Weekly HKFRS Q&As Q&A # 7

China National Technical Weekly HKFRS Q&As Q&A # 7 中文 March 2014 Since January 2014, we started to publish weekly HKFRS Q&As that aim to help you deal with the application issues during the busy financial reporting season. Weekly HKFRS Q&As will be issued each Friday. Here is the link to the previous Q&As http://www.iasplus.com/en/tagtypes/hong-kong/qa. As always, if you have any questions on application of HKFRS, please contact us. Q&A#7 Transactions with associates or joint ventures Backgroud HKAS 28 Investments in Associates and Joint Ventures contains the following requirements to deal with transactions between an investor and an equity-accounted investee (an associate or a joint venture): "Gains and losses" resulting from 'upstream' and 'downstream' transactions between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognised in the entity's financial statements only to the extent of unrelated investors' interests in the associate or joint venture." [HKAS 28.28] "Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in HKFRS 10." [HKAS 28.26] HKAS 28 does not define what upstream and downstream transactions are. It merely gives examples on these transactions, as follows: Examples of upstream transactions Examples of downstream transactions Sales of assets from an associate or a joint venture to the investor. Sales or contributions of assets from the investor to its associate or its joint venture. This Weekly Q and A deals with how to apply the above-mentioned requirements in scenarios commonly encountered in practice. 1

Example 1 Sales of goods by an associate or joint venture to the investor Facts: Entity A owns 30 per cent of an investee (an associate) which is accounted for using the equity method of accounting by Entity A. The associate sells inventories to Entity A. At the end of the reporting period, Entity A holds the inventories for which the associate has recorded gross profit of HKD 200,000. Question: How should Entity A account for the above transaction in its financial statements? Response: In preparing the financial statements that include Entity A's share of results of the associate, Entity A should record the following adjusting entries: DR Share of profit of the associate HKD 60,000 (HKD 200,000*30%) CR Inventories HKD 60,000 Note: The above example does not address the tax consequences (e.g. Entity A should consider the deferred tax consequence arising from the elimination of the unrealised profit). Example 2 Sales of goods by the investor to an associate or joint venture Facts: Entity A owns 30 per cent of an investee (an associate) which is accounted for using the equity method of accounting by Entity A. Entity A sells inventories to the associate. At the end of 20X1, the inventories are not yet sold by the associate to its customers. The associate holds the inventories for which Entity A has recorded gross profit of HKD 300,000 in 20X1. In 20X2, all inventories held by the associate (purchased from Entity A in 20X1) are sold to its customers. Question: How should Entity A account for the above transactions in 20X1 and 20X2? Response: 20X1 In preparing the 20X1 financial statements that include Entity A's share of results of the associate, Entity A should record the following adjusting entries: DR Entity A's gross profit HKD 90,000 (HKD 300,000*30%) CR Interests in associate HKD 90,000 2

Entity A can reduce its gross profit by either increasing its cost of sales by HKD 90,000 or reducing the corresponding amounts of revenue and cost of goods sold with the net reduction equal to HKD 90,000. 20X2 All inventories are sold by the associate to its customers in 20X2. Entity A should record the following adjusting entries: DR Retained earnings (b/f the adjustment made in the prior year) HKD 90,000 CR Entity A's gross profit HKD 90,000 Below is an example regarding how the above adjustments can be presented in the notes to Entity A's financial statements. Investment in an associate 20X2 HKD'000 20X1 HKD'000 Cost of the investment XX XX Share investment in an associate of accumulated profits of the associate XX XX Less: effects of unrealised profit arising from sales of goods from Entity A to the associate - (90) Total XX XX Note: The above example does not address the tax consequences. Example 3 Investor lends monies to an associate or joint venture (who expensed off the interest when it is incurred) Facts: Entity A has a 50 per cent interest in Entity B (a joint venture of Entity A). The remaining 50 per cent interest in Entity B is owned by another unrelated party. Entity A accounts for its interest in Entity B using the equity method. Entity A and the other shareholder each lends HKD 10 million to Entity B. Interest on each loan in the current period is HKD 1,000,000 which is expensed in Entity B's profit or loss when it is incurred. Question: In applying the equity method, should Entity A eliminate interest income earned on the loan to Entity B (HKD 1,000,000) and the equivalent share of profit of Entity B? 3

