ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) REGULATIONS

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

SUBSIDIARY LEGISLATION 281.05

ACCOUNTANCY PROFESSION (GENERAL

ACCOUNTING PRINCIPLES FOR SMALL AND

MEDIUM-SIZED ENTITIES) REGULATIONS

28th August, 2015

LEGAL NOTICE 289 of 2015, as amended by Legal Notice 41 of 2024.

The title of these regulations is the Accountancy

Profession (General Accounting Principles for Small and Medium-

Sized Entities) Regulations.

Amended by

L.N. 41 of 2024.

(Regulation 4)

General Accounting Principles for Small and Medium Entities

Section 1: Citation and objective

1.1

The title of this schedule is the General Accounting Principles for Small

and Medium Entities (GAPSME).

1.2

The objective of GAPSME is to ensure that reporting entities or groups

falling within its scope provide in their financial statements information about the

financial position and financial performance and (where applicable, that is for

medium-sized entities) cash flows of the entity or group that is useful to users in

assessing the stewardship of management and for making economic decisions,

recognising that the balance between users’ needs in respect of stewardship and

economic decision-making for entities or groups falling within its scope is different

from that for other reporting entities or groups.

Section 2: Interpretation

2.1

The terms "GAPSME", "these Principles", "this Schedule" and "General

Accounting Principles for Small and Medium Entities" all refer to the general

accounting principles for small and medium entities set out in the Schedule to these

regulations and forming an integral part hereof.

2.2

Most terms used in these Principles are defined in regulation 3 of these

regulations and in various relevant Sections of this Schedule. Nevertheless terms

that are not so defined shall have the following meaning, unless the context

otherwise requires

(a) "Amortisation" means the systematic allocation of the depreciable

amount of an asset over its useful life.

(b) "Carrying amount" refers to the amount at which an asset or liability is

recognised in the balance sheet.

(c) "Cash flows" means inflows and outflows of cash and cash equivalents.

(d) "Class of assets" means a grouping of assets of a similar nature and use

in an entity’s operations.

(e) "Closing rate of exchange" is the spot exchange rate between two

currencies at the balance sheet date.

(f)

"Depreciable amount" is the cost of an asset, or other amount

substituted for cost (in the financial statements), less its residual value.

(g) "Depreciation" means the systematic allocation of the depreciable

amount of an asset over its useful life.

(h) "Derecognition" is the removal of a previously recognised asset or

liability from an entity’s balance sheet.

(i)

"Economic life" is either

(i)

the period over which an asset is expected to be economically

useable by one or more users; or

(ii) the number of production or similar units expected to be obtained

from the asset by one or more users.

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

(j)

"Employee benefits" refers to all forms of consideration given by an

entity in exchange for service rendered by employees.

(k) "Fair value" is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm’s

length transaction.

(l)

"Fellow subsidiary" is an entity which is under common control with the

reporting entity.

(m) "Finance costs" means interest and other costs incurred by an entity in

connection with the borrowing of funds.

(n) "Goodwill" means future economic benefits arising from assets that are

not capable of being individually identified and separately recognised.

(o) "Group" means a parent and all its subsidiaries and the term group

entities shall be construed accordingly.

(p) "Impracticable": applying a requirement is impracticable when the

entity cannot apply it after making every reasonable effort to do so.

(q) "Measurement" is the process of determining the monetary amounts at

which the elements of the financial statements are to be recognised and

carried in the balance sheet and income statement.

(r) "Minority interest" refers to that portion of the profit or loss and net

assets of a subsidiary attributable to equity interests that are not owned,

directly or indirectly through subsidiaries, by the parent.

(s) "Present value" is a current estimate of the present discounted value of

the future net cash flows in the normal course of business.

(t)

"Probable" means more likely than not.

(u) "Profit" is the residual amount that remains after expenses have been

deducted from income.

(v) "Reporting date" (sometimes also referred to as "balance sheet date") is

the end of the latest financial reporting period covered by financial

statements.

(w) "Reporting period" (sometimes also referred to as "financial reporting

period") refers to a period, ending on the entity’s reporting date, for

which financial statements have been prepared.

