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Accountancy Profession Act (Cap. 281) Accountancy Profession (General Accounting Principles For Smaller Entities) Regulations, 2009 (Ln 51 Of 2009 )

ACCOUNTANCY PROFESSION ACT (CAP. 281)Accountancy Profession (General Accounting Principles forSmaller Entities) Regulations, 2009

IN exercise of the powers conferred by paragraph (a) of sub- article (1) of article 8 of the Accountancy Profession Act, the Minister of Finance, the Economy and Investment, on the recommendation of the Accountancy Board, has made the following regulations:

(2) These regulations shall come into force on the 1st
January, 2009.

“the Act” means the Accountancy Profession Act; “balance sheet date” means the date on which the balance
sheet of an entity is drawn up;
“company” shall have the meaning assigned to it in the
Companies Act;
“entity” or “reporting entity” means a commercial partnership as defined in the Companies Act and any other body, corporate or unincorporate, which carries on a trade or business and which is required to prepare financial statements in terms of the laws of Malta;
“financial reporting period” means the period ending on

Title and commencement.

Objective.

Interpretation.

Cap. 386.

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the entity’s balance sheet date for which financial statements
are prepared;
“financial statements” means the statements prepared by
an entity comprising the following documents: (a) a balance sheet;
(b) an income statement and a statement of changes in equity or in the instances permitted by the Schedule a statement of income and retained earnings;
(c) a cash flow statement; and
(d) notes to the financial statements;
“public company” shall have the meaning assigned to it in the Companies Act;
“regulated market” shall have the meaning assigned to it in the Companies Act;
“security” shall have the meaning assigned to it in the
Companies Act;
“state owned entity” means:
(a) any organ of the Government;
(b) any public authority or corporation established by law; or
(c) an entity in which the Government holds, directly or indirectly, not less than fifty per cent of the voting rights of the entity;
“the Schedule” means the Schedule to these regulations and forming an integral part hereof.
(2) References to an “entity” or “reporting entity” in these regulations shall, in the case of an entity or reporting entity preparing consolidated financial statements in terms of section 23 of the Schedule, be construed as referring to the group of entities presenting consolidated financial statements as a single economic entity.

(3) Unless the context otherwise requires, terms used in these regulations and which are not defined herein shall have the meaning assigned to them in the Act.

(a) the Board of Directors of a company or, in the case of an entity other than a company, its governing body, has resolved to apply the Schedule for that financial reporting period; and
(b) the entity satisfies the requirements set out in
regulation 5 for the applicability of the Schedule.

Scope.

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(a) which exceeds the limits of any one of the following three criteria –
(i) balance sheet total: seventeen million and five hundred thousand euro (€17,500,000), or the equivalent thereof converted at the closing rate of exchange on the balance sheet date;
(ii) total revenue: thirty-five million euro (€35,000,000), or the equivalent thereof converted at the average rate of exchange for the financial reporting period;
(iii) average number of employees during each of the two consecutive financial reporting periods immediately preceding the relevant financial reporting period: two hundred and fifty;
(b) in which a member holding not less than twenty per cent of the shares in that entity has, due to the financial reporting requirements of such member and not later than six months prior to the end of the financial reporting period for which the financial statements are being prepared, served notice on the entity requesting the preparation of financial statements in accordance with generally accepted accounting principles and practice:

Non-applicability of

Schedule.

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Provided that where a member of an entity reaches the twenty percent holding referred to in this paragraph during the six month period prior to the end of the financial reporting period, the notice requesting the preparation of financial statements in accordance with generally accepted accounting principles and practice may be served by the said member not later than the earlier of:
(i) the expiry of three months from the date on which the twenty per cent holding is reached; or
(ii) the last day of the financial reporting period:
Provided further that in the case of an entity preparing its financial statements in accordance with the Schedule for the financial reporting period ending in 2009, the notice requesting the preparation of financial statements in accordance with generally accepted accounting principles and practice may be served by the said member at any time prior to the end of the relative financial reporting period;
(c) whose securities are listed on a regulated market;

Cap. 345.

(d) which is a guarantor of the principal or interest on the securities of an entity referred to in paragraph (c), as referred to in the Listing Rules issued in terms of the Financial Markets Act;
(e) which is a public company;
(f) which is in possession of a licence or other authorisation issued by the Malta Financial Services Authority acting as the competent authority in terms of the relevant legislation; and
(g) which is a state-owned entity and which exceeds any two of the following three criteria:-
(i) balance sheet total: four million and four hundred thousand euro (€4,400,000), or the equivalent thereof converted at the average rate of exchange for the financial reporting period;
(ii) total revenue: eight million and eight hundred thousand euro (€8,800,000) or the equivalent thereof

converted at the average rate of exchange for the financial
reporting period; and
(iii) average number of employees during each of the two consecutive financial reporting periods immediately preceding the relevant financial reporting period: fifty.
(2) For the purposes of sub-regulation (1) of this regulation:
(a) “balance sheet total” shall consist of all the assets held by an entity, including those that are current and non- current, as defined in the Schedule; and
(b) “total revenue” shall consist of the amounts derived, in the ordinary course of business, from:
(i) the sale of products;
(ii) the rendering of services; and
(iii) the use by third parties of assets held by the entity, which yield income, including but not limited to interest, royalties, rent and dividends; after deducting any sales rebates, value added tax and other taxes directly linked to an entity’s revenue.
(c) the “average number of employees” shall be determined as follows:
(i) in relation to whole-time employees, the aggregate number of full weeks worked by all the hole- time employees of the entity during the financial reporting period, divided by the number of full weeks comprised in that financial reporting period and rounded off to the nearest number; and
(ii) in relation to part-time employees, the aggregate number of hours worked by all the part-time employees of the entity during the financial reporting period, divided by the number of full weeks comprised in that financial reporting period and the resulting amount divided by forty and rounded off to the nearest number.
(3) For the purposes of determining whether an entity has exceeded the criteria in sub-paragraphs (i) and (ii) of paragraph
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(a) of sub-regulation (1) of this regulation, or in the case of state- owned entities sub-paragraphs (i) and (ii) of paragraph (g) of sub- regulation (1) of this regulation, (hereinafter the “relevant criteria”) an entity shall:
(a) for financial reporting periods ending in the period between the coming into force of these regulations and the 31st December 2009, determine whether the relevant criteria have been exceeded by adopting one of the following approaches:
(i) an entity or a state-owned entity may refer to the financial statements presented in accordance with generally accepted accounting principles and practice for the two consecutive financial reporting periods immediately preceding the financial reporting period such that:
(1) an entity, other than a state-owned entity, shall be deemed to have exceeded the relevant criteria if in both financial reporting periods its balance sheet total or total revenue exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (a) of sub-regulation (1) of this regulation; and
(2) a state-owned entity shall be deemed to have exceeded the relevant criteria if in both financial reporting periods its balance sheet total, or total revenue, or both as the case may be, exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (g) of sub-regulation (1) of this regulation; or
(ii) an entity or a state-owned entity may compute the assets comprising the balance sheet total, and total revenue in accordance with the provisions set out in the Schedule such that:
(1) an entity, other than a state-owned entity shall be deemed to have exceeded the relevant criteria if as at the end of the financial reporting period its balance sheet total or total revenue for the relevant financial reporting period exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (a) of sub-regulation (1) of this regulation; and

(2) a state-owned entity shall be deemed to have exceeded the relevant criteria if as at the end of the financial reporting period its balance sheet total, or total revenue for the relevant financial reporting period, or both as the case may be, exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (g) of sub-regulation (1) of this regulation;
(b) for financial reporting periods ending on or after 1st January 2010, determine whether the relevant criteria have been exceeded by referring to its financial statements for the two consecutive financial reporting periods immediately preceding the relevant financial reporting period, irrespective of whether such financial statements have been prepared in accordance with the Schedule or generally accepted accounting principles and practice such that:
(i) an entity, other than a state-owned entity, shall be deemed to have exceeded the relevant criteria if in both financial reporting periods its balance sheet total or total revenue exceeded the limits established in sub- paragraphs (i) and (ii) of paragraph (a) of sub-regulation (1) of this regulation; and
(ii) a state-owned entity shall be deemed to have exceeded the relevant criteria if in both financial reporting periods its balance sheet total, or total revenue, or both as the case may be, exceeded the limits established in sub- paragraphs (i) and (ii) of paragraph (g) of sub-regulation (1) of this regulation.
(4) In the case of the first financial reporting period of an entity, the entity shall determine whether the relevant criteria have been exceeded by computing the assets comprising the balance sheet total, and total revenue for the first financial reporting period in accordance with the Schedule such that:
(a) an entity, other than a state-owned entity, shall be deemed to have exceeded the relevant criteria if as at the end of the first financial reporting period its balance sheet total or total revenue for the relevant financial reporting period exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (a) of sub-regulation (1) of this regulation; and
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(b) a state-owned entity shall be deemed to have exceeded the relevant criteria if as at the end of the first financial reporting period its balance sheet total, or total revenue for the relevant financial reporting period, or both as the case may be, exceeded the limits established in sub-paragraphs (i) and (ii) of paragraph (g) of sub-regulation (1) of this regulation.
(5) For the purposes of this regulation, where a financial reporting period is shorter or longer than one calendar year, the total revenue generated during that financial reporting period shall be deemed to be the amount arrived at by dividing the total revenue figure generated in that financial reporting period by the number of months in that financial reporting period, and multiplying that number by twelve.
(6) Where an entity exceeds the relevant criteria that entity may opt to present its financial statements in accordance with the Schedule for a financial reporting period (hereinafter the “new period”) if the entity ceases to exceed the relevant criteria for the two consecutive financial reporting periods immediately preceding the new period.
(7) Where an entity has prepared its financial statements in accordance with the Schedule for a financial reporting period, but has prepared its latest financial statements in conformity with generally accepted accounting principles and practice for a reason other than exceeding the relevant criteria, that entity may opt to present its financial statements in accordance with the Schedule provided:
(a) it does not exceed the relevant criteria for the
preceding two consecutive financial reporting periods; and
(b) five financial reporting periods elapse since the balance sheet date of the financial reporting period in which the entity last prepared financial statements in accordance with the Schedule.

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1.1 The title of this schedule is the General Accounting Principles for Smaller
Entities (GAPSE).
1.2 The objective of GAPSE is to ensure that reporting entities or groups falling within its scope provide in their financial statements information about the financial position, financial performance and cash flows of the entity or group that is useful to users in assessing the stewardship of management and for making economic decisions, recognising that the balance between users’ needs in respect of stewardship and economic decision-making for entities or groups falling within its scope is different from that for other reporting entities or groups.

2.1 The terms “GAPSE”, “these Principles”, “this Schedule” and “General Accounting Principles for Smaller Entities” all refer to the general accounting principles for smaller entities set out in the Schedule to these regulations and forming an integral part hereof.
2.2 Most terms used in these Principles are defined in regulation 3 of these regulations and in various relevant Sections of this Schedule. Nevertheless terms that are not so defined shall have the following meaning, unless the context otherwise requires:
(a) “Amortisation” means the systematic allocation of the depreciable
amount of an asset over its useful life.
(b) “Carrying amount” refers to the amount at which an asset or liability
is recognised in the balance sheet.
(c) “Cash flows” means inflows and outflows of cash and cash
equivalents.
(d) “Class of assets” means a grouping of assets of a similar nature and
use in an entity’s operations.
(e) “Closing rate of exchange” is the spot exchange rate between two
currencies at the balance sheet date.
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(f) “Depreciable amount” is the cost of an asset, or other amount substituted for cost (in the financial statements), less its residual value.
(g) “Depreciation” means the systematic allocation of the depreciable
amount of an asset over its useful life.
(h) “Derecognition” is the removal of a previously recognised asset or liability from an entity’s balance sheet.
(i) “Economic life” is either
(i) the period over which an asset is expected to be economically useable by one or more users; or
(ii) the number of production or similar units expected to be obtained from the asset by one or more users.
(j) “Employee benefits” refers to all forms of consideration given by an entity in exchange for service rendered by employees.
(k) “Fair value” is the amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction.
(l) “Fellow subsidiary” is an entity which is under common control with the reporting entity.
(m) “Finance costs” means interest and other costs incurred by an entity
in connection with the borrowing of funds.
(n) “Goodwill” means future economic benefits arising from assets that are not capable of being individually identified and separately recognised.
(o) “Impracticable”: applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.
(p) “Measurement” is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement.
(q) “Minority interest” refers to that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent.
(r) “Present value” is a current estimate of the present discounted value

of the future net cash flows in the normal course of business.
(s) “Probable” means more likely than not.
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(t) “Profit” is the residual amount that remains after expenses have been
deducted from income.
(u) “Reporting date” (sometimes also referred to as “balance sheet date”) is the end of the latest financial reporting period covered by financial statements.
(v) “Reporting period” (sometimes also referred to as “financial reporting period”) refers to a period, ending on the entity’s reporting date, for which financial statements have been prepared.
(w) “Residual value” (of an asset) is the estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
(x) “Useful life” (Section 14) means the estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity.
(y) “Useful life” (Sections 7, 11, 12 and 22) means either:
(i) the period over which an asset is expected to be available for use by the entity; or
(ii) the number of production or similar units expected to be obtained from the asset by the entity.

3.1 The scope of this Section is to deal with:
(a) the objective of financial statements and the underlying assumptions;
(b) the qualitative characteristics that determine the usefulness of
information in financial statements; and
(c) the definition and recognition of the elements of financial
statements.
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Objective of financial statements and underlying assumptions

3.2 The objective of financial statements prepared under GAPSE is to provide information about an entity’s:
(a) financial position,
(b) financial performance, and
(c) ability to generate cash and cash equivalents that is useful to a wide range of users in assessing the stewardship of management and for economic decision-making.
3.3 In order to meet their objective, financial statements (with the exception of cash flow information) shall be prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events giving rise to assets, liabilities, equity, income or expenses are recognised when they occur, rather than when cash or its equivalent is received or paid, and hence they are recorded in the accounting records and reported in the financial statements of the financial reporting periods to which they relate.
3.4 The entity shall be presumed to be carrying on business as a going concern. The financial statements shall be prepared on this basis unless management either intends to liquidate the entity or to cease trading, or it has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern. Where the period considered by management in making its assessment of the entity’s ability to continue as a going concern has been limited to a period of less than twelve months from the balance sheet date, that fact shall be disclosed. The financial statements shall not be prepared on a going concern basis if management determines after the balance sheet date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.

Qualitative characteristics of information in financial statements

3.5 Qualitative characteristics are the attributes that make the information
provided in financial statements useful to users.
3.6 Understandability – The information provided in financial statements should be presented in a way that makes it comprehensible by users who have a

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reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. However, the need for understandability does not allow relevant information to be omitted on the grounds that it may be too difficult for some users to understand.
3.7 Relevance – The information provided in financial statements must be relevant to the decision-making needs of users. Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations.
3.8 Materiality – Information is material if its omission or misstatement could influence the economic decisions of users made on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. However, it is inappropriate to make, or leave uncorrected, immaterial departures from GAPSE to achieve a particular presentation of an entity’s financial position, financial performance or cash flows.
3.9 Reliability – The information provided in financial statements must be reliable. Information is reliable when it is free from material error and bias and represents faithfully that which it either purports to represent or could reasonably be expected to represent. Financial statements are not free from bias if, by the selection or presentation of information, they are intended to influence the making of a decision or judgement in order to achieve a predetermined result or outcome.
3.10 Substance over form – Transactions and other events and conditions should be accounted for and presented in accordance with their substance and economic reality and not merely their legal form. This enhances the reliability of financial statements.
3.11 Prudence – The uncertainties that inevitably surround many events and circumstances are acknowledged by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence does not allow the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses. In short, prudence does not permit bias.
3.12 Completeness – To be reliable, the information in financial statements must be complete within the bounds of materiality and cost. An omission can cause information to be false or misleading and thus unreliable and deficient in terms of its relevance.
3.13 Comparability – Users must be able to compare the financial statements of an entity through time in order to identify trends in its financial position and
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performance. Users must also be able to compare the financial statements of different entities in order to evaluate their relative financial position, performance and cash flows. Hence, the measurement and display of the financial effect of like transactions and other events and conditions must be carried out in a consistent way throughout an entity and over time for that entity and in a consistent way for different entities. In addition, users must be informed of the accounting policies employed in the preparation of the financial statements, and of any changes in those policies and the effects of such changes.
3.14 Timeliness – To be relevant, financial information must be able to influence the economic decisions of users. Timeliness involves providing the information within the decision time frame. If there is undue delay in the reporting of information it may lose its relevance. Management may need to balance the relative merits of timely reporting and the provision of reliable information. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the needs of users in making economic decisions.
3.15 Balance between benefit and cost – The benefits derived from information should exceed the cost of providing it. The evaluation of benefits and costs is substantially a judgemental process. Furthermore, the costs are not necessarily borne by those users who enjoy the benefits. In applying a costs and benefits test, an entity should understand that the benefits of the information may also be enjoyed by a broad range of external users.

True and fair view

3.16 Preparation of financial statements in accordance with these Principles is presumed to result in financial statements which give a true and fair view of the financial position, financial performance and cash flows of an entity.
3.17 The balance sheet shall give a true and fair view of the financial position of the entity as at the end of the financial reporting period; the income statement shall give a true and fair view of the financial performance of the entity for the financial reporting period; and the cash flow statement shall give a true and fair view of the entity’s cash flows during the financial reporting period. Transactions and other events and conditions should be accounted for and presented within items in the income statement and balance sheet in accordance with their substance and economic reality and not merely their legal form. To determine the substance of a transaction it is necessary to identify whether the transaction has given rise to new assets or liabilities for the reporting entity and whether it has changed the entity’s existing assets or liabilities.
3.18 The application of the qualitative characteristics and appropriate Sections within these Principles normally results in financial statements that convey a true and fair view. However, if in extremely rare circumstances an entity’s management concludes that compliance with any of the requirements of these Principles is

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inconsistent with the requirement to give a true and fair view, an entity shall depart from that requirement to the extent necessary to give a true and fair view. Particulars of the departure, the reasons for it and its effect must be given in a note to the financial statements as follows:
(a) a statement that there has been a departure from the requirements of
GAPSE and that the departure is necessary to give a true and fair view; (b) an explanation of the nature of the departure;
(c) a statement of the treatment that GAPSE would normally require and a description of the treatment adopted;
(d) a statement of the reasons why the treatment prescribed would not give a true and fair view; and
(e) a description of how the amounts and disclosures shown in the financial statements is different as a result of the departure, normally with quantification, except where:
(i) quantification is already evident in the financial statements themselves; or
(ii) the effect cannot be reasonably quantified, in which case an entity shall explain the circumstances.
3.19 Where a departure continues in subsequent financial statements, the disclosures shall be made in all subsequent financial statements and shall include comparative amounts for the previous financial reporting period. Where a departure affects only the comparative amounts, only the disclosures required by sub-paragraphs (c) and (e) of the preceding paragraph shall be given for those comparative amounts.
3.20 Where the application of the requirements of these Principles would not be sufficient to give a true and fair view within the meaning of paragraph 3.17, additional information must be given.