Response: As explained above, HKAS 28 requires the elimination of gains and losses resulting from downstream transactions. However, the Standard does not specifically address transactions where the effects of the transactions are recorded immediately in the respective profit or loss of the investor and the investee. One view is that, given that HKAS 28.26 indicates that many of the procedures appropriate for the application of the equity method are similar to consolidation procedures, Entity A applies the requirement set out in B86(b) of HKFRS 10 (i.e. eliminates interest income of HKD 1,000,000 with a corresponding adjustment to its share of Entity B s profit or loss). Another view is that, given that the transaction does not result in unrealised profits, it is not required to follow the requirement set out in HKAS 28.28. Accordingly, Entity A does not eliminate its share of the interest income. This is the more commonly held view in practice. Given the lack of specific guidance in the Standard, Entity A should select an accounting policy for such transactions and apply that policy consistently. In addition, it should be noted that transactions such as interest income from the associate or joint venture are required to be disclosed as related party transactions. Note: The above example does not address the tax consequence. Example 4 Investor lends monies to an associate or joint venture (who capitalises interest as part of the costs of its qualifying assets) Facts: Entity A has a 50 per cent interest in Entity B (a joint venture of Entity A). The remaining 50 per cent interest in Entity B is owned by another unrelated party. Entity A accounts for its interest in Entity B using the equity method. Entity A and the other shareholder each lends HKD 10 million to Entity B. Interest on each loan in the current period is HKD 1,000,000, which is capitalised by Entity B as part of the cost of properties under development for sale. Question: In applying the equity method, should Entity A eliminate interest income earned on the loan to Entity B (HKD 1,000,000) and the equivalent share of interest of Entity B? Response: The Standard does not provide specific guidance on how to account for this type of transactions. The Group should not eliminate just the 50% of the interest income earned by Entity A on the loan to Entity B (i.e. HKD 500,000) on the basis that the above transaction is a downstream transaction (as the transaction is not really a downstream transaction as articulated 4

in HKAS 28.28 as it is not sale of assets or goods). Instead, it is appropriate that Entity A eliminates the full effects of the interest income amounting to HKD 1,000,000, taking into account the requirement set out in HKAS 28.26 that states that many of the procedures appropriate for the application of the equity method are similar to consolidation procedures. Corresponding adjustment should be made against the carrying amount of the interest in the joint venture by the same amount. Note: The above example does not address the tax consequence. Contact us: If you have any questions on the subject matters discussed above, please feel free to contact us. Authors: William Lim Technical Partner wilim@deloitte.com.hk Candy Fong Technical Partner cfong@deloitte.com.hk 35/F One Pacific Place 88 Queensway Hong Kong Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/cn/en/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. 2014 Deloitte Touche Tohmatsu in Hong Kong, Deloitte Touche Tohmatsu in Macau, and Deloitte Touche Tohmatsu Certified Public Accountants LLP in the Chinese Mainland. All rights reserved. Homepage Privacy Thank you for your interest in Deloitte China services. Deloitte China would like to continue to use your personal information (in particular name and contact details) for the purpose of sending you marketing and regulatory updates, invitations to seminars and other events organized, sponsored or promoted by Deloitte China. If you do not wish to receive further communications from Deloitte China, please send a return email to the sender with the word Unsubscribe in the subject line. If you would like to update your personal information, please click here. Deloitte China refers to Deloitte Touche Tohmatsu in Hong Kong, Deloitte Touche Tohmatsu in Macau, Deloitte Touche Tohmatsu Certified Public Accountants LLP in the Chinese Mainland and their respective affiliates practising in Hong Kong, Macau and the Chinese Mainland. 5

