Practical Issues on HKFRS Part III We Passionately Develop Quality Programmes

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1 Practical Issues on HKFRS Part III Date 25 August 2015 Time 1:00 21:00 Venue Duke of Windsor Social Service Building Disclaimer The materials of this seminar are intended only to provide general information on the subject concerned and shall not be relied upon for technical advice. ZHONGHUI ANDA and the speakers take no responsibility for any errors or omissions in, or for the loss incurred by individuals or companies due to the use of, the materials of this seminar. No claims, actions or legal proceedings in connection with this seminar brought by any individuals or companies having reference to the materials of this seminar will be entertained by ZHONGHUI ANDA and the speakers. Any unauthorized audio and video recordings of this seminar without the consent of the speakers are strictly prohibited, and represent a copyright violation.

2 HKAS 3 Financial Instruments: Recognition and Measurement Financial asset or liability at FV through profit or loss classified as held for trading designated Held for trading if: purpose of selling or repurchasing in near term; recent actual pattern of short-term profit-taking; or derivative 3 HKAS 3 Designation only when permitted by paragraph 11A, or eliminate or reduce measurement or recognition inconsistency (accounting mismatch); or financial assets and/or liabilities managed and performance evaluated on FV basis 11A If contract contains embedded derivative, may designate entire hybrid (combined) contract as financial asset or liability at FV through profit or loss unless: embedded derivative not significantly modify CF; or clear with little or no analysis that separation prohibited 4

3 HKAS 3 Loans and receivables are non-derivative with fixed or determinable payments not quoted in active market, other than: those intended to sell immediately or in near term and those designated as FV through profit or loss; designated as available for sale; or holder may not recover substantially all initial investment (other than credit deterioration) 5 HKAS 3 Held-to-maturity investments are non-derivative with fixed or determinable payments and fixed maturity with positive intention and ability to hold to maturity other than: designated as FV through profit or loss; designated as available for sale; and those that meet definition of loans and receivables 6

4 HKAS 3 Available-for-sale assets are non-derivative are designated as available for sale or not classified as loans and receivables, held-to-maturity or at FV through profit or loss 7 HKAS 3 50 Not reclassify derivative out of FV through profit or loss category Not reclassify out of FV through profit or loss if designated May, if no longer held for purpose of selling or repurchasing in near term, reclassify asset out of FV through profit or loss if meet other requirements Not reclassify any into FV through profit or loss 8

5 HKAS 3 Financial guarantee contract is contract requires issuer to make specified payments to reimburse holder for loss because specified debtor fails to make payment accordance with terms of debt instrument 47(c) Issuer of financial guarantee contract measure it at higher of: amount determined in accordance with HKAS 37; and amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 HKAS 3 AG80 FV of investments in equity instruments without quoted market price in active market and linked derivatives is reliably measurable if variability in range of reasonable FV estimates measurements not significant or probabilities of various estimates reasonably assessed 10

6 HKAS 40 Investment Property HKAS 40.5 IP is property (land and/or building) held (by owner or lessee under finance lease) to earn rentals and/or for capital appreciation, rather than for: use in production or supply of goods or services or for administrative purposes; or sale in ordinary course of business How about if: land is operating lease under HKAS 17 building is IP under HKAS HKAS 40 HKAS 17.15A When lease includes both land and buildings elements, assess classification of each element as finance or operating lease separately HKAS Separate measurement of land and buildings elements not required when lessee s interest in both land and buildings classified as IP and FV model adopted 12

7 HKAS 40 HKAS 40.6 Property interest held by lessee under operating lease may be classified and accounted for IP if, and only if, property would otherwise meet definition of IP, and lessee uses FV model Classification alternative available on property-by-property basis Once selected, all IP accounted for using FV model 13 HKAS 40 Land Building Allowed Cost (HKAS 17) Cost (HKAS 40) Y Cost (HKAS 17) FV (HKAS 40) Y??? FV (HKAS 40) Cost (HKAS 40) N FV (HKAS 40) FV (HKAS 40) Y 14

8 HKAS 40 HKAS Initial cost of property interest under lease and classified as IP recognised at lower of FV of property and present value of minimum lease payments Equivalent amount recognised as liability HKAS 17.1 If lessee classify property interest under operating lease as IP, property interest accounted for as if finance lease FV model used Continue to account as finance lease, even if subsequent event changes the nature of property interest For example, lessee occupies property (transfer to owneroccupied property at deemed cost equal to FV at date of change 15 HK(IFRIC) Int 10 Interim Financial Reporting and Impairment Effective for annual periods beginning on or after 1 Nov 06 HKAS states that frequency of reporting not affect measurement of annual results HKAS states that impairment loss for goodwill not reversed HKAS 3.66 requires that impairment losses for financial assets at cost not reversed Not reverse above impairment loss recognised in interim period Not extend this conclusion by analogy 16

9 HK(IFRIC) Int 17 Distributions of Non-cash Assets to Owners Effective for annual periods beginning on or after 1 Jul 0 Applies to following distributions to owners in their capacity as owners: distributions of non-cash assets distributions that give owners choice of receiving either non-cash assets or cash Applies when all owners of same class of equity instruments treated equally Not apply to distribution of non-cash asset that ultimately controlled by same party or parties before and after distribution 17 HK(IFRIC) Int 17 Liability to pay dividend recognised when dividend appropriately authorised and no longer at discretion of entity Measure liability to distribute non-cash assets as dividend to owners at FV of assets If choice of receiving either non-cash asset or cash, estimate dividend payable by considering both FV of each alternative and associated probability At end of each reporting period and date of settlement, review and adjust carrying amount of dividend payable, with changes recognised in equity as adjustments to amount of distribution When settling dividend payable, recognise difference between assets and dividend payable in profit or loss 18

10 HK(IFRIC) Int 1 Extinguishing Financial Liabilities with Equity Instruments Effective for annual periods beginning on or after 1 Jul 10 Not apply to transactions where: creditor is also shareholder and acting as existing shareholder creditor and entity controlled by same party or parties before and after transaction and substance of transaction includes equity distribution by, or contribution to, entity extinguishing financial liability by issuing equity shares in accordance with original terms 1 HK(IFRIC) Int 1 Issue of equity instruments to creditor to extinguish financial liability is consideration paid in accordance with HKAS 3 Equity instruments recognised at date financial liability extinguished at its FV, unless not reliably measured If FV of equity instruments issued not reliably measured, measure to reflect FV of financial liability extinguished Difference between carrying amount of financial liability extinguished and consideration paid recognised in profit or loss 20

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