified as held for sale in accordance with IFRS5Non-current Assets Held for Sale and Discontinued Operations biological assets related to agricultural activity accounted for under IAS41Agriculture exploration and evaluation assets recognised in accordance with IFRS6Exploration for and Evaluation of Mineral Resources mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.The standard does apply to property, plant, and equipment used to develop or maintain the last three categories of assets. [IAS 16.3]The cost model in IAS 16 also applies to investment property accounted for using the cost model under IAS40Investment Property. [IAS 16.5]The standard does apply to bearer plants but it does not apply to the produce on bearer plants. [IAS 16.3]Note: Bearer plants were brought into the scope of IAS 16 by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which applies to annual periods beginning on or after 1 January 2016.RecognitionItems of property, plant, and equipment should be recognised as assets when it is probable that: [IAS 16.7] it is probable that the future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.This recognition principle is applied to all property, plant, and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it.IAS 16 does not prescribe the unit of measure for recognition what constitutes an item of property, plant, and equipment. [IAS 16.9] Note, however, that if the cost model is used (see below) each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately. [IAS 16.43]IAS 16 recognises that parts of some items of property, plant, and equipment may require replacement at regular intervals. The carrying amount of an item of property, plant, and equipment will include the cost of replacing the part of such an item when that cost is incurred if the recognition criteria (future benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of IAS 16.67-72. [IAS 16.13]Also, continued operation of an item of property, plant, and equipment (for example, an aircraft) may require regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement if the recognition criteria are satisfied. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. [IAS 16.14]Initial measurementAn item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. [IAS 16.23]If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [IAS 16.24]Measurement subsequent to initial recognitionIAS 16 permits two accounting models: Cost model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30] Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [IAS 16.31]The revaluation modelUnder the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]If an item is revalued, the entire class of assets to which that asset belongs should be revalued. [IAS 16.36]Revalued assets are depreciated in the same way as under the cost model (see below).If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss. [IAS 16.39]A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. [IAS 16.40]When a revalued asset is disposed of, any revaluation surplus may be transferred directly to retained earnings, or it may be left in equity under the heading revaluation surplus. The transfer to retained earnings should not be made through profit or loss. [IAS 16.41]Depreciation (cost and revaluation models)For all depreciable assets:The depreciable amount (cost less residual value) should be allocated on a systematic basis over the asset's useful life [IAS 16.50].The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively as a change in estimate under IAS 8. [IAS 16.51]The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity [IAS 16.60]; a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. [IAS 16.62A]Note: The clarification regarding the revenue-based depreciation method was introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016.The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8. [IAS 16.61] Expected future reductions in selling prices could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset. [IAS 16.56]Note: The guidance on expected future reductions in selling prices was introduced by Clarification of Acceptable Methods of Depreciation and Amortisation, which applies to annual periods beginning on or after 1 January 2016.Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset [IAS 16.48].Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle. [IAS 16.55]Recoverability of the carrying amountIAS16Property, Plant and Equipment requires impairment testing and, if necessary, recognition for property, plant, and equipment. An item of property, plant, or equipment shall not be carried at more than recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable. [IAS 16.65]Derecognition (retirements and disposals)An asset should be removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in profit and loss. [IAS 16.67-71]If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at their carrying amounts as they become held for sale in the ordinary course of business. [IAS 16.68A]DisclosureInformation about each class of property, plant and equipmentFor each class of property, plant, and equipment, disclose: [IAS 16.73] basis for measuring carrying amount depreciation method(s) used useful lives or depreciation rates gross carrying amount and accumulated depreciation and impairment losses reconciliation of the carrying amount at the beginning and the end of the period, showing: additions disposals acquisitions through business combinations