SME FRS and Other Updates - Nelson CPA Limited | · SME‐FRS and Other Updates 27 November 2014 ... Assets between an Investor and its Associate or Joint Venture • Annual Improvements

1

2014 Nelson Consulting Limited 1

SMEFRSandOtherUpdates27November2014

LAMChiYuenNelsonMBAMScBBAACAACSCFACGMACPA(US)CTAFCCAFCPAFCPA(Aust.)FHKIoD FTIHKMHKSIMSCA


Effectivefor2015Dec.YearEnd

AmendmentstoHKAS19(2011) EmployeeBenefits DefinedBenefitPlans:EmployeeContributions

AnnualImprovements20102012Cycle AnnualImprovements20112013Cycle SMEFRFandSMEFRS(Revised2014)(pursuanttotheNewCompaniesOrdinance(Cap.622)effectivefrom3Mar.2014)

1Jul. 2014

1Jul. 2014(orother) 1Jul. 2014(orother) 3Mar. 2014(earlyapplicationnotallowed)

Selected new interpretations and amendments to HKFRSs

Effective for periods beginning on/after

UpdatedtoHKICPAUpdateNo.160of16October2014

2


Effectiveafter2016Dec.YearEnd

Amendments to HKFRS 11: Accounting for Acquisitions of Interests in Joint Operations

Amendments to HKAS 16 and HKAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

Amendments to HKAS 16 and HKAS 41: Agriculture: Bearer Plants

Amendments to HKAS 27 Equity Method in Separate Financial Statements

Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Annual Improvements to HKFRSs 2012-2014 Cycle HKFRS 14 Regulatory Deferral Accounts HKFRS 15 Revenue from Contracts with Customers HKFRS 9 (2014) Financial Instruments

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016 (or other) 1 Jan.2016 1 Jan.2017 1 Jan.2018

Selected new interpretations and amendments to HKFRSs

Effective for periods beginning on/after

UpdatedtoHKICPAUpdateNo.160of16October2014


HKFRS15RevenuefromContractswithCustomers

SMEFRFandFRSandRelevantRequirementsinCo.Ordinance

TodaysAgenda

HKFRS9FinancialInstruments

3


SMEFRFandFRSandCo.Ord.(Cap.622)


Scope HKIncorporatedEntity

ThenewHKCompaniesOrdinance(Cap.622) (newCO) becomeseffectiveon3March2014, containsanoptionalreportingexemption forcertainprivatecompaniesand

companieslimitedbyguaranteewhichsatisfytheconditionssetoutinsection359ofthenewCO.

TheSmallandMediumsizedEntityFinancialReportingFrameworkandFinancialReportingStandardwhichareeffectiveforannualperiodsbeginningonorafter3March2014 (theSMEFRFandFRS(2014)) aretheaccountingstandardsissuedbytheHKICPA

thataretobefollowedinaccordancewithsection380(4)bythoseHKincorporatedcompanieswhichareentitledto,anddecideto,takeadvantageofthisreportingexemptioninthenewCO (SMEFRFpara.1)

4


Scope NonHKIncorporated

Inaccordancewithpara.23oftheSMEFRF(2014),anentitywhichisnotacompanyincorporatedundereitherthenewCOorthepredecessorCO(Cap.32),subjecttoanyspecificrequirementsimposedbythelawoftheentitysplaceofincorporationandsubjecttoitsconstitution, qualifiesforreportingundertheSMEFRF whentheentitymeetsthesame

requirementsthataHKincorporatedentity isrequiredtomeetundersection359ofthenewCO(SMEFRFpara.2)


Scope EffectiveDate Consistentwithsection358ofthenewCO,

thisrevisedSMEFRFbecomeseffective foraQualifyingEntitysfinancialstatementsthatcoveraperiodbeginningonorafter3March2014,thecommencementdateofthenewCO

EarlierapplicationofthisrevisedSMEFRFisnotpermitted(SMEFRFpara.53)

5


Key Changes from Old SME-FRF and FRS1. A summary of the criteria for "qualifying entities" with

cross-references to the new CO included

2. New specific disclosure requirements to cover the first year that a company transitions from a different GAAP to SME-FRS

3. New guidance on the concept of realized profits and losses

4. New sections to cover business combinations, consolidated financial statements, joint arrangementsand associates

5. New guidance on presenting a cash flow statement(optional)

SME-FRF (2014) Para. 22-43

SME-FRS (2014) Section 18-21

SME-FRS (2014) Section 22

SME-FRF (2014) Para. 46-52

SME-FRF (2014) Para. 44-45

Adapted from HKICPAs Summary of Main Changes


Key Changes from Old SME-FRF and FRS6. Additional disclosure requirements in the Income Taxes

section for disclosure of applicable tax rates and unused tax losses

7. New guidance on determining the "reporting currency (same as functional currency)

8. The definition of "related party" aligned with the definition in full HKFRS

9. The definitions of "active market" & "fair value" updated to be consistent with HKFRS 13

10.New guidance on determining whether an entity is acting as an agent or principal

11.Additional guidance on the non-exempted disclosure requirements in the new COand certain other provisions

SME-FRS (2014) Section 14.9

SME-FRS (2014) Section 15

SME-FRS (2014) Definitions

SME-FRS (2014) Definitions

SME-FRS (2014) Appendix 1

SME-FRS (2014) Appendix 1

Adapted from HKICPAs Summary of Main Changes

6


1.CriteriaforQualifyingEntities

FollowsthenewCOwithsomefurtherexplanationsonReportingExemptionforeasyreference

Meetingthesizetests inthefirstyearthatthenewCOapplies Inaccordancewithsubsection(2)ofeachofsections361to366ofthe

newCO(asapplicable),theentitywillqualifyforthereportingexemptionforthefirstfinancialyearbeginningonorafter3March2014ifitmeetstherelevantsizetests:(a)inthatfirstfinancialyear;and/or(b)intheimmediatelyprecedingfinancialyear.

Iftheentityqualifiesinthefirstfinancialyearinaccordancewiththeabove,itwillcontinuetoqualifyuntilitisdisqualifiedinaccordancewithsubsection(4)(assetoutinpara.32ofSMEFRS).(SMEFRFpara.30)



Meetingthesizetestsinallsubsequentfinancialyears Inaccordancewithsubsection(3)ofeachofss.361to366ofthenewCO(as

applicable),anentitywhichwaspreviouslydisqualified onthegroundsofitssize willneedtomeetthesizetestsfortwoconsecutivereportingperiods,beforeit

willqualifyforthereportingexemptioninthethirdreportingperiod,regardlessofitssizeinthatperiod (SMEFRFpara.31)

Previouslydisqualified

Meet the size test

Can use reporting exemption

2015 2016 2017 2018 2019

7



Meetingthesizetestsinallsubsequentfinancialyears Inaccordancewithsubsection(4)ofeachofss.361to363,orsubsection(5)of

eachofss.364to366,ofthenewCO(asapplicable),whereanentityhaspreviouslyqualified forthereportingexemptionintermsofitssize, theentitywillcontinuetoqualifyforthereportingexemption evenwhenitno

longermeetstherelevantsizetests,unlesstheentityhasfailedthesizetestsfortwoconsecutivereportingperiods

itwillthenfailtoqualifyforthereportingexemptioninthethirdreportingperiod,regardlessofitssizeinthatperiod.(SMEFRFpara.32)

Previouslyqualified

Meet the size test

Can use reporting exemption

2015 2016 2017 2018



Anexceptiontothistwoyeargraceperiod forlosingentitlement iswhereanewcompanyentersthegroup. Inthiscase,inaccordancewithsubsection(4)ofeach

ofsections364to366ofthenewCO(asapplicable), ifthenewsubsidiary issuchthatthegroupfailsthe

sizetestsinthatyear, thegroupwillnolongerbeeligibleforthe

reportingexemption intheyearinwhichthenewcompanyentersthegroup (SMEFRFpara.33)

8


1.CriteriaforQualifyingEntitiesCompany Qualifying ConditionsA. Aprivateco.isasmallprivate co.,

orAprivateco.isthe holdingco.ofagroupofsmallprivatecompanies

Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$100M,ii. Assetslessthan $100M,iii. Employeelessthan100

B. Aneligible privateco.,orAneligibleprivateco.istheholdingco.ofagroupofeligibleprivatecompanies

Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$200M,ii. Assetslessthan$200M,iii. Employeelessthan100

75%membersapprovalwithoutanymemberobjection

C. A"smallguaranteeco.,orAguaranteeco. istheholdingco.ofa"groupofsmallguaranteecompanies"

Sizetest, revenuelessthan$25M

D. Optionsimilartos.141DofCap.32 S.359(1)(b)



Sizetestsforgroup ofsmallguaranteecompanies,smallprivatecompanies,andeligibleprivatecompanies eachcompanyinthegroupmustmeetthesizetests;

and theaggregateamountsforthegroupintotalmust

meetthesizetests(SMEFRFpara.35,37ad39)

9



ShareholderApproval Inaccordancewithsection360ofthe

newCO,theshareholderapprovalrequirementsforthelargereligiblecategoryofprivatecompaniesorgroups areasfollows:a) togainexemptionasalargereligibleprivatecompanyatleast75%

ofallthemembersmustpassaresolutionatageneralmeeting thatthecompanyistofallwithinthereportingexemptionforthefinancialyear,withnoneobjecting;and

b) togainexemptionforagroupoflargereligibleprivatecompaniesallthecompaniesinthegroupindividually,aswellastheparentofthegroup,musthaveobtainedthenecessaryshareholderapproval exceptforthosesubsidiarieswithinthegroupthatfallwithinthe

smallprivatecompanycategory



ShareholderApproval The75%voteiscalculatedasapercentage

oftheentireshareholdingofacompany,notsimplyasapercentageoftheshareholderswhoattendthegeneralmeeting.