中国全国专业技术部 HKFRS 每周问答 Q & A # 7 2014 年 3 月 English 我们自 2014 年 1 月起开始发布香港财务报告准则 (HKFRS) 每周问答, 以协助您在报告忙季中处理相关应用问题 HKFRS 每周问答将于每周五发布 请点击 http://www.iasplus.com/en/tag-types/hong-kong/qa 参阅以前发布的每周问答 如同往常一样, 如您对 HKFRS 的应用有任何疑问, 请与我们联系 常见问题 #7 与联营企业或合营企业之间的交易 背景 香港会计准则第 28 号 在联营企业和合营企业中的投资 (HKAS 28) 包含下列涉及投资者与以权益法核算的被投资者 ( 联营企业或合营企业 ) 之间交易的规定 : 主体 ( 包括纳入合并财务报表范围的子公司 ) 与联营企业或合营企业之间的 逆流 和 顺流 交易产生的利得和损失, 在主体财务报表中确认的部分仅限于与非关联投资者在联营企业或合营企业中的权益相关的部分 [HKAS 28.28] 适合于权益法应用的许多程序与 香港财务报告准则第 10 号 (HKFRS 10) 中描述的合并程序类似 [HKAS 28.26] HKAS 28 并未界定 逆流 和 顺流 交易, 其仅提供了此类交易的如下示例 : 逆流交易的示例 顺流交易的示例 联营企业或合营企业出售资产给投资者 投资者出售或赠予资产给联营企业或合营企业 本期每周问答将阐述如何将上述规定应用于实务中的常见情况 6

例 1 联营企业或合营企业向投资者出售商品 有关事实 : A 主体拥有被投资者 ( 联营企业 )30% 的权益, 且 A 主体采用权益法会计对该被投资者 进行核算 该联营企业向 A 主体出售存货 在报告期末, 联营企业就 A 主体持有的存货确认了 HKD 200,000 的利润总额 问题 : A 主体应如何在其财务报表中核算上述交易? 回答 : 在编制包含 A 主体在该联营企业的经营成果中所占份额的财务报表时,A 主体应记录下 列调整分录 : 借 : 在联营企业的利润中所占的份额 HKD 60,000 (HKD 200,000*30%) 贷 : 存货 HKD 60,000 注 : 上述示例并未涉及所得税影响 ( 如,A 主体应考虑因抵销未实现利润而导致的递延所得税影响 ) 例 2 投资者向联营企业或合营企业出售商品有关事实 : A 主体拥有被投资者 ( 联营企业 )30% 的权益, 且 A 主体采用权益法会计对该被投资者进行核算 A 主体向该联营企业出售存货 在 20X1 年末, 该联营企业尚未向其客户出售相关存货 就该联营企业持有的存货 A 主体在 20X1 年确认了 HKD 300,000 的利润总额 在 20X2 年, 该联营企业将其持有的 ( 于 20X1 年向 A 主体购买的 ) 全部存货出售给其客户 问题 : 在 20X1 年和 20X2 年,A 主体应如何核算上述交易? 回答 : 20X1 年在编制包含 A 主体在该联营企业的经营成果中所占份额的 20X1 年度财务报表时,A 主体应记录下列调整分录 : 7

借 :A 主体的利润总额 HKD 90,000 (HKD 300,000*30%) 贷 : 联营企业中的权益 HKD 90,000 A 主体可通过增加其销售成本 (HKD 90,000) 或减少收入和已售商品成本的相应金额 ( 减少净额等于 HKD 90,000) 来减少其利润总额 20X2 年 该联营企业于 20X2 年向其客户出售全部存货 A 主体应记录下列调整分录 : 借 : 留存收益 ( 结转上一年度所作的调整 )HKD 90,000 贷 :A 主体的利润总额 HKD 90,000 关于如何在 A 主体的财务报表附注中列示上述调整额的示例如下 : 联营企业投资 20X2 港币千元 20X1 港币千元 投资成本 XX XX 在联营企业的累计利润中所占的份额 XX XX 减 : 因集团向联营企业出售商品而产生的未实现利润的影响 - (90) 合计 XX XX 注 : 上述示例并未涉及所得税影响 例 3 投资者向联营企业或合营企业借出资金 ( 联营企业或合营企业将所发生的利息确认为费用 ) 有关事实 : A 主体持有 B 主体 (A 主体的合营企业 )50% 的权益 B 主体剩余 50% 的权益由另一非关联方持有 A 主体采用权益法核算其在 B 主体中的权益 A 主体及另一股东分别向 B 主体贷款 HKD 10,000,000 每项贷款的本期利息为 HKD 1,000,000, 其在发生时作为费用计入 B 主体的损益 问题 : 在采用权益法时,A 主体是否应将向 B 主体发放贷款所赚取的利息收入 (HKD 1,000,000) 与等额的在 B 主体利润中所占的份额相抵销? 回答 : 如上所述,HKAS 28 要求抵销顺流交易所产生的利得和损失 但是, 准则未明确涉及其影响立即记入投资者及被投资者各自损益的交易 8

