ENSEÑANZA DE LA UNIVERSIDAD

IFRS22.1 Under EU-IFRS, after initial recognition of a compound financial instrument, the liability component is always accounted for at amortised cost. The remaining principles in FRS 102 are broadly consistent with IAS 32 but FRS 102 contains less guidance on how to apply these principles.

IFRS22.2 IFRIC 17 requires a liability for certain non-cash asset distributions to be recognised, initially and until settlement date, at the fair value of the assets to be distributed. IFRIC 17 also requires any changes in the measurement of the liability to be recognised in equity. At the date on which the distribution occurs (i.e. the settlement date), any difference between the fair value of the assets distributed and their carrying amount in the financial statements is recognised as a separate line item in profit or loss. FRS 102 only requires disclosure of those fair value amounts. It does not require the liability to be recognised at the fair value amount and does not require a profit or loss on distribution to be recognised.

IFRS22.3 EU-IFRS does not provide specific guidance on the treatment of consideration received for new shares before the shares have been issued or vice versa.

© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

22 Liabilities and equity |

22.7 A puttable instrument as described in paragraph 22.6(a) of this publication is classified as an equity instrument subject to the following conditions: if the entity is liquidated, the holder is only entitled to a pro rata share of the entity’s net assets after deducting all other liabilities and the instrument is in a class of instruments with identical features that is subordinate to all other classes of instruments. In addition, apart from the contractual obligation for the issuer to repurchase or redeem the instrument, it does not contain a contractual obligation to deliver or exchange cash or financial assets or liabilities under conditions unfavourable to the entity and it may not be a contract that will or may be settled in the entity’s own equity instruments. Further, the total expected cash flows attributable to the instrument over its life are based on the profit or loss, change in recognised net assets or change in the fair value of the recognised and unrecognised net assets of the entity over the life of the instrument (excluding any effects of the instrument). [FRS102.22.4]

22.8 In the following examples the instruments would be classified as a liability rather than equity:

(a) when the distribution of net assets on liquidation attributable to the instrument is subject to a cap/maximum amount; (b) in respect of a puttable instrument, when the put option is exercised, the holder receives an amount that is not

calculated based on a pro rata share of the net assets of the entity;

(c) when the entity is obliged to make a payment to the holder before the puttable event or liquidation, for example a mandatory dividend;

(d) preference shares with mandatory redemption at a fixed or determinable amount at a fixed or determinable date in the future, or when the holder has the right to require such redemption;

(e) a puttable instrument issued by a subsidiary and classified as equity in the subsidiary financial statements is treated as a liability in the consolidated financial statements.

22.9 Members’ shares in co-operative entities and similar instruments are equity when the entity has an unconditional right to refuse redemption of the members’ shares, or redemption is unconditionally prohibited by local law, regulation or the entity’s governing charter. [FRS102.22.6]

Issue of shares or other equity instruments

22.10 The issue of shares or other equity instruments is recognised when the instruments are issued and another party is obliged to provide cash or resources in exchange for those instruments. If cash or resources are received by the entity before the issuance of equity instruments, the consideration received and a corresponding increase in equity are recognised in the financial statements provided the entity cannot be obliged to repay the consideration. When equity instruments have been subscribed for but not yet issued, there is no change to equity unless the cash or other resources have been received. [FRS102.22.7]

22.11 Equity instruments are measured at the fair value of the cash or resources received net of direct costs of issuing the instrument. The amount is discounted to present value if the payments are deferred and the effect of discounting is material. [FRS102.22.8] Equity transaction costs are treated as a deduction from equity, net of any related income tax benefit. [FRS102.22.9]

22.12 The presentation of individual components of equity is a matter of applicable local law; for example, separate presentation of share capital and share premium is required in the UK under the Companies Act. [FRS102.22.10] 22.13 Equity issued by means of exercise of options, rights, warrants or other similar instruments is accounted for in the

same way as the issue of shares as discussed in paragraphs 22.10 to 22.12 of this publication. [FRS102.22.11] Capitalisation or bonus issues of shares and share splits

22.14 A bonus issue or capitalisation is the issue of new shares to existing shareholders in proportion to their existing holdings. A share split is the dividing of an entity’s existing shares into multiple shares. Bonus issues and share splits do not change total equity but may require a reclassification within equity depending on applicable legal requirements. Under UK legislation, a bonus issue may be out of retained earnings or share premium. [FRS102.22.12]