Theresolutionisdefeated ifanymemberobjects either atthemeeting or atanytimebygivingnoticeinwriting tothecompany,providedthatthewrittennoticeisgivenatleast6monthsbeforetheendofthefinancialyeartowhichtheobjectionrelates.(SMEFRFpara.42)

Fors.359(1)(b)(i.e.newversionofs.141D)exemption,inordertoqualifyit, Thecompanyobtain100%approvalfromtheirshareholderseachyear Thisapprovalmustbeinwritingandcanonlybegivenforoneyearatatime(SMEFRFpara.43)

10


2.TransitionfromDifferentGAAP

ThetransitionfromadifferentGAAP(forexamplethetransitionfromHKFRS)totheSMEFRFandSMEFRSisaccountedforasfollows:a) AllitemsrecognisedpreviouslyunderadifferentGAAP(forexample,deferredtax

liability)whichdonotmeettherecognitioncriteriaundertheSMEFRFandSMEFRSaretobederecognised anddealtwithasachangeofaccountingpolicy undersection2oftheSMEFRS.

b) AllitemsnotrecognisedpreviouslyunderadifferentGAAPwhichmeettherecognitioncriteria undertheSMEFRFandSMEFRS3aretoberecognised inaccordancewiththerelevantsectionoftheSMEFRS anddealtwithasachangeofaccountingpolicy undersection2oftheSMEFRS.

c) AllitemsrecognisedpreviouslyunderadifferentGAAP,whichmeettherecognitioncriteriaundertheSMEFRFandSMEFRS,butwhichwerepreviouslymeasuredonabasisinconsistentwiththeSMEFRFandSMEFRS (forexample,unamortisedgoodwill)aretoberemeasured inaccordancewiththerelevantsectionoftheSMEFRS anddealtwithasachangeofaccountingpolicy undersection2oftheSMEFRS(SMEFRFpara.44)


3. Concept of Realized Profits and Losses Newguidanceontheconceptofrealizedprofitsandlosses

Recognition ofanitemasincomeorexpenseinaccordancewiththeSMEFRSdoesnotnecessarilyresultinthatitembeingrealized withinthemeaningofs.291ofthenewCO.

Consequently,aprofitwhichisrecognisedforaccountingpurposesundertheSMEFRSmaynotnecessarilybecapableofdistribution toshareholdersbywayofadividend.

TheconceptofrealizedprofitsandlossesandtheirrelationshiptoprofitsandlossesasrecognisedundertheSMEFRSisdealtwithinpara.46to52oftheSMEFRF(SMEFRFpara.16)

11


3. Concept of Realized Profits and Losses S.297ofthenewCOstatesthatacompanymayonlymakeadistributionoutofprofitsavailablefordistributionandthat,forthepurposesofthissection,acompanysprofitsavailablefordistributionare itsaccumulated,realizedprofits,sofarasnotpreviouslyutilizedbydistributionor

capitalization, lessitsaccumulated,realizedlosses,sofarasnotpreviouslywrittenoffina

reductionorreorganisationofcapital. Suchdistributableprofitsaretobecomputed

atthecompanylevel, irrespectiveofwhetherthecompanyprepares

consolidatedfinancialstatements(SMEFRFpara.46)


3. Concept of Realized Profits and Losses InaccordancewithHKICPAsAccountingBulletin4Guidanceonthe

DeterminationofRealisedProfitsandLossesintheContextofDistributionsundertheHongKongCompaniesOrdinance,aprofit shallbetreatedasrealisedonlywhenrealisedintheformof:a) cash;orb) otherassets,theultimatecashrealisation ofwhichcanbeassessedwith

reasonablecertainty (SMEFRFpara.48) MosttransactionsrecognisedundertheSMEFRSincompanylevelfinancialstatements wouldsatisfythistest (SMEFRFpara.49)

However,ifthesalewasinexchangeforanilliquidasset,suchasaproperty,theprofitcouldnotberegardedasrealizeduntilthepropertyitselfwassoldinacashornearcashtransaction,becausethepropertywouldnotberegardedasreadilyconvertibletocashwithoutaperiodofmarketing (SMEFRFpara.50)

12


3. Concept of Realized Profits and Losses Withrespecttorealizedlosses,ingeneral,whereamountsarechargedagainst

profitorloss(andhencerecordedinco.levelretainedearnings), thechargeshouldberegardedasbeingrealized irrespectiveofwhether

itaroseonremeasurementofthecarryingvalueofanassetorliability,orthechargehascrystallised,forexampleonsettlementofalawsuit

Adjustmentsshouldnotthereforebemadetoaddback anyexpensesorotherchargeswhencomputingprofitsavailablefordistributionforthepurposesofs.291ofthenewCO (SMEFRFpara.51)


3. Concept of Realized Profits and Losses Furtherguidance ontheconceptofrealizedprofitsandrealizedlossescanbefoundinAccountingBulletin4 andetc However,itshouldbenotedthatthisguidanceisprimarilyintendedtoaddressa

widevarietyofdifferencesbetweenrecognitionrequirementsunderfullHKFRSsandtheconceptofrealizedprofitsorlosses (SMEFRFpara.52)

AlthoughthesameprinciplesfordefiningrealizedprofitsandlosseswillapplywhetheracompanyfollowsfullHKFRSsorSMEFRS inpracticeastheSMEFRS

doesnotpermitupwardsrevaluationofassets and doesnotcontainspecificrequirementsrelatingto

morecomplexfinancialinstruments, manyofthedifferencesidentifiedintheBulletin

betweenrecognisedprofitsandlossesandrealizedprofitsandlosseswillnotbeapplicabletofinancialstatementspreparedinaccordancewiththeSMEFRS (SMEFRFpara.52)

13


4.NewSections

Newsections tocoverbusinesscombinations,consolidatedfinancialstatements,jointarrangementsandassociatesSection18 BusinessCombinationsandGoodwillSection19 ConsolidatedandCompanylevelFinancial

StatementsSection20 InvestmentsinAssociatesSection21 InterestsinJointVenturesandOtherFormsofJoint

Arrangements


4.Section18Business Combinations Section18ismainlybasedonHKFRS3(2004version)butsimplifiedandupdatedwithsomeareasbasedonHKFRS3(2008version) Applyinaccountingforbusinesscombinations in

areportingentitysconsolidatedfinancialstatements(SMEFRS18.1)

Alsoapplyinaccountingfortheacquisitionofanunincorporatedbusiness inareportingentityscompanylevelfinancialstatements(SMEFRS18.1)

14


4.Section18Business Combinations Section18ismainlybasedonHKFRS3(2004version)butsimplifiedandupdatedwithsomeareasbasedonHKFRS3(2008version) Notrequiredtobeappliedtobusiness

combinationsinvolvingentitiesorbusinessesundercommoncontrol Commoncontrolcombinationsshouldbe

accountedforinaccordancewithoneofthefollowingmethods:(a) mergeraccounting inaccordancewith

AccountingGuideline5Mergeraccountingforcommoncontrolcombinations;or

(b) atbookvalues asstatedinthefinancialstatementsoftheacquiredentityorintheconsolidatedfinancialstatementsofthepreviousparent (SMEFRS18.2)

Different from current AG5


4.Section18Business Combinations Allbusinesscombinationsshouldbeaccountedforbyapplyingthepurchasemethod (SMEFRS18.3)

Applyingthepurchasemethodinvolvesthefollowingsteps:(a) identifyinganacquirer;(b) measuringthecostofthebusinesscombination;

and(c) allocating,attheacquisitiondate,thecostofthe

businesscombinationtotheassetsacquiredandliabilitiesassumed (SMEFRS18.4)

Different from current HKFRS 3

15


4.Section18Business Combinations Theacquirershouldmeasurethecostofabusinesscombination as theaggregateofthefairvalues,attheacquisition

date,of assetsgiven, liabilitiesincurredorassumed,and equityinstrumentsissued bytheacquirer,inexchangeforcontroloftheacquiree (SMEFRS18.8)

Othercosts attributabletoeffectingthebusinesscombinationdonotformpartofthecostofabusinesscombination shouldinsteadberecognisedasexpensesinthe

incomestatement intheperiodsinwhichthecostsareincurredandtheservicesarereceived(SMEFRS18.9)

Same as current HKFRS 3


4.Section18Business Combinations Thecontingentconsideration

shouldincludetheestimatedamountofthatadjustmentinthecostofthecombinationattheacquisitiondateif theadjustmentisprobable (ie morelikely

thannot)and canbemeasuredreliably (SMEFRS18.10)


16


4.Section18Business Combinations Theacquirershouldrecogniseseparatelytheacquirees identifiableassetsand,liabilitiesattheacquisitiondateonlyiftheysatisfythefollowingcriteriaatthatdate:(a) inthecaseofanassetotherthananintangibleasset,

itisprobable thatanyassociatedfutureeconomicbenefitswillflow totheacquirer,anditsfairvaluecanbemeasuredreliably;

(b) inthecaseofaliability,itisprobable thatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettle theobligation,anditsfairvaluecanbemeasuredreliably;and

(c) inthecaseofanintangibleasset, itsfairvalueisreadilyapparent orotherwise canbemeasuredreliablywithoutunduecostoreffort (SMEFRS18.13)



4.Section18Business Combinations Intangibleassetacquiredinabusinesscombination Section4alsostatesthatanintangibleassetshouldbe

recognisedif,andonlyif:a) inthecaseofanintangibleassetacquiredina

businesscombination,itsfairvalue isreadilyapparent orotherwise canbemeasuredreliably withoutunduecost;and

b) inallothercases, itisprobable thatthefutureeconomicbenefits

thatareattributabletotheassetwillflowtotheentity and

thecost oftheassetcanbemeasuredreliably(SMEFRS4.2)

17


4.Section18Business Combinations Theacquirershould,attheacquisitiondate:

(a) recognisegoodwill acquiredinabusinesscombinationasanasset;and

(b) initiallymeasurethatgoodwillatitscost,beingtheexcessofthecostofthebusinesscombinationovertheacquirersinterestinthenetfairvalueoftheidentifiableassetsandliabilitiesrecognisedinaccordancewithpara.18.12(SMEFRS18.18)

Afterinitialrecognition,measuregoodwillacquiredinabusinesscombinationat cost lessanyaccumulatedamortisation andany

accumulatedimpairmentlosses (SMEFRS18.19) Arebuttablepresumptionthattheusefullifeof

goodwillwillnotexceed5yearsfrominitialrecognition (SMEFRS18.20)


Impairment testing in Section 9


Impairmentofgoodwill(newsection) SMEFRSSection9providessimplifiedguidance

Animpairmentlossrecognisedforgoodwillshouldnotbereversed inasubsequentperiod(SMEFRS9.13)

