IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 3 / Presentationof Financial Statements (lAS 1)

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E. Refunds and loyalty provisions Provisions for sales returns and loyalty scheme redemption are estimated on the basis of historical returns and redemptions and these are recorded so as to allocate them to the same period as the original revenue is recorded. Actual returns and redemptions could vary from these estimates. Other Disclosures required by lAS 1 7.7.3 7.7.3.1 (a) An entity shall disclose in the notes Amount of dividends proposed or declared before the financial statements were authorized for issue but not recognized as a dis tribution to equity holders durin g the peri od , and the related amount per share (b) The amount of cumulative preference dividends not recogni zed 7.7.3.2 Furthermore, an entit y should disclose the following items, if not disclosed elsew here in information publi shed with the financial statements: (a) The domicile and legal form of the entity, its count ry of incorporation, and the address of its registered office (or principal place of business, if different from the registered offi ce) (b) A descripti on of the nature of the entity's operation s and its principal activities (c) The name of the parent and the ultimate parent of the group 7.7.3.3 "Capita l Disclosu r es" (amendment to lAS 1, effective January 1,2007) 7.7.3.3.1 As part of its project to develop IFRS 7, Financial Instruments: Disclosures, the lASH also amended lAS I to add requ irements for disclosure s of • The entity's objectives, policies and processes for managing "capital"; • Quantitative data about what the entity regards as "capital" ; • Whether the entity has complied with any capital requirements and if it has not complied , the consequences of such noncompli ance. These disclosure requirements apply to all entities, effective fo r annual periods beginn ing on or after January 1, 2007, with earlier application encouraged. 7.7.3.3.2 IFRS does not define the term "capital" and therefore with this new disclosure requirement any ambiguity or controversy with respect to the interpretation of such an important aspect of the financial position of an entity should be put to rest. For example, in cert ain jurisdictions, it is a common practice to show as part of "equity," subordinated loans from owners that are in the nature of "equity" and have distinct features of "equity" (i.e., they are noninterest– bearing and have no repayment terms specified and thus are long-term in nature) and thus could be considered " residual intere st." In such j urisdictions, usually comp anies do not infuse huge amounts of share capital, instead , manage the business using long and term loans from their owners/shareholders that are in the nature of "equity." Financial instituti ons ther efore treat such owner/shareholder loans on par with share capital for the purpose of satisfying their lending norm s and thus provide funds and other bankin g facilities to such companies in these jurisdictions on the strength of both share capital and such loans from the owners/shareholders. In such circumstances it is therefore obvious that these entiti es intend to treat as "capital" both "s hare capital" and even such owner/shareholder loans as their "tru e" capita!. With such practices prevalent in many jurisdictions around the world , lAS I makes it incumbent upon an entity to clearly defi ne and discl ose what the entity regard s as "capital" for the purposes of running its business and for obt aining financin g. In other words , lAS I requires disclosure of what an entity' s objectives, policies and processe s are for managing "capital" and quantitative data about what the entity regards as "capital." 7.7.3.3.3 Furthermore , in case there are any capital requirements that an ent ity has to comply with (say, "minimum capital" as per the corporate law governing the juri sdiction where the entity is incorporated), then lAS I also requires disclosure of the whether the entity has in fact complied with those capital requir ement s. In the eve nt the entit y has not complied with such capital requirements, lAS I further requires disclosures of con sequenc es of such noncompliance.