(x) "Residual value" (of an asset) is the estimated amount that an entity

would currently obtain from disposal of an asset, after deducting the

estimated costs of disposal, if the asset were already of the age and in

the condition expected at the end of its useful life.

(y) "Useful life" (Section 14) means the estimated remaining period, from

the commencement of the lease term, without limitation by the lease

term, over which the economic benefits embodied in the asset are

expected to be consumed by the entity.

(z) "Useful life" (Sections 7, 11, 12 and 21) means either

(i)

the period over which an asset is expected to be available for use

by the entity; or

(ii) the number of production or similar units expected to be obtained

from the asset by the entity.

Section 3: Concepts and pervasive principles

3.1

The scope of this Section is to deal with

(a) the objective of financial statements and the underlying assumptions;

(b) the qualitative characteristics that determine the usefulness of

information in financial statements; and

(c) the definition and recognition of the elements of financial statements.

Objective of financial statements and underlying assumptions

3.2

The objective of financial statements prepared under GAPSME is to

provide information about an entity’s

(a) financial position,

(b) financial performance, and

(c) the ability to generate cash and cash equivalents, as regards medium-sized

entities only

that is useful to a wide range of users in assessing the stewardship of management

and for economic decision-making.

3.3

In order to meet their objective, financial statements (with the exception of

cash flow information presented for medium-sized entities) shall be prepared on the

accrual basis of accounting. Under this basis, the effects of transactions and other

events giving rise to assets, liabilities, equity, income or expenses are recognised

when they occur, rather than when cash or its equivalent is received or paid, and

hence they are recorded in the accounting records and reported in the financial

statements of the financial reporting periods to which they relate.

3.4

The entity shall be presumed to be carrying on business as a going

concern. The financial statements shall be prepared on this basis unless management

either intends to liquidate the entity or to cease trading, or it has no realistic

alternative but to do so. When management is aware, in making its assessment, of

material uncertainties related to events or conditions that may cast significant doubt

upon the entity’s ability to continue as a going concern, those uncertainties shall be

disclosed. When financial statements are not prepared on a going concern basis, that

fact shall be disclosed, together with the basis on which the financial statements are

prepared and the reason why the entity is not regarded as a going concern. The period

considered by management in making its assessment of the entity’s ability to continue as

a going concern shall not be less than twelve months from the balance sheet date. The

financial statements shall not be prepared on a going concern basis if management

determines after the balance sheet date either that it intends to liquidate the entity or

to cease trading, or that it has no realistic alternative but to do so.

3.5

The uncertainties that inevitably surround many events and circumstances

are acknowledged by the disclosure of their nature and extent and by the exercise of

prudence in the preparation of the financial statements. Prudence is the inclusion of a

degree of caution in the exercise of the judgements needed in making the estimates

required under conditions of uncertainty, in particular

(a) only profits made by the balance sheet date may be recognised,

(b) all liabilities arising in the course of the financial year concerned or in

the course of a previous financial year shall be recognised, even if such

liabilities become apparent only between the balance sheet date and the

date on which the balance sheet is drawn up, and

(c) all negative value adjustments shall be recognised, whether the result of

the financial year is a profit or a loss.

However, the exercise of prudence does not allow the deliberate

understatement of assets or income, or the deliberate overstatement of liabilities or

expenses. In short, prudence does not permit bias.

3.6

The requirements set out in these Principles regarding recognition,

measurement, presentation, disclosure and consolidation need not be complied with

when the effect of complying with them is immaterial. Information is material if its

omission or misstatement could influence the economic decisions of users made on

the basis of the financial statements. Materiality depends on the size of the item or

error judged in the particular circumstances of its omission or misstatement.

However, it is inappropriate to make, or leave uncorrected, immaterial departures

from GAPSME to achieve a particular presentation of an entity’s financial position,

financial performance or cash flows.

Qualitative characteristics of information in financial statements

3.7

Qualitative characteristics are the attributes that make the information

provided in financial statements useful to users.