SMEFRSAppendixprovidesguidanceonimpairmentallocation

Impairmentofassets(amendedslightly) Animpairmentlossshouldnotbereversed unless

itsfairvalueisreadilyapparent or theassetsrecoverableamountcanotherwisebemeasuredreliablywithout

unduecost. Forthoseassets(ifany)whichmaysatisfythiscondition,

attheendofeachreportingperiod,anentityshouldassesswhetherthereisanyindication thatanimpairmentlossrecognisedinpriorperiodsforanassetmaynolongerexistormayhavedecreasedand,ifso,estimatetherecoverableamountofthatasset(SMEFRS9.5)

4.Section18Business Combinations

18


4.Section18Business Combinations Foreignoperation

Anygoodwillarisingontheacquisitionofaforeignoperation andanyfairvalueadjustmentstothecarryingamountsofassetsandliabilities arisingontheacquisitionofthatforeignoperation shouldbetreatedasassetsandliabilities oftheforeign

operation shouldbeexpressedinthereportingcurrency

oftheforeignoperation and shouldbetranslatedattheclosingrate

(SMEFRS15.10)


4.Section18Business Combinations Previousbusinesscombination anentitythathasnotpreviouslyissuedconsolidatedfinancialstatementsshouldapplySectioneither:(a) retrospectively toallpastbusinesscombinations asachangeinaccountingpolicy

inaccordancewithSection2;or(b) asif allthepastbusinesscombinationsthatoccurredbeforethebeginningofthe

comparativeperiodhadtakenplaceatthebeginningofthecomparativeperiod. Thedifferencebetweentheconsiderationtransferredandthecarrying

amountsofassetsandliabilitiesofthebusinessacquiredthatmeettherecognitioncriteriaundertheSMEFRFandSMEFRSatthebeginningofthecomparativeperiodshouldbemadeagainsttheopeningbalanceofretainedearnings.

AnybusinesscombinationforwhichtheacquisitiondatefallsbetweenthebeginningofthecomparativeperiodandthedateofthefirstapplicationofthisSectionshouldbeaccountedforinaccordancewiththisSection.

Inthecasewherethisoptionisused,thisfactshouldbedisclosed (SMEFRS18.27)

19


4.Section19ConsolidatedF.S.

Section19ismainlybasedonHKAS27,notHKFRS10 Asubsidiary isanentitythatiscontrolled bythe

parent. Control (ofanentity)isdefinedas

thepowertogovernthefinancialandoperatingpolicies ofanentitysoastoobtainbenefitsfromitsactivities (SMEFRS19.4andDefinitions)

Controlispresumedtoexist whentheparentowns,directlyorindirectly

throughsubsidiaries,morethanhalfofthevotingpowerofanentity

thatpresumptionshouldbeovercomeifitcanbeclearlydemonstratedthatsuchownershipdoesnotconstitutecontrol (SMEFRS19.5)




Anentitywhichisaparent attheendofthefinancialyearisrequiredtopresentconsolidatedfinancialstatements inaccordancewiththeSMEFRSexceptwhen:(a) itisawhollyownedsubsidiary ofanotherentity;or(b) itmeetsallofthefollowingconditions:

i) itisapartiallyownedsubsidiary ofanotherentity;ii) atleast6monthsbeforetheendofthefinancialyear,thedirectorsnotify

themembersinwriting ofthedirectors'intentionnottoprepareconsolidatedfinancialstatements forthefinancialyear,andthenotificationdoesnotrelatetoanyotherfinancialyear;and

iii) asatadatefalling3monthsbeforetheendofthefin.year,nomemberhasresponded tothenotificationbygivingthedirectorsawrittenrequestforthepreparationofconsol.fin.statements forthefinancialyear;or

(c) allofitssubsidiariesqualifyforexclusionfromconsolid. inaccordancewithparagraph19.2 (SMEFRS19.1)

Different from current HKFRS 10 but same

as s. 379(3)

20



Ifaparentisexemptfrompreparingconsolidatedfinancialstatementsanddoesnotpreparesuchfinancialstatements, itshouldpreparecompanylevelfinancialstatements.

Companylevelfinancialstatementsarethoseinwhichinvestmentsinsubsidiaries,associatesandjointventuresareaccountedforusingthecostmodelsetoutinSection6.

Ifconsolidatedfinancialstatementsarepresentedtheyshouldincludeallsubsidiariesoftheparent, except thatoneormoresubsidiariesmaybeexcluded

fromconsolidationwhen:(a) theirexclusionmeasuredonanaggregatebasisis

notmaterialtothegroupasawhole;or(b) theirinclusionwouldinvolveexpenseanddelayout

ofproportiontothevaluetomembers ofthecompany(SMEFRS19.2)



Aparentmaynotexcludeasubsidiaryfromconsolidationonthegroundsofexpenseanddelayoutofproportiontothevaluetomembers ofthecompanyunless themembersofthecompanyhavebeeninformedinwritingabout,anddonotobjectto,thisexclusion.

Inordertosatisfythiscondition:(a) thenotificationtothemembersofthecompanymust:

(i) statewhichfinancialyear thatthenotificationrelatesto(andthenotificationmustnotrelatetomorethanonefinancialyear);

(ii) specifythesubsidiaryorsubsidiariesproposedtobeexcluded;and

(iii) statethedirectorsreasons forbelievingthattheinclusionofthesubsidiaryorsubsidiariesintheconsolidatedfinancialstatementsmayinvolveexpenseanddelayoutofproportiontothevaluetotheshareholders;

21



Inordertosatisfythiscondition:(b) inthecaseofanentitywhichneedstoobtainshareholderapprovalin

accordancewithpara.41to43ofSMEFRFinordertoqualifyforthereportingexemption,thenotificationtothemembersoftheco.proposingtoexcludeoneormoresubsidiariesfromconsolidationmustbeincludedaspartofthenoticetoobtainthenecessaryshareholderapprovalsrequiredtoqualifyforthereportingexemption andmustbesubjecttothesameapprovalandobjectionprocessesasapplytothatapproval;

(c) inallothercasesthenotificationmustbesenttothemembersbeforethedateofapprovalofthefinancialstatements andmustallowthemembersoftheco.aperiodofnolessthanonemonth toraiseobjections,unlessallthemembersoftheco.confirmthatsuchaperiodisnotnecessary;and

(d) withinthetimeframeallowedinaccordancewith(b)or(c)nomemberhasindicatedtotheco.thattheydisagree withthedirectorsassertionthattheinclusionofthesubsidiaryorsubsidiarieswouldinvolveexpenseanddelayoutofproportiontothevaluetomembersoftheco.(SMEFRS19.3)



ConsolidationproceduresfollowsHKAS27,exceptthat Ondisposalofsubsidiary

thegainorloss,includesthecumulativeamountofanyexchangedifferences thatrelatetothesubsidiaryrecognisedinequityinaccordancewithSection15, exceptwhenunduecostoreffort isneededtoarriveatsuch

cumulativeamountofexchangedifference anddisclosureismadeinthefinancialstatementsforsuchexclusiononatransactionbytransactionbasis(SMEFRS19.11)

Ifanentityceasestobeasubsidiarybuttheinvestor(formerparent)continuestoholdsomeequityshares, thecarryingamountofanyinvestmentretained inthe

formersubsidiaryatthedatethattheentityceasestobeasubsidiaryshouldberegardedasthecost oninitialmeasurementofaninvestment (SMEFRS19.12)

22



ParentsCompanyLevelStatementofFinancialPosition Inaccordancewiths.380(3)(a)andPart1ofSch.4tothenewCO,ifa

parentcompanypresentsconsolidatedfinancialstatements,itmustalsoincludeinthenotestotheconsolidatedfinancialstatements:a) anote whichcontainstheparentcompanyscompanylevelstatement

offinancialposition intheformat inwhichthatstatementwouldhavebeenpreparediftheparentcompanyhadnotbeenrequiredtoprepareconsolidatedfinancialstatements;and

b) anote whichdisclosesthemovementintheparentcompanysreserves.

Furthernotes totheparentcompanyscompanylevelstatementoffinancialpositionarenotrequired (SMEFRS1.23)


4.Section20Associates

Section20specifies: Areportingentityshouldmakeanaccounting

policychoicebetween thebenchmarktreatment and theallowedalternativetreatment andapplythepolicyconsistentlyinaccordancewithpara.2.2 2.3(SMEFRS20.3)

Benchmark

Allowed Alternative

Costmodel,irrespectiveofcompanylevelorconsolidatedfinancialstatements

Equitymethod forconsolidatedfinancialstatements;and

Costmodel forallothercases

23


4.Section21Joint Ventures & Other JA Section21states

Ajointventure isacontractualarrangement wherebytwoor

morepartiesundertakeaneconomicactivitythroughanentity thatisseparatefromthepartiesandsubjecttojointcontrol (SMEFRS21.2)

doesnotincludeotherformsofjointarrangements, suchasanarrangementtousetheassetsand

otherresourcesoftheventurers orthejointownershipbytheventurers ofoneormoreassetscontributedto,oracquiredforthepurposeof,thejointarrangement,

asthesedonotinvolvetheestablishmentofanentity thatisseparatefromtheventurersthemselves(SMEFRS21.3)

Joint Venture

Other Joint Arrangements


4.Section21Joint Ventures & Other JA Areportingentityshouldmakeanaccountingpolicychoice between thebenchmarktreatment and theallowedalternativetreatment andapplythepolicyconsistentlyinaccordancewithparagraphs2.2 2.3(SMEFRS21.4)

Joint Venture

Benchmark

Allowed Alternative

Costmodel,irrespectiveofcompanylevelorconsolidatedfinancialstatements

Equitymethod forconsolidatedfinancialstatements;and

Costmodel forallothercases

24


4.Section21Joint Ventures & Other JA Inrespectofitsinterestsintheseotherformsofjointarrangements,aventurershouldrecogniseinitsfinancialstatements:(a) itsassets anditsshareofanyjointlycontrolledassets,

classifiedaccordingtothenatureoftheassets;(b) anyliabilities thatithasincurred

anditsshareofanyliabilitiesincurredjointlywiththeotherventurers inrelationtothejointarrangement;

(c) anyincome fromthesaleoruseofitsshareoftheoutputofthejointarrangement,togetherwithitsshareofanyexpensesincurredbythejointarrangement;and