The elements of financial statements

3.21 Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements, which term includes assets, liabilities, equity, income and expenses. Paragraphs 3.22
– 3.30 define these elements.
3.22 The elements directly related to the measurement of financial position are assets, liabilities and equity.
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3.23 An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity, for example through use in the entity’s operating activities, or through convertibility to cash and cash equivalents, or through its capability to reduce cash outflows.
3.24 A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. An essential characteristic of a liability is that the entity has a present, rather than a future, obligation. A present obligation therefore arises from past transactions or other past events. Moreover, the settlement of the present obligation usually involves the entity giving up resources embodying economic benefits, such as the payment of cash, transfer of other assets, provision of services, replacement of that obligation with another obligation, or conversion of that obligation to equity.
3.25 Equity is the residual interest in the assets of the entity after deducting all its liabilities. However it may be sub-classified in the balance sheet, for example in funds contributed by shareholders, retained earnings and other reserves.
3.26 Profit is frequently used as a measure of an entity’s performance. The elements directly related to the measurement of profit are income and expenses.
3.27 Income is increases in economic benefits during the financial reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
3.28 The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income in paragraph 3.27 and may, or may not, arise in the course of the ordinary activities of an entity. Gains include, for example, those arising on the disposal of non-current assets or from increases in their carrying amounts.
3.29 Expenses are decreases in economic benefits during the financial reporting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
3.30 The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. The latter include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property,

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plant and equipment. Losses represent other items that meet the definition of expenses in paragraph 3.29 and may, or may not, arise in the course of the ordinary activities of the entity. Losses include, for example, those resulting from disasters such as fire and flood, those arising on the disposal of non-current assets, and those unrealised losses arising from the effects of increases in the rate of exchange for a foreign currency in respect of the borrowing of an entity in that currency.

Recognition of the elements of financial statements

3.31 Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria:
(a) it is probable that any future economic benefit associated with the item will flow to or from the entity;
(b) the item has a cost or value that can be measured reliably.
3.32 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. An asset is not recognised in the balance sheet when expenditure has been incurred for which it is considered improbable that economic benefits will flow to the entity beyond the current financial reporting period. Such a transaction would therefore be recognised as an expense in the income statement.
3.33 A liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will occur can be measured reliably.
3.34 Income is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities.
3.35 Expenses are recognised in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets. Expenditure incurred on assets that generate economic benefits over several financial reporting periods is normally recognised as an expense in the income statement on the basis of systematic and rational allocation procedures. This is often necessary in recognising the expenses associated with the using up of assets such as property, plant and equipment, patents and trademarks; in such cases the expense is referred to as depreciation or amortisation. An expense is also
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recognised immediately in the income statement when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the balance sheet as an asset. An expense is also recognised in the income statement in those cases when a liability is incurred without the recognition of an asset.
3.36 The requirements for recognising and measuring assets, liabilities, income and expenses in these Principles are based on pervasive principles that are identified in paragraphs 3.21 –
3.35 of this Section. In the absence of a requirement in GAPSE that applies specifically to a transaction or other event or condition, paragraph 5.5 establishes a hierarchy for an entity to follow in deciding on the appropriate accounting policy in the circumstances. The second level of that hierarchy (paragraph 5.5(b)) requires an entity to consider the pervasive recognition and measurement principles set out in paragraphs 3.21 – 3.35 and paragraph 3.38 of this Section.

Derecognition of the elements of financial statements

3.37 After an asset or liability is recognised on the balance sheet, it shall be derecognised if, and to the extent that, it is no longer probable that any future economic benefits associated with the item will flow to or from the entity.

Measurement of the elements of financial statements

3.38 Measurement is the process of determining the monetary amounts at which assets, liabilities, income and expenses are to be recognised and carried in the balance sheet and income statement. Measurement involves the selection of a basis of measurement. These Principles specify which measurement basis an entity shall use for many types of assets, liabilities, income and expenses. In the absence of a requirement in GAPSE that applies specifically to a transaction or other event or condition, an entity shall have regard to measurement bases for similar assets, liabilities, income and expenses when determining monetary amounts at which such transactions, other events or conditions are to be initially and subsequently measured.

4.1 A complete set of financial statements comprises: (a) a balance sheet;
(b) an income statement;
(c) a statement of changes in equity;

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(d) a statement of income and retained earnings in lieu of (b) and (c), where permitted;
(e) a cash flow statement; and
(f) notes to the financial statements.
4.2 The financial statements shall be identified clearly and distinguished from other information in the same published document and each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented:
(a) the name of the reporting entity and any change in its name since the end of the preceding financial reporting period;
(b) whether the financial statements cover the individual entity or a group of entities;
(c) the date of the end of the financial reporting period or the period covered by the financial statements, whichever is appropriate to that component of the financial statements;
and
(d) the presentation currency, as defined in Section 19 of these Principles;
(e) the level of rounding, if any, used in presenting amounts in the financial statements.
4.3 An entity that is permitted to apply GAPSE in accordance with regulation
5 of these regulations, and that opts to apply these Principles, shall present a complete set of financial statements (including comparative information) at least annually. When the end of an entity’s financial reporting period changes and the annual financial statements (including comparatives) are presented for a period longer or shorter than one year, the entity shall disclose:
(a) that fact;
(b) the reason for using a longer or shorter period; and
(c) the fact that comparative amounts for the income statement, statement of changes in equity, statement of income and retained earnings (if presented), cash flow statement and related notes are not entirely comparable.
4.4 An entity shall retain the presentation and classification of items in the financial statements from one financial reporting period to the next unless:
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(a) it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies; or
(b) these Principles require a change in presentation.
4.5 When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the quantification of that reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and
(c) the reason for the reclassification.
4.6 When it is impracticable to quantify the amount of the reclassification, an entity shall disclose:
(a) the reason for not reclassifying the amounts; and
(b) the nature of the adjustments that would be required, were the amounts able to be determined and reclassified.
4.7 Comparative amounts for the previous financial reporting period shall be shown for every item presented in the financial statements and notes thereto. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current financial reporting period’s financial statements. Where there is no amount to be shown for an item for the current financial reporting period but a comparative amount can be shown for the previous period, the comparative amount shall be shown. Where a comparative amount is not comparable with that for the current financial reporting period for the reason contemplated in paragraphs 5.7 – 5.9 of these Principles, it shall be adjusted and particulars of the adjustment and the reasons for it shall be disclosed in a note to the financial statements. Comparative amounts are not required to be disclosed in relation to any amounts stated in the notes to the financial statements for the items listed below:
(a) a reconciliation of the carrying amount of property, plant and equipment and investment property at the beginning and end of the financial reporting period as required by sub-paragraph (f) of paragraph 7.26, and paragraph 8.14 (by virtue of a reference to the requirements of paragraph 7.26), respectively of these Principles ;

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(b) a reconciliation of the carrying amount of intangible assets at the beginning and end of the financial reporting period as required by sub-paragraph (d) of paragraph 11.17 of these Principles;
(c) a reconciliation of the carrying amount of goodwill at the beginning and end of the financial reporting period as required by paragraph 22.20 of these Principles;
(d) a reconciliation of the carrying amount of each class of investment at the beginning and end of the financial reporting period as required by sub- paragraph (b) of paragraph 9.19 of these Principles; and
(e) a reconciliation of the carrying amount of financial assets at the beginning and end of the financial reporting period as required by sub-paragraph (b) of paragraph 18.18 of these

Principles.

4.8 An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial. Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.
4.9 An entity shall not offset assets and liabilities, or income and expenses, unless required or permitted by these Principles.
4.10 An entity’s financial statements shall comply with the requirements set
out in this Section as to their form and content.

Balance Sheet

4.11 The balance sheet presents an entity’s assets, liabilities and equity at a
point in time.
4.12 The following items shall be shown separately on the face of the balance sheet, in the order indicated, and under the headings and sub-headings listed below. Items preceded by Arabic numerals may be combined under their respective sub- heading when they are immaterial for the purposes of the financial statements giving a true and fair view, or such combination makes for greater clarity, in which latter case the items combined shall be dealt with separately in the notes. The layout, nomenclature and terminology of items in the balance sheet that are preceded by Arabic numerals may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of the entity’s financial position.
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In respect of each item an entity also needs to show the corresponding amount for the preceding financial reporting period. Unless there is a corresponding item that needs to be shown, an entity shall not show any item listed below for which there is no amount for the current period.

I. Intangible assets

1. Development costs
2. Concessions, patents, licences, trade marks and similar rights and assets, if they were acquired for valuable consideration
3. Payments on account

II. Property, plant and equipment

1. Land and buildings
2. Plant and machinery
3. Other fixtures and fittings, tools and equipment
4. Payments on account and tangible assets in the course of construction

III. Investment property

IV. Financial assets (Investments accounted for under Section 9 should be disclosed separately in the notes)

1. Investments in subsidiaries, associates and jointly controlled entities
2. Loans to subsidiaries, associates and jointly controlled entities
3. Other non-current investments (other than loans)
4. Other loans

V. Trade and other receivables

1. Trade receivables
2. Amounts owed by subsidiaries, associates and jointly controlled entities
3. Other receivables
4. Prepayments and accrued income

VI. Current tax receivable

VII. Subscribed capital called but not paid

VIII. Deferred tax assets

IX. Goodwill

Current assets

I. Inventories

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1. Raw materials and consumables
2. Work in progress
3. Finished goods and goods for resale
4. Payments on account

II. Trade and other receivables

1. Trade receivables
2. Amounts owed by subsidiaries, associates and jointly controlled entities
3. Other receivables
4. Prepayments and accrued income

III. Current tax receivable

IV. Subscribed capital called but not paid

V. Financial assets (Investments accounted for under Section 9 should be disclosed separately in the notes)

1. Shares in subsidiaries, associates and jointly controlled entities
2. Other current investments

VI. Cash and cash equivalents

I. Share capital

II. Share premium account

III. Revaluation reserve

IV. Other reserves

1. Capital redemption reserve
2. Other reserves

V. Retained earnings VI. Minority interest Non-current liabilities

I. Long-term borrowings

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1. Debenture loans, showing convertible loans separately
2. Bank loans
3. Bills of exchange payable
4. Amounts owed to subsidiaries, associates and jointly controlled entities
5. Other long-term borrowings

II. Trade and other payables

1. Trade payables
2. Payments received on account of orders
3. Other creditors
4. Accruals and deferred income

III. Deferred tax liabilities

IV. Provisions

1. Provisions for employee benefits and similar obligations
2. Other provisions
Current liabilities

I. Short-term borrowings

1. Debenture loans, showing convertible loans separately
2. Bank loans and overdrafts
3. Bills of exchange payable
4. Amounts owed to subsidiaries, associates and jointly controlled entities
5. Other short-term borrowings

II. Trade and other payables

1. Trade payables
2. Payments received on account of orders
3. Other creditors
4. Accruals and deferred income

III. Current tax payable

IV. Provisions

1. Provisions for employee benefits and similar obligations
2. Other provisions
4.13 The face of the balance sheet shall also include line items that present the following amounts (if applicable):

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(a) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with Section 24 of these Principles; and
(b) liabilities included in disposal groups classified as held for sale in
accordance with Section 24.
4.14 An entity shall present additional line items, headings and subtotals on the face of the balance sheet when such presentation is relevant to an understanding of the entity’s financial position. Additional line items are also included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity’s financial position. The judgment on whether additional items are presented separately is based on an assessment of:
(a) the nature and liquidity of assets;
(b) the function of assets within the entity; and
(c) the amounts, nature and timing of liabilities.
4.15 An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its balance sheet in accordance with paragraphs 4.16 and 4.17, except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, all assets and liabilities shall be presented in order of approximate liquidity.
4.16 An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in the entity’s normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the end of the reporting period; or
(d) the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the end of the reporting period.
An entity shall classify all other assets as non-current. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months.
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4.17 An entity shall classify a liability as current when:
(a) it expects to settle the liability in the entity’s normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the end of the reporting period; or
(d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period.
An entity shall classify all other liabilities as non-current.

Income statement

4.18 All items of income and expense recognised in the financial statements for the period shall be included in the income statement, unless they are specifically permitted or required to be taken directly to reserves by these Principles or by applicable legislation, in which case they shall be included in the statement of changes in equity. These Principles provide different treatment for the following, amongst others:
(a) the effects of corrections of errors and changes in accounting policies are presented as adjustments of prior periods in accordance wit Section 5 rather than as part of profit or loss in the period in which they arise; and
(b) revaluation surpluses (see Section 7) and some gains and losses
arising on translating the financial statements of a foreign operation (see Section
19) are reported directly in equity, rather than as part of profit or loss, when they
arise.
4.19 The items prescribed in paragraph 4.20 shall be shown separately on the face of the income statement, in the order indicated. Items preceded by Arabic numerals may be combined when they are immaterial for the purposes of the financial statements giving a true and fair view, or such combination makes for greater clarity, in which latter case the items combined are dealt with separately in the notes. The layout, nomenclature and terminology of items in the income statement that are preceded by Arabic numerals may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of the entity’s financial performance.
In respect of each item an entity also needs to show the corresponding amount for the preceding financial reporting period. Unless there is a corresponding item that needs to be shown, an entity shall not show any item listed below for which there is no amount for the current period.

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4.20 An entity shall present an analysis of expenses using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant. Entities are encouraged, but not required, to present this analysis on the face of the income statement.
The ‘function of expense’ method classifies expenses according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. An entity that adopts a classification using the ‘function of expense’ method presents the following items (which may be combined or amended as appropriate in accordance with paragraph 4.19 of these Principles), preferably on the face of the income statement:
1. Revenue
2. Cost of sales (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets)
3. Gross profit or loss
4. Distribution costs (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets)
5. Administrative expenses (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets)
6. Other income
7. Other expenses
8. Income from investments (as defined in paragraph 9.1)
9. Other interest receivable and similar income (with a separate indication of
that derived from subsidiaries, associates and jointly controlled entities)
10. Interest payable and similar charges (with a separate indication of the amount payable to subsidiaries, associates and jointly controlled entities)
11. Income from subsidiaries, associates and jointly controlled entities accounted
for under the cost method and recognised in accordance with paragraph 10.13
12. Share of profit or loss of subsidiaries, associates and jointly controlled entities accounted for under the equity method and recognised in accordance with paragraph 10.15
13. Profit or loss before tax
14. Tax on profit or loss
15. Profit or loss for the period from continuing operations
16. Profit or loss for the period from discontinued operations
17. Profit or loss for the period
The ‘nature of expense’ method aggregates expenses in the income statement according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs), and are not reallocated among various functions within the entity. An entity that adopts a classification using the ‘nature of expense’ method presents the following items (which may be combined or amended as appropriate in accordance with paragraph 4.19 of these Principles), preferably on the face of the income statement:
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1. Revenue
2. Other income
3. Changes in inventories of finished goods and work in progress
4. Raw materials and consumables used
5. Employee benefits expense (with separate disclosure of the total amount for Wages and salaries, and the total amount for Social security costs given in the notes as required by paragraph 4.26(b))
6. Depreciation and amortisation expense
7. Other expenses
8. Income from investments (as defined in paragraph 9.1)
9. Other interest receivable and similar income (with a separate indication of
that derived from subsidiaries, associates and jointly controlled entities)
10. Interest payable and similar charges (with a separate indication of the amount payable to subsidiaries, associates and jointly controlled entities)
11. Income from subsidiaries, associates and jointly controlled entities accounted
for under the cost method and recognised in accordance with paragraph 10.13
12. Share of profit or loss of subsidiaries, associates and jointly controlled entities accounted for under the equity method and recognised in accordance with paragraph 10.15
13. Profit or loss before tax
14. Tax on profit or loss
15. Profit or loss for the period from continuing operations
16. Profit or loss for the period from discontinued operations
17. Profit or loss for the period
4.21 If an entity prepares consolidated financial statements, it shall disclose separately the following items on the face of the income statement as allocations of profit or loss for the period:
(a) profit or loss attributable to minority interest; and
(b) profit or loss attributable to equity holders of the parent.
4.22 An entity shall present additional line items, headings and subtotals on the face of the income statement when such presentation is relevant to an understanding of the entity’s financial performance.
4.23 An entity shall disclose separately, either on the face of the income statement or in the notes, the nature and amount of material components of income and expense. Such disclosures shall include:
(a) write-downs of inventories to net realisable value, and the reversal of such write-downs;
(b) write-downs of property, plant and equipment to recoverable amount, and the reversal of such write-downs;

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(c) restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;
(d) disposals of items of property, plant and equipment; (e) disposals of investment property;
(f) disposals of investments; (g) litigation settlements; and
(h) the reversal of other provisions.
4.24 Entities classifying expenses by function shall disclose the amounts of depreciation and amortisation expense, and employee benefits expense, recognised in the income statement for the period.
4.25 The remuneration of the entity’s auditors, including sums paid in respect of expenses, shall be disclosed in a note to the financial statements. The nature and estimated monetary value of any benefits in kind shall also be stated.
4.26 An entity shall disclose:
(a) the average number of persons employed by the entity during the financial year (as determined in accordance with paragraph (c) of sub-regulation (2) of regulation 5 of these regulations), broken down by categories where applicable; and
(b) the staff costs relating to the financial year, broken down into: (i) wages and salaries; and
(ii) social security costs, with a separate indication of those relating
to pensions.