3.8

Understandability - The information provided in financial statements

should be presented in a way that makes it comprehensible by users who have a

reasonable knowledge of business and economic activities and accounting and a

willingness to study the information with reasonable diligence. However, the need

for understandability does not allow relevant information to be omitted on the

grounds that it may be too difficult for some users to understand.

3.9

Relevance - The information provided in financial statements must be

relevant to the decision-making needs of users. Information has the quality of

relevance when it influences the economic decisions of users by helping them

evaluate past, present or future events or confirming, or correcting, their past

evaluations.

3.10 Reliability - The information provided in financial statements must be

reliable. Information is reliable when it is free from material error and bias and

represents faithfully that which it either purports to represent or could reasonably be

expected to represent. Financial statements are not free from bias if, by the selection

or presentation of information, they are intended to influence the making of a

decision or judgement in order to achieve a predetermined result or outcome.

3.11 Substance over form - Transactions and other events and conditions shall

be accounted for and presented in accordance with their substance and economic

reality and not merely their legal form. This enhances the reliability of financial

statements.

3.12 Completeness - To be reliable, the information in financial statements must

be complete within the bounds of materiality and cost. An omission can cause

information to be false or misleading and thus unreliable and deficient in terms of its

relevance.

3.13 Comparability - Users must be able to compare the financial statements of

an entity through time in order to identify trends in its financial position and

performance. Users must also be able to compare the financial statements of

different entities in order to evaluate their relative financial position, performance

and cash flows. Hence, the measurement and display of the financial effect of like

transactions and other events and conditions must be carried out in a consistent way

throughout an entity and over time for that entity and in a consistent way for

different entities. In addition, users must be informed of the accounting policies

employed in the preparation of the financial statements, and of any changes in those

policies and the effects of such changes.

3.14 Timeliness - To be relevant, financial information must be able to

influence the economic decisions of users. Timeliness involves providing the

information within the decision time frame. If there is undue delay in the reporting

of information it may lose its relevance. Management may need to balance the

relative merits of timely reporting and the provision of reliable information. In

achieving a balance between relevance and reliability, the overriding consideration

is how best to satisfy the needs of users in making economic decisions.

3.15 Balance between benefit and cost - The benefits derived from information

should exceed the cost of providing it. The evaluation of benefits and costs is

substantially a judgemental process. Furthermore, the costs are not necessarily borne

by those users who enjoy the benefits. In applying a costs and benefits test, an entity

should understand that the benefits of the information may also be enjoyed by a

broad range of external users.

True and fair view

3.16 Preparation of financial statements in accordance with these Principles is

presumed to result in financial statements which give a true and fair view of the

financial position, financial performance and cash flows of an entity.

3.17 The annual financial statements shall give a true and fair view of the

entity's assets, liabilities, financial position and profit or loss. Where the application

of these Principles would not be sufficient to give a true and fair view of the entity's

assets, liabilities, financial position and profit or loss, such additional information as

is necessary to comply with that requirement shall be given in the notes to the

financial statements.

3.18 Transactions and other events and conditions shall be accounted for and

presented within items in the income statement and balance sheet in accordance with

their substance and economic reality and not merely their legal form. To determine

the substance of a transaction it is necessary to identify whether the transaction has

given rise to new assets or liabilities for the reporting entity and whether it has

changed the entity’s existing assets or liabilities.

3.19 The application of the qualitative characteristics and appropriate Sections

within these Principles normally results in financial statements that convey a true

and fair view. However, if in exceptional cases an entity’s management concludes

that compliance with any of the requirements of these Principles is inconsistent with

the requirement to give a true and fair view, an entity shall depart from that

requirement to the extent necessary to give a true and fair view. Particulars of the

departure, the reasons for it and its effect must be given in a note to the financial

statements as follows

(a) a statement that there has been a departure from the requirements of

GAPSME and that the departure is necessary to give a true and fair

view;

(b) an explanation of the nature and the reasons for the departure;

(c) its effect on the entity’s assets, liabilities, financial position and profit

or loss.

3.20 Where a departure continues in subsequent financial statements, the

disclosures shall be made in all subsequent financial statements and shall include

comparative amounts for the previous financial reporting period.