(d) anyexpenses thatithasincurredinrespectofitsinterestinthejointarrangement (SMEFRS21.3)

Other Joint Arrangements

Similar to current HKFRS 11


5.CashFlowStatement

Newguidanceonpresentingacashflowstatement (optional) Inaccordancewithsection1.1oftheSMEFRS,

anentitywhichpreparesandpresentsitsfinancialstatementsinaccordancewiththeSMEFRSisnotrequired toincludeacashflowstatement inthosefinancialstatements

However,ifanentityvoluntarilyincludesacashflowstatement inthosefinancialstatements, thenthiscashflowstatementshouldbe

preparedinaccordancewiththerequirementsofsection22oftheSMEFRS (SMEFRS22.1)

25


6. Additional Disclosure for Income Taxes AdditionaldisclosurerequirementsintheIncomeTaxes Section Anentityshoulddisclose:

a) theaccountingpolicyadoptedforincometaxes;andb) majorcomponentsoftaxexpense(income);c) theapplicabletaxratesandjurisdictionsinwhich

thetaxexpensearose;andd) theamountofunusedtaxlossesavailabletobe

carriedforward againstfuturetaxableprofitsandtheexpirydatesofthoselosses (SMEFRS14.9)

New

New


7.DeterminingReportingCurrency

Newguidanceondeterminingthereportingcurrency Consistentwiththedefinitionandguidancein

HKAS21aboutfunctionalcurrency, SMEFRSdefines:

Anentitysreportingcurrency isthecurrencyoftheprimaryeconomicenvironment inwhichtheentityoperates.

SMEFRS15.1requires: Eachentityshouldidentifyitsreporting

currency. SMEFRSSection15providesotherguidance

similartoHKAS21

26


8.DefinitionofRelatedParty DefinitionofrelatedpartyalignedwiththatoffullHKFRS

Arelatedpartyisapersonorentitythatisrelatedtotheentitythatispreparingitsfinancialstatements(thereportingentity).a) Aperson oraclosemember ofthatpersonsfamily isrelatedtoa

reportingentityifthatperson:i. hascontrolorjointcontroloverthereportingentity;ii. hassignificantinfluenceoverthereportingentity;oriii. isamemberofthekeymanagementpersonnelofthereportingentityor

ofaparentofthereportingentity.b) Anentity isrelatedtoareportingentityifanyofthefollowing

conditionsapplies:i. Theentityandthereportingentityaremembersofthesamegroup

(whichmeansthateachparent,subsidiaryandfellowsubsidiaryisrelatedtotheothers).

ii. Oneentityisanassociateorjointventureoftheotherentity(oranassociateorjointventureofamemberofagroupofwhichtheotherentityisamember).


8.DefinitionofRelatedParty DefinitionofrelatedpartyalignedwiththatoffullHKFRS

Arelatedpartyisapersonorentitythatisrelatedtotheentitythatispreparingitsfinancialstatements(thereportingentity).b) Anentity isrelatedtoareportingentityifanyofthefollowing

conditionsapplies:iii. Bothentitiesarejointventuresofthesamethirdparty.iv. Oneentityisajointventureofathirdentityandtheotherentityisan

associateofthethirdentity.v. Theentityisapostemploymentbenefitplanforthebenefitof

employeesofeitherthereportingentityoranentityrelatedtothereportingentity.Ifthereportingentityisitselfsuchaplan,thesponsoringemployersarealsorelatedtothereportingentity.

vi. Theentityiscontrolledorjointlycontrolledbyapersonidentifiedin(a).vii. Apersonidentifiedin(a)(i)hassignificantinfluenceovertheentityorisa

memberofthekeymanagementpersonneloftheentity(orofaparentoftheentity).

27


9.ActiveMarketandFairValue

DefinitionsofactivemarketandfairvalueupdatedtosimilartoHKFRS13 Anactivemarket

isamarketinwhichtransactionsfortheassetorliabilitytakeplacewithsufficientfrequencyandvolume toprovidepricinginformationonanongoingbasis.

Fairvalue isthepricethatwouldbereceivedtosellanasset

orpaidtotransferaliability inanorderlytransaction betweenaknowledgeable,willingbuyerandaknowledgeable,willingseller inanarmslengthtransaction.


10.NewGuidanceonRevenue

Appendix1B20 Determiningwhetheranentityisactingasaprincipalorasanagent SMEFRSPara.11.7statesthat:

Inanagencyrelationship,thegrossinflowsofeconomic benefitsincludeamountscollectedonbehalfoftheprincipalandwhichdonotresultinincreasesinequityfortheentity.

Theamountscollectedonbehalfoftheprincipalarenotrevenue. Instead,revenueistheamountofcommission.

Determiningwhetheranentityisactingasaprincipalorasanagentrequiresjudgementandconsiderationofallrelevantfactsandcircumstances.

Anentityisactingasaprincipalwhenithasexposuretothesignificantrisksandrewardsassociatedwith thesaleofgoodsortherenderingofservices.

28



Appendix1B20 Determiningwhetheranentityisactingasaprincipalorasanagent Featuresthatindicatethatanentityisacting

asaprincipalinclude:a) theentityhastheprimaryresponsibility forprovidingthe

goodsorservicestothecustomerorforfulfillingtheorder,forexamplebybeingresponsiblefortheacceptabilityoftheproductsorservicesorderedorpurchasedbythecustomer;

b) theentityhasinventoryrisk beforeorafterthecustomerorder,duringshippingoronreturn;

c) theentityhaslatitudeinestablishingprices,eitherdirectlyorindirectly,forexamplebyprovidingadditionalgoodsorservices;and

d) theentitybearsthecustomerscreditrisk fortheamountreceivablefromthecustomer.



Appendix1B20 Determiningwhetheranentityisactingasaprincipalorasanagent Anentityisactingasanagentwhenitdoesnot

haveexposuretothesignificantrisksandrewardsassociated withthesaleofgoodsortherenderingofservices.

Onefeatureindicatingthatanentityisactingasanagentisthattheamounttheentityearnsispredetermined,beingeither afixedfeepertransactionor astatedpercentageoftheamountbilledtothecustomer.

29


11. Guidance on Non-Exempted Disclosure Appendix1SectionD

Asexplainedinpara.21oftheSMEFRF,unlessspecificallyexemptfromaparticularrequirement, thefinancialstatementsanddirectorsreportprepared

byaqualifyingentityarerequiredtofollowthesamerequirementsinthenewCO asapplytofullfinancialstatementsanddirectorsreports.

Thesenonexemptdisclosurerequirements whichapplyunderthenewCOaresetoutbelow: S.383: Sch.4Part1.1 Sch.4Part1.2 Sch.4Part1.3 Sch.4Part1.4 S.387


11. Guidance on Non-Exempted Disclosure S.383 Thefinancialstatementsmustcontaintheinformation

prescribedbytheRegulationaboutthefollowingmatters:(a) directorsemoluments(b) directorsretirementbenefits(c) terminationbenefitspaidtodirectors(d) loans,quasiloansandotherdealingsinfavourofdirectorsofthe

companyoritsholdingcompany(e) materialinterestsofdirectorsintransactions,arrangementsor

contractsenteredintobythecompanyoranothercompanyinthesamegroup

(f) considerationprovidedtoorreceivablebyathirdpartyformakingavailabletheservicesofadirector

Inthisregard,referenceshouldbemadetotheCompanies(DisclosureofInformationaboutBenefitsofDirectors)Regulationmadeunders.451&452(2)forthepurposesofs.383.

30


11. Guidance on Non-Exempted Disclosure Sch 4Part1.1 Thefinancialstatementsmustdisclosethe

aggregateamountofoutstandingloans madeundertheauthorityofsections280and281.

Sch 4Part1.2 Ifacompanypresentsconsolidatedfinancialstatements itmustalsoincludeinthenotes totheconsolidatedfinancialstatements:a) anote whichcontainstheparentcompanyscompanylevel

statementoffinancialposition intheformatinwhichthatstatementwouldhavebeenpreparediftheparentcompanyhadnotbeenrequiredtoprepareconsolidatedfinancialstatements;and

b) anote whichdisclosesthemovementintheparentcompanysreserves.

Furthernotestotheparentcompanyscompanylevelstatementoffinancialpositionarenotrequired.


11. Guidance on Non-Exempted Disclosure Sch 4Part1.3 Ifattheendoftheyearthecompanyisa

subsidiaryofanotherundertaking,itmustdisclosureparticularsrelatingtothatparentundertaking assetoutinSch.4.

Sch 4Part1.4 Thefinancialstatementsmuststatewhethertheyhavebeenpreparedinaccordancewiththeapplicableaccountingstandards withinthemeaningofsection380ofthenewCOand, iftheyhavenotbeensoprepared,muststatethe

particularsof,andthereasonsfor,anymaterialdeparturefromthosestandards.

(NBAsstatedinparagraph20oftheSMEFRF,theSMEFRFandFRSaretheapplicableaccountingstandards forthepurposesofsection380forthosecompanieswhichareentitledtoanddotakeadvantageofthereportingexemption)

31


11. Guidance on Non-Exempted Disclosure S.387 Thestatementoffinancialposition

mustbeapprovedbythedirectors and mustbesignedby2directors onthedirectorsbehalf(unlessthe

companyonlyhasonedirector,inwhichcasethesoledirectormustsignthestatementoffinancialposition).

Thenamesofthedirector(s)whosignedthestatementoffinancialpositionmustbestatedonanystatementoffinancialpositionlaidbeforethecompanyingeneralmeeting,senttoamemberundersection430orotherwise,circulated,publishedorissuedbythecompany.


HKFRS15RevenuefromContractswithCustomers

32


HKFRS15Issuedin2014

1.IdentifytheContractwithaCustomer

2.IdentifythePerformanceObligations

3.DeterminetheTransactionPrice

4.AllocateTransactionPricetoPerformance

Obligations

5.RecogniseRevenueWhenaPerformanceObligationisSatisfied

HKFRS15 establishesacomprehensiveframeworkfordetermining when torecogniserevenueand howmuch revenuetorecognise.

