Liabilities. MPERS Conversion steps. What s next for Private Entities MPERS or MFRS? September Step 1 Step 2 Step 3 Step 4 Step 5

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Liabilities M Conversion steps Step 1 Step 2

1 Liabilities M Conversion steps Step 1 Step 2 Step 3 Step 4 Step 5 Determine functional currency Select accounting policies Identify gaps Apply transitional provisions where applicable (Section 35) Restate opening balances and comparatives Mcompliant financial statements 1 Swiss entity.

2 Agenda Statement of financial position items Leases Employee Share-based payment Income tax Classification of lease Leasehold land and buildings Land Buildings In Malaysia, leasehold land and buildings are treated as fixed assets in accordance with MASB 15, Property, Plant and Equipment and where applicable, the Ninth Schedule of the Companies Act 1965 (MASB 10.14). M Classification of payments made on leasehold land will depend whether it is a finance lease or an operating lease: Finance lease PPE or IP Operating lease Prepaid lease payments or IP 3 Swiss entity.

3 Classification of lease Indicators of a finance lease vs. an operating lease Ownership transfers at the end of lease? Bargain purchase option? Lease for majority of economic life? Present value of minimum lease payments equals at least substantially all of fair value of leased asset? Lease assets specialised? Operating lease Finance lease Cancellation losses borne by lessee? Changes in fair value of residual borne by lessee? Bargain lease renewal option? YES YES YES YES YES YES YES YES * These indicators only provide a guide and are not conclusive. 4 Quantitative threshold guidance Economic vs. useful life Lease for majority of economic life? Economic life Period over which the asset is expected to be economically usable (by anyone) Lease term is considered major part when it is 75% or more of the economic life of the leased asset. Useful life Remaining period over which the economic of the asset are expected to be used by the lessee No quantitative threshold guidance. M 5 Swiss entity.

4 Quantitative threshold guidance Present value of minimum lease payments vs. fair value Present value of the minimum lease payments is considered at least substantially all if it is 90% of the leased asset s fair value. No quantitative threshold guidance. M 6 Operating leases Recognition and measurement of lease payments Lease payments under an operating lease are recognised as expense in the following time pattern: Straight-line basis over the lease term (no inflation adjustment exception). Annual rental recognised as expense M Straight-line basis over the lease term; unless Increase in line with the expected general inflation when lease payments are structured to compensate lessor for general inflation. Entity A pays operating lease payments which are structured to increase in line with the expected CPI (4% p.a.). 20Y1 = RM100k; 20Y2 = RM104k; 20Y3 = RM108k. (RM 000) M (RM 000) 20Y Y Y transition exemptions; retrospective application 7 Swiss entity.

5 There is no embedded lease Arrangements containing a lease Arrangements that do not take the legal form of a lease but convey rights to use assets in return for payments. Such arrangements are accounted for as a lease Long-term contract for packaging for 15 years Entity X Outsourcing supplier Construct a plant to supply packaging services to Entity X Other common arrangements that may contain a lease: Telecommunication contract Take-or-pay contract 8 Determining whether an arrangement contains a lease Guidance from IC Interpretation 4 Does fulfillment of the arrangement require a specific asset? [IC 4.6(a)] No Yes Is a right to use the asset being conveyed? [IC 4.6(b)] Does purchaser have the ability or right to operate the asset, including to direct how others should operate the asset, while obtaining or controlling more than an insignificant amount of the output? [IC 4.9(a)] No Does purchaser have the ability or right to control physical access to the asset, while obtaining or controlling more than an insignificant amount of the output? [IC 4.9(b)] No Is it remote that another party will take more than an insignificant amount of the output during the term of the contract? [IC 4.9(c)] Yes Does purchaser pay a contractually fixed price per unit of output at the time of delivery of the output? [IC 4.9(c)] No Does purchaser pay market price per unit of output at the time of delivery of the output? [IC 4.9(c)] No Yes Yes Yes Yes There is an embedded lease No 9 Swiss entity.

6 Arrangements containing a lease Transition to M Determining whether an arrangement contains a lease Inception date of the arrangement e.g. 12 May 2012 Date of transition e.g. 1 Jan 2015 Effective date e.g. 1 Jan 2016 Applying transition exemption: - assess based on facts as at 1 Jan 2015 Not applying transition exemption: - assess based on facts as at 12 May 2012 transition exemption for measurement; retrospective application 10 Leases Key differences between M and MFRS M MFRS Recognition & measurement When payments under operating leases are structured to increase in line with expected general inflation, the timing of the recognition of income and expenditure by the lessor and the lessee respectively reflects this fact instead of being recognised on a straight-line basis. Operating lease expense is generally recognised on a straight-line basis. ** ** Similar requirement with. 11 Swiss entity.

7 Agenda Statement of financial position items Leases Employee Share-based payment Income tax Overview MASB 29, Employee Benefits Short-term employee Postemployment Other long-term employee Termination Equity compensation (Disclosures) M Section 28, Employee Benefits Section 26, Share-based Payment Short-term employee Postemployment Other long-term employee Termination Equity compensation 13 Swiss entity.