有意见认为, 鉴于 HKAS 28.26 指出适合于权益法应用的许多程序与合并程序类似, 因此 A 主体应当应用 HKFRS 10 B86(b) 所述的要求 ( 即, 抵销 HKD 1,000,000 的利息收入, 并相应调整其在 B 主体损益中所占的份额 ) 另一种意见认为, 鉴于交易未导致未实现利润, 因此无需遵循 HKAS 28.28 的要求 相应地,A 主体不应抵销其所占的利息收入份额 这是实务中更被广为采纳的看法 鉴于准则中缺乏特定指引,A 主体应针对此类交易选择上述其中一项会计政策并一致地应用该政策 此外, 应注意的是诸如来自联营企业或合营企业的利息收入等的交易应作为关联方交易披露 注 : 上述示例并未涉及所得税影响 例 4 投资者向联营企业或合营企业借出资金 ( 联营企业或合营企业将利息作为符合条件资产成本的一部分予以资本化 ) 有关事实 : A 主体持有 B 主体 (A 主体的合营企业 )50% 的权益 B 主体剩余 50% 的权益由另一非关联方持有 A 主体采用权益法核算其在 B 主体中的权益 A 主体及另一股东分别向 B 主体贷款 HKD 10,000,000 每项贷款的本期利息为 HKD 1,000,000,B 主体将其作为在建待售物业成本的一部分予以资本化 问题 : 在采用权益法时,A 主体是否应将向 B 主体发放贷款所赚取的利息收入 (HKD 1,000,000) 与等额的在 B 主体权益中所占的份额相抵销? 回答 : 准则并未提供如何核算此类交易的特定指引 集团不应以上述交易是顺流交易为由, 仅抵销 A 主体向 B 主体发放贷款所赚取的利息收入的 50%( 即,HKD 500,000)( 因为该交易实际上并非 HKAS 28.28 所述的出售资产或商品的顺流交易 ) 取而代之的是, 考虑到 HKAS 28.26 指出适合于权益法应用的许多程序与合并程序类似,A 主体应抵销利息收入影响的全额 HKD 1,000,000, 并应按同一金额相应调整在合营企业中权益的账面金额 注 : 上述示例并未涉及所得税影响 9

联系我们 : 若您对上述有关问题有任何疑问, 请尽管联系我们 作者 : 林俊学 专业技术合伙人 wilim@deloitte.com.hk 房惠玲 专业技术合伙人 cfong@deloitte.com.hk 香港金钟道 88 号太古广场一座 35 楼 Deloitte ( 德勤 ) 泛指德勤有限公司 ( 一家根据英国法律组成的私人的担保有限公司, 以下称 德勤有限公司 ), 以及其一家或多家成员所 每一个成员所均为具有独立法律地位的法律实体 请参阅 www.deloitte.com/cn/about 中有关德勤有限公司及其成员所法律结构的详细描述 2014 德勤 关黄陈方会计师行 ( 香港 ) 德勤 关黄陈方会计师行 ( 澳门 ) 德勤华永会计师事务所( 特殊普通合伙 )( 中国大陆 ) 版权所有保留一切权利主頁 隐私感谢您对德勤中国服务的关注 德勤中国希望可以继续使用您的个人资料 ( 特别是姓名及联系信息 ), 以向您发送市场和政策最新动态, 以及由德勤中国举办 赞助或宣传之研讨会及其他活动的邀请函 如您日后不希望收到由德勤中国发出的信息, 请回复电邮并在邮件主题栏中填上 "Unsubscribe" 如欲更新您的个人资料, 请点击此处 德勤中国泛指德勤 关黄陈方会计师行 ( 香港 ) 德勤 关黄陈方会计师行 ( 澳门 ) 德勤华永会计师事务所 ( 特殊普通合伙 )( 中国大陆 ) 以及其于香港 澳门及中国大陆从事业务之关联机构 10