Thecoreprincipleinthatframeworkisthatanentityrecognisesrevenue todepictthetransferofpromisedgoodsorservicestocustomers

inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices

UnderHKFRS15,anentityappliesa5stepapproach inrecognisingrevenue


HKFRS15Issuedin2014





Obligations


EffectiveDate AnentityshallapplyHKFRS15forannualreportingperiodsbeginningonorafter1January2017.

Earlierapplicationispermitted. IfanentityappliesHKFRS15,itshalldisclosethatfact.

33


HKFRS15Issuedin2014





Obligations


HKFRS15supersedesthefollowingStandards:a. HKAS11ConstructionContractsb. HKAS18Revenuec. HK(IFRIC)Int 13CustomerLoyaltyProgrammesd. HK(IFRIC)Int 15Agreementsforthe

ConstructionofRealEstatee. HK(IFRIC)Int 18TransfersofAssetsfrom

Customersf. HK(SIC)Int 31Revenue BarterTransactions

InvolvingAdvertisingServices


ContentsinHKFRS15Issuedin2014





Obligations


A. ObjectiveB. ScopeC. Recognition

Identifyingthecontract(Step1) Identifyingperformanceobligations(Step2) Satisfactionofperformanceobligations(Step5)

D. Measurement Determiningthetransactionprice(Step4) Allocatingthetransactionpricetoperformanceobligations(Step5)

E. Contractcosts(nottobediscussedtoday)F. Presentation(nottobediscussedtoday)G. Disclosure(nottobediscussedtoday)

34


BriefSummaryofChangesExistingPractice IFRS15 UsingIAS11 and 18,IFRIC Int.13,

15,and18,andSIC31 UsingIFRS15,onestandardonly

Inconsistentanddiversifiedpractices

Single andunified5step revenuerecognitionmodel

Riskandrewardapproachinsatisfying recognition

Controlapproachinsatisfying theperformanceobligation

Limitedguidanceon multipleelementarrangements,variableconsideration,licencesandetc.

Moreguidance onseparatingelements,allocatingthetransactionprice,licences,andetc.

Newestimatesandjudgementsrequired

Newsetofdisclosurerequirements


A.Objective

TheobjectiveofHKFRS15is toestablishtheprinciplesthatanentityshallapplytoreport

usefulinformationtousersoffinancialstatementsaboutthenature,amount,timinganduncertaintyofrevenueandcashflowsarisingfromacontractwithacustomer(HKFRS15.1)

Tomeettheobjective ThecoreprincipleofHKFRS15isthatanentityshallrecogniserevenue

todepictthetransferofpromisedgoodsorservicestocustomers inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.(HKFRS15.2)

WhenapplyingHKFRS15,anentityshall considerthetermsofthecontractandallrelevantfactsandcircumstances applyHKFRS15,includingtheuseofanypracticalexpedients,consistently

tocontractswithsimilarcharacteristicsandinsimilarcircumstances.(HKFRS15.3)

35


A.Objective

HKFRS15specifiestheaccountingforanindividualcontract withacustomer However,asapracticalexpedient,anentitymayapply

HKFRS15 toaportfolioofcontracts (orperformanceobligations)withsimilarcharacteristics iftheentityreasonablyexpects thattheeffectsonthefinancialstatementsofapplyingHKFRS15totheportfoliowouldnotdiffermaterially fromapplyingHKFRS15totheindividualcontracts(orperformanceobligations)withinthatportfolio

Whenaccountingforaportfolio,anentityshalluseestimatesandassumptionsthatreflectthesizeandcompositionoftheportfolio.(HKFRS15.4)


B.Scope

AnentityshallapplyHKFRS15toallcontractswithcustomers,exceptthefollowing: leasecontracts withinthescopeofHKAS17Leases; insurancecontracts withinthescopeofHKFRS4InsuranceContracts; financialinstrumentsandothercontractualrightsorobligations withinthe

scopeof HKFRS9FinancialInstruments,(orHKAS39ifHKFRS9notyetapplied) HKFRS10ConsolidatedFinancialStatements,HKFRS11JointArrangements,HKAS27SeparateFinancialStatements andHKAS28InvestmentsinAssociatesandJointVentures;and

nonmonetaryexchanges betweenentitiesinthesamelineofbusiness tofacilitatesales tocustomersorpotentialcustomers Forexample,HKFRS15wouldnotapplytoacontractbetweentwooilcompaniesthatagreetoanexchangeofoiltofulfildemandfromtheircustomersindifferentspecifiedlocationsonatimelybasis.(HKFRS15.5)

36


C.RecognitionandD.Measurement





Obligations



C.Recognition




Step1:IdentifyingtheContract(s) Combinationofcontracts Contractmodifications

Step2:IdentifyingPerformanceObligations Promisesincontractswithcustomers Distinctgoodsorservices

Step5:Satisfactionofperformanceobligations Performanceobligationssatisfiedovertime Performanceobligationssatisfiedatapointin

time Measuringprogresstowardscomplete

satisfactionofaperformanceobligation

37


Step1:IdentifytheContract(s)


Step1:IdentifyingtheContract(s) Acontractisanagreementbetweentwoor

morepartiesthatcreatesenforceablerightsandobligations.

TherequirementsofHKFRS15applytoeachcontract thathasbeenagreeduponwithacustomerandmeetsspecifiedcriteria. Insomecases,HKFRS15requiresanentity

tocombinecontracts andaccountforthemasonecontract.

HKFRS15alsoprovidesrequirementsfortheaccountingforcontractmodifications.(HKFRS15.IN7)



Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenallofthefollowingcriteria(i.e.contractcriteria)aremet:a. thepartiestothecontracthaveapprovedthecontract (inwriting,orally

orinaccordancewithothercustomarybusinesspractices)andarecommittedtoperformtheirrespectiveobligations;

b. theentitycanidentifyeachpartysrights regardingthegoodsorservicestobetransferred;

c. theentitycanidentifythepaymentterms forthegoodsorservicestobetransferred;

d. thecontracthascommercialsubstance(i.e.therisk,timingoramountoftheentitysfuturecashflowsisexpectedtochangeasaresultofthecontract);and

38



Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenall ofthefollowingcriteria(i.e.contractcriteria)aremet:e. itisprobable thattheentitywillcollecttheconsideration towhichitwill

beentitledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer. Inevaluatingwhethercollectabilityofanamountofconsiderationis

probable,anentityshallconsideronlythecustomersabilityandintentiontopay thatamountofconsiderationwhenitisdue.

Theamountofconsiderationtowhichtheentitywillbeentitledmaybelessthanthepricestatedinthecontractiftheconsiderationisvariablebecausetheentitymayofferthecustomerapriceconcession(seeHKFRS15.52)(HKFRS15.9)




Anentityshallcombinetwoormorecontracts enteredintoatornearthesametimewiththesamecustomer (orrelatedpartiesofthecustomer)andaccountforthecontractsasasinglecontract ifoneormore ofthefollowingcriteriaaremet:a. thecontractsarenegotiatedasapackage withasinglecommercial

objective;b. theamountofconsiderationtobepaidinonecontract dependsonthe

priceorperformanceoftheothercontract;orc. thegoodsorservicespromised inthecontracts(orsomegoodsorservices

promisedineachofthecontracts)areasingleperformanceobligation inaccordancewithHKFRS15.2230.(HKFRS15.17)

CombinationofContracts

ContractModification

39




Anentityshallaccountforacontractmodificationasaseparatecontract ifboth ofthefollowingconditionsarepresent:a. thescopeofthecontractincreases becauseoftheadditionofpromised

goodsorservicesthataredistinct (inaccordancewithHKFRS15.2630);and

b. thepriceofthecontractincreases by anamountofconsideration thatreflectstheentitysstandalonesellingpricesoftheadditionalpromisedgoodsorservicesand

anyappropriateadjustments tothatpricetoreflectthecircumstancesoftheparticularcontract.(HKFRS15.20)

CombinationofContracts


SeparateContract




Ifacontractmodificationisnotaccountedforasaseparatecontract inaccordancewithHKFRS15.20(assetoutinlastslide), anentityshallaccountforthepromisedgoodsor

servicesnotyettransferredatthedateofthecontractmodification (i.e.theremainingpromisedgoodsorservices)inwhicheverofthefollowingwaysisapplicable:a. asif itwereaterminationoftheexistingcontract

andthecreationofanewcontract ifb. asif itwereapartoftheexistingcontract ifc. a combinationof(a)and(b)


NewContract

PartofExistingContract

SeparateContract

40







Obligations



Step2:IdentifyPerformanceObligations


Step2:IdentifyingthePerformanceObligationsintheContract Acontractincludespromisestotransfergoods

orservicestoacustomer. Ifthosegoodsorservicesaredistinct,the

promises areperformanceobligations and areaccountedforseparately

Agoodorserviceisdistinct if thecustomercanbenefit fromthegoodorservice

onitsownortogetherwithotherresourcesthatarereadilyavailabletothecustomerand

theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiablefromotherpromisesinthecontract.(HKFRS15.IN7)

Performanceobligations

41



Atcontractinception,anentityshall assessthegoodsorservicespromised inacontractwithacustomer,and identifyasaperformanceobligation eachpromisetotransfer tothe

customereither:a. agoodorservice (orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservices thataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer(seeHKFRS15.23)(HKFRS15.22)

PerformanceobligationsHKFRS15definesperformanceobligation as: Apromiseinacontractwithacustomertotransfertothe

customereither:a. agoodorservice(orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservicesthataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer.



Agoodorservicethatispromisedtoacustomerisdistinct ifbothofthefollowingcriteriaaremet:a. thecustomercanbenefitfromthegoodorservice eitheronitsownor

togetherwithotherresourcesthatarereadilyavailabletothecustomer(i.e.thegoodorserviceiscapableofbeingdistinct);and

b. theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiablefromotherpromises inthecontract(i.e.thegoodorserviceisdistinctwithinthecontextofthecontract).(HKFRS15.27)


42



Ifapromisedgoodorserviceisnotdistinct, anentityshallcombine thatgoodorservicewithotherpromisedgoodsor

servicesuntilitidentifies abundleofgoodsorservicesthatisdistinct. Insomecases,thatwouldresultintheentityaccountingforallthegoodsorservicespromised inacontractasasingleperformanceobligation.(HKFRS15.30)



ExistingPracticevsHKFRS15ExistingPractice HKFRS15IncidentalObligationsandSalesIncentives(seemorein Step 2) Somecompaniesmaynotseparately

recogniserevenue forthetransfertothecustomerofgoodsorservicesthatsomeconsidertobesalesincentives orotherwiseincidentalorancillarytotheotherpromisedgoodsorservicesinthecontract.