Statement of changes in equity

4.27 The statement of changes in equity presents an entity’s profit or loss for a period, items of income and expense recognised directly in equity for the period, the effects of changes in accounting policies and corrections of errors recognised in the period, and the amounts of investments by, and dividends and other distributions to, equity holders during the period.
4.28 An entity presenting a statement of changes in equity shall show on the
face of the statement:
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(a) the profit or loss for the period;
(b) each item of income or expense for the period that, as required by these Principles, is credited or charged directly in equity, and the total of these items;
(c) total income and expense for the period (calculated as the sum of (a) and (b)), showing separately the total amounts attributable to equity holders of the parent and to minority interest;
(d) for each component of equity, the effects of changes in accounting policies and corrections of errors;
(e) the amounts of investments by, and dividends and other distributions to, equity holders;
(f) the balance of retained earnings at the beginning of the period and at
the end of the reporting period, and the changes during the period; and
(g) a reconciliation between the carrying amount of each class of contributed equity and each reserve at the beginning and the end of the period.
4.29 If the only changes to the equity of an entity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors and changes in accounting policy that do not effect any part of equity other than retained earnings, the entity may present a statement of income and retained earnings in place of the income statement and statement of changes in equity. The statement of income and retained earnings presents an entity’s profit or loss and changes in retained earnings for a period.
4.30 An entity shall present, on the face of the statement of income and retained earnings, the following items in addition to the information required by paragraphs
4.18 – 4.26 of these Principles:
(a) retained earnings at the beginning of the reporting period;
(b) dividends and other distributions declared and paid or payable during the period;
(c) restatements of retained earnings for corrections of prior period
errors;
and
(d) restatements of retained earnings for changes in accounting policy;

(e) retained earnings at the end of the reporting period.

Cash flow statement

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4.31 The cash flow statement provides information about the historical changes in cash and cash equivalents of an entity, showing separately changes during the period from operating, investing and financing activities. Cash is taken as ‘cash at bank and in hand’. Cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Bank overdrafts are normally considered financing activities similar to borrowings. However, if they are repayable on demand and form an integral part of an entity’s cash management, bank overdrafts are a component of cash and cash equivalents.
4.32 An entity shall present a cash flow statement that reports cash flows for a period classified by operating activities, investing activities and financing activities.
4.33 Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. Therefore, they generally result from the transactions and other events and conditions that enter into the determination of profit or loss. An entity shall report cash flows from operating activities using either:
(a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or
(b) the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
4.34 Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either:
(a) from the accounting records of the entity; or
(b) by adjusting sales, cost of sales and other items in the income
statement for:
(i) changes during the period in inventories and operating
receivables and payables;
(ii) other non-cash items; and
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(iii) other items for which the cash effects are investing or financing cash flows.
4.35 Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:
(a) changes during the period in inventories and operating receivables
and payables;
(b) non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, undistributed profits of subsidiaries, associates and joint ventures, and minority interests; and
(c) all other items for which the cash effects relate to investing or
financing.
4.36 Cash flows arising from investing activities represent expenditures made for resources intended to generate future income and cash flows and relate to the acquisition and disposal of non-current assets and other investments not included in cash equivalents.
4.37 Financing activities result in changes in the size and composition of the contributed equity and borrowings of the entity.
4.38 An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities.
4.39 Cash flows from interest and dividends received and paid shall each be disclosed separately. Cash flows shall be classified in a consistent manner from period to period as either operating, investing or financing activities.
4.40 Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
4.41 An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts reported in the cash flow statement to the equivalent items reported in the balance sheet.
4.42 An entity shall exclude from the cash flow statement investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.

Notes to the financial statements

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4.43 The notes, which form an integral part of the financial statements, shall:
(a) present information about the basis of preparation of the financial statements and the specific accounting policies used;
(b) disclose:
(i) the information required by these Principles that is not presented on the face of the balance sheet, income statement, statement of changes in equity or statement of income and retained earnings (if presented), or cash flow statement; and
(ii) all the disclosures required by the respective Sections of these
Principles; and
(c) provide additional information that is not presented on the face of the balance sheet, income statement, statement of changes in equity or statement of income and retained earnings (if presented), or cash flow statement but is relevant to an understanding of any of them.
4.44 Notes shall, as far as practicable, be presented in a systematic manner. Each item on the face of the balance sheet, income statement and statement of changes in equity or statement of income and retained earnings (if presented) shall be cross- referenced to any related information in the notes.
4.45 Notes are normally presented in the following order:
(a) a statement that the financial statements have been prepared in compliance with these Principles;
(b) a summary of significant accounting policies applied;
(c) supporting information for items presented on the face of the balance sheet, income statement, statement of changes in equity or statement of income and retained earnings (if presented), and cash flow statement, in the order in which each statement and each line item is presented; and
(d) other disclosures, including:
(i) contingent liabilities, contingent assets and unrecognised contractual commitments;
(ii) non-financial disclosures;
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(iii) the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to equity holders during the period, and the related amount per share; and
(iv) the amount of any cumulative preference dividends not
recognised.

5.1 Accounting policies are those principles, bases, conventions, rules and practices applied by an entity that specify how the effects of transactions and other events are to be reflected in its financial statements through recognising, selecting measurement bases for, and presenting assets, liabilities, income, expenses and changes to equity. Accounting policies define the process whereby transactions and other events are reflected in the financial statements. For example, an accounting policy for a particular type of expenditure may specify whether an asset or an expense is to be recognised; the basis on which it is to be measured; and where in the income statement or balance sheet it is to be presented.
5.2 A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. Examples of estimates include those required of:
(a) bad debts;
(b) inventory obsolescence;
(c) the useful lives of, or expected pattern of consumption (depreciation method) of the future economic benefits embodied in, depreciable assets.
5.3 Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when the financial statements for those periods were authorised for issue, and that information could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Accounting policies

5.4 When a Section of these Principles specifically applies to a transaction,

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event or condition, the accounting policy or policies applied to that item shall be determined by applying the relevant Section. In the absence of a Section in these Principles that specifically applies to a transaction, event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is:
(a) relevant to the economic decision-making needs of users; and
(b) reliable, in that the financial statements:
(i) represent faithfully the financial position, financial performance and cash flows of the entity;
(ii) reflect the economic substance of the transactions, other events and conditions, and not merely their legal form;
(iii) are neutral, i.e. free from bias; (iv) are prudent; and
(v) are complete in all material respects.
5.5 In making the judgement described in the preceding paragraph, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) the requirements and guidance in these Principles dealing with similar
and related issues;
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in paragraphs 3.21 – 3.35 and paragraph
3.38 of Section 3 of these Principles; and
(c) the requirements and guidance in generally accepted accounting
principles and practice dealing with similar and related issues.
If additional guidance is needed to make the judgement described in the preceding paragraph, management may also consider the most recent pronouncements of other standard-setting bodies that use a conceptual framework to develop accounting standards that is similar to that used in the development of generally accepted accounting principles and practice, other accounting literature and accepted industry practices, to the extent that these do not conflict with the requirements and guidance in these Principles.
5.6 An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions. Where GAPSE permits a choice of
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accounting policy for categories of transactions, events and conditions, an entity shall select the policy that is most appropriate to its particular circumstances for the purpose of giving a true and fair view, taking account of the objectives of relevance, reliability, comparability and understandability, and shall apply that policy consistently to each such category of transactions, events and conditions.
5.7 An entity shall change an accounting policy only if the change: (a) is required by these Principles; or
(b) results in the financial statements providing reliable and more relevant information about the effects of transactions, events or conditions on the entity’s financial position, financial performance or cash flows.
5.8 The initial application of a policy to revalue assets in accordance with Section 7, Section 8 and Section 9, is a change in an accounting policy to be dealt with in accordance with the requirements of the relevant Section, rather than in accordance with this Section.
5.9 An entity shall account for all changes in accounting policy retrospectively. When a change in accounting policy is applied retrospectively, the entity adjusts the opening balance of each affected component of equity for the earliest prior period presented, and the other comparative amounts disclosed for each prior period presented, as if the new accounting policy had always been applied. When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period.

Accounting policies – disclosure

5.10 In addition to the disclosures on accounting policies required by Section
4 of these Principles, an entity shall also disclose the following information:
(a) the measurement basis (or bases) used in preparing the financial statements;
(b) the accounting policy the entity has chosen whenever GAPSE allows an accounting policy choice for a category of transaction, event or condition;
(c) the other accounting policies used that are relevant to an understanding
of the financial statements; and
(d) whenever there has been a change in accounting policy that has an

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effect on the current period or any prior period, or might have an effect on future periods, the entity shall also disclose the following information:
(i) the nature of the change in accounting policy and, if applicable, the title of the Section of these Principles that requires the change in accounting policy;
(ii) unless the change in accounting policy is required by these Principles, the reasons why applying the new accounting policy provides reliable and more relevant information;
(iii) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected;
(iv) the amount of the adjustment relating to periods before those
presented, to the extent practicable; and
(v) an explanation if it is impracticable to determine the amounts to
be disclosed in (iii) or (iv) above.
Financial statements of subsequent periods need not repeat these disclosures.

Changes in accounting estimates

5.11 An entity shall recognise the effect of a change in an accounting estimate prospectively by including it in profit or loss in:
(a) the period of the change, if the change affects that period only; or
both.
(b) the period of the change and future periods, if the change affects
5.12 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.

Changes in accounting estimates – disclosure

5.13 An entity shall disclose the nature and amount of a change in an accounting estimate that has a significant effect in the current period or is expected to have a significant effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect.
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Correction of prior period errors

5.14 To the extent practicable, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after its discovery by:
(a) restating the comparative amounts for the prior period presented in
which the error occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

Correction of prior period errors – disclosure

5.15 An entity shall disclose the following about prior period errors: (a) the nature of the prior period error;
(b) for each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected;
(c) in the circumstances described in paragraph 5.14(b), the amount of the correction at the beginning of the earliest prior period presented; and
(d) if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected. Financial statements of subsequent periods need not repeat these disclosures.

6.1 Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.
This Section shall be applied in accounting for revenue arising from the following transactions and events:
(a) the sale of goods;
(b) the rendering of services; and
(c) the use by others of entity assets yielding income such as interest, royalties, rent and dividends.

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6.2 This Section shall also be applied in accounting for construction contracts in the financial statements of contractors. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. This Section lays down principles for determining when contract revenue and contract costs should be recognised as revenue and expenses in the income statement.

Measurement of revenue

6.3 An entity shall measure revenue at the fair value of the consideration received or receivable. The fair value of the consideration received or receivable excludes the amount of any trade discounts and volume rebates allowed by the entity.
6.4 An entity shall include in revenue only the gross inflows of economic benefits received and receivable by the entity on its own account. An entity shall therefore exclude from revenue all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes. Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.
6.5 In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, and the arrangement constitutes in substance a financing transaction, the fair value of the consideration is the present value of all future receipts determined using an imputed rate of interest. An entity shall recognise the difference between the present value of all future receipts and the nominal amount of the consideration as interest revenue.

Sale of goods

6.6 An entity shall recognise revenue from the sale of goods when all the following conditions are satisfied:
(a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
(b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
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(c) the amount of revenue can be measured reliably;
(d) it is probable that the economic benefits associated with the transaction will flow to the entity; and
(e) the costs incurred or to be incurred in respect of the transaction can
be measured reliably.

Rendering of services

6.7 When the outcome of a transaction involving the rendering of services can be estimated reliably, an entity shall recognise revenue associated with the transaction by reference to the stage of completion of the transaction at the end of the reporting period (sometimes referred to as the percentage of completion method). The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:
(a) the amount of revenue can be measured reliably;
(b) it is probable that the economic benefits associated with the transaction will flow to the entity;
(c) the stage of completion of the transaction at the end of the reporting
period can be measured reliably; and
(d) the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
6.8 When the outcome of the transaction involving the rendering of services cannot be estimated reliably, an entity shall recognise revenue only to the extent of the expenses recognised that are recoverable.

Interest, royalties, rent and dividends

6.9 An entity shall recognise revenue arising from the use by others of entity assets yielding interest, royalties, rent and dividends on the bases set out in paragraph
6.10 when:
(a) it is probable that the economic benefits associated with the transaction will flow to the entity; and
(b) the amount of the revenue can be measured reliably.
6.10 An entity shall recognise revenue on the following bases:

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(a) interest shall be recognised on an accrual or time proportion basis;
(b) royalties and rent shall be recognised on an accrual basis in accordance with the substance of the relevant agreement; and
(c) dividends shall be recognised when the shareholder’s right to receive payment is established.

Construction contracts

6.11 When the outcome of a construction contract can be estimated reliably, an entity shall recognise contract revenue and contract costs associated with the construction contract as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (often referred to as the percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings.
6.12 An entity shall review and, when necessary, revise the estimates of
revenue and costs as the service transaction or construction contract progresses.
6.13 An entity shall determine the stage of completion of a transaction or contract using the method that measures most reliably the work performed. Possible methods include:
(a) the proportion that costs incurred for work performed to date bear to the estimated total costs. Costs incurred for work performed to date do not include:
(i) costs relating to future activity on the contract, such as costs of material that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and
(ii) prepayments, such as payments made to subcontractors in advance of work performed under the subcontract;
(b) surveys of work performed; or
(c) completion of a physical proportion of the service transaction or contract work. Progress payments and advances received from customers often do not reflect the work performed.
6.14 An entity shall recognise costs that relate to future activity on the transaction or contract, such as for materials or prepayments, as an asset if it is
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probable that the costs will be recovered. Such costs represent an amount due from
the customer and are classified as work in progress.
6.15 An entity shall recognise as an expense immediately any costs that are
not probable of being recovered.
6.16 When the outcome of a construction contract cannot be estimated
reliably:
(a) an entity shall recognise revenue only to the extent of contract costs incurred that it is probable will be recoverable; and
(b) the entity shall recognise contract costs as an expense in the period in which they are incurred.
6.17 When it is probable that total contract costs will exceed total contract revenue on a construction contract, the expected loss shall be recognised as an expense immediately.
6.18 If the collectability of an amount already recognised as contract revenue is no longer probable, the entity shall recognise the uncollectible amount as an expense rather than as an adjustment of the amount of contract revenue.

Revenue – disclosure

6.19 An entity shall disclose:
(a) the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services; and
(b) the amount of each category of revenue recognised during the period,
including revenue arising from:
(i) the sale of goods;
(ii) the rendering of services; (iii) interest;
(iv) royalties; (v) rent; and (vi) dividends.

Construction contracts – disclosure

6.20 An entity shall disclose:
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(a) the amount of contract revenue recognised as revenue in the period;
(b) the methods used to determine the contract revenue recognised in the
period; and
(c) the methods used to determine the stage of completion of contracts in progress.
6.21 An entity shall disclose each of the following for contracts in progress at
the balance sheet date:
(a) the aggregate amount of costs incurred and recognised profits (less recognised losses) to date;
(b) the amount of advances received; and
(c) the amount of retentions.
6.22 Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. Progress billings are amounts billed for work performed on a contract whether or not they have been paid by the customer. Advances are amounts received by the contractor before the related work is performed.
6.23 An entity shall present:
and
(a) the gross amount due from customers for contract work as an asset;
(b) the gross amount due to customers for contract work as a liability.
6.24 The gross amount due from customers for contract work is the net amount of (i) costs incurred plus recognised profits, less (ii) the sum of recognised losses and progress billings for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings.
6.25 The gross amount due to customers for contract work is the net amount of (i) costs incurred plus recognised profits, less (ii) the sum of recognised losses and progress billings for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
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7.1 Property, plant and equipment are tangible assets that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
(b) are expected to be used during more than one period.

Recognition

7.2 The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.

Measurement at recognition

7.3 An entity shall measure an item of property, plant and equipment at initial
recognition at its cost.
7.4 The cost of an item of property, plant and equipment comprises:
(a) its purchase price, including legal and brokerage fees, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates;
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. These can include staff costs arising directly from the construction or acquisition of the item of property, plant and equipment, the costs of site preparation, initial delivery and handling, installation and assembly, and testing of functionality; and
(c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.
The cost of a self-constructed asset is determined using the same principles as for an acquired asset.

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7.5 Subsequent expenditure shall be capitalised as part of the cost of property, plant and equipment only if:
(a) it enhances the economic benefits of an asset in excess of the previously assessed standard of performance (i.e. if it is an ‘improvement’); or
(b) it replaces or restores a component that has been separately depreciated
over its useful life.
Otherwise it shall be recognised in the income statement as it is incurred.
7.6 An entity may adopt an accounting policy of capitalising finance costs (such as interest). Where such a policy is adopted, only those finance costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use. The total amount of finance costs capitalised during a period shall not exceed the total amount of finance costs incurred during that period.
7.7 Capitalisation of directly attributable costs, including finance costs, shall be suspended during extended periods in which active development is interrupted. Recognition of such costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management, even if the asset has not yet been brought into use.

Measurement after recognition

7.8 An entity shall account for all items in the same class of property, plant and equipment (i.e. having a similar nature, function or use in the business) after initial recognition using either:
(a) the cost model in paragraph 7.9; or
(b) the revaluation model in paragraphs 7.10 – 7.18.
7.9 Under the cost model, an entity shall measure an item of property, plant and equipment at cost less any accumulated depreciation and any accumulated impairment losses.
7.10 Under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ
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materially from that which would be determined using fair value at the balance sheet
date.
7.11 Where an item of property, plant and equipment is revalued all items in the same class shall be revalued, but a policy of revaluation need not be applied to all classes of property, plant and equipment.
7.12 The fair value of land and buildings is usually determined from market- based evidence by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal.
7.13 If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a depreciated replacement cost approach.
7.14 The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. Nevertheless, revaluations shall be made at least every five years and in the intervening years where it is likely that there has been a material change in value. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.
7.15 Gains and losses arising on the revaluation of assets shall be recognised in equity under the heading of revaluation surplus, net of any attributable taxation element.
7.16 If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss in accordance with paragraph 7.17.
7.17 If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be debited directly to equity under the heading of revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Any amounts recognised in profit or loss in accordance with paragraph 7.16 and this paragraph shall be shown separately on the face of the income statement.
7.18 The revaluation surplus included in equity in respect of an item of

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property, plant and equipment may be transferred directly to retained earnings (not through profit or loss) when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.

