Common Application Issues on HKFRS 23 September 2013

Transcription

1 Common Application Issues on HKFRS 23 September 2013 RSM Nelson Wheeler is a member of the RSM network. Each member of the RSM network is an independent accounting and advisory firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction.

2 Disclaimer & Warning The materials of this course are intended only to provide general nonauthoritative information on the subject concerned. Examples and other materials in this course are only for illustrative purposes and shall not be relied upon for technical answers. RSM Nelson Wheeler 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 course or information presented at this course. No claims, actions or legal proceedings in connection with this course brought by any individuals or companies having reference to the materials or information presented at this course will be entertained by RSM Nelson Wheeler and the speakers. Any unauthorized audio and video recordings of this course without the written consent of the speakers are strictly prohibited, and represent a copyright violation. 2

3 HKFRS 2 3A May be settled by another group entity (or shareholder of any group entity) Applies to entity that receives goods/service when another group entity (or shareholder of any group entity) has obligation to settle, or has obligation to settle when another group entity receives goods/service 3

4 4 Exclude transaction with party as holder of equity instruments e.g. rights issues 13A Identifiable consideration received < FV of equity instruments granted other consideration received 4

5 Employees and others providing similar service - individuals render personal service either individuals regarded as employees, individuals work for entity under its direction in same way as employees, or service rendered similar to those rendered by employees Grant date Both parties have shared understanding of terms and conditions If agreement subject to approval, grant date is date when approval obtained 5

6 IG2 Offer and acceptance can be explicit (sign contract) or implicit (employee commences to render service) IG3 If some terms agreed on a later date, grant date is that later date (e.g. exercise price of options to be set by compensation committee) IG4 Grant date might occur after employees render services (e.g. grant subject to shareholder approval) HKFRS 2 requires entity to recognise service when received estimate grant date FV and adjust when grant date is fixed 6

7 11 For transactions with employees, measure FV of equity instruments at grant date 13 For transactions with other parties, rebuttable presumption that FV of goods/services estimated reliably. FV measured at date of receiving goods/service If presumption rebutted, measure by reference to FV of equity instruments at date of receiving goods/service 7

8 IG6 If goods/service received on more than one date, measure FV of equity instruments granted on each date IG7 Approximation could be used (e.g. share price not change significantly) 8

9 23 No subsequent adjustment to total equity after vesting date Can transfer within equity 9

10 27 Recognise, as a minimum, grant date FV unless not vest Recognise effects of modifications that increase total FV beneficial to employee 28 If cancelled/settled during vesting period (other than vesting conditions not satisfied), account for cancellation/settlement as acceleration of vesting 10

11 HKFRS 3 2(b) Not apply to acquisition of assets (not business) Cost allocated to identifiable assets and liabilities on basis of relative fair values No goodwill 11

12 Example A company purchases 100% issued share capital of a subsidiary with cash consideration of HK$8 million; Subsidiary holds 2 properties, no business. Property A Property B Fair value = HK$6 million Fair value = HK$4 million Cost allocated = HK$4.8 million Cost allocated = HK$3.2 million 12

13 HKAS Deferred tax liability recognised for all taxable temporary differences, except: Initial recognition of goodwill; or Initial recognition of asset or liability in transaction which: * not business combination; and * at time of transaction, affects neither accounting profit nor taxable profit (tax loss). 13

14 Example Acquisition of asset Acquisition of business Asset carrying amount N/A HK$10,000 Acquisition cost HK$10,000 N/A Fair value N/A HK$12,000 Tax allowance 0 0 Taxable temporary difference HK$10,000 HK$12,000 Deferred tax required Χ 14

15 24 Deferred tax asset recognised for all deductible temporary differences (probable taxable profit available to utilise), except: Not business combination; and At time of transaction, affects neither accounting profit nor taxable profit (tax loss). 15