Thatpracticeresultsinacompanyrecognisingallofthetransactionprice asrevenue eventhoughithasremainingperformanceobligationstosatisfy.

Thissometimesoccursintheautomotiveindustrywhenamanufacturersellsacaralongwithanincentivesuchasmaintenancethatwillbeprovidedatalaterdate.

Acompanywillassess whetherthepromisedgoodsorservicesarisingfromincidentalobligationsandsalesincentivesaregoodsorservicesthataredistinct.

Ifthegoodsorservicesaredistinct,thecompanywillrecogniserevenuewhen(oras)eachdistinctgoodorserviceistransferredtothecustomer.

AdaptedfromtheIASBsProjectSummaryissuedinMay2014

43







Obligations



D.Measurement



Obligations

Step3:DeterminingtheTransactionPrices Variableconsideration Theexistenceofasignificantfinancing

componentinthecontract Noncashconsideration Considerationpayabletoacustomer

Step4:AllocatingtheTransactionPricetoPerformanceObligations Allocationbasedonstandalonesellingprices Allocationofadiscount Allocationofvariableconsideration Changesinthetransactionprice

44


Step3:DetermineTransactionPrice


Step3:DeterminingtheTransactionPrices Thetransactionprice

istheamountofconsiderationinacontracttowhichanentityexpectstobeentitled inexchangefortransferringpromisedgoodsorservicestoacustomer

canbeafixedamountofcustomerconsideration,butitmaysometimesinclude variableconsiderationor considerationinaformotherthancash

isalsoadjustedfortheeffectsofthetimevalueofmoney ifthecontractincludesasignificantfinancingcomponentandforanyconsiderationpayabletothecustomer.(HKFRS15.IN7)




Step3:DeterminingtheTransactionPrices Iftheconsiderationisvariable,anentity

estimates theamountofconsiderationtowhichitwillbeentitledinexchangeforthepromisedgoodsorservices.

Theestimatedamountofvariableconsiderationwillbeincludedinthetransactionprice onlytotheextentthatitishighlyprobable

thatasignificantreversal intheamountofcumulativerevenuerecognisedwillnotoccur whentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.(HKFRS15.IN7)

45



Todeterminethetransactionprice,anentityshallconsider theterms ofthecontract and itscustomarybusinesspractices.

Theconsiderationpromisedinacontractwithacustomermayinclude fixedamounts, variableamounts,or both.(HKFRS15.47)

HKFRS15definestransactionprice as: Theamountofconsiderationtowhichanentity

expectstobeentitledinexchangefortransferringpromisedgoodsorservicestoacustomer,excludingamountscollectedonbehalfofthirdparties(forexample,somesalestaxes).



Thenature,timing andamount ofconsiderationpromisedbyacustomeraffecttheestimateofthetransactionprice.

Whendeterminingthetransactionprice,anentityshallconsidertheeffectsofallofthefollowing:a. variableconsideration (seeHKFRS15.5055and59);b. constrainingestimates ofvariableconsideration

(seeHKFRS15.5658);c. theexistenceofasignificantfinancingcomponent

inthecontract(seeHKFRS15.6065);d. noncashconsideration (seeHKFRS15.6669);ande. considerationpayabletoacustomer

(seeHKFRS15.7072).(HKFRS15.48)

VariableConsideration

ConstrainingEstimatesofVariableCon.

SignificantFinancingComponentNoncash

ConsiderationConsiderationPayable

toCustomer

46



Iftheconsiderationpromisedinacontractincludesavariableamount, anentityshallestimatetheamountofconsiderationtowhichtheentity

willbeentitledinexchangefortransferringthepromisedgoodsorservicestoacustomer.(HKFRS15.50)



Step3:DetermineTransactionPrice Anentityshallestimate anamountofvariableconsiderationbyusingeither

ofthefollowingmethods,dependingonwhichmethodtheentityexpectstobetterpredicttheamountofconsideration towhichitwillbeentitled:a. Theexpectedvalue theexpectedvalueisthesumofprobability

weightedamounts inarangeofpossibleconsiderationamounts. Anexpectedvaluemaybeanappropriateestimateoftheamountof

variableconsiderationifanentityhasalargeno.ofcontractswithsimilarcharacteristics.

b. Themostlikelyamount themostlikelyamountisthesinglemostlikelyamountinarangeofpossibleconsiderationamounts (i.e.thesinglemostlikelyoutcomeofthecontract). Themostlikelyamountmaybeanappropriate

estimateoftheamountofvariableconsiderationifthecontracthasonlytwopossibleoutcomes (e.g.anentityeitherachievesaperformancebonusordoesnot).(HKFRS15.53)


ExpectedValue

MostLikelyAmount

47



AnentityshallincludeinthetransactionpricesomeorallofanamountofvariableconsiderationestimatedinaccordancewithHKFRS15.53 onlytotheextent thatitishighlyprobable thata

significantreversal intheamountofcumulativerevenuerecognisedwillnotoccur whentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.(HKFRS15.56)

Inassessingsuchhighlyprobablecircumstance, anentityshallconsiderboththelikelihoodandthe

magnitude oftherevenuereversal.

ConstrainingEstimatesofVariableCon.



Indeterminingthetransactionprice, anentityshalladjustthepromisedamountofconsiderationfortheeffects

ofthetimevalueofmoney ifthetimingofpaymentsagreedtobythepartiestothecontract(eitherexplicitlyorimplicitly)providesthecustomerortheentitywithasignificantbenefitoffinancing thetransferofgoodsorservicestothecustomer.

Inthosecircumstances,thecontractcontainsasignificantfinancingcomponent. Asignificantfinancingcomponentmayexist

regardlessofwhetherthepromiseoffinancingis explicitlystatedinthecontract,or impliedbythepaymenttermsagreedtobythepartiestothecontract.(HKFRS15.60)

SignificantFinancingComponent

48



Asapracticalexpedient,anentityneednotadjustthepromisedamountofconsiderationfortheeffectsofasignificantfinancingcomponent iftheentityexpects,atcontractinception,thattheperiod

betweenwhentheentitytransfersapromisedgoodorservicetoacustomerandwhenthecustomerpaysforthatgoodorservicewillbeoneyearorless.(HKFRS15.63)



Step3:DetermineTransactionPrice Whenadjustingthepromisedamountofconsiderationforasignificant

financingcomponent, anentityshallusethediscountrate thatwouldbereflectedinaseparate

financingtransactionbetweentheentityanditscustomeratcontractinception. Thatratewouldreflectthecreditcharacteristics ofthepartyreceivingfinancinginthecontract,aswellasanycollateralorsecurityprovidedbythecustomerortheentity,includingassetstransferredinthecontract.

Anentitymaybeabletodeterminethatratebyidentifyingtheratethatdiscountsthenominalamountofthepromisedconsiderationtothepricethatthecustomerwouldpayincashforthegoodsorserviceswhen(oras)theytransfertothecustomer.

Aftercontractinception,anentityshallnotupdatethediscountrate forchangesininterestratesorothercircumstances(suchasachangeintheassessmentofthecustomerscreditrisk).(HKFRS15.64)


49



Anentityshallpresent theeffectsoffinancing (interestrevenueorinterestexpense)separately

from revenuefromcontractswithcustomers inthestatementof

comprehensiveincome. Interestrevenueorinterestexpenseisrecognisedonlytotheextent thatacontractasset(orreceivable)oracontractliabilityisrecognisedinaccountingforacontractwithacustomer. (HKFRS15.65)




Todeterminethetransactionpriceforcontractsinwhichacustomerpromisesconsiderationinaformotherthancash, anentityshallmeasurethenoncashconsideration (orpromiseofnon

cashconsideration)atfairvalue.(HKFRS15.66) Ifanentitycannotreasonablyestimatethefairvalueofthenoncashconsideration, theentityshallmeasuretheconsiderationindirectlybyreferencetothestandalonesellingpriceofthegoodsorservicespromised tothecustomer(orclassofcustomer)inexchangefortheconsideration.(HKFRS15.67)

NoncashConsideration

FairValue

50



Anentityshallaccountforconsiderationpayabletoacustomer asareductionofthetransactionprice and,therefore,ofrevenue

unless thepaymenttothecustomerisinexchangeforadistinctgoodorservice (asdescribedinHKFRS15.2630)thatthecustomertransferstotheentity.

Iftheconsiderationpayabletoacustomerincludesavariableamount, anentityshallestimatethetransactionprice

(includingassessingwhethertheestimateofvariableconsiderationisconstrained)inaccordancewithHKFRS15.5058.(HKFRS15.70)

ConsiderationPayabletoCustomer


ExistingPracticevsHKFRS15ExistingPractice HKFRS15EstimatesofVariableConsideration(seemoreinStep 3) Revenuerequirementsdonotinclude

detailedguidance formeasuringtheamountofrevenuethatshouldberecognisedwhentheconsiderationisvariable

Iftheconsiderationpromisedbyacustomerisvariable,acompanywillestimateit usingeithertheexpectedvalueorthemostlikelyamount,dependingonwhichamountbetterpredictstheamountofconsiderationtowhichthecompanywillbeentitled.

Someoralloftheestimatedamountofvariableconsiderationisincludedinthetransactionpriceonlytotheextentthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwillnotoccurwhentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.


51


ExistingPracticevsHKFRS15ExistingPractice HKFRS15SignificantFinancingComponents(see moreonStep 3) Ifacustomerpaysforgoodsorservices

inadvanceorinarrears,somecompaniesmaynotconsidertheeffectsofanyfinancingcomponents inthecontractwhendeterminingtheamountofrevenuetoberecognised.

Acompanyisrequiredtoconsidertheeffectsofanysignificantfinancingcomponents inthedeterminationofthetransactionprice(andthustheamountofrevenuerecognised).

Thismayaffectlongtermcontracts inwhichpaymentbythecustomerandperformancebythecompanyoccuratsignificantlydifferenttimes.