Depreciation

7.19 The cost (or revalued amount) less estimated residual value of an item of property, plant and equipment shall be depreciated on a systematic basis over the asset’s useful life. An entity shall select a depreciation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. The possible depreciation methods include the straight-line method.
7.20 Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.
7.21 The depreciation charge for each period shall be recognised in profit or loss, unless it is included in the carrying amount of another asset.
7.22 Where an item of property, plant and equipment comprises two or more major components with substantially different useful lives, each component shall be accounted for separately for depreciation purposes and depreciated over its individual useful life. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. With certain exceptions, such as sites used for extractive purposes or landfill, land has an unlimited life and therefore is not depreciated.
7.23 The useful lives and residual values of property, plant and equipment shall be reviewed regularly and, when necessary, revised. On revision, the carrying amount of the item of property, plant and equipment at the date of revision, less the revised residual value, shall be depreciated over the revised remaining useful life. Such a change shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles.
7.24 An entity shall review the depreciation method regularly. If there has been a significant change in the pattern in which the entity expects to consume the asset’s future economic benefits, the entity shall change the method to reflect the new pattern. A change from one method of providing depreciation to another is permissible
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only on the grounds that the new method will give a fairer presentation of the results and of the financial position. Such a change does not, however, constitute a change of accounting policy; the carrying amount of the item of property, plant and equipment is depreciated using the revised method over the remaining useful life, beginning in the period in which the change is made. A change in the depreciation method shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles.

Impairment

7.25 To determine whether an item of property, plant and equipment is impaired, an entity applies Section 12 of these Principles. That Section explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

Disclosure

7.26 An entity shall disclose, for each class of property, plant and equipment: (a) the measurement bases used for determining the gross carrying
amount;
(b) the depreciation methods used;
(c) the useful lives or the depreciation rates used;
(d) where material, the financial effect of a change during the period in either the estimate of useful lives or the estimate of residual values;
(e) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and
(f) having regard to paragraph 4.7(a) of these Principles, a reconciliation of the carrying amount at the beginning and end of the period showing:
(i) additions;
(ii) assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Section 24 of these Principles;
(iii) additions resulting from business acquisitions;

(iv) disposals;
(v) revaluation gains and losses;
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(vi) impairment losses recognised or reversed in profit or loss in accordance with Section 12 of these Principles;
(vii) depreciation;
(viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency (see Section 19 of these Principles); and
(ix) other changes.
7.27 Where there has been a change in the depreciation method used, the effect, if material, shall be disclosed in the period of change. The reason for the change shall also be disclosed.
7.28 Where applicable, the notes shall disclose (i) the fact that finance costs are incurred in determining the cost of the assets, and (ii) the amount of finance costs so included.
7.29 Where property, plant and equipment have been revalued an entity shall
disclose:
(a) the comparable amounts determined under the cost model (i.e. the aggregate historical cost amount that would have been included had the assets not been revalued, reflecting any write-downs to recoverable amount that would have been necessary); or
(b) the differences between those amounts and the corresponding
amounts actually shown in the balance sheet.
7.30 Where items of property, plant and equipment were revalued, the year in which they were revalued shall be disclosed. When an item of property, plant and equipment was revalued during the financial year to which the financial statements relate, an entity shall disclose in those financial statements:
(a) the effect of any revaluation made during the year; (b) whether an independent valuer was involved; and (c) the bases of the valuation.
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7.31 The entity shall also disclose:
(a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities; and
(b) the amount of contractual commitments for the acquisition of property, plant and equipment (however authorised but not contracted commitments should also be disclosed).
7.32 The treatment for taxation purposes of amounts credited or debited to
revaluation surplus shall be disclosed in the notes.

8.1 Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for:
(a) use in the production or supply of goods or services or for administrative purposes (hence covered by the definition of property, plant and equipment under Section 7 of these Principles and accounted for in accordance with the provisions of that Section); or
(b) sale in the ordinary course of business (hence covered by the definition of inventories under Section 15 of these Principles and accounted for in accordance with the provisions of that Section).

Recognition

8.2 Investment property shall be recognised as an asset when, and only
when:
(a) it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and
(b) the cost of the investment property can be measured reliably.

Measurement at recognition

8.3 An entity shall measure investment property at its cost at initial recognition. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure such as legal and professional fees, property transfer taxes and other transaction costs. The cost of a self-constructed investment property is its cost at the date when the construction or development is complete. Until that date an entity shall apply Section 7 of these Principles.

Measurement after recognition

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8.4 After initial recognition, an entity shall choose as its accounting policy either the cost model in paragraph 8.5, or the fair value model in paragraphs 8.6 –
8.10, and shall apply that policy to all of its investment property.
8.5 An entity that chooses the cost model shall measure all of its investment property after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses and shall account for all of its investment property by applying the principles for property, plant and equipment measured under the cost model in accordance with the requirements of paragraph 7.9 and paragraphs
7.19 – 7.24 of Section 7 of these Principles. To determine whether an investment property is impaired, an entity applies Section 12 of these Principles. That Section explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.
8.6 An entity that chooses the fair value model shall measure all of its investment property after initial recognition at fair value less any accumulated depreciation.
8.7 The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition and subject to similar lease and other contracts. In the absence of current prices in an active market, an entity considers information from a variety of sources, including:
(a) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
(c) discounted cash flow projections based on reliable estimates of future cash flows and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
8.8 If, in exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property following the completion of construction or development, or after a change of use) that the fair value of the investment property is not reliably determinable on a continuing basis, an entity shall measure that investment property using the cost model in paragraph 8.5 and the residual value of that investment property shall be assumed to be zero. The fair value of an investment property is not reliably determinable on a continuing basis when, and only when, comparable market transactions are infrequent
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and alternative reliable estimates of fair value are not available. An entity may nevertheless measure all its other investment property using the fair value model.
8.9 Paragraphs 7.14 – 7.18 and paragraphs 7.19 – 7.24 of Section 7 of these Principles shall also apply to investment property measured under the fair value model. References to revaluation surplus therein shall be taken to refer to fair value reserve in the case of investment property.
8.10 Upon first-time adoption of GAPSE an entity shall transfer any fair value gains on an item of investment property, previously recognised in profit or loss and standing to the credit of retained earnings or another reserve in accordance with another financial reporting framework, to a separate component of equity under the heading of fair value reserve.

Transfers

8.11 If an item of property, plant and equipment becomes an investment property, and the entity will account for the investment property under the fair value model, any difference between the asset’s carrying amount and its fair value at the date when it becomes an investment property shall be treated in the same way as a revaluation in accordance with Section 7 of these Principles.
8.12 If a property held as inventories, or a completed self-constructed property, becomes an investment property, and the entity will account for the investment property under the fair value model, any difference between the asset’s previous carrying amount and its fair value at the date when it becomes an investment property shall be recognised in a separate component of equity under the heading of fair value reserve.
8.13 When an investment property carried at fair value is transferred to property, plant and equipment or inventories, following a change of use, the property’s deemed cost for subsequent accounting in accordance with Sections 7 and 15 respectively, shall be its fair value at the date of change of use. The cumulative amount recognised in fair value reserve in respect of that investment property may be transferred to retained earnings when, and only when, the asset (property, plant and equipment or inventory) is derecognised.

Disclosure

8.14 An entity shall make the disclosures required by paragraphs 7.26 – 7.32 of Section 7 of these Principles, insofar as applicable. References to revaluation surplus therein shall be taken to refer to fair value reserve in the case of investment property.

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9.1 An investment is a financial asset (as defined in paragraph 18.2) which is held by an entity for the accretion of wealth through distribution (such as interest, dividends and similar income), for capital appreciation or for other similar benefits to the investing entity. This Section does not apply to:
(a) Property, plant and equipment as defined in Section 7; (b) Investment property as defined in Section 8;
(c) Investments in subsidiaries, associates and joint ventures as defined in Section 10;
(d) Intangible assets as defined in Section 11; (e) Finance leases as defined in Section 14;
(f) Inventories as defined in Section 15;
(g) Goodwill as defined in Section 22; and
(h) Other financial assets that do not meet the above definition, including trade receivables, demand deposits, cash and other instruments such as interest- free loans which would fall to be treated under Section 18 of these Principles.
9.2 A class of investment is a group of investments that are similar in nature
and that have common characteristics. Examples of classes of investments include: (a) quoted or unquoted instruments; and
(b) debt or equity securities.
9.3 A held-for-trading investment is an investment that is:
(a) acquired principally for the purpose of selling it in the near term; or
(b) part of a portfolio of identified investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit- taking.

Recognition

9.4 An entity shall recognise an investment on its balance sheet when, and only when, it acquires a contractual right:
(a) to receive cash or another financial asset from another entity; or
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(b) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity.

Measurement at recognition

9.5 An entity shall measure all of its investments at cost at initial recognition, comprising purchase price and transaction costs that are directly attributable to the acquisition of the investment. Transaction costs that shall be included in the initial measurement of the investment include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Measurement after recognition

9.6 An entity shall account for all items in the same class of investments, except for held-for-trading investments (see paragraph 9.7), after initial recognition as follows:
(a) for unquoted instruments using the cost model in paragraph 9.8; and
(b) for quoted instruments using any of the following: (i) the cost model in paragraph 9.8; or
(ii) the fair value through equity model in paragraphs 9.9 – 9.13.
9.7 An entity shall account for all held-for-trading investments after initial
recognition using either:
(a) the cost model in paragraph 9.8; or
9.14.
(b) the fair value through profit or loss model in paragraphs 9.9, 9.10 and
9.8 Under the cost model, an entity shall measure all items in the same class of investment after initial recognition at the lower of cost and fair value less costs to sell. Any adjustments to the carrying amount in this respect shall be recognised in profit or loss for the period.
9.9 Under the fair value model, an entity shall measure all items in the same class of investment at fair value if their fair value can be measured reliably. The fair value of an investment is the price at which the investment could be exchanged between a knowledgeable, willing buyer who is not over-eager nor determined to buy at any price, and a knowledgeable, willing seller who is not over-eager nor forced to sell, both acting independently. The best evidence of fair value is given

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by prices quoted in an active market. If the market for an investment is not active, an entity estimates fair value by using a valuation technique. The objective of using a valuation technique is to estimate what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations. An entity determines fair value without any deduction for transaction costs it may incur on sale or other disposal.
9.10 If the fair value of an investment in a class of investment measured at fair value cannot be measured reliably, an entity shall measure that investment using the cost model in paragraph 9.8. An entity may nevertheless measure all its other investments in the same class using the fair value model if their fair value can be measured reliably.
9.11 If the carrying amount of an investment measured under the fair value through equity model is increased as a result of an increase in the fair value of that investment, the increase shall be credited directly to a separate component of equity under the heading of fair value reserve, net of any attributable taxation element. However, the increase shall be recognised in profit or loss to the extent that it reverses a fair value decrease of the same investment previously recognised in profit or loss in accordance with paragraph 9.12.
9.12 If the carrying amount of an investment measured under the fair value through equity model is decreased as a result of a decrease in the fair value of that investment, the decrease shall be debited directly to a separate component of equity under the heading of fair value reserve to the extent of any credit balance existing in the fair value reserve in respect of that investment. Any decrease in the carrying amount in excess of any credit balance existing in the fair value reserve in respect of that investment shall be recognised in profit or loss.
9.13 Upon disposal of an investment measured under the fair value through equity model, the net amount included in the fair value reserve in respect of an investment may be transferred directly to retained earnings (not through profit or loss) when the asset is derecognised.
9.14 If held-for-trading investments are measured at fair value, any gain or loss arising from a change in the fair value of held-for-trading investments shall be recognised in profit or loss for the period in which it arises.

Investment income

9.15 Investment income arising from interest, royalties and dividends, and
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profits or losses on disposal of investments shall be included in the profit or loss for the period in which they arise.

Disclosure

9.16 An entity that carries quoted investments under the cost model shall disclose the market value of those investments if it is materially different from their carrying amount.
9.17 For investments measured at fair value an entity shall disclose, for each
class of investment:
(a) the significant assumptions underlying the valuation techniques used, if any, in accordance with paragraph 9.9 of these Principles; and
(b) the fair value at the balance sheet date and the changes in fair value recognised either in equity or in the income statement during the period in accordance with paragraph 9.18(b)(iv) and (v) .
9.18 When the fair value of an investment in a class of investment measured at fair value cannot be measured reliably, and that investment is hence measured under the cost model in accordance with paragraph 9.10, an entity shall disclose that fact together with the reason why the fair value of that investment cannot be measured reliably.
9.19 An entity shall disclose:
(a) its accounting policy for each class of investment; and
(b) having regard to paragraph 4.7(d) of these Principles, a reconciliation of the carrying amount of each class of investment at the beginning and end of the period showing:
(i) additions; (ii) disposals;
(iii) write-downs to fair value less costs to sell for classes of
investment measured under the cost model;
(iv) gains and losses resulting from changes in the fair value of investments measured under the fair value through equity model, distinguishing between those recognised in equity and those recognised in profit or loss, in accordance with paragraphs 9.11 and 9.12;
(v) gains and losses resulting from changes in the fair value of

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held-for-trading investments measured under the fair value through profit or loss model, recognised in profit or loss in accordance with paragraph
9.14;
(vi) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency (see Section 19 of these Principles); and
(vii) other changes.
9.20 An entity shall disclose the existence of any restrictions on title and the carrying amount of any investments that it has pledged as collateral for liabilities or contingent liabilities.

10.1 This Section shall be applied by an investor in accounting for its equity investments in subsidiaries, associates and joint ventures in its individual financial statements. Individual financial statements are the financial statements of the investor prepared in accordance with these Principles. This Section does not apply to consolidated financial statements, which are specifically covered in Section 23 of GAPSE.
10.2 Investments in entities other than subsidiaries, associates and joint ventures shall be accounted for in accordance with the requirements of Section 9 of these Principles.

Definitions

10.3 A subsidiary is an entity, including an unincorporated entity such as a partnership, which is controlled by another entity, known as the parent (also referred to as the ‘investor’ throughout this Section). Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than 50% of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity but it has:
(a) power over more than half of the voting rights by virtue of an agreement with other investors;
(b) power to govern the financial and operating policies of the entity under a statute or an agreement;
(c) power to appoint or remove the majority of the members of the board
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of directors or equivalent governing body and control of the entity is by that board or body; or
(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.
10.4 An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies. If an investor holds, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (e.g. through subsidiaries), less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not preclude an investor from having significant influence. The existence of significant influence by an investor is usually evidenced in one or more of the following ways:
(a) representation on the board of directors or equivalent governing body of the investee;
(b) participation in policy making processes;
(c) material transactions between the investor and the investee; (d) interchange of managerial personnel; or
(e) provision of essential technical information.
10.5 A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The following characteristics are common to all joint ventures:
(a) two or more venturers are bound by a contractual arrangement; and
(b) the contractual arrangement establishes joint control.
Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). A venturer (also referred to as the ‘investor’ throughout this Section) is a party to a joint venture and has joint control over that joint venture.

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10.6 Joint ventures can take the form of jointly controlled operations, jointly controlled assets, or jointly controlled entities.
10.7 The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturer’s employees alongside the venturer’s similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers. These are referred to as jointly controlled operations.
10.8 Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture. These are referred to as jointly controlled assets.
10.9 A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.
10.10 Investments in subsidiaries, associates and jointly controlled entities are sometimes collectively referred to as “investee” throughout this Section.
Accounting for investments in subsidiaries, associates and jointly controlled
entities
10.11 An investor shall initially account for all investments in subsidiaries, associates and jointly controlled entities at cost.
10.12 Subsequent to initial recognition, an investor shall account for all its investments in subsidiaries, associates and jointly controlled entities, using one of the following:
(a) the cost method in paragraphs 10.13 and 10.14; or
(b) the equity method in paragraphs 10.15 – 10.23.

Cost method

10.13 Under the cost method, an investor shall measure all its investments in subsidiaries, associates and jointly controlled entities at cost less any accumulated
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impairment losses. The investor shall recognise a dividend from a subsidiary, associate or jointly controlled entity in profit or loss in its individual financial statements when its right to receive the dividend is established.
10.14 The investor shall recognise impairment in accordance with Section 12 of these Principles. In assessing whether there is an indication that an investment in a subsidiary, associate or jointly controlled entity (collectively referred to as investee) may be impaired an entity shall consider available evidence that indicates that the dividend from an investee recognised in the current financial reporting period exceeds that investee’s profit for the financial reporting period in which the dividend is declared. Where applicable, an entity shall apply the guidance in paragraph 10.22 for the purposes of determining an investment’s recoverable amount.

10.15 Investments in subsidiaries, associates or jointly controlled entities are accounted for under the equity method from the date on which they fall within the respective definition. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The investor’s share of the profit or loss of the investee is recognised in the investor’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the subsidiary, associate or jointly controlled entity arising from changes in the investee’s equity that have not been recognised in their profit or loss. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor’s share of those changes is recognised directly in equity of the investor.
10.16 When potential voting rights exist, the investor’s share of profit or loss of the investee and of changes in the investee’s equity is determined on the basis of present ownership interests and does not reflect the possible exercise or conversion of potential voting rights.
10.17 If an investee uses accounting policies other than those of the investor for like transactions and events in similar circumstances, adjustments shall be made to conform the investee’s accounting policies to those of the investor when the investee’s financial statements are used by the investor in applying the equity method.
10.18 Appropriate adjustments are made to the investor’s share of the profits
or losses after acquisition to account for:
(a) impairment losses recognised by the investee; and
(b) profits and losses resulting from transactions between an investor and an investee. The investor’s share in the investee’s profits and losses resulting from these transactions is eliminated.

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10.19 The most recent available financial statements of the subsidiary, associate or jointly controlled entity are used by the investor in applying the equity method. When the reporting dates of the investor and the investee are different, the investee prepares, for the use of the investor, financial statements as of the same date as the financial statements of the investor unless it is impracticable to do so.
10.20 If, under the equity method, an investor’s share of losses of a subsidiary, associate or jointly controlled entity equals or exceeds its interest in the investment, the investor discontinues recognising its share of further losses. The investment is reported at nil value. Thereafter, additional losses are provided for, and a liability is recognised, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the investee. If the subsidiary, associate or jointly controlled entity subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
10.21 After application of the equity method, including recognising the associate’s losses in accordance with paragraph 10.20, the investor applies the requirements of Section 12 to determine whether it is necessary to recognise any additional impairment loss with respect to the investor’s investment.
10.22 For the purposes of determining whether an investment in a subsidiary, associate or jointly controlled entity is impaired in accordance with Section 12 of these Principles, an entity shall compare the investment’s recoverable amount (higher of net realisable value and value in use) with its carrying amount, whenever there is an indication that the investment may be impaired. In determining the value in use of investments in subsidiaries, associates or jointly controlled entities, an entity estimates:
(a) its share of the present value of the estimated future cash flows expected to be generated by the investee, including the cash flows from the operations of the subsidiary, associate or jointly controlled entity and the proceeds on the ultimate disposal of the investment; or
(b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.
Under appropriate assumptions, both methods give the same result.
10.23 An investor shall discontinue the use of the equity method from the date
it ceases to have:
(a) control over the subsidiary’s financial and operating policies; or
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(b) significant influence in participating in the financial and operating policy decisions of the associate; or
(c) joint control over a jointly controlled entity and shall account for the investment in accordance with Section 9 of these Principles. The carrying amount of the investment at that date shall be recognised as its cost on initial measurement.