8 Defined benefit plans Net defined benefit liability (asset) Defined benefit obligation (PV) Fair value of plan assets Deferred actuarial gains & losses Deferred past service cost Net defined benefit liability (asset) M Defined benefit obligation (PV) Fair value of plan assets Net defined benefit liability (asset) 14 Defined benefit plans Measurement of the defined benefit obligation If necessary information can be obtained without undue cost or effort projected unit credit method (consistent with MFRS 119) is applied If necessary information cannot be obtained without undue cost or effort a simplified approach is applied. Under simplified calculation (include both vested and unvested ): ignore estimated future salary increases; ignore future service of current employees (i.e. assume closure of the plan for existing as well as any new employees); and ignore possible in-service mortality of current employees (however, consider mortality after service (i.e. life expectancy)). 15 Swiss entity.

g. 1 Jan 2015 Actuarial gains and losses recognised in profit or loss using corridor method transition exemption Retrospective application

9 Defined benefit plans Actuarial gains and losses Actuarial gains and losses (Allows corridor method) M (Recognition in full) MFRS Recognition in OCI (no option of recycling to profit or loss) Recognition in profit or loss 16 Transition to M Financial year end under e.g. 31 Dec 2014 Date of transition e.g. 1 Jan 2015 Actuarial gains and losses recognised in profit or loss using corridor method transition exemption Retrospective application Restate to original cost and recognise actuarial gains and losses in full either in OCI or in profit or loss 17 Swiss entity.

10 Employee Key differences between M and MFRS M MFRS Recognition & measurement Actuarial gains and losses are recognised in full either in OCI or in profit or loss. Actuarial gains and losses are recognised in full in OCI. 18 Agenda Statement of financial position items Leases Employee Share-based payment Income tax Swiss entity.

11 Share-based payments ( SBP ) arrangement SBP is complex. SME is not expected to have SBP. Please consult specialist if there is SBP. Goods or Services Entity X Supplier / Employee 20 Examples: Share-based payments arrangement Share based payment arrangement? Entity X pays supplier by cash. Entity X pays supplier by way of issuing new shares. Entity X pays supplier by cash determined based on the fair value of the shares of Entity X preceding the transaction. Employees Share Option Scheme ( ESOS ) of Entity X. ESOS of the holding company for employees of Entity X. Shares issued to a third party at par value to fulfill a government requirement but the fair value of the share is expected to be much higher. 21 Swiss entity.

12 Types of share-based payment Equity-settled Cash-settled Cash alternative Entity acquires goods/services as consideration for entity s equity instruments. Entity acquires goods/ services by incurring liabilities to the supplier of those goods/services for amount based on the share price. Either entity or the counterparty has a choice to settle by equity instruments or by cash/other assets. M Cash-settled unless: The entity has a past practice of settling by issuing equity instruments; or The option has no commercial substance. 22 Equity-settled share-based payment transactions Shares or share options The period between the grant date and the date at which all vesting conditions must be satisfied Grant date Vesting period Year 1 Year 2 Year 3 Vesting date Expiry date Exercise date Time The date when the option is granted The date when the vesting conditions are satisfied and the option becomes unconditional The date when the option is exercised 23 Swiss entity.

50 per share of RM1 each No entry No entry Dr Cash Cr Share capital Cr Share premium RM15k RM10k RM5k M No entry Dr Employee expense RM1k Cr Equity-ESOS reserve RM1k Dr Cash RM15k Dr

13 Accounting for share options What s new? Worked example: Employees Share Option Scheme ( ESOS ) Grant date Vesting date Exercise date Fair value of 10,000 share options = RM1,000 10,000 share options vested Exercise price = RM1.50 per share of RM1 each No entry No entry Dr Cash Cr Share capital Cr Share premium RM15k RM10k RM5k M No entry Dr Employee expense RM1k Cr Equity-ESOS reserve RM1k Dr Cash RM15k Dr Equity-ESOS reserve RM1k Cr Share capital RM10k Cr Share premium RM6k 24 Transition to M Retrospective application unless applying transition provision as follows: Application of Section 26 Date of transition e.g. 1 Jan 2015 Not required Granted Not required Share-based payment liabilities settled Apply Section 26 Granted 25 Swiss entity.

14 Share-based payment Key differences between M and MFRS Recognition & measurement M A simplified treatment for cash alternative plan is accounted for as a cash-settled SBP transactions, unless: the entity has a past practice of settling by issuing equity instruments, or the option has no commercial substance. MFRS A transaction in which the entity has the choice of settlement is accounted for as equitysettled if the entity has the stated intent and ability to settle in equity instruments; otherwise, it is accounted for as cashsettled. If the counterparty has the choice of settlement, then the entity has granted a compound instrument that includes a liability component and an equity component, which are accounted for separately. 26 Agenda Statement of financial position items Leases Employee Share-based payment Income tax Swiss entity.

Investment property measured at fair value Rebuttable presumption of recovery through sale Deferred tax rate M Investment property at

rebutted When to rebut? No guidance in M.

2015 A When to rebut is now added 28 Deferred tax on unused tax incentives Example: Unutilised reinvestment allowances and investment

15 Investment property measured at fair value Rebuttable presumption of recovery through sale Deferred tax rate M Investment property at fair value Fair value gain on buildings and leasehold land Use income tax rate Use sale rate by default Use income tax rate if rebutted When to rebut? No guidance in M. MFRS guidance Rebuttable only if held in a business model to use the investment property substantially all of its useful life A When to rebut is now added 28 Deferred tax on unused tax incentives Example: Unutilised reinvestment allowances and investment tax allowances Unutilised reinvestment allowances Unutilised investment tax allowances DTA is not recognised DTA is not recognised M In our view Recognise as an asset (when probable) Recognise as an asset (when probable) 29 Swiss entity.

16 End of Liabilities independent member firms affiliated with KPMG Swiss entity. All rights reserved. Printed in Malaysia. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice Swiss entity.

Revenue and other income

Revenue and other income MPERS Conversion steps 1 2 3 4 5 Determine functional currency Select accounting policies Identify gaps Apply transitional provisions where applicable (Section 35) Restate opening