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© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

22 Liabilities and equity |

Convertible debt or similar compound financial instruments

22.15 Convertible debt or similar compound instruments may contain both a liability and equity component. The proceeds are allocated between the debt and equity components. To determine the allocation, first the fair value of the liability component is determined by comparison to a similar liability with no equity component or conversion feature. The residual proceeds are allocated to the equity component of the instrument. Transaction costs are split between the debt and equity components in a manner consistent with the allocation of the proceeds. [FRS102.22.13] The liability and equity split of the instrument is not subsequently revised after initial recognition. [FRS102.22.14]

22.16 After initial recognition the liability component is accounted for either as a ‘basic financial instrument’ in accordance with Section 11 or as an ‘other financial instrument’ in accordance with Section 12, as appropriate. The appendix to Section 22 Example of the issuer’s accounting for convertible debt illustrates the accounting treatment when the liability component is a ‘basic financial instrument’ under Section 11. [FRS102.22.15]

Treasury shares

22.17 The term ‘treasury shares’ refers to issued equity instruments of an entity that have subsequently been reacquired by that entity or other members of the consolidated group. [FRS102.GL] This definition is different from the Companies Act definition (section 724) which uses the term ‘treasury shares’ only for shares reacquired directly by the issuing entity.

22.18 The fair value of consideration paid to acquire treasury shares is deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, transfer or cancellation of treasury shares. [FRS102.22.16]

22.19 Under UK law, if the proceeds of sale of a treasury share held directly by the issuing entity exceed the price paid by the entity the excess is recognised as additional share premium. This requirement to recognise additional share premium does not apply to treasury shares held indirectly, e.g. through an entity’s employee benefit trust. If a subsidiary or employee benefit trust acquires a parent equity instrument this is not a treasury share in the financial statements of the subsidiary or employee benefit trust.

22.20 For the consolidation requirements regarding employee benefit trusts, see also paragraphs 9.18 to 9.24 of this publication. Distributions to owners

22.21 Distributions to owners are deducted from equity. [FRS102.22.17] If assets other than cash are distributed, the fair value of the assets distributed is disclosed unless the ultimate control of the assets is unchanged. [FRS102.22.18] Non-controlling interest and transactions in shares of a consolidated subsidiary

22.22 In consolidated financial statements, a non-controlling interest in the net assets of a subsidiary is included in equity. Changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions and no gain or loss is recognised. In addition, the subsidiary’s net assets (including goodwill) included in the consolidated financial statements are not adjusted as a result of such transactions. The only adjustment relates to the carrying amount of the non-controlling interest which is updated for the change in the parent’s interest in the subsidiary’s net assets. Any resulting difference between the remeasurement of non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity. See paragraphs 9.28 to 9.33 and 19.23 to 19.25 of this publication. [FRS102.22.19]

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23

Revenue

© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

23 Revenue |

• This section applies to revenue arising from the sale of goods, rendering of services, construction contracts and the use by others of assets generating interest, royalties or dividends.

• Revenue is measured at the fair value of the consideration received or

receivable. This takes into account trade discounts, early settlement discounts and volume rebates.

• Revenue excludes amounts collected on behalf of third parties (such as sales taxes).

• When cash payments are deferred and constitute an element of financing, the fair value of consideration is the present value of all future receipts.

• Revenue is not recognised from transactions in which similar goods or services are exchanged or transactions which lack commercial substance.

• Revenue from the sale of goods is recognised when the significant risks and rewards of ownership are transferred, continuing managerial involvement is not indicative of control or ownership, the amount of revenue and the related costs can be measured reliably and it is probable that the benefits of the transaction will be received by the entity.

• Revenue associated with the rendering of services is measured based on the percentage of completion of the transaction when the amount of revenue, costs and stage of completion can be measured reliably and it is probable that the benefits of the transaction will be received by the entity.

• If the outcome of a construction contract can be measured reliably, revenue is recognised according to the stage of completion.

• Interest income is recognised using the effective interest method.

• Royalty income is recognised on an accruals basis.

• Dividend income is recognised when the right to receive payment has been established.

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vs previous UK GAAP