Obligations


52


Step4:AllocateTransactionPricetoPO


Obligations

Step4:AllocatingtheTransactionPricetoPerformanceObligations Anentitytypicallyallocatesthetransaction

pricetoeachperformanceobligationonthebasisoftherelativestandalonesellingpricesofeachdistinctgoodorservicepromised inthecontract. Ifastandalonesellingpriceisnotobservable,an

entityestimatesit. Sometimes,thetransactionpriceincludesa

discountoravariableamountofconsiderationthatrelatesentirelytoapartofthecontract. HKFRS15specifywhenanentityallocatesthe

discountorvariableconsiderationtooneormore,butnotall,performanceobligations(ordistinctgoodsorservices)inthecontract.(HKFRS15.IN7)



Theobjectivewhenallocatingthetransactionprice is foranentitytoallocatethetransactionpriceto

eachperformanceobligation (ordistinctgoodorservice)inanamountthatdepictstheamountofconsideration towhichtheentityexpectstobeentitledinexchangefortransferringthepromisedgoodsorservicestothecustomer.(HKFRS15.73)


Obligations

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration

53



Tomeettheallocationobjective,anentityshallallocatethetransactionpricetoeachperformanceobligationidentifiedinthecontractonarelativestandalonesellingpricebasis inaccordancewithHKFRS15.7680,exceptasspecifiedin HKFRS15.8183(forallocatingdiscounts)and HKFRS15.8486(forallocating

considerationthatincludesvariableamounts).(HKFRS15.74)

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration


Obligations



Toallocatethetransactionpricetoeachperformanceobligationonarelativestandalonesellingpricebasis,anentityshall determinethestandalonesellingprice at

contractinception ofthedistinctgoodorserviceunderlyingeachperformanceobligationinthecontractand

allocate thetransactionpriceinproportiontothosestandalonesellingprices.(HKFRS15.76)

BasedonStandaloneSellingPrice(SASP)

HKFRS15definesstandalonesellingprice as: Thepriceatwhichanentitywouldsellapromisedgoodorservice

separatelytoacustomer..

54



Thebestevidenceofastandalonesellingpriceis theobservableprice ofagoodorservicewhen

theentitysellsthatgoodorserviceseparatelyinsimilarcircumstancesandtosimilarcustomers. Acontractuallystatedpriceoralistpriceforagoodorservicemaybe(butshallnotbepresumedtobe) thestandalonesellingpriceofthatgoodorservice.(HKFRS15.77)




IfSASPisnotdirectlyobservable, anentityshallestimate theSASPatanamount

thatwouldresultintheallocationofthetransactionpricemeetingtheallocationobjectiveinHKFRS15.73.

WhenestimatingSASP, anentityshallconsiderallinformation

(includingmarketconditions,entityspecificfactorsandinformationaboutthecustomerorclassofcustomer)thatisreasonablyavailabletotheentity.

Indoingso,anentityshall maximisetheuseofobservableinputs and applyestimationmethodsconsistently insimilarcircumstances.(HKFRS15.78)


55



SuitablemethodsforestimatingSASPofagoodorserviceinclude(notlimitedto):a. Adjustedmarketassessmentapproachb. Expectedcostplusamarginapproachc. Residualapproachd. Combinationoftheabove



ExistingPracticevsHKFRS15ExistingPractice HKFRS15ContingentRevenueCap(seemoreinStep 4) Somepracticesforallocatingthe

transactionpricelimittheamountofconsiderationallocatedtoasatisfiedperformanceobligation totheamountthatisnotcontingentonthesatisfactionofperformanceobligationsinthefuture.

Thatpracticeiscommonlyusedtoaccountfortelecommunicationscontracts thatbundlethesaleofamobilephonewiththeprovisionofnetworkservicesforaspecifiedperiod(oftenforoneortwoyears).

IFRS15doesnotpermit thetransactionpricetobeallocatedtoperformanceobligationsonabasisthatisconsistentwiththecontingentrevenuecap.

Instead,IFRS15requiresacompanytoallocatethetransactionpricewhichwouldbeanyamountthatthecustomerpaysonenteringintothecontractandthemonthlypaymentsforthenetworkservicestothemobilephoneandthenetworkservicesonthebasisoftherelativestandalonesellingpricesofeachitem.


56


ExistingPracticevsHKFRS15ExistingPractice HKFRS15NoObservableSellingPrice(seemore inStep4) Forsomecontracts,revenue

requirementsprecludeacompanyfromrecognisingrevenue onthetransferofagoodorservicetoacustomerifthereisnoobservableevidenceofthestandalonesellingprices ofeachofthegoodsorservicespromisedinthecontract.

Thisoftenresultsinthedeferralofrevenuerecognition becauserevenuecouldnotberecognisedwhenthefirstofthepromisedgoodsorservicestransferstothecustomer.

Thisregularlyoccursinthesoftwareindustry whenobservablepricesarenotavailableforupgradesandadditionalfunctionalityforcomputersoftware.

Ifobservablepricesofthepromisedgoodsorservicesarenotavailable,acompanywouldallocatethetransactionpriceonthebasisofestimatedstandalonesellingpricesofthosegoodsorservices.

Thecompanywillrecogniserevenueaseachdistinctgoodorserviceistransferredtothecustomer.








Obligations


57


Step5:SatisfyPerformanceObligations


Step5:Satisfactionofperformanceobligations Aanentityrecognisesrevenuewhen(oras)it

satisfiesaperformanceobligation bytransferringapromisedgoodorservicetoacustomer whichiswhenthecustomerobtainscontrol

ofthatgoodorservice. Theamountofrevenuerecognisedisthe

amountallocatedtothesatisfiedperformanceobligation.(HKFRS15.IN7)




Step5:Satisfactionofperformanceobligations Aperformanceobligationmaybesatisfied

atapointintime (typicallyforpromisestotransfergoodstoacustomer)or

overtime (typicallyforpromisestotransferservicestoacustomer).

Forperformanceobligationssatisfiedovertime,anentityrecognisesrevenueovertimebyselectinganappropriatemethodformeasuringtheentitysprogress towardscompletesatisfactionofthatperformanceobligation.(HKFRS15.IN7)

58



Anentityshallrecogniserevenue when(oras)theentitysatisfiesaperformanceobligation bytransferring a

promisedgoodorservice (i.e.anasset)toacustomer.

Anassetistransferred when(oras)thecustomerobtainscontrol ofthatasset(HKFRS15.31)



ForeachperformanceobligationidentifiedinaccordancewithHKFRS15.2230, anentityshalldetermineatcontractinception whetherit

satisfiestheperformanceobligationovertime(inaccordancewithHKFRS15.3537)or

satisfiestheperformanceobligationatapointintime (inaccordancewithHKFRS15.38). Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.(HKFRS15.32)

OverTime

AtaPointinTime

59



Goodsandservicesareassets,evenifonlymomentarily,whentheyarereceivedandused(asinthecaseofmanyservices).

Controlofanasset referstotheabilitytodirect theuseof,andobtain

substantiallyalloftheremainingbenefits from,theasset.

includestheabilitytopreventotherentitiesfromdirecting theuseof,andobtainingthebenefitsfrom,anasset.

Whenevaluatingwhetheracustomerobtainscontrolofanasset, anentityshallconsideranyagreement

torepurchasetheasset (seeHKFRS15.B64B76).(HKFRS15.33)

OverTime

AtaPointinTime



Anentitytransferscontrol ofagoodorserviceovertime and,therefore,satisfiesaperformanceobligationandrecognisesrevenueovertime,ifone ofthefollowingcriteriaismet:a. thecustomersimultaneouslyreceivesandconsumes

thebenefits providedbytheentitysperformanceastheentityperforms(seeHKFRS15.B3B4);

b. theentitysperformancecreatesorenhancesanasset (e.g.workinprogress)thatthecustomercontrols astheassetiscreatedorenhanced(seeHKFRS15.B5);or

c. theentitysperformancedoesnotcreateanassetwithanalternativeusetotheentity (seeHKFRS15.36)andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate (seeHKFRS15.37).(HKFRS15.35)

OverTime

60



Ifaperformanceobligationisnotsatisfiedovertime inaccordancewithHKFRS15.3537,anentitysatisfiestheperformanceobligationatapointintime.

Todeterminethepointintimeatwhichacustomerobtainscontrol ofapromisedassetandtheentitysatisfiesaperformanceobligation, theentityshallconsidertherequirementsfor

control inHKFRS15.3134.(HKFRS15.38)

AtaPointinTime



Inaddition,anentityshallconsiderindicatorsofthetransferofcontrol,whichinclude,butarenotlimitedto,thefollowing:a. Theentityhasapresentrighttopayment fortheassetb. Thecustomerhaslegaltitletotheassetc. Theentityhastransferredphysicalpossession oftheassetd. Thecustomerhasthesignificantrisksand

rewardsofownership oftheassete. Thecustomerhasacceptedtheasset

AtaPointinTime

61



MeasuringProgressTowardsCompleteSatisfactionofaPerformanceObligation Foreachperformanceobligationsatisfiedovertime

inaccordancewithHKFRS15.3537, anentityshallrecogniserevenueovertime bymeasuringtheprogresstowardscompletesatisfactionofthatperformanceobligation.

Theobjectivewhenmeasuringprogressistodepictanentitysperformanceintransferringcontrolofgoodsorservicespromised toacustomer(i.e.thesatisfactionofanentitysperformanceobligation).(HKFRS15.39)

OverTime

MeasuringProgress



MeasuringProgressTowardsCompleteSatisfactionofaPerformanceObligation Anentityshallapplyasinglemethodofmeasuring

progressforeachperformanceobligation satisfiedovertimeandtheentityshallapplythatmethodconsistentlytosimilarperformanceobligationsandinsimilarcircumstances.

Attheendofeachreportingperiod, anentityshallremeasure itsprogresstowardscompletesatisfactionofaperformanceobligation satisfiedovertime.(HKFRS15.40)

OverTime

MeasuringProgress

62



MethodsforMeasuringProgress Appropriatemethodsofmeasuringprogressinclude

outputmethods andinputmethods (HKFRS15.B14B19provideguidance)

Indeterminingtheappropriatemethodformeasuringprogress,anentityshallconsiderthenatureofthegoodorservice thattheentitypromisedtotransfertothecustomer.(HKFRS15.41)

Whenapplyingamethodformeasuringprogress,anentityshallexcludefromthemeasureofprogress anygoodsorservicesforwhichtheentitydoesnottransfercontroltoacustomer.