Recognition and Measurement – investments in jointly controlled operations and jointly controlled assets

10.24 In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:
(a) the assets that it controls and the liabilities that it incurs; and
(b) the expenses that it incurs and its share of the income that it earns from the sale of goods or the rendering of services by the joint venture and shall measure assets and liabilities recognised in (a) above in accordance with the respective requirements of these Principles.
10.25 In respect of its interests in jointly controlled assets, a venturer shall recognise in its financial statements:
(a) its share of the jointly controlled assets, classified according to the nature of the assets;
(b) any liabilities that it has incurred;
(c) its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;
(d) any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
(e) any expenses that it has incurred in respect of its interest in the joint venture and shall measure assets and liabilities recognised in (a), (b) and (c) above in accordance with the respective requirements of these Principles.

Disclosure

10.26 An investor shall disclose its accounting policy for its investments in subsidiaries, associates and jointly controlled entities.

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10.27 For investments in subsidiaries, associates and jointly controlled entities
accounted for under the cost method an investor shall disclose:
(a) income received from distributions out of the investee’s accumulated profits, recognised in the investor’s profit or loss for the period, unless shown separately on the face of the income statement; and
(b) the information required by Section 12 of these Principles.
10.28 For investments in subsidiaries, associates and jointly controlled entities accounted for under the equity method an investor shall disclose separately:
(a) its share of the profit or loss of the investees, unless shown separately on the face of the income statement;
(b) its share of changes recognised directly in the equity of the investee in accordance with paragraph 10.15, unless shown separately on the statement of changes in equity;
(c) its share of discontinued operations;
(d) the carrying amount of those investments; and
(e) the information required by Section 12 of these Principles.
10.29 An investor shall give a reconciliation of the carrying amount at the beginning and end of the period, showing the following separately for investments in subsidiaries, associates and jointly controlled entities:
(a) additions; (b) disposals;
(c) impairment losses recognised or reversed in profit or loss during the period;
(d) share of profit or loss on investments in subsidiaries, associates and jointly controlled entities accounted for under the equity method;
(e) distributions received from subsidiaries, associates and jointly controlled entities accounted for under the equity method;
(f) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency (see Section 19 of these Principles); and
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(g) other changes.
10.30 For all investments in subsidiaries, associates and jointly controlled entities an investor shall disclose, in relation to each significant subsidiary, associate and jointly controlled entity:
(a) the name of the entity; (b) the legal form;
(c) if the entity is incorporated outside Malta, the country in which it is incorporated;
(d) if it is unincorporated, the address of its principal place of business; (e) the identity and proportion of the nominal value of each class of
shares held;
(f) if different from (e) above, the proportion of voting power held; and
(g) the amount of capital and reserves.
10.31 For each significant subsidiary, associate and jointly controlled entity
accounted for under the cost method an investor shall disclose:
(a) the profit or loss for the latest financial period for which financial statements have been prepared;
(b) the financial reporting framework under which those financial statements have been prepared (for example International Financial Reporting Standards); and
(c) whether those financial statements have been audited.
10.32 An entity shall also disclose:
(a) For subsidiaries and associates, the nature and extent of any significant restrictions on the ability of the subsidiaries and associates to transfer funds to the investor in the form of cash dividends, or repayment of loans or advances.
(b) In respect of associates the investor shall disclose:
(i) its share of the contingent liabilities of an associate incurred
jointly with other investors; and

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(ii) those contingent liabilities that arise because the investor is
severally liable for all or part of the liabilities of the associate
10.33 A venturer shall disclose the aggregate amount of the following contingent liabilities, unless the probability of loss is remote, separately from the amount of other contingent liabilities:
(a) any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities that have been incurred jointly with other venturers;
(b) its share of the contingent liabilities of the joint ventures themselves
for which it is contingently liable; and
(c) those contingent liabilities that arise because the venturer is
contingently liable for the liabilities of the other venturers of a joint venture.
10.34 A venturer shall disclose the aggregate amount of the following commitments in respect of its interests in joint ventures separately from other commitments:
(a) any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital commitments that have been incurred jointly with other venturers; and
(b) its share of the capital commitments of the joint ventures themselves.

11.1 An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
(a) it is separable, i.e. it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or
(b) it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Acquired intangible assets – Recognition and Measurement at recognition

11.2 An intangible asset shall be recognised if, and only if:
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(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
(b) the cost of the asset can be measured reliably.
11.3 An intangible asset purchased with a business shall be recognised separately from the purchased goodwill if its fair value can be measured reliably as required by paragraph 22.7(c) of these Principles. The probability recognition criterion is always considered satisfied for intangible assets that are separately acquired. In a business combination, an acquirer recognises at the acquisition date separately from goodwill an intangible asset of the acquiree if the asset’s fair value can be measured reliably, irrespective of whether the asset had been recognised by the acquiree before the business combination. Therefore, the probability recognition criterion is always considered to be satisfied for intangible assets acquired in business combinations because the effect of probability that the future economic benefits embodied in the asset will flow to the entity is reflected in the fair value measurement of the intangible asset.
11.4 An intangible asset shall be measured initially at cost. The cost of a separately acquired intangible asset comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; and
use.
(b) any directly attributable cost of preparing the asset for its intended
If an intangible asset is acquired in a business combination, the cost of that
intangible asset is its fair value at the acquisition date.
11.5 The nature of intangible assets is such that, in many cases, there are no additions to such an asset or replacements of part of it. Accordingly, most subsequent expenditures are likely to maintain the expected future economic benefits embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria in these Principles.

Internally-generated intangible assets – Recognition and Measurement at recognition

11.6 The creation of internally-generated intangible assets involves a research phase and a development phase. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense in the period in which it is incurred. An intangible asset arising from development (or from the development phase of an internal project) shall be recognised if, and only if, an entity can demonstrate all the following:

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(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(b) its intention to complete the intangible asset and use or sell it; (c) its ability to use or sell the intangible asset;
(d) how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;
(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
(f) its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
11.7 The cost of an internally-generated intangible asset for the purpose of paragraph 11.4 is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 11.2 and 11.6 of these Principles.
11.8 The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs would typically include costs of materials and services used, staff costs arising from the generation of the intangible asset and fees payable to register a legal right.

Recognition as an expense

11.9 An entity shall recognise expenditure on an intangible item as an expense when it is incurred unless it forms part of the cost of an intangible asset that meets the recognition criteria.
11.10 An entity shall recognise expenditure on the following items as an expense and shall not recognise such expenditure as intangible assets:
(a) internally generated brands, mastheads, publishing titles, customer lists and items similar in substance;
(b) expenditure on start-up activities (i.e. start-up costs), unless this expenditure is included in the cost of an item of property, plant and equipment. Start-up costs may consist of establishment costs such as legal and secretarial costs incurred in establishing a legal entity, expenditure to open a new facility
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or business (i.e. pre-opening costs) or expenditure for starting new operations or launching new products or processes (i.e. pre-operating costs);
(c) expenditure on training activities;
(d) expenditure on advertising and promotional activities; and
(e) expenditure on relocating or reorganising part or all of an entity.

Intangible assets – Measurement after recognition

11.11 After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses. To determine whether an intangible asset is impaired, an entity applies Section 12. That Section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset and when it recognises or reverses an impairment loss.
11.12 The cost less estimated residual value of an intangible asset shall be amortised and allocated on a systematic basis over the asset’s useful life. The residual value of an intangible asset shall be assumed to be zero unless there is a commitment by a third party to purchase the asset at the end of its useful life. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management, and shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Section 24 and the date that the asset is derecognised.
11.13 The amortisation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisation charge for each period shall be recognised in profit or loss unless it is included in the carrying amount of another asset.
11.14 An intangible asset’s useful life and any residual value shall be reviewed regularly and, when necessary, revised. On revision, the carrying amount of the intangible asset at the date of revision, less the revised residual value, shall be amortised over the revised remaining useful life. Such a change shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles.
11.15 An entity shall review the amortisation method regularly. A change from one amortisation method to another is permissible only on the grounds that the new method will give a fairer presentation of the results and of the financial position. Such a change does not, however, constitute a change of accounting policy; the carrying amount of the intangible asset is amortised using the revised method

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over the remaining useful life, beginning in the period in which the change is made. A change in the amortisation method shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles.
11.16 Intangible assets shall not be revalued.

Disclosure

11.17 An entity shall disclose the following for each class of intangible assets, distinguishing between internally-generated intangible assets and other intangible assets:
(a) the useful lives or the amortisation rates used; (b) the amortisation methods used;
(c) the gross carrying amount and accumulated amortisation (aggregated with any accumulated impairment losses) at the beginning and end of the period;
(d) having regard to paragraph 4.7(b) of these Principles, a reconciliation of the carrying amount at the beginning and end of the period showing:
(i) additions, indicating separately those from internal development, those acquired separately, and those acquired through business combinations;
(ii) transfers to assets held for sale;
(iii) impairment losses recognised in profit or loss during the period;
(iv) impairment losses reversed in profit or loss during the period; (v) amortisation recognised during the period;
(vi) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency (see section 19 of these Principles); and
(vii) other changes in the carrying amount during the period.
11.18 A class of intangible assets is a grouping of assets of a similar nature and
use in an entity’s operations. Examples of separate classes may include:

operating rights;
(f) recipes, formulae, models, designs and prototypes; and
(g) intangible assets under development.
The classes mentioned above are disaggregated (aggregated) into smaller (larger) classes if this results in more relevant information for the users of the financial statements.
11.19 Section 5 of these Principles requires an entity to disclose the nature and amount of a change in an accounting estimate that has a material effect in the current period or is expected to have a material effect in subsequent periods. Such disclosure may arise from changes in:
(a) the assessment of an intangible asset’s useful life; (b) the amortisation method; or
(c) residual values.
11.20 The entity shall also disclose:
(a) the existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities; and
(b) the amount of contractual commitments for the acquisition of intangible assets.

12.1 This Section shall be applied in accounting for the impairment of the following assets:
(a) property, plant and equipment;

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(b) investment property measured under the cost model in accordance with paragraph 8.5 of these Principles;
(c) intangible assets; (d) goodwill; and
(e) investments in subsidiaries, associates and jointly controlled
entities.
12.2 This Section does not apply to investments within the scope of Section 9 and financial assets within the scope of Section 18. Those Sections contain separate provisions that prescribe when and how an impairment loss on investments or financial assets is to be determined, recognised and reversed.

Recognising and measuring an impairment loss on individual assets

12.3 An entity shall assess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset.
12.4 The recoverable amount of an asset (or a group of assets) is the higher of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset. Estimating the value in use of an asset involves the following steps:
(a) estimating the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal; and
(b) applying the appropriate discount rate to those future cash flows.
12.5 In measuring value in use an entity shall:
(a) base cash flow projections on reasonable and supportable assumptions that represent management’s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset.
(b) base cash flow projections on the most recent financial budgets/ forecasts approved by management. Such projections shall cover a maximum period of five years, unless a longer period can be justified.
12.6 To give effect to the principle in paragraph 12.4(a) an entity shall include the following when estimating future cash flows:

the cash inflows from continuing use of the asset (including cash outflows
to prepare the asset for use) and can be directly attributed, or allocated on a reasonable and consistent basis, to the asset; and
(c) net cash flows, if any, to be received (or paid) for the disposal of the
asset at the end of its useful life.
12.7 To give effect to the principle in paragraph 12.4(b) an entity shall apply a pre-tax discount rate that reflects current market assessments of:
(a) the time value of money; and
(b) the risks specific to the asset for which the future cash flow estimates
have not been adjusted.
12.8 If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss.
12.9 An impairment loss shall be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Section of these Principles (for example, in accordance with the revaluation model in Section 7). Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Section.
12.10 After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

Recognising and measuring an impairment loss on a group of assets and goodwill

12.11 If an entity cannot estimate the recoverable amount for an individual asset, the entity shall measure the recoverable amount for the group of assets to which the asset belongs. For this purpose, recoverable amount shall be estimated for the smallest identifiable group of assets that:
(a) generates cash inflows from continuing use that are largely independent of the cash flows from other assets or groups of assets;
(b) includes the asset for which impairment is indicated; and
(c) the recoverable amount of which can be estimated reliably.

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For the purpose of determining the recoverable amount of a group of assets, the principles in paragraphs 12.4 – 12.7 shall apply and any reference to ‘an asset’ therein shall be construed as being a reference to ‘a group of assets’.
12.12 Goodwill does not generate cash flows to an entity that are independent of the cash flows of other assets. As a consequence the recoverable amount of goodwill must be derived from measurement of the recoverable amount of the larger group of assets of which the goodwill is a part.
12.13 An impairment loss shall be recognised for a group of assets (to which goodwill could have been allocated) if, and only if, the recoverable amount of the group of assets is less than its carrying amount. The impairment loss shall be allocated to reduce the carrying amount of the assets of the group in the following order:
(a) first, to reduce the carrying amount of any goodwill allocated to the group; and
(b) then, to the other non-cash assets of the group pro-rata on the basis of the carrying amount of each asset.
These reductions in carrying amounts shall be treated as impairment losses on individual assets and recognised accordingly.

Reversing an impairment loss

12.14 An entity shall assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset or the group of assets to which the asset belongs if an entity cannot estimate the recoverable amount for the individual asset.
12.15 An impairment loss recognised in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset shall, except as described in paragraph 12.16, be increased to its recoverable amount. That increase is a reversal of an impairment loss.
12.16 The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years.
12.17 A reversal of an impairment loss for an asset other than goodwill shall be
recognised immediately in profit or loss, unless the asset is carried at revalued amount
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in accordance with another section of these Principles (for example, in accordance with the revaluation model in Section 7). Any reversal of an impairment loss of a revalued asset shall be treated as a revaluation increase in accordance with that other Section. A reversal of an impairment loss for a group of assets shall be allocated to the non-cash assets of the group, except for goodwill, pro-rata with the carrying amounts of those assets. These increases in carrying amounts shall be treated as reversals of impairment losses for individual assets and recognised accordingly.
12.18 After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
12.19 An impairment loss recognised for goodwill shall not be reversed in a subsequent period.

Disclosure

12.20 An entity shall disclose the following for each class of assets:
(a) the amount of impairment losses recognised in profit or loss during the period and the line item(s) of the income statement in which those impairment losses are included;
(b) the amount of reversals of impairment losses recognised in profit or loss during the period and the line item(s) of the income statement in which those impairment losses are reversed;
(c) the amount of impairment losses on revalued assets recognised
directly in equity during the period; and
(d) the amount of reversals of impairment losses on revalued assets
recognised directly in equity during the period.
12.21 An entity shall disclose the following for each material impairment loss recognised or reversed during the period for an individual asset, including goodwill (insofar as applicable), or a group of assets:
(a) the events and circumstances that led to the recognition or reversal of
the impairment loss;
(b) the amount of the impairment loss recognised or reversed; (c) for an individual asset, the nature of the asset;
(d) for a group of assets, a description of the group; and

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(e) whether the recoverable amount of the asset (group) is its fair value less costs to sell or its value in use.
12.22 An entity shall disclose the following information for the aggregate impairment losses and the aggregate reversals of impairment losses recognised during the period for which no information is disclosed in accordance with paragraph
12.21:
(a) the main classes of assets affected by impairment losses and the main classes of assets affected by reversals of impairment losses; and
(b) the main events and circumstances that led to the recognition of these impairment losses and reversals of impairment losses.

13.1 Government grants are assistance by government, inter-governmental agencies and similar bodies whether local, national or international, in the form of cash or transfers of assets to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. Loans at nil or low interest rate are a form of government assistance, but the benefit is not quantified by the imputation of interest, hence this benefit shall not be considered as a government grant for the scope of this Section.

Recognition

13.2 Government grants shall not be recognised until there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.
13.3 Subject to paragraph 13.2, government grants shall be recognised in the income statement so as to match them with the expenditure towards which they are intended to contribute. Any grants relating to future periods shall be recognised as deferred income.
13.4 To the extent that the grant is made as a contribution towards expenditure on a non-current asset, the entity may choose to deduct the grant from the purchase price or production cost of that asset rather than recognise it in the income statement in accordance with paragraph 13.3.
13.5 Potential liabilities to repay grants either in whole or in part in specified circumstances shall be provided for only to the extent that repayment is probable.
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The repayment of a government grant related to income and recognised as such under paragraph 13.3 shall be accounted for by setting off the repayment against any unamortised deferred income relating to the grant. Any excess shall be charged immediately to the income statement. The repayment of a grant related to a non-current asset and recognised as such under paragraph 13.4 shall be recorded by increasing the carrying amount of the asset. The cumulative additional depreciation that would have been recognised to date as an expense in the absence of the grant shall be recognised immediately as an expense.

Disclosure

13.6 An entity shall disclose the following regardless of which choice it has
made under paragraph 13.4:
(a) the accounting policy adopted for government grants, including an explanation of how the grant is presented in the financial statements;
(b) the nature and amounts of government grants recognised in the
financial statements; and
(c) where the results of the period are affected materially by the receipt of forms of government assistance other than grants, the nature of that assistance and, to the extent that the effects on the financial statements can be measured, an estimate of those effects.

