FAQs

Goodwill is an intangible asset that arises under IFRS 3 during a business combination when an acquirer gains control of a subsidiary under IFRS 10. It represents the premium paid for unidentifiable economic benefits, such as reputation, customer loyalty, and staff synergies.

Goodwill has an indefinite useful life and is never amortized. Instead, it is tested for impairment at least annually.

IFRS 3 allows an explicit choice on a transaction-by-transaction basis to measure Non-Controlling Interest at the acquisition date using either:

1. Fair Value (Full Goodwill Method): NCI is valued at fair value (based on share price). This means goodwill is attributable to both the parent and to the NCI, and when there is an impairment loss the NCI participate in the loss.
2. Proportionate Share of Net Assets (Partial Goodwill Method): NCI is valued as its percentage share of the fair value of the acquiree’s identifiable net assets. Under this method, the goodwill is attributable to the parent only. This means when there is an impairment loss the NCI do not participate in the loss.

IFRS 11 classifies joint arrangements into two distinct types based on the rights and obligations of the parties:

1. Joint Operations: The parties have rights to the assets and obligations for the liabilities. Each operator recognizes its specific assets, liabilities, revenues, and expenses.
2. Joint Ventures: The parties have rights to the net assets of the arrangement. A joint venture must be accounted for using the equity method in accordance with IAS 28. Equity accounting involves recognizing the investment initially at cost and subsequently adjusting it for the post-acquisition change in the investor’s share of the net assets.

Prior period errors are omissions from, and misstatements in, an 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 those statements were authorized for issue. Under IAS 8, material prior period errors must be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by restating the comparative amounts for the prior period(s) presented or restating the opening balances of assets, liabilities, and equity.

IAS 40 allows entities to choose between two models for investment property after initial recognition at cost:

1. Cost Model: Accounted for in accordance with IAS 16 (Cost less accumulated depreciation and impairment).
2. Fair Value Model: Measured at fair value at each reporting date. Any gains or losses arising from changes in fair value must be recognized directly in profit or loss for the period in which they arise. No depreciation is charged under the fair value model.

An operating segment must be reported separately if it meets any of the following 10% quantitative thresholds under IFRS 8:

• Its reported revenue (both external and intersegment) is 10% or more of the combined revenue of all operating segments.
• The absolute amount of its reported profit or loss is 10% or more of the greater of the combined profit of all profitable segments or the combined loss of all loss-making segments.
• Its assets are 10% or more of the combined assets of all operating segments.
  At least 75% of the entity’s total external revenue must be included in reportable segments.

Under IFRS 10, an investor controls an investee if, and only if, the investor has all three of the following elements:

1. Power over the investee (the current ability to direct the relevant activities that significantly affect the investee’s returns).
2. Exposure, or rights, to variable returns from its involvement with the investee.
3. The ability to use its power over the investee to affect the amount of the investor’s returns (a link between power and returns).

It is necessary to consider all the circumstances including potential shares and the size and dispersion of the other holdings. Please note that this means that the definition of a subsidiary is not a number as it is possible to control a compnay and account for it as a subsidiary with an investment of less than 50%.

IAS 23 mandates that borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset must be capitalized as part of the cost of that asset. A qualifying asset is one that takes a substantial period of time to get ready for its intended use or sale. Capitalization commences when expenditures and borrowing costs are being incurred and activities to prepare the asset are underway. It must be suspended during extended periods of interrupted development and cease when the asset is substantially complete.

IAS 20 specifies that government grants must not be recognized until there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. They are recognized in profit or loss on a systematic basis over the periods in which the entity recognizes the related costs.

• Capital Grants: Presented either as deferred income or by deducting the grant from the carrying amount of the asset.
• Revenue Grants: Credited directly to profit or loss under a general heading or deducted from the related expense.

An asset must be classified as held for sale under IFRS 5 if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The asset must be available for immediate sale in its present condition, and the sale must be highly probable. Highly probable means management is committed to a plan, an active program to locate a buyer has begun, the asset is marketed at a reasonable price, and the sale is expected to complete within one year from the date of classification.