Conversely,anentityshallincludeinthemeasureofprogress anygoodsorservicesforwhichtheentitydoestransfercontroltoacustomer whensatisfyingthatperformanceobligation.(HKFRS15.42)

OverTime

MeasuringProgress







Obligations


When(oras)aperformanceobligationissatisfied, anentityshallrecogniseasrevenue

theamountofthetransactionprice(whichexcludesestimatesofvariableconsiderationthatareconstrained inaccordancewithHKFRS15.5658)thatisallocatedtothatperformanceobligation.(HKFRS15.46)

63


ExistingPracticevsHKFRS15ExistingPractice HKFRS15Timingof RevenueRecognition(seemoreinStep5) Becauseofalackofclearand

comprehensiveguidance,thereissomediversityinpractice indeterminingwhetheracompanyshouldrecogniserevenueforsomegoodsorservicesatapointintimeorovertime.

Somecompaniessellingresidentialrealestateinmultiunitdevelopments havedifficultydeterminingwhethertheconstructionofsuchassetsis aservicethatisprovidedovertime(revenueisrecognisedovertime)or

agoodthatistransferredtothecustomerwhenconstructioniscomplete(revenueisrecognisedatthatpointintime)

AcompanywillbeabletorecogniserevenueovertimeonlyifthecriteriaspecifiedinIFRS15aremet.

Inallothercases,acompanywillrecogniserevenueatthepointintimewhenthecustomerobtainscontrol ofthepromisedgoodorservice.



ExistingPracticevsHKFRS15ExistingPractice HKFRS15Licences Therevenuerecognitionguidanceon

accountingforlicencesofintellectualpropertyisbroad.

Differentinterpretationsofthatguidancehasledtosignificantdiversityintheaccountingforlicences.

IFRS15providesapplicationguidanceonhowtoapplytherevenueframeworktodifferenttypesoflicencesofintellectualproperty.


64


ExistingPracticevsHKFRS15ExistingPractice HKFRS15Disclosure Disclosureofinformationaboutrevenue

isinadequate andlackscohesion withthedisclosureofotheritemsinthefinancialstatements.

Forexample,manyinvestorshavesaidthatsomecompaniespresentrevenueinisolation,whichmeansthatinvestorscannotrelaterevenuetothecompanysfinancialposition.

IFRS15includesacomprehensivesetofdisclosurerequirementsthatrequireacompanytodisclosequalitativeandquantitativeinformationaboutitscontractswithcustomerstohelpinvestorsunderstand thenature,amount,timinganduncertaintyofrevenue.



HKFRS9 FinancialInstruments

65


HKFRS9 Issuedin2014

EffectiveDate AnentityshallapplyHKFRS9forannualperiodsbeginningonorafter1January2018.

Earlierapplicationispermitted. IfanentityelectstoapplyHKFRS9early,itmustdisclosethatfactandapplyalloftherequirementsinHKFRS9 atthesametime(butseealsoparagraphs7.1.2,7.2.21and7.3.2).

Itshallalso,atthesametime,applytheamendmentsinAppendixC.(para.7.1.1)


HKFRS9 Issuedin2014

1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition

TransferredfromHKAS39

Debtinstrumentscannowbemeasuredatfairvaluethroughothercomprehensiveincome

Initialmeasurementoftradereceivable Newimpairmentrequirements Changesmainlyonhedgeconditions

66


HKFRS9 Issuedin2014



Chapter4.1ClassificationofFA

Unlesspara.4.1.5ofHKFRS9(socalledfairvalueoption)applies,anentityshallclassifyfinancialassetsassubsequentlymeasuredateither amortised cost, fairvaluethroughothercomprehensiveincome,or fairvaluethroughprofitorloss

onthebasisofboth:a) theentitysbusinessmodel formanagingthefinancialassets;andb) thecontractualcashflowcharacteristics ofthefinancialasset.

(para.4.1.1)

AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough

ProfitorLoss

67


No



ProfitorLoss

Contractualcashflowsaresolelyprincipaland

interest?

Determinethecategoryofafinancialassetforsubsequent

measurement

No

Choosefairvalueoption(designateatfairvaluethroughprofitorloss)?

No

Yes

Yes

Heldwithinabusinessmodeltocollectcontractual

cashflow?Yes

Entitleandelecttopresentfairvaluechangesinothercomprehensiveincome

Yes

PreviousVersion

No


No



ProfitorLoss


interest?

Determinethecategoryofafinancialassetforsubsequent

measurement

No

Choosefairvalueoption(designateatfairvaluethroughprofitorloss)?

No

Yes

Yes


cashflow?Yes

No Heldwithinabusinessmodeltocollectcontractual

cashflowandforsale?


interest?

Yes

Yes

No

No

Entitleandelecttopresentfairvaluechangesinothercomprehensiveincome

Yes

68



AdaptedfromtheIASBsProjectSummaryissuedinJuly2014



Afinancialassetshallbemeasuredatfairvaluethroughothercomprehensiveincome ifbothofthefollowingconditionsaremet:a. thefinancialassetisheldwithinabusinessmodel whoseobjectiveis

achievedbyboth collecting

contractualcashflows and sellingfinancialassets,and

b. thecontractualterms ofthefinancialassetgiveriseonspecifieddatestocashflows thataresolelypaymentsofprincipalandinterest ontheprincipalamountoutstanding. Para.B4.1.1B4.1.26provideguidanceonhowtoapplytheseconditions.(para.4.1.2A)


cashflowandforsale?

FairValueThroughOtherComprehensiveincome

69



Forthepurposeofapplyingpara.4.1.2(b)and4.1.2A(b):a. principal isthefairvalueofthefinancialassetatinitialrecognition.Para.

B4.1.7Bprovidesadditionalguidanceonthemeaningofprincipal.b. interest consistsofconsiderationforthetimevalueofmoney,forthe

creditriskassociatedwiththeprincipalamountoutstanding duringaparticularperiodoftimeandforotherbasiclendingrisksandcosts,aswellasaprofitmargin.(Para.B4.1.7AandB4.1.9AB4.1.9Eprovideadditionalguidanceonthemeaningofinterest)(para.4.1.3)

Yes


interest?

Yes


interest?

AmortisedCost FairValueThroughOtherComprehensiveincome


HKFRS9 Issuedin2014


70


Chapter5Measurement

Initialmeasurement Exceptfortradereceivableswithinthescopeofpara.5.1.3, atinitialrecognition,anentityshallmeasurea

financialassetorfinancialliability atitsfairvalue plusorminus,inthecaseofafinancialassetorfinancialliabilitynotatfairvaluethroughprofitorloss,transactioncosts thataredirectlyattributabletotheacquisitionorissueofthefinancialassetorfinancialliability.(para.5.1.1)

However,ifthefairvalue ofthefinancialassetorfinancialliabilityatinitialrecognition differsfromthetransactionprice,anentityshallapplypara.B5.1.2A.(para.5.1.1A)

InitialMeasurementFairValue

TransactionCost+


Chapter5Measurement

SubsequentMeasurementofFinancialAssets Afterinitialrecognition,anentityshallmeasureafinancialassetinaccordancewithpara.4.1.14.1.5at:a. amortisedcost;b. fairvaluethroughothercomprehensiveincome;orc. fairvaluethroughprofitorloss.(para.5.2.1)


ProfitorLoss

71


Chapter5Measurement

Anentityshallapplytheimpairmentrequirements inSection5.5 tofinancialassetsthataremeasuredatamortisedcost inaccordancewith

para.4.1.2and tofinancialassetsthataremeasuredatfairvaluethroughother

comprehensiveincome inaccordancewithpara.4.1.2A.(para.5.2.2)


ProfitorLoss

SubsequentMeasurementofFinancialAssets

NewImpairmentRequirements


Chapter5Measurement

Anentityshallapplythehedgeaccountingrequirements inpara.6.5.86.5.14(and,ifapplicable,para.8994ofHKAS39forthefairvaluehedgeaccountingforaportfoliohedgeofinterestraterisk)toafinancialassetthatisdesignatedasahedgeditem.(para.5.2.3)


ProfitorLoss

SubsequentMeasurementofFinancialAssets

72


Chapter5Measurement

Interestrevenue shallbecalculatedbyusingtheeffectiveinterestmethod (seeAppendixAandpara.B5.4.1B5.4.7). Thisshallbecalculatedbyapplyingtheeffectiveinterestrate tothegross

carryingamount ofafinancialasset exceptfor:a. purchasedororiginatedcreditimpairedfinancialassets

Forthosefinancialassets,theentityshallapplythecreditadjustedeffectiveinterestrate totheamortisedcostofthefinancialassetfrominitialrecognition.

b. financialassetsthatarenotpurchasedororiginatedcreditimpairedfinancialassetsbutsubsequentlyhavebecomecreditimpairedfinancialassets Forthosefinancialassets,theentityshallapplytheeffective

interestrate totheamortisedcost ofthefinancialassetinsubsequentreportingperiods.(para.5.4.1)

AmortisedCostMeasurementonFinancialAssets


Recogniselifetimeexpectedcreditlosses

Chapter5Measurement Calculateacreditadjustedeffectiveinterestrate,and

Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses

Recognise12monthexpectedcreditlosses,and

CalculateinterestrevenueongrosscarryingamountHastherebeenasignificantincreaseincreditrisksinceinitial

recognition?

No

Isthesimplifiedapproachfortradereceivables,contractassetsandleasereceivablesapplicable?

No

Yes

Doesthefinancialinstrumenthavelowcreditriskatthe

reportingdate?No

Isthelowcreditrisksimplification

applied?

Yes

Yes

Isthefinancialinstrumentapurchasedororiginatedcredit

impairedfinancialasset?

Isthefinancialinstrumentacreditimpairedfinancialasset?

Yes

Yes

No

No

Calculateinterestrevenueonthegrosscarryingamount

Yes

No

AdaptedfromtheflowchartafterIFRS9.IE102

Calculateinterestrevenueonamortisedcost

73


Chapter5Measurement

Writeoff Anentityshalldirectlyreduceth

Documents

SME FRS and Other Updates - Nelson CPA Limited | · SME‐FRS and Other Updates 27 November 2014 ... Assets between an Investor and its Associate or Joint Venture • Annual Improvements