revaluation increases or decreases impairment losses reversals of impairment losses depreciation net foreign exchange differences on translation other movementsAdditional disclosuresThe following disclosures are also required: [IAS 16.74] restrictions on title and items pledged as security for liabilities expenditures to construct property, plant, and equipment during the period contractual commitments to acquire property, plant, and equipment compensation from third parties for items of property, plant, and equipment that were impaired, lost or given up that is included in profit or loss.IAS 16 also encourages, but does not require, a number of additional disclosures. [IAS 16.79]Revalued property, plant and equipmentIf property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required: [IAS 16.77] the effective date of the revaluation whether an independent valuer was involved for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model the revaluation surplus, including changes during the period and any restrictions on the distribution of the balance to shareholders.Entities with property, plant and equipment stated at revalued amounts are also required to make disclosures under IFRS13Fair Value Measurement.IAS 14 Segment Reporting (Superseded) OverviewIAS 14 Segment Reporting requires reporting of financial information by business or geographical area. It requires disclosures for 'primary' and 'secondary' segment reporting formats, with the primary format based on whether the entity's risks and returns are affected predominantly by the products and services it produces or by the fact that it operates in different geographical areas.IAS 14 was issued in August 1997, was applicable to annual periods beginning on or after 1 July 1998, and was superseded by IFRS 8Operating Segments with effect from annual periods beginning on or after 1 January 2009.Summary of IAS 14Objective of IAS 14The objective of IAS 14 (Revised 1997) is to establish principles for reporting financial information by line of business and by geographical area. It applies to entities whose equity or debt securities are publicly traded and to entities in the process of issuing securities to the public. In addition, any entity voluntarily providing segment information should comply with the requirements of the Standard.ApplicabilityIAS 14 must be applied by entities whose debt or equity securities are publicly traded and those in the process of issuing such securities in public securities markets. [IAS 14.3]If an entity that is not publicly traded chooses to report segment information and claims that its financial statements conform to IFRSs, then it must follow IAS 14 in full. [IAS 14.5]Segment information need not be presented in the separate financial statements of a (a) parent, (b) subsidiary, (c) equity method associate, or (d) equity method joint venture that are presented in the same report as the consolidated statements. [IAS 14.6-7]Key definitionsBusiness segment: a component of an entity that (a) provides a single product or service or a group of related products and services and (b) that is subject to risks and returns that are different from those of other business segments. [IAS 14.9]Geographical segment: a component of an entity that (a) provides products and services within a particular economic environment and (b) that is subject to risks and returns that are different from those of components operating in other economic environments. [IAS 14.9]Reportable segment: a business segment or geographical segment for which IAS 14 requires segment information to be reported. [IAS 14.9]Segment revenue: revenue, including intersegment revenue, that is directly attributable or reasonably allocable to a segment. Includes interest and dividend income and related securities gains only if the segment is a financial segment (bank, insurance company, etc.). [IAS 14.16]Segment expenses: expenses, including expenses relating to intersegment transactions, that (a) result from operating activities and (b) are directly attributable or reasonably allocable to a segment. Includes interest expense and related securities losses only if the segment is a financial segment (bank, insurance company, etc.). Segment expenses do not include: interest losses on sales of investments or debt extinguishments losses on investments accounted for by the equity method income taxes general corporate administrative and head-office expenses that relate to the entity as a whole [IAS 14.16]Segment result: segment revenue minus segment expenses, before deducting minority interest. [IAS 14.16]Segment assets and segment liabilities: those operating assets (liabilities) that are directly attributable or reasonably allocable to a segment. [IAS 14.16]Identifying business and geographical segmentsAn entity must look to its organisational structure and internal reporting system to identify reportable segments. In particular, IAS 14 presumes that segmentation in internal financial reports prepared for the board of directors and chief executive officer should normally determine segments for external financial reporting purposes. Only if internal segments are not along either product/service or geographical lines is further disaggregation appropriate. [IAS 14.26]Geographical segments may be based either on where the entity's assets are located or on where its customers are located. [IAS 14.14] Whichever basis is used, several items of data must be presented