16 23 HKFRS 10 Changes in subsidiary (not loss of control) accounted for as equity transactions B96 Difference between NCI and FV consideration recognised in equity and attributed to owners of parent HKAS 21.48C Partial disposal of foreign subsidiary, re-attribute proportionate share of exchange differences in OCI to NCI HKAS 7.42A Cash flows from changes in subsidiary (not loss of control) classified as financing activities 16

17 HKAS 28 (2011) 42 Impairment loss recognised not allocated to any asset, including goodwill Reversal of impairment loss in accordance with HKAS 36 17

18 HKAS For impairment testing, goodwill acquired in business combination allocated to CGU expected to benefit from synergies of combination, irrespective of whether assets or liabilities of acquiree assigned to those units Example: If Café De Coral purchases Fairwood 18

19 75 Carrying amount of CGU determined on basis consistent with recoverable amount 76 Carrying amount of CGU: includes only those assets attributed directly, or allocated on reasonable basis, and will generate future cash inflows used in determining CGU s value in use not include recognised liability, unless recoverable amount cannot be determined without consideration of this liability 19

20 Example Forecast CGU HK$ Net income XX Capital expenditure XX Change in working capital XX - Account receivables - Inventory - Account payables Depreciation XX Total net cash flow XX Discount rate (pre-tax) X% Present value 250,000 Carrying amount of CGU HK$ Fixed assets 220,000 Account receivable 105,000 Inventory 55,000 Account payable (80,000) Amount due to related parties (40,000) Income tax (15,000) Bank borrowing (45,000) Net assets value 200,000 Goodwill allocated to CGU 30,000 Net amount 230,000 20

21 Example (cont d) Any impairment required? Wrong Assessment HK$ Correct Assessment HK$ Recoverable amount 250,000 Recoverable amount 250,000 Net asset value including goodwill allocated 230,000 Net asset value including goodwill allocated 330,000 Impairment required Nil Impairment required 80,000 21

22 Fair Value Measurement Requirements From To Source Investment Subsidiary HKFRS 3.42 Associate Subsidiary HKFRS 3.42 Joint venture Subsidiary HKFRS 3.42 Investment Associate HKFRS 3.42?? Investment Joint venture HKFRS 3.42?? 22

23 From To Source Subsidiary Investment HKFRS 10.B98 Subsidiary Associate HKFRS 10.B98 Subsidiary Joint venture HKFRS 10.B98 Associate Investment HKAS Associate Joint venture HKAS (no need FV) Joint venture Investment HKAS Joint venture Associate HKAS (no need FV) 23

24 HKAS Potential ordinary shares dilutive when conversion to ordinary shares EPS or Loss per share from continuing operations 42 Use profit or loss from continuing operations as control number to establish whether dilutive or antidilutive 24

25 Example Attributable to owners HK$ No. of shares for Profit from continuing operations 4,800 Basic EPS 2,000 Loss from discontinued operations (7,200) Diluted EPS* 2,400 Loss attributable to owners (2,400) * Assume no profit or loss impact of 400 potential ordinary shares Basic EPS from Diluted EPS from HK$ HK$ Continuing operations Discontinued operations (3.6) (3) Loss per share (1.2) (1) 25

26 46 Options and warrants dilutive when issue of ordinary shares < average market price during period 50 Convertible preference shares antidilutive when dividend per ordinary share obtainable on conversion > basic EPS Convertible debt antidilutive when interest (net of tax and other changes) per ordinary share obtainable on conversion > basic EPS 26

27 64 If number of shares changes as a result of capitalisation, bonus issue, reverse share split, calculation of EPS all periods presented adjusted retrospectively If changes occur after reporting period but before FS issue, per share calculations based on new number of shares 27

28 HKAS For revaluations under HKAS 38, FV determined by reference to active market HKFRS 13.Appendix A Active market is market with transactions for asset/liability taking place with sufficient frequency and volume to provide pricing information on an ongoing basis 28

29 Q&A