14.1 A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
14.2 Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:
(a) the lease transfers ownership of the asset to the lessee by the end of the lease term;
(b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised;
(c) the lease term is for the major part of the economic life of the asset
even if title is not transferred;

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(d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and
(e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications.
14.3 Lease classification is made at the inception of the lease and is not changed during the term of the lease unless the lessee and the lessor agree to change the provisions of the lease (other than simply by renewing the lease), in which case the lease classification shall be re-evaluated.
14.4 The inception of the lease is the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease. The commencement of the lease term is the date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease (i.e. the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate).
14.5 Minimum lease payments are the payments that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:
(a) for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or
(b) for a lessor, any residual value guaranteed to the lessor by: (i) the lessee;
(ii) a party related to the lessee; or
(iii) a third party unrelated to the lessor that is financially capable
of discharging the obligations under the guarantee.
14.6 The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
14.7 A hire purchase contract is a contract for the hire of an asset that contains a provision giving the hirer an option to acquire legal title to the asset upon the fulfilment of certain conditions stated in the contract. Those hire purchase contracts which are of a financing nature shall be accounted for on a basis similar to that set out below for finance leases. Conversely, other hire purchase contracts shall be accounted for on a basis similar to that set out below for operating leases.
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Accounting by lessees

14.8 At the commencement of the lease term, lessees shall recognise finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the fair value of the leased asset. Leased assets shall be recognised, initially measured and subsequently accounted for in accordance with the applicable Sections of these Principles.
14.9 A lessee shall apportion minimum lease payments between the finance charge and the reduction of the outstanding liability. The lessee shall allocate the finance charge to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. In allocating the finance charge to periods during the lease term, a lessee may use an approximation to simplify the calculation.
14.10 The rental under an operating lease shall be charged on a straight-line basis over the lease term even if the payments are not made on such a basis, unless another systematic and rational basis is more appropriate.
14.11 Incentives to sign a lease, in whatever form they may take, shall be spread by the lessee on a straight-line basis over the lease term or, if shorter than the full lease term, over the period to the review date on which the rent is first expected to be adjusted to the prevailing market rate.
14.12 A lessee shall depreciate an asset leased under a finance lease in accordance with paragraphs 7.19 – 7.24 of these Principles, which apply to assets held as property, plant and equipment and investment property, and paragraphs 11.12
– 11.15 which apply to intangible assets. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. However, in the case of a hire purchase contract that has the characteristics of a finance lease the asset shall be depreciated over its useful life.

Accounting by lessors

14.13 Lessors shall recognise assets held under a finance lease in their balance sheets and present them as a receivable at an amount equal to the net investment in the lease.
14.14 Net investment in the lease is the gross investment in the lease discounted at the interest rate implicit in the lease. Gross investment in the lease is the aggregate of:

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(a) the minimum lease payments receivable by the lessor under a finance lease, and
(b) any unguaranteed residual value accruing to the lessor.
14.15 The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease, or a reasonable approximation thereto.
14.16 Unearned finance income is the difference between: (a) the gross investment in the lease, and
(b) the net investment in the lease.
14.17 Rental income from an operating lease shall be recognised on a straight- line basis over the period of the lease, even if the payments are not made on such a basis, unless another systematic and rational basis is more appropriate.
14.18 An asset held for use in operating leases by a lessor shall be recorded and accounted for as property, plant and equipment in accordance with Section 7, or as investment property in accordance with Section 8, or as an intangible asset in accordance with Section 11, of these Principles according to the nature of the asset.
14.19 A manufacturer or dealer lessor shall not recognise a selling profit under an operating lease. The selling profit under a finance lease shall be restricted to the excess of the fair value of the asset over the manufacturer’s or dealer’s cost less any grants receivable by the manufacturer or dealer towards the purchase, construction or use of the asset.

Sale and leaseback transactions – accounting by the seller/lessee

14.20 In a sale and leaseback transaction that results in a finance lease, any apparent profit or loss (i.e. the difference between the sale price and the previous carrying value) shall be deferred and amortised in the financial statements of the seller/lessee over the shorter of the lease term and the useful life of the asset.
14.21 In a sale and leaseback transaction that results in an operating lease:
(a) any profit or loss shall be recognised immediately, provided it is clear that the transaction is established at fair value;
(b) if the sale price is below fair value any profit or loss shall be recognised immediately, except that if the apparent loss is compensated for by future rentals at below market price it shall to that extent be deferred and amortised over the
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remainder of the lease term (or, if shorter, the period during which the reduced rentals are chargeable); or
(c) if the sale price is above fair value, the excess over fair value shall be deferred and amortised over the shorter of the remainder of the lease term and the period to the next rent review (if any).

Sale and leaseback transactions – accounting by the buyer/lessor

14.22 A buyer/lessor shall account for a sale and leaseback in the same way as other leases are accounted for, i.e. using the methods set out in paragraphs 14.13
– 14.19.

Disclosure by lessees

14.23 Disclosure shall be made of: (a) either:
(i) for each class of asset, the gross amounts of assets that are held under finance leases together with the related accumulated depreciation; or
(ii) alternatively to being shown separately from that in respect of owned assets, the information in (i) above may be integrated with it, such that the totals of gross amount, accumulated depreciation, net carrying amount and depreciation allocated for the period for each class of asset held under finance leases are included with similar amounts for owned assets. Where this alternative treatment is adopted, the net amount of assets held under finance leases and the amount of depreciation allocated for the period in respect of assets under finance leases included in the overall total shall be disclosed separately;
(b) the amounts of obligations related to finance leases (net of finance charges allocated to future periods). These shall be disclosed separately from other obligations and liabilities, either on the face of the balance sheet or in the notes; and
(c) the amount of any commitments existing at the balance sheet date in respect of finance leases that have been entered into but whose inception occurs after the year end.
14.24 In respect of operating leases, the lessee shall disclose the total of future minimum lease payments that it is committed to make, analysed into those in which the commitment expires within that year, those expiring in the second to fifth years inclusive, and those expiring over five years from the balance sheet date.

Disclosure by lessor: 14.25 Disclosure shall be made of:

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(a) the gross amounts of assets held for use in operating leases and the
related accumulated depreciation charges;
(b) the cost of assets acquired, whether by purchase or finance lease, for the purpose of letting under finance leases; and
(c) the net investment in (i) finance leases and (ii) hire purchase contracts
at each balance sheet date.

15.1 Inventories are assets:
(a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Measurement of inventories

15.2 Inventories shall be measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
15.3 The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
15.4 The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. The cost of an item of self-constructed inventory is its cost at the date when the construction or development is complete. Until that date an entity shall apply Section 7 of these Principles.
15.5 The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials
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into finished goods. An entity shall allocate fixed production overheads to the costs of conversion based on the normal capacity of the production facilities.
15.6 Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary in the production process before a further production stage;
(c) administrative overheads that do not contribute to bringing inventories
to their present location and condition; and
(d) selling costs.
15.7 To the extent that service providers have inventories, they measure them at the cost of their production. These costs consist primarily of the labour and other costs of personnel directly engaged in providing the service and attributable overheads. Labour and other costs relating to sales and general administrative personnel shall not be included. The cost of inventories of a service provider does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers.
15.8 The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs. The cost of other inventories shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity.
15.9 Where inventories are constantly being replaced and their value is not material to assessing the company’s state of affairs and their quantity, value and composition are not subject to material variation, they may be included at a fixed quantity and value.

Recognition as an expense

15.10 When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

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15.11 Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are recognised as an expense during the useful life of that asset.

Presentation and Disclosure

15.12 An entity shall disclose:
(a) the accounting policy adopted in measuring inventories;
(b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;
(c) the amount of inventories recognised as an expense during the period
(cost of goods sold) unless shown on the face of the income statement;
(d) the amount of any write-downs to net realisable value recognised as an expense in the period;
(e) the amount of any reversal of any write-downs to net realisable value recognised in the period, and a description of the circumstances or events that led to such reversal; and
(f) paragraph 15.8 requires that the carrying amount of inventory items that are ordinarily interchangeable (fungible) is determined by using the first- in, first-out (FIFO) or weighted average cost formula. Where the carrying amount of inventories determined by using such formula differs materially, at the balance sheet date, from the last known market value obtainable on the procurement market prior to the balance sheet date, the amount of that difference shall be disclosed in total by category of inventory in the notes to the financial statements.

16.1 Accounting profit is profit or loss for a period before deducting tax expense.
16.2 Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable).
16.3 Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).
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16.4 Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period. Deferred tax expense (income) is the amount of tax expense (income) included in the determination of profit or loss for the period in respect of changes in deferred tax assets and deferred tax liabilities during the period.
16.5 Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.
16.6 Deferred tax assets are the amounts of income taxes recoverable in future
periods in respect of:
(a) deductible temporary differences;
(b) the carryforward of unused tax losses; and
(c) the carryforward of unused tax credits.
16.7 Temporary differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Temporary differences may be either:
(a) taxable temporary differences, which are temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled; or
(b) deductible temporary differences, which are temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.
16.8 The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.

Recognition of deferred tax liabilities, deferred tax assets and deferred tax

16.9 An entity shall recognise a deferred tax liability for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
(a) the initial recognition of goodwill; or
(b) the initial recognition of an asset or liability which: (i) is not a business combination; and

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(ii) at the time of the transaction, affects neither accounting profit nor taxable profit (loss).
However, for all taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, a deferred tax liability shall be recognised, except to the extent that both the following conditions are satisfied:
(a) the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and
(b) it is probable that the temporary difference will not reverse in the
foreseeable future.
16.10 An entity shall recognise a deferred tax asset for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:
(a) is not a business combination; and
(b) at the time of the transaction, affects neither accounting profit nor taxable profit (loss).
However, for all deductible temporary differences associated with investments in subsidiaries and associates, and interest in joint ventures an entity shall recognise a deferred tax asset to the extent that, and only to the extent that, it is probable that:
(a) the temporary difference will reverse in the foreseeable future; and
(b) taxable profit will be available against which the temporary difference
can be utilised.
16.11 An entity shall recognise a deferred tax asset for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised.
16.12 At each balance sheet date an entity shall re-assess any unrecognised deferred tax assets, and shall recognise a previously unrecognised deferred tax asset only to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
16.13 An entity shall recognise deferred tax as income or an expense and include it in profit or loss for the period, except to the extent that the tax arises from:
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(a) a transaction or event which is recognised, in the same or a different period, directly in equity, in which case the deferred tax shall be charged or credited directly to equity; or
(b) a business combination (see paragraph 16.14 – 16.18).

Deferred tax arising from a business combination and the resulting effect on goodwill

16.14 The cost of a business combination is allocated by recognising the identifiable assets acquired and liabilities and contingent liabilities assumed at their fair values at the acquisition date. Temporary differences arise when the tax bases of the identifiable assets acquired and liabilities and contingent liabilities assumed are not affected by the business combination or are affected differently. For example, when the carrying amount of an asset is increased to fair value but the tax base of the asset remains at cost to the previous owner, a taxable temporary difference arises which results in a deferred tax liability. The resulting deferred tax liability affects goodwill (see paragraph 16.15).
16.15 In accordance with Section 22, an entity recognises any deferred tax assets (to the extent that they meet the recognition criteria in paragraph 16.10) or deferred tax liabilities resulting from a business combination as identifiable assets and liabilities at the acquisition date. Consequently, those deferred tax assets and liabilities affect goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the combination (sometime referred to as ‘negative goodwill’). However, in accordance with paragraph 16.9(a), an entity does not recognise deferred tax liabilities arising from the initial recognition of goodwill.
16.16 Goodwill arising in a business combination is measured as the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities, in accordance with paragraph 22.10 of these Principles. Very often, upon initial recognition of goodwill, a taxable temporary difference arises. This Section does not permit the recognition of the resulting deferred tax liability because goodwill is measured as a residual and the recognition of the deferred tax liability would increase the carrying amount of goodwill. Similarly, subsequent reductions in that unrecognised deferred tax liability are also regarded as arising from the initial recognition of goodwill and are therefore not recognised as required by paragraph 16.9(a).
16.17 As a result of a business combination, an acquirer may consider it probable that it will recover its own deferred tax asset that was not recognised before the business combination. For example, the acquirer may be able to utilise the benefit of its unused tax losses against the future taxable profit of the acquiree. In such cases, the acquirer recognises a deferred tax asset, but does not include it as part of the accounting for the business combination, and therefore does not take it into account in

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determining the goodwill or the amount of any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the combination (sometime referred to as ‘negative goodwill’).
16.18 If the potential benefit of the acquiree’s income tax loss carryforwards or other deferred tax assets did not satisfy the criteria for separate recognition (under paragraph 22.7 of these Principles) when a business combination is initially accounted for but is subsequently realised, the acquirer shall recognise the resulting deferred tax income in profit or loss. In addition, the acquirer shall:
(a) reduce the carrying amount of goodwill to the amount that would have been recognised if the deferred tax asset had been recognised as an identifiable asset from the acquisition date; and
(b) recognises the reduction in the carrying amount of goodwill as an expense.
However, this procedure shall not result in the creation of ‘negative goodwill’, nor shall it increase the amount previously recognised for any ‘negative goodwill’.

Recognition of current tax liabilities, current tax assets and current tax

16.19 An entity shall recognise any unpaid current tax for current and prior periods as a liability.
16.20 An entity shall recognise as an asset any amount already paid in respect of current and prior periods that exceeds the amount due for those periods.
16.21 An entity shall recognise current tax as income or an expense and include it in profit or loss for the period, except to the extent that the tax arises from:
(a) a transaction or event which is recognised, in the same or a different period, directly in equity, in which case the current tax shall be charged or credited directly to equity; or
(b) a business combination (see paragraph 16.14 – 16.18).
16.22 When an entity pays dividends to its shareholders it may be required to pay a portion of the dividends to taxation authorities, in the form of withholding tax, on behalf of shareholders. Such an amount paid or payable to taxation authorities shall be recognised in equity as part of the dividends.

Measurement

16.23 An entity shall measure current tax liabilities (assets) for the current and prior periods, and related tax expense (income), at the amount expected to be paid to
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(recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.
16.24 An entity shall measure deferred tax assets and liabilities, and related tax expense (income), at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date.
16.25 The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that would follow from the manner in which the entity expects, at the reporting date, to recover or settle the carrying amounts of its assets and liabilities. For example, if the temporary difference arises from an item of income that is expected to be taxable as a capital gain in a future period, the deferred tax liability is measured using the capital gain tax rate.
16.26 Deferred tax assets and deferred tax liabilities shall not be discounted.
16.27 An entity shall review the carrying amount of a deferred tax asset at each reporting date. An entity shall reduce the carrying amount of a deferred tax asset and increase tax expense to the extent that it is no longer probable that sufficient taxable profit will be available to allow recovery of the deferred tax asset. The entity shall reverse that reduction to the extent that it subsequently becomes probable that sufficient taxable profit will be available.

Presentation

16.28 Deferred tax assets (liabilities) shall not be classified as current assets
(liabilities).
16.29 An entity shall offset current tax assets and current tax liabilities if, and only if, the entity:
and
(a) has a legally enforceable right to set off the recognised amounts;
(b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
16.30 An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
(a) the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and
(b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:

(i) the same taxable entity; or
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(ii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
16.31 The tax expense (income) related to profit or loss shall be presented on
the face of the income statement.

Disclosure

16.32 An entity shall disclose the major components of tax expense (income)
separately.
16.33 The aggregate current and deferred tax relating to items that are charged or credited to equity shall be disclosed separately.
16.34 An entity shall disclose a numerical reconciliation between tax expense (income) and the product of accounting profit multiplied by the applicable tax rate(s), disclosing also the basis on which the applicable tax rate(s) is (are) computed.
16.35 An entity shall also disclose, in respect of each type of temporary difference, and in respect of each type of unused tax losses and unused tax credits:
(a) the amount of the deferred tax assets and liabilities recognised in the balance sheet for each period presented; and
(b) the amount of the deferred tax income or expense recognised in the income statement, if this is not apparent from the changes in the amounts recognised in the balance sheet.
16.36 In respect of discontinued operations an entity shall disclose the tax expense relating to:
(a) the gain or loss on discontinuance; and
(b) the profit or loss from the discontinued operation for the period,
together with the corresponding amounts for each prior period presented.
16.37 The following shall also be disclosed:
(a) the amount (and expiry date, if any) of deductible temporary differences, unused tax losses, and unused tax credits for which no deferred tax asset is recognised in the balance sheet; and
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(b) the amount of a deferred tax asset and the nature of the evidence
supporting its recognition when:
(i) the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and
(ii) the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the deferred tax asset relates.

17.1 A provision is a liability of uncertain timing or amount.
17.2 A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent assets occur where the inflow of economic benefits is probable, but not virtually certain.
17.3 A contingent liability is:
(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
(b) an obligation at the balance sheet date that arises from past events but is not recognised because:
(i) it is not probable that a transfer of economic benefits will be required to settle the obligation; or
(ii) the amount of the obligation cannot be measured with sufficient reliability.
17.4 This Section does not apply to deferred tax and leases, which are covered by more specific requirements of GAPSE.

Recognition and measurement of provisions

17.5 An entity shall recognise a provision only when:
(a) the entity has a present obligation as a result of a past event;
(b) it is probable (i.e. more likely than not) that the entity will be required to transfer economic benefits in settlement; and

(c) the amount of the obligation can be estimated reliably.
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17.6 The entity shall recognise the provision as a liability in the balance sheet and shall recognise the amount of the provision as an expense in profit or loss unless (a) it is part of the cost of producing inventories (see paragraph 15.3) or (b) it is included in the cost of property, plant and equipment in accordance with paragraph
7.4.
17.7 An entity shall measure a provision at the best estimate of the amount required to settle the obligation at the reporting date. When the effect of the time value of money is material, the amount of a provision shall be the present value of the amount expected to be required to settle the obligation. The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money. The risks specific to the liability should be reflected either in the discount rate or in the estimation of the amounts required to settle the obligation, but not both. Gains from the expected disposal of assets shall be excluded from the measurement of a provision. When a provision is measured at the present value of the amount expected to be required to settle the obligation, the unwinding of the discount shall be recognised as finance cost.
17.8 Where some or all of the expenditure required to settle a provision may be reimbursed by another party (e.g. through an insurance claim), the reimbursement shall be recognised, as a separate asset, only when it is virtually certain to be received if the entity settles the obligation. In the income statement, the expense relating to the provision may be presented net of the recovery.
17.9 An entity shall review provisions at each reporting date and adjust them to reflect the current best estimate of the amount that would be required to settle the obligation at that reporting date. Any adjustments to the amounts previously recognised shall be recognised in profit or loss unless the provision was originally recognised as part of the cost of inventories or property, plant and equipment.
17.10 A provision shall be used only for expenditures for which the provision was originally recognised.

Recognition and measurement of contingencies

17.11 Contingent liabilities and contingent assets shall not be recognised. Nevertheless, paragraph 22.7(c) of these Principles requires a contingent liability assumed in a business combination to be recognised if its fair value can be measured reliably. The requirements of this paragraph shall not prejudice the application of paragraph 22.7(c).
17.12 Contingent liabilities recognised separately as part of allocating the cost of a business combination are excluded from the scope of this Section. However, the
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acquirer shall disclose for those contingent liabilities the information required to be
disclosed by this Section for each class of provision.

