384 / 488
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
*
Workings numbers refer
to
the workings section that fo llows.
Workings
( I) Goodwill and Plant and Equipme nt
11.5
(U)
l.Q
II
(3)
--.8
$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
20X5
20X6
Intangible asset
$m
2
3
Amortization
$m
(0.75)
(0.75)
Carrying value
$m
1.25
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.
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
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;