on the other basis if significantly different. [IAS 14.71-72]Primary and secondary segmentsFor most entities one basis of segmentation is primary and the other is secondary, with considerably less disclosure required for secondary segments. The entity should determine whether business or geographical segments are to be used for its primary segment reporting format based on whether the entity's risks and returns are affected predominantly by the products and services it produces or by the fact that it operates in different geographical areas. The basis for identification of the predominant source and nature of risks and differing rates of return facing the entity will usually be the entity's internal organisational and management structure and its system of internal financial reporting to senior management. [IAS 14.26-27]Which segments are reportable?The entity's reportable segments are its business and geographical segments for which a majority of their revenue is earned from sales to external customers and for which: [IAS 14.35] revenue from sales to external customers and from transactions with other segments is 10% or more of the total revenue, external and internal, of all segments; or segment result, whether profit or loss, is 10% or more the combined result of all segments in profit or the combined result of all segments in loss, whichever is greater in absolute amount; or assets are 10% or more of the total assets of all segments.Segments deemed too small for separate reporting may be combined with each other, if related, but they may not be combined with other significant segments for which information is reported internally. Alternatively, they may be separately reported. If neither combined nor separately reported, they must be included as an unallocated reconciling item. [IAS 14.36]If total external revenue attributable to reportable segments identified using the 10% thresholds outlined above is less than 75% of the total consolidated or entity revenue, additional segments should be identified as reportable segments until at least 75% of total consolidated or entity revenue is included in reportable segments. [IAS 14.37]Vertically integrated segments (those that earn a majority of their revenue from intersegment transactions) may be, but need not be, reportable segments. [IAS 14.39] If not separately reported, the selling segment is combined with the buying segment. [IAS 14.41]IAS 14.42-43 contain special rules for identifying reportable segments in the years in which a segment reaches or loses 10% significance.What accounting policies should a segment follow?Segment accounting policies must be the same as those used in the consolidated financial statements. [IAS 14.44]If assets used jointly by two or more segments are allocated to segments, the related revenue and expenses must also be allocated. [IAS 14.47]What must be disclosed?IAS 14 has detailed guidance as to which items of revenue and expense are included in segment revenue and segment expense. All companies will report a standardised measure of segment result basically operating profit before interest, taxes, and head office expenses. For an entity's primary segments, revised IAS 14 requires disclosure of: [IAS 14.51-67] sales revenue (distinguishing between external and intersegment) result assets the basis of intersegment pricing liabilities capital additions depreciation and amortisation significant unusual items non-cash expenses other than depreciation equity method incomeSegment revenue includes "sales" from one segment to another. Under IAS 14, these intersegment transfers must be measured on the basis that the entity actually used to price the transfers. [IAS 14.75]For secondary segments, disclose: [IAS 14.69-72] revenue assets capital additionsOther disclosure matters addressed in IAS 14: Disclosure is required of external revenue for a segment that is not deemed a reportable segment because a majority of its sales are intersegment sales but nonetheless its external sales are 10% or more of consolidated revenue. [IAS 14.74] Special disclosures are required for changes in segment accounting policies. [IAS 14.76] Where there has been a change in the identification of segments, prior year information should be restated. If this is not practicable, segment data should be reported for both the old and new bases of segmentation in the year of change. [IAS 14.76] Disclosure is required of the types of products and services included in each reported business segment and of the composition of each reported geographical segment, both primary and secondary. [IAS 14.81]An entity must present a reconciliation between information reported for segments and consolidated information. At a minimum: [IAS 14.67] segment revenue should be reconciled to consolidated revenue segment result should be reconciled to a comparable measure of consolidated operating profit or loss and consolidated net profit or loss segment assets should be reconciled to entity assets segment liabilities should be reconciled to entity liabilities.IAS 39 Financial Instruments: Recognition and Measurement OverviewIAS39 Financial Instruments: Recognition and Measurement outlines the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items. Financial instruments are initially recognised when an entity becomes a party to the contractual provisions of the instrument, and are classified into various categories depending upon the type of instrument, which