Disclosure

17.13 For each class of provision, an entity shall disclose:
(a) a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits;
(b) an indication of the uncertainties about the amount and timing of
those outflows; and
(c) a reconciliation of the carrying amount at the beginning and the end of the financial reporting period showing;
(i) additional provisions made in the period, including increases to existing provisions;
(ii) amounts used (i.e. incurred and charged against the provision)
during the period;
(iii) unused amounts reversed during the period;
(iv) the increase during the period in the discounted amount arising
from the passage of time; and
(v) the effect of any change in the discount rate.
17.14 Unless the possibility of any outflow of resources in settlement is remote, an entity shall disclose for each class of contingent liability at the balance sheet date:
(a) a brief description of the nature of the contingent liability; and
(b) where practicable:
(i) an estimate of its financial effect (if it is impracticable to estimate the financial effect, that fact shall be stated); and
(ii) an indication of the uncertainties relating to the amount or
timing of any outflow.
17.15 In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items

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is sufficiently similar for a single statement about them to fulfil the requirements of sub-paragraphs 17.13(a), 17.13(b), 17.14(a) and 17.14(b)(ii).
17.16 Details shall be provided where any valuable security has been provided by the entity in connection with a contingent liability and if so, what.
17.17 Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent assets at the balance sheet date, and, where practicable, an estimate of their financial effect.
17.18 In extremely rare cases, disclosure of some or all of the information required by paragraphs 17.13 – 17.17 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.
17.19 Unless disclosed elsewhere as required by other Sections of these
Principles, an entity shall disclose, where practicable, the following information:
(a) the existence of any restrictions on title and the carrying amount of any assets that the entity has pledged as collateral for liabilities or contingent liabilities;
(b) the aggregate amount, or estimated amount, of capital expenditure contracted but not provided for;
(c) the aggregate amount, or estimated amount, of capital expenditure authorised but not contracted; and
(d) the nature and business purpose of any arrangements that are not included in the balance sheet, provided that the risks and rewards from such arrangements are material and insofar as the disclosure of such risks and rewards is necessary for assessing the entity’s financial position.
17.20 Details of any financial commitments that are relevant to assessing the entity’s state of affairs shall be disclosed. Any commitments concerning pensions and investments in subsidiaries, associates and jointly controlled entities shall be disclosed separately.
17.21 Particulars shall be given of any charge on the assets of the company to secure the liabilities of any other person including, where practicable, the amount secured.
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18.1 A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
18.2 A financial asset is primarily any asset that is: (a) cash;
(b) an equity instrument of another entity; or
(c) a contractual right:
(i) to receive cash or another financial asset from another entity;
or
(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity.
Financial assets covered by the definition of Investments under Section 9 of these Principles, such as equity instruments of another entity, and investments in subsidiaries, associates and joint ventures covered under Section 10 of these Principles, are accounted for in accordance with the provisions of those Sections and are therefore exempt from the requirements of this Section.
18.3 A financial liability is primarily any liability that is a contractual
obligation:
(a) to deliver cash or another financial asset to another entity; or
(b) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity.
18.4 A derivative is a financial instrument with all three of the following
characteristics:
(a) its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract;
(b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and

(c) it is settled at a future date.
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18.5 An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Recognition and Measurement at recognition

18.6 An entity shall recognise a financial asset or a financial liability on its balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument.
18.7 When a financial asset or financial liability is recognised initially, an entity shall measure it at cost (except for derivatives – see paragraph 18.8), including transaction costs that are directly attributable to the acquisition of the financial asset or the issue of the financial liability.
18.8 An entity may recognise derivatives on its balance sheet. An entity that chooses to recognise a derivative shall measure it at initial recognition at its fair value. When the fair value of a derivative at initial recognition materially differs from the initial net investment, if any, paid or received to enter into a derivative contract (i.e. the fair value of the consideration paid or received), that difference shall be recognised in the period in which it arises. Any transaction costs that are directly attributable to the acquisition or issue of the derivative shall be recognised as an expense in profit or loss.

Measurement after recognition – Financial assets and Financial liabilities (other than Derivatives)

18.9 After initial recognition an entity shall re-measure all financial assets (other than those covered by Section 9 of these Principles) to take cognisance of impairment losses.
18.10 An entity is encouraged, but not required, to measure its financial assets and liabilities which have different initial measurement and maturity amounts (e.g. attributable to transaction costs) at amortised cost using the effective interest method. The difference between the initial and maturity amounts would be amortised over the term of the instrument. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
18.11 An entity may nevertheless measure its financial assets and liabilities at the initial amounts (subject to impairment considerations in the case of financial assets) without amortising the difference between the initial and maturity amounts.
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18.12 An entity shall assess at each balance sheet date whether there is any objective evidence that a financial asset is impaired. If any such evidence exists, the entity shall determine the amount of any impairment loss.
18.13 If there is objective evidence that an impairment loss has been incurred
on a financial asset, an entity shall measure an impairment loss as follows:
(a) for a financial asset measured at amortised cost less impairment, the impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate; and
(b) for a financial asset measured at cost less impairment, the impairment loss is the difference between the asset’s carrying amount and the asset’s recoverable amount.
loss.
The amount of the impairment loss shall be recognised immediately in profit or
18.14 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed. The reversal shall not result in a carrying amount of the financial asset that exceeds what the carrying amount would have been at the date the impairment is reversed had the impairment not been recognised,. The amount of the reversal shall be recognised in profit or loss.

Measurement after recognition – Derivatives

18.15 An entity that chooses to recognise a derivative shall measure it after initial recognition at its fair value. Any increases or decreases in the fair value of a derivative shall be recognised in profit or loss in the period in which they arise. An entity applies the guidance in paragraph 9.9 of these Principles to determine the fair value of a derivative.

Debt/equity classification

18.16 A financial instrument, or its component parts, shall be classified as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement rather than its legal form. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liabilities. For example a preference share that provides for mandatory redemption by the issuer for a fixed or determinable amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability.

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18.17 Dividends relating to a financial instrument or a component that is a financial liability shall be recognised as expense in profit or loss. Distributions to holders of an equity instrument shall be debited by the entity directly to equity, net of any related income tax benefit. If an entity declares dividends after the balance sheet date, the dividends shall not be recognised as a liability at the balance sheet date.

Financial assets disclosures

18.18 An entity shall disclose:
(a) the measurement basis or bases used for determining the carrying amount of financial assets; and
(b) having regard to paragraph 4.7(e) of these Principles, an entity shall give a reconciliation of the carrying amount at the beginning and end of the period showing the following, separately for non-current (see paragraph 4.16 of these Principles) loans to subsidiaries, associates and jointly controlled entities that fall within the scope of this Section, and for other non-current loans that fall within the scope of this Section:
(i) additions; (ii) disposals;
(iii) impairment losses recognised in profit or loss during the period;
(iv) reversals of impairment losses recognised during the period; (v) the net exchange differences arising on the translation of
the financial statements from the functional currency into a different
presentation currency (see Section 19 of these Principles); and
(vi) other changes.

Financial liabilities disclosures

18.19 An entity shall disclose, separately for each class of financial
liabilities:
(a) amounts owed by the entity becoming due and payable after more than five years; and
(b) financial liabilities covered by valuable security furnished by the entity, together with an indication of the nature and form of the security given.
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Derivatives disclosures

18.20 When an entity chooses to recognise derivatives, it shall disclose the amount of gains and losses resulting from changes in the fair value of derivatives recognised in profit or loss in accordance with paragraph 18.15.
18.21 When an entity chooses not to recognise derivatives, as permitted by paragraph 18.8, it shall disclose the following:
(a) the fair value of the derivatives, if such a value can be determined by any of the following methods:
(i) a market value, for those derivatives for which a reliable market can readily be identified. Where a market value is not readily identifiable for a derivative but can be identified for its components or for a similar instrument, the market value may be derived from that of its components or of the similar instrument; or
(ii) a value resulting from generally accepted valuation models and techniques, for those derivatives for which a reliable market cannot be readily identified. Such valuation models and techniques shall ensure a reasonable approximation of the market value; and
(b) information about the extent and the nature of the derivatives.

Equity disclosures

18.22 An entity with share capital shall disclose the following, either on the
face of the balance sheet or in the notes:
(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but not fully paid;
(iii) par value per share, or that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the period showing the number allotted, their aggregate nominal value, and the consideration received by the entity for the allotment;
(v) the rights, preferences and restrictions attaching to that class

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including restrictions on the distribution of dividends and the repayment of capital;
(vi) shares in the entity held by the entity itself;
(vii) shares reserved for issue under options and contracts for the
sale of shares, including the terms and amounts;
(b) a description of each reserve within equity; and
(c) for any part of the allotted share capital that consists of redeemable
shares:
(i) the earliest and latest dates on which the company has the power to redeem those shares;
(ii) whether those shares must be redeemed in any event or are liable to be redeemed at the option of the company or of the shareholder; and
(iii) whether any (and, if so, what) premium is payable on
redemption.
18.23 The notes shall state:
(a) the aggregate amounts of dividends paid in the financial year (other than those for which a liability existed at the immediately preceding balance sheet date);
(b) the aggregate amount of dividends that the company is liable to pay at the balance sheet date; and
(c) the aggregate amount of dividends that are proposed before the date of approval of the financial statements, and not otherwise disclosed under paragraph (a) or (b) above.
18.24 If any fixed cumulative dividends on the company’s shares are in arrears, the amount of the arrears and the period for which each class of dividends is in arrears shall be disclosed.

19.1 An entity’s functional currency is the currency of the primary economic environment in which the entity operates and generates net cash flows. A foreign currency is any currency that is not the functional currency.
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19.2 An entity’s presentation currency is the currency in which its financial statements are presented, which may be regulated by relevant legislation where applicable.
19.3 Monetary items are money held and assets and liabilities to be received or paid in a fixed or determinable amount of money.

Determining the functional currency

19.4 An entity shall identify its functional currency.
19.5 The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. The following are the most important factors an entity considers in determining its functional currency:
(a) the currency:
(i) that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and
(ii) of the country whose competitive forces and regulations mainly
determine the sales prices of its goods and services.
(b) the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).
19.6 The following factors may also provide evidence of an entity’s functional currency:
(a) the currency in which funds from financing activities (i.e. issuing debt and equity instruments) are generated.
(b) the currency in which receipts from operating activities are usually
retained.
19.7 The following additional factors are considered in determining the functional currency of a foreign operation, and whether its functional currency is the same as that of the reporting entity (the reporting entity, in this context, being the entity that has the foreign operation as its subsidiary, branch, associate or joint venture):
(a) whether the activities of the foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy. An example of the former is when the foreign operation

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only sells goods imported from the reporting entity and remits the proceeds to it. An example of the latter is when the operation accumulates cash and other monetary items, incurs expenses, generates income and arranges borrowings, all substantially in its local currency.
(b) whether transactions with the reporting entity are a high or a low proportion of the foreign operation’s activities.
(c) whether cash flows from the activities of the foreign operation directly affect the cash flows of the reporting entity and are readily available for remittance to it.
(d) whether cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without funds being made available by the reporting entity.
19.8 As noted in paragraph 19.1, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions, such as a change in the currency in which those underlying transactions, events and conditions are denominated.
19.9 When there is a change in an entity’s functional currency, the entity shall account for the effect of the change in functional currency prospectively from the date of the change. In other words, an entity translates all items into the new functional currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as their historical cost.

Reporting foreign currency transactions in the functional currency

19.10 When a transaction qualifies for recognition in accordance with these Principles, and such a transaction is denominated in a foreign currency, an entity shall record it by applying to the foreign currency amount the spot exchange rate, between the functional currency and the currency in which the transaction is denominated, at the date on which the transaction first qualifies for recognition. For practical reasons, unless the relevant exchange rate or rates fluctuate significantly, a rate that approximates the actual rate at the date of the transaction is often used, for example, an average rate for a week or a month may be used for all transactions in each foreign currency occurring during that period.
19.11 At each balance sheet date, an entity shall:
(a) translate foreign currency monetary items using the closing rate;
(b) translate non-monetary items that are measured in terms of historical
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cost in a foreign currency using the exchange rate at the date of the transaction;
and
(c) translate non-monetary items that are measured at fair value in a foreign currency using the exchange rate at the date when the fair value was determined.
19.12 Except as described in paragraph 19.15, an entity shall recognise, in profit or loss in the period in which they arise, exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements.
19.13 When a gain or loss on a non-monetary item is recognised directly in equity, an entity shall recognise any exchange component of that gain or loss directly in equity. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, an entity shall recognise any exchange component of that gain or loss in profit or loss.

Net investment in a foreign operation

19.14 An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net investment in that foreign operation, and is accounted for in accordance with paragraph 19.15. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables.
19.15 Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation (see paragraph 19.14) shall be recognised in profit or loss in the individual financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. In the financial statements that include the foreign operation and the reporting entity (for example, consolidated financial statements when the foreign operation is a subsidiary), such exchange differences shall be recognised initially in a separate component of equity and recognised in profit or loss on disposal of the net investment in accordance with paragraph 19.19.

Use of a presentation currency other than the functional currency

19.16 If an entity’s presentation currency differs from its functional currency, that entity shall translate its results and financial position into the presentation currency, using the following procedures:
(a) assets and liabilities for each balance sheet presented (i.e. including comparatives) shall be translated at the closing rate at the date of that balance sheet;

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(b) income and expenses for each income statement (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions. If exchange rates between the functional and presentation currencies do not fluctuate significantly, an entity may use a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period; and
(c) all resulting exchange differences shall be recognised as a separate component of equity.

Translation of a foreign operation into the investor’s presentation currency

19.17 In incorporating the results and financial position of a foreign operation with those of the reporting entity (for example by consolidation or the equity method), the entity shall translate the results and financial position of the foreign operation into the reporting entity’s presentation currency by applying the requirements of paragraph
19.16 of these Principles. Where the foreign operation is to be consolidated, the reporting entity shall subsequently follow normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a subsidiary (see Section 23 Consolidated Financial Statements). However, an intragroup monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements. This is because the monetary item represents a commitment to convert one currency into another and exposes the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements of the reporting entity, an entity continues to recognise such an exchange difference in profit or loss or, if it arises from the circumstances described in paragraph 19.15, the entity shall classify it as equity until the disposal of the foreign operation.
19.18 Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus, they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate in accordance with paragraph 19.16.
19.19 On the disposal of a foreign operation, the cumulative amount of the exchange differences deferred in the separate component of equity relating to that foreign operation shall be recognised in profit or loss when the gain or loss on disposal is recognised.

Disclosure

19.20 For items included in the financial statements which are or were originally denominated in a foreign currency, an entity shall disclose the bases of conversion used to express them in the functional currency.
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19.21 An entity shall disclose:
(a) the amount of exchange differences recognised in profit or loss; and
(b) net exchange differences classified in a separate component of equity, for instance in accordance with paragraph 19.13, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.
19.22 An entity shall disclose the currency in which the financial statements are presented. When the presentation currency is different from the functional currency, an entity shall state that fact and shall disclose the functional currency and the reason for using a different presentation currency.
19.23 When there is a change in the entity’s functional currency the entity shall disclose that fact and the reason for the change in functional currency.

20.1 Post balance sheet events are those events, favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue. There are two types of events:
(a) Adjusting events are those that provide evidence of conditions that
existed at the balance sheet date; and
(b) Non-adjusting events are those that are indicative of conditions that arose after the balance sheet date.

Recognition and Measurement

20.2 An entity shall adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the balance sheet date. When adjusting the amounts recognised in the financial statements, an entity shall have regard to the recognition, measurement and disclosure requirements in the relevant sections of these Principles. Examples of adjusting events are:
(a) the settlement, after the balance sheet date, of a court case that confirms that the entity had a present obligation at the balance sheet date, in which case an entity shall recognise a corresponding liability and shall adjust the amount previously recognised as provisions in accordance with Section 17 of these Principles; and
(b) the receipt of evidence after the balance sheet date that indicates that an asset was impaired at the balance sheet date, such as a customer being declared bankrupt or inventories being sold at an amount that is lower than their previously recognised net realisable value. In such case an entity shall

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recognise an impairment loss, or adjust a previously recognised impairment loss, in accordance with Sections 12 and 15 of these Principles.
20.3 An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the balance sheet date. Nevertheless, if non-adjusting events after the balance sheet date are material, non-disclosure could influence the economic decisions of users taken on the basis of the financial statements hence disclosures may need to be given in accordance with this section. Examples of non-adjusting events are a decline in market value of investments between the balance sheet date and the date when the financial statements are authorised for issue, or an entity declaring dividends to holders of equity instruments after the balance sheet date.

Disclosure

20.4 An entity shall disclose the date on which the financial statements were
authorised for issue and who gave that authorisation.
20.5 An entity shall disclose the following for each material category of non-
adjusting event after the balance sheet date:
(a) the nature of the event; and
(b) an estimate of its financial effect, or a statement that such an estimate
cannot be made.

21.1 A party is related to an entity if:
(a) it is a parent, subsidiary, or fellow subsidiary of the entity, or it controls (including an individual), or is controlled by, or is under common control with, the entity;
(b) it is an associate, or has an interest in the entity that gives it (including an individual) significant influence;
(c) it is a joint venture in which the entity is a venturer, or it (including an individual) has joint control over the entity;
(d) it is a director of the entity or of its parent;
(e) it is a close family member of any individual referred to in (a) to (d)
above who may influence, or be influenced by, that individual; or
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(f) it is an entity that is controlled, jointly controlled or significantly influenced by any individual referred to in (d) and (e).
21.2 The following are not necessarily related parties:
(a) two entities simply because they have a director in common, notwithstanding (d) and (f) of paragraph 21.1;
(b) two venturers simply because they share joint control over a joint venture;
(c) any of the following simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision making process):
(i) providers of finance, (ii) trade unions,
(iii) public utilities, and
(iv) government departments and agencies,
(d) a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence.
21.3 A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.

