IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 33 / First-Time Adoption of Internal Financial Reporting Standards (IFRS I )

373

Price/earnings ratio value-Local GAAP: Profit after tax above Less amortization of goodwill

11.5 (U) l.Q

II (3) --.8

* Workings numbers refer to the workings section that fo llows. Workings

( I) Goodwill and Plant and Equipme nt

$m

Value of goodwi ll

16

Less plant and equipment

(4)

Goodwill 12 As goodwill is capitalized and not amortized under IFRS, the amortization of $6 million will be added back to profit in 20X5 and 20X6. In addition, plant and equipment will be included in the balance sheet at $4 million less depreciation of [$0.5 million (20X5) + $1 million (20X6)], or $2.5 million. (2) At May 3 1, 20X5, $2 million will be recognized as an intangible asset less amortization of $0.25 million ($2 million /4 years / \/2), or $ 1.75 million. The recove rable amount is $2 million , and, therefore, no impairment has occurred. At May 31, 20X6, the intangible asset would be stated at Year 2.25 :l..L The recoverab le amount is $2.5 million; therefore, an impairment loss of $ 1 million is recognized in 20X6 . (3) A gain or loss on the initial recognitio n of a biological asset at fair value and from a change in fair value under lAS 4 1 is included in profit or loss for the period. Thus a gain of $4 million will be included in the 20X5 income statement and a further $ 1 million will be included in the 20X6 income statement. (4) The pass-through business should be eliminated , as it does not comply with lAS 18, Revenue, which states that revenue should include only economic benefits received and receivable by the company on its own account. Therefore, turnover should be reduced by $ 1.5 million + $2.5 million in 20X5 and 20X6, respectivel y, and inventory by the same amount in both years. 20X5 20X6 Intangible asset $m 2 3 Amortization $m (0.75) (0.75) Carrying value $m 1.25 IFRS I-First-time Adoption of International Financial Reporting Standards, sets out the requirements for the first-time adoption of IFRS. The Group is required to establish its IFRS accounting policies for the year to April I, 2006 and, in general, apply these retrospectivel y to determine the IFRS opening balance sheet at its date of transition, April 4, 2004. The Standard permits a number of optional exemptions to this general principle. The Group has adopted the following approach to the key exemptions: • Business combinations: The Group has chosen not to restate business combinations prior to the transition date; • Fair value or revaluation as deemed cost: The Group has adopted a valuation as deemed cost on transition for freehold land and buildings; • Employee benefits: All cumulative actuarial gains and losses, having been recognised in equit y under IFRS 17 for UK GAAP purposes , have continued to be recognise d in equity at the transi– tion date; • Financial instruments: The Group has taken the exemption not to restate comparatives for lAS 32, Financial Instruments: Disclosure and Presentation, and lAS 39, Financial Instruments: Recognition and Measurement. Comparative information for 2005 in the 2006 financial state– ments in respect of these items is presented on a UK GAAP basis as previously reported; 20. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS 20.1 MARKS AND SPENCER GROUP pic, Annual Report 2006 Notes to the Financial Statements 1. Accounting Policies First-time Adoption of International Financial Reporting Standards