then determines the subsequent measurement of the instrument (typically amortised cost or fair value). Special rules apply to embedded derivatives and hedging instruments.IAS39 was reissued in December 2003, applies to annual periods beginning on or after 1 January 2005, and will be superseded by IFRS 9Financial Instruments once a mandatory application date of that standard is determined.Summary of IAS39ScopeScope exclusionsIAS39 applies to all types of financial instruments except for the following, which are scoped out of IAS39: [IAS39.2] interests in subsidiaries, associates, and joint ventures accounted for under IAS27Consolidated and Separate Financial Statements, IAS28Investments in Associates, or IAS31Interests in Joint Ventures (or, for periods beginning on or after 1 January 2013, IFRS10Consolidated Financial Statements, IAS27Separate Financial Statements or IAS28Investments in Associates and Joint Ventures); however IAS39 applies in cases where under those standards such interests are to be accounted for under IAS39. The standard also applies to most derivatives on an interest in a subsidiary, associate, or joint venture employers' rights and obligations under employee benefit plans to which IAS19Employee Benefits applies forward contracts between an acquirer and selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date rights and obligations under insurance contracts, except IAS39 does apply to financial instruments that take the form of an insurance (or reinsurance) contract but that principally involve the transfer of financial risks and derivatives embedded in insurance contracts financial instruments that meet the definition of own equity under IAS32Financial Instruments: Presentation financial instruments, contracts and obligations under share-based payment transactions to which IFRS2Share-based Payment applies rights to reimbursement payments to which IAS37Provisions, Contingent Liabilities and Contingent Assets appliesLeasesIAS39 applies to lease receivables and payables only in limited respects: [IAS39.2(b)] IAS39 applies to lease receivables with respect to the derecognition and impairment provisions IAS39 applies to lease payables with respect to the derecognition provisions IAS39 applies to derivatives embedded in leases.Financial guaranteesIAS39 applies to financial guarantee contracts issued. However, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either IAS39 or IFRS 4Insurance Contracts to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable.Accounting by the holder is excluded from the scope of IAS39 and IFRS 4 (unless the contract is a reinsurance contract). Therefore, paragraphs 10-12 of IAS 8Accounting Policies, Changes in Accounting Estimates and Errors apply. Those paragraphs specify criteria to use in developing an accounting policy if no IFRS applies specifically to an item.Loan commitmentsLoan commitments are outside the scope of IAS39 if they cannot be settled net in cash or another financial instrument, they are not designated as financial liabilities at fair value through profit or loss, and the entity does not have a past practice of selling the loans that resulted from the commitment shortly after origination. An issuer of a commitment to provide a loan at a below-market interest rate is required initially to recognise the commitment at its fair value; subsequently, the issuer will remeasure it at the higher of (a) the amount recognised under IAS 37 and (b) the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with IAS 18. An issuer of loan commitments must apply IAS 37 to other loan commitments that are not within the scope of IAS39 (that is, those made at market or above). Loan commitments are subject to the derecognition provisions of IAS39. [IAS39.4]Contracts to buy or sell financial itemsContracts to buy or sell financial items are always within the scope of IAS39 (unless one of the other exceptions applies).Contracts to buy or sell non-financial itemsContracts to buy or sell non-financial items are within the scope of IAS39 if they can be settled net in cash or another financial asset and are not entered into and held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity's expected purchase, sale, or usage requirements. Contracts to buy or sell non-financial items are inside the scope if net settlement occurs. The following situations constitute net settlement: [IAS39.5-6] the terms of the contract permit either counterparty to settle net there is a past practice of net settling similar contracts there is a past practice, for similar contracts, of taking delivery of the underlying and selling it within a short period after delivery to generate a profit from short-term fluctuations in price, or from a dealer's margin, or the non-financial item is readily convertible to cashWeather derivativesAlthough contracts requiring payment based on climatic, geological, or other physical variable were generally excluded from the original version of IAS39, they were added to the scope of the revised IAS39 in December 2003 if they are not in the scope of IFRS 4. [IAS39.AG1]DefinitionsIAS39 incorporates the definitions of the following items from IAS 32Financial Instruments: Presentation: [IAS39.8] financial instrument financial asset financial liability equity instrument.Note: Where an entity applies IFRS 9Financial Instruments prior to its mandatory application date (1 January 2015), definitions of the following terms are also incorpor