Disclosure

21.4 Relationships between parents and subsidiaries shall be disclosed irrespective of whether there have been transactions between those related parties. Thus an entity shall always disclose, where applicable, the name of its immediate parent and, if different, the name of the ultimate parent. If neither the entity’s immediate parent nor its ultimate parent produces consolidated financial statements available for public use, the entity shall also disclose the name of the next most senior parent that produces such financial statements. The next most senior parent is the first parent in the group, above the immediate parent, that produces consolidated financial statements available for public use.
21.5 An entity shall disclose the following in relation to members of the entity’s board of directors:

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(a) the amount of the emoluments granted in respect of the financial reporting period in the form of employee benefits, post employment benefits, other long term benefits and termination benefits;
(b) any benefits granted, any commitments or any retirement pension commitments (where applicable) entered into, with respect to former members of the board of directors;
(c) the amount of advances and credits granted with indications of the
interest rates, main conditions and any amounts repaid; and
(d) any commitments entered into on their behalf by way of guarantees of any kind.
21.6 If there have been transactions between related parties, except as provided for in paragraph 21.7, an entity shall disclose the nature of the related party relationships as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationships on the financial statements. These disclosure requirements are in addition to those required by paragraph 21.5. As a minimum, disclosures shall include:
(a) the amount of the transactions in aggregate for each significant category of transactions, except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity;
(b) the amount of outstanding balances in aggregate and:
(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of outstanding
balances; and
(d) the expense recognised during the period in respect of bad or doubtful
debts due from related parties.
21.7 An entity which forms part of a larger group is encouraged, but not required, to disclose the information required in paragraph 21.6 in relation to transactions with entities that form part of the same group to which the entity belongs, provided that the entity and all such related entities are consolidated in consolidated financial statements that are available for public use.
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22.1 This Section shall be applied by a parent in accounting for its investments in subsidiaries, associates and joint ventures in the consolidated financial statements, if any, that present the financial results of the parent and its subsidiaries, associates and joint ventures as those of a single economic entity in accordance with Section 23 of these Principles. This Section shall not be applied by an investor in accounting for its investments in subsidiaries, associates and joint ventures in its individual financial statements (as defined in paragraph 10.1), the accounting for which is specifically covered in Section 10 of GAPSE.
22.2 A business combination is the bringing together of separate entities or businesses into one reporting entity. The result of nearly all business combinations is that one entity, the acquirer, obtains control of one or more other separate businesses, individually referred to as ‘the acquiree’. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. Control is defined in paragraph
10.3 of these Principles.
22.3 The acquirer is the combining entity that obtains control of the other
combining entities or businesses.

Method of accounting

22.4 All business combinations shall be accounted for by applying the purchase method. Applying the purchase method involves the following steps:
(a) identifying an acquirer;
(b) measuring the cost of the business combination; and
(c) allocating, at the acquisition date, the cost of the business combination
to the assets acquired and liabilities and contingent liabilities assumed.
22.5 The acquirer shall measure the cost of a business combination as the aggregate of:
(a) the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree; plus
(b) any costs directly attributable to the business combination.
22.6 The acquirer shall, at the acquisition date, allocate the cost of a business combination by recognising the acquiree’s identifiable assets and liabilities and those contingent liabilities that satisfy the recognition criteria at their fair values at that date, except for non-current assets (or disposal groups) that are classified as held for

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sale, which shall be recognised at fair value less costs to sell. Any difference between the cost of the business combination and the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities so recognised shall be accounted for in accordance with paragraphs 22.9 – 22.17.
22.7 The acquirer shall recognise separately the acquiree’s identifiable assets, liabilities and contingent liabilities at the acquisition date only if they existed at that date and if they satisfy the following criteria at that date:
(a) in the case of an asset other than an intangible asset, it is probable that any associated future economic benefits will flow to the acquirer, and its fair value can be measured reliably;
(b) in the case of a liability other than a contingent liability, it is probable that an outflow of resources will be required to settle the obligation, and its fair value can be measured reliably; and
(c) in the case of an intangible asset or a contingent liability, its fair value can be measured reliably.
22.8 The acquirer’s income statement shall incorporate the acquiree’s profits and losses after the acquisition date by including the acquiree’s income and expenses based on the cost of the business combination to the acquirer. For example, depreciation expense included after the acquisition date in the acquirer’s income statement that relates to the acquiree’s depreciable assets shall be based on the fair values of those depreciable assets at the acquisition date, i.e. their cost to the acquirer.

Goodwill – Recognition and Measurement at recognition

22.9 Internally generated goodwill shall not be recognised.
22.10 The acquirer shall, at the date of acquisition of a business:
and
(a) recognise goodwill acquired in a business combination as an asset;
(b) initially measure that goodwill at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised in accordance with paragraph 22.7.
22.11 If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised in accordance with paragraph 22.7 exceeds the cost of the business combination (sometimes referred to as ‘negative goodwill’), the acquirer shall:
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(a) reassess the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and
(b) recognise immediately in profit or loss any excess remaining after
that reassessment.

Goodwill – Measurement after recognition

22.12 After initial recognition, goodwill shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses. To determine whether goodwill is impaired, an entity applies Section 12 of these Principles. That Section explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Because goodwill does not generate cash flows independently of other assets or groups of assets, it is necessary to allocate goodwill to the group (groups) of assets that is (are) expected to benefit from the synergies of the business combination for the purpose of estimating its recoverable amount. Any resulting impairment losses shall be recognised in accordance with paragraph 12.11
– 12.13 of these Principles.
22.13 The residual value assigned to goodwill shall be zero.
22.14 An entity shall amortise goodwill on a straight-line basis over its useful life, which shall not exceed 20 years. The amortisation charge for each period shall be recognised in profit or loss.
22.15 The useful life of goodwill shall be reviewed regularly and revised if necessary, subject to the constraint that the revised useful life shall not exceed 20 years from the date of acquisition. The carrying amount at the date of revision shall be amortised over the revised estimate of remaining useful life. Such a change shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles.
22.16 Goodwill shall not be revalued.
22.17 An impairment loss recognised for goodwill shall not be reversed in a subsequent period.

Disclosure

22.18 For each business combination (or group of individually immaterial business combinations) that was (were) effected during the period, the acquirer shall disclose the following:
(a) the names and descriptions of the combining entities or businesses;

(b) the acquisition date;
(c) the percentage of voting equity instruments acquired;
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(d) the cost of the combination and a description of the components of that cost, including any costs directly attributable to the combination. When equity instruments are issued or issuable as part of the cost, the following shall also be disclosed:
(i) the number of equity instruments issued or issuable; and
(ii) the fair value of those instruments and the basis for determining
that fair value;
(e) details of any operations the entity has decided to dispose of as a result of the combination;
(f) the amounts recognised at the acquisition date for each class of the
acquiree’s assets, liabilities and contingent liabilities, including goodwill;
(g) the amount of any excess recognised in profit or loss in accordance with paragraph 22.11, and the line item in the income statement in which the excess is recognised;
(h) a description of the factors that contributed to a cost that results in the recognition of goodwill – a description of each intangible asset that was not recognised separately from goodwill and an explanation of why the intangible asset’s fair value could not be measured reliably (see paragraph 11.3 of these Principles) – or a description of the nature of any excess recognised in profit or loss in accordance with paragraph 22.11; and
(i) the amount of the acquiree’s profit or loss since the acquisition date included in the acquirer’s profit or loss for the period, unless disclosure would be impracticable. If such disclosure would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
22.19 For each business combination effected after the end of the reporting period but before the financial statements are authorised for issue, the acquirer shall make the disclosures required by paragraph 22.18 unless such disclosure would be impracticable. If disclosure of any of that information would be impracticable, that fact shall be disclosed, together with an explanation of why this is the case.
22.20 Having regard to paragraph 4.7(c) of these Principles, in respect of all business combinations, an acquirer shall disclose a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period, showing separately:
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(a) the gross amount and accumulated amortisation and impairment
losses at the beginning of the period;
(b) changes arising from new business combinations, impairment losses, disposals of previously acquired businesses, and other changes; and
(c) the gross amount and accumulated amortisation and impairment losses at the end of the period.

23.1 Consolidated financial statements are the financial statements of a group presented as those of a single economic entity.
23.2 Entities that prepare consolidated financial statements may apply this Section if, and only if, the group does not exceed any of the following criteria in the immediately preceding two consecutive financial years:
(a) total revenue (as defined in paragraph (b) of sub-regulation (2) of regulation 5 of these regulations): thirty-five million euro (€35,000,000) computed net, or forty-two million euro (€42,000,000) computed gross;
(b) balance sheet total (as defined in paragraph (a) of sub-regulation (2) of regulation 5 of these regulations): seventeen million and five hundred thousand euro (€17,500,000) computed net, or twenty-one million euro (€21,000,000) computed gross;
(c) employees (as determined in accordance with paragraph (c) of sub-regulation (2) of regulation 5 of these regulations): two hundred and fifty (250).
For the avoidance of doubt, the determination of thresholds computed gross shall mean that the group revenue and balance sheet shall be computed without any set-offs and other adjustments that would be required for the preparation of consolidated financial statements. Determination of thresholds computed net shall mean that group revenue and balance sheet shall be computed after such adjustments have been effected.
23.3 If, in certain circumstances, one or more of the subsidiaries to be consolidated are prohibited from applying GAPSE in the preparation of their individual financial statements, the group’s consolidated financial statements may nevertheless be prepared in accordance with this Section (subject to the overriding principle in paragraph 23.2) provided that the following information is disclosed in the consolidated financial statements:

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(a) the fact that a subsidiary (subsidiaries) has (have) prepared financial statements in accordance with a financial reporting framework other than GAPSE;
(b) the name (names) of the relevant subsidiary (subsidiaries); and
(c) the financial reporting framework under which those financial
statements have been prepared.

Consolidation procedures

23.4 The consolidated financial statements present financial information about the group as a single economic entity. In preparing consolidated financial statements, an entity shall:
(a) combine the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses;
(b) eliminate the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary;
(c) measure minority interests in the profit or loss of consolidated subsidiaries for the reporting period separately from the parent shareholders’ interest; and
(d) measure minority interests in the net assets of consolidated subsidiaries separately from the parent shareholders’ equity in them. Minority interests in the net assets consist of:
(i) the amount of those minority interests at the date of the original combination; and
(ii) the minority’s share of changes in equity since the date of the
combination.
23.5 When potential voting rights exist (such as voting rights that would result from exercise of share options or warrants or from conversion of convertible securities), the proportions of profit or loss and changes in equity allocated to the parent and minority interests are determined on the basis of existing ownership interests and do not reflect the possible exercise or conversion of potential voting rights.
23.6 Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are
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eliminated in full. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements.
23.7 The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall be prepared as of the same reporting date. When the reporting dates of the parent and a subsidiary are different, the subsidiary prepares, for consolidation purposes, additional financial statements as of the same date as the financial statements of the parent unless it is impracticable to do so.
23.8 Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events and conditions in similar circumstances. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.
23.9 The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date. The income and expenses of a subsidiary are included in the consolidated financial statements until the date on which the parent ceases to control the subsidiary. The difference between the proceeds from the disposal of the subsidiary and its carrying amount as of the date of disposal, including the cumulative amount of any exchange differences that relate to the subsidiary recognised in equity in accordance with Section 19, is recognised in the consolidated income statement as the gain or loss on the disposal of the subsidiary.
23.10 If an entity ceases to be a subsidiary but the investor (former parent) continues to hold some equity shares, those shares shall be accounted for in accordance with Section 9 of these Principles from the date the entity ceases to be a subsidiary, provided that it does not become an associate or a jointly controlled entity. The carrying amount of the investment at the date that the entity ceases to be a subsidiary shall be regarded as the cost on initial measurement of an investment.
23.11 An entity shall present minority interest in the consolidated balance sheet within equity, separately from the parent shareholders’ equity.
23.12 An entity shall disclose minority interest in the profit or loss of the group separately in the income statement, as required by paragraph 4.21.
23.13 Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary’s equity. The excess, and any further losses applicable to the minority, are allocated against the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered.

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Accounting for investments in associates and jointly controlled entities in the consolidated financial statements
23.14 When an entity prepares consolidated financial statements it shall measure all its investments in associates and jointly controlled entities in its consolidated financial statements in accordance with the equity method in paragraphs
10.15 – 10.23, and shall give the disclosures required by paragraph 10.28, of these
Principles.

Disclosure

23.15 An entity’s consolidated financial statements shall include all the relevant disclosures required by the respective Sections of these Principles.

24.1 A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
(a) represents a separate major line of business or geographical area of
operations;
(b) is part of a single coordinated plan to dispose of a separate major line
of business or geographical area of operations; or
(c) is a subsidiary acquired exclusively with a view to resale.
24.2 A disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

Discontinued operations – Presentation and Disclosure

24.3 An entity shall disclose:
(a) a single amount on the face of the income statement comprising the total of:
(i) the post-tax profit or loss of discontinued operations; and
(ii) the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or group(s) of assets and liabilities constituting the discontinued operation.
(b) an analysis of the single amount in (a) into:
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(i) the revenue, expenses, pre-tax profit or loss and income tax expense of discontinued operations;
(ii) the gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or group(s) of assets constituting the discontinued operation and the related income tax expense.
The analysis may be presented in the notes or on the face of the income statement. If it is presented on the face of the income statement it shall be presented in a section identified as relating to discontinued operations, i.e. separately from continuing operations.
(c) the net cash flows attributable to the operating, investing and financing activities of discontinued operations. These disclosures may be presented either in the notes or on the face of the financial statements.
24.4 Unless impracticable, an entity shall restate the disclosures in the preceding paragraph for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the end of the reporting period for the latest period presented.
24.5 If an entity ceases to classify a component of an entity as held for sale, the entity shall reclassify the results of operations of the component previously presented in discontinued operations and shall include them in income from continuing operations for all periods presented. The amounts for prior periods shall be described as having been restated.

Non-current assets held for sale

24.6 An entity shall classify a non-current asset (including property, plant and equipment, intangibles, and investments in subsidiaries, associates and joint ventures) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, its sale must be highly probable, and the entity must expect to complete the sale within one year from the date of classification as held for sale.
24.7 An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.
24.8 An entity shall not depreciate (or amortise) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be recognised.

Non-current assets held for sale – Presentation and Disclosure

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24.9 An entity shall present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the balance sheet. The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities in the balance sheet. Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets and liabilities classified as held for sale shall be separately disclosed either on the face of the balance sheet or in the notes. An entity shall present separately any cumulative income or expense recognised directly in equity relating to a non-current asset (or disposal group) classified as held for sale.
24.10 An entity shall not reclassify or re-present amounts presented for non- current assets (or for the assets and liabilities of disposal groups) classified as held for sale in the balance sheets for prior periods to reflect the classification in the balance sheet for the latest period presented.
24.11 An entity shall disclose the following information in the period in which non-current assets have been either classified as held for sale or sold:
(a) a description of the asset or disposal group;
(b) a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal; and
(c) the gain or loss recognised, if not separately presented on the face of
the income statement.

25.1 An entity shall apply this Section upon:
(a) First-time adoption of GAPSE, i.e. when it prepares financial statements that conform to these Principles in which the entity makes an explicit and unreserved statement in those financial statements of compliance with the General Accounting Principles for Smaller Entities (GAPSE), and any of the following circumstances prevail:
(i) the entity did not present financial statements for previous periods; or
(ii) the entity presented all its previous financial statements in conformity with a financial reporting framework other than GAPSE.
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(b) Subsequent adoption of GAPSE, i.e. when the entity applied these Principles in previous financial reporting periods but presented its most recent previous financial statements in conformity with a financial reporting framework other than GAPSE. Typically this would apply when, subsequent to the occurrence of the circumstances contemplated in sub-paragraphs (i) or (ii) of paragraph (b) of sub-regulation (3) of regulation 5 of these regulations under which occurrence an entity is disqualified from applying these Principles, an entity is eligible to re-apply GAPSE in accordance with sub-regulations (6) or (7), as the case may be, of regulation 5 of these regulations and the entity opts to re-apply these Principles and prepare financial statements that conform to these Principles.

First-time adoption

25.2 Paragraph 4.1 of these Principles defines a complete set of financial
statements.
25.3 Paragraph 4.7 of these Principles requires a complete set of financial statements to show comparative amounts in respect of the previous comparable period for every item presented in the financial statements and notes thereto. An entity may present comparative information in respect of more than one comparable prior period. Therefore, the date of an entity’s transition to these Principles is the beginning of the earliest period for which the entity presents full comparative information in accordance with GAPSE in its first financial statements that conform to these Principles.
25.4 An entity shall prepare an opening GAPSE balance sheet at the date of
the transition to GAPSE. This is the starting point for its accounting under GAPSE.
25.5 An entity shall use the same accounting policies in its opening GAPSE balance sheet and throughout all periods presented in the financial statements to which paragraph 25.1 refers. Those accounting policies shall comply with the relevant Sections of these Principles.
25.6 An entity shall, in its opening balance sheet:
(a) recognise all assets and liabilities whose recognition is required by these Principles;
(b) not recognise items as assets or liabilities if these Principles do not
permit such recognition;
(c) reclassify items that it recognised under its previous financial reporting framework as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under these Principles; and

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(d) apply these Principles in measuring all recognised assets and
liabilities.
25.7 The accounting policies that an entity uses in its opening balance sheet under these Principles may differ from those that it used for the same date using its previous financial reporting framework. The resulting adjustments arise from transactions, other events or conditions before the date of transition to these Principles. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to these Principles.
25.8 If it is impracticable for an entity to restate the opening balance sheet at the date of transition in accordance with these Principles, the entity shall apply paragraphs 25.4 – 25.7 in the earliest period for which it is practicable to do so, and shall disclose the date of transition and the fact that data presented for prior periods are not comparable. If it is impracticable for an entity to provide any disclosures required by these Principles for any period before the period in which it prepares its first financial statements that conform to these Principles, the omission shall be disclosed.

Subsequent adoption

25.9 Upon subsequent adoption an entity shall apply paragraphs 25.4 – 25.7, and the term opening balance sheet shall be taken to refer to the balance sheet as at the beginning of the earliest period for which the entity presents full comparative information in accordance with these Principles in the financial statements that conform to these Principles.

Presentation and disclosure

25.10 An entity shall disclose the date of the transition to GAPSE, and shall explain whether it is a case of first-time adoption or subsequent adoption of GAPSE. In the latter case, an entity shall also disclose the date of the end of the latest financial reporting period for which the entity had previously prepared its financial statements in accordance with these Principles.
25.11 An entity shall explain how the transition from its previous financial reporting framework to these Principles affected its reported financial position and financial performance. In particular, an entity’s financial statements to which paragraph 25.1 refers shall include:
(a) reconciliations of its equity reported under its previous financial reporting framework to its equity under these Principles for both of the following dates:
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(i) the date of transition to these Principles; and
(ii) the end of the latest period presented in the entity’s most recent annual financial statements under its previous financial reporting framework; and
(b) a reconciliation of the profit or loss reported under its previous financial reporting framework for the latest period in the entity’s most recent annual financial statements to its profit or loss under these Principles for the same period.

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