The elements of financial statements

3.21 Financial statements portray the financial effects of transactions and other

events by grouping them into broad classes according to their economic

characteristics. These broad classes are termed the elements of financial statements,

which term includes assets, liabilities, equity, income and expenses. Paragraphs 3.22

- 3.30 define these elements.

3.22 The elements directly related to the measurement of financial position are

assets, liabilities and equity.

3.23 An asset is a resource controlled by the entity as a result of past events and

from which future economic benefits are expected to flow to the entity. The future

economic benefit embodied in an asset is the potential to contribute, directly or

indirectly, to the flow of cash and cash equivalents to the entity, for example through

use in the entity’s operating activities, or through convertibility to cash and cash

equivalents, or through its capability to reduce cash outflows.

3.24 A liability is a present obligation of the entity arising from past events, the

settlement of which is expected to result in an outflow from the entity of resources

embodying economic benefits. An essential characteristic of a liability is that the

entity has a present, rather than a future, obligation. A present obligation therefore

arises from past transactions or other past events. Moreover, the settlement of the

present obligation usually involves the entity giving up resources embodying

economic benefits, such as the payment of cash, transfer of other assets, provision of

services, replacement of that obligation with another obligation, or conversion of

that obligation to equity.

3.25 Equity is the residual interest in the assets of the entity after deducting all

its liabilities. However it may be sub-classified in the balance sheet, for example in

funds contributed by shareholders, retained earnings and other reserves.

3.26 Profit is frequently used as a measure of an entity’s performance. The

elements directly related to the measurement of profit are income and expenses.

3.27 Income is increases in economic benefits during the financial reporting

period in the form of inflows or enhancements of assets or decreases of liabilities

that result in increases in equity, other than those relating to contributions from

equity participants.

3.28 The definition of income encompasses both revenue and gains. Revenue

arises in the course of the ordinary activities of an entity and is referred to by a

variety of different names including sales, fees, interest, dividends, royalties and

rent. Gains represent other items that meet the definition of income in paragraph

3.27 and may, or may not, arise in the course of the ordinary activities of an entity.

Gains include, for example, those arising on the disposal of non-current assets or

from increases in their carrying amounts.

3.29 Expenses are decreases in economic benefits during the financial reporting

period in the form of outflows or depletions of assets or incurrences of liabilities that

result in decreases in equity, other than those relating to distributions to equity

participants.

3.30 The definition of expenses encompasses losses as well as those expenses

that arise in the course of the ordinary activities of the entity. The latter include, for

example, cost of sales, wages and depreciation. They usually take the form of an

outflow or depletion of assets such as cash and cash equivalents, inventory, property,

plant and equipment. Losses represent other items that meet the definition of

expenses in paragraph 3.29 and may, or may not, arise in the course of the ordinary

activities of the entity. Losses include, for example, those resulting from disasters

such as fire and flood, those arising on the disposal of non-current assets, and those

unrealised losses arising from the effects of increases in the rate of exchange for a

foreign currency in respect of the borrowing of an entity in that currency.

Recognition of the elements of financial statements

3.31 Recognition is the process of incorporating in the balance sheet or income

statement an item that meets the definition of an element and satisfies the following

criteria

(a) it is probable that any future economic benefit associated with the item

will flow to or from the entity;

(b) the item has a cost or value that can be measured reliably.

3.32 An asset is recognised in the balance sheet when it is probable that the

future economic benefits will flow to the entity and the asset has a cost or value that

can be measured reliably. An asset is not recognised in the balance sheet when

expenditure has been incurred for which it is considered improbable that economic

benefits will flow to the entity beyond the current financial reporting period. Such a

transaction would therefore be recognised as an expense in the income statement.

3.33 A liability is recognised in the balance sheet when it is probable that an

outflow of resources embodying economic benefits will result from the settlement of

a present obligation and the amount at which the settlement will occur can be

measured reliably.

3.34 Income is recognised in the income statement when an increase in future

economic benefits related to an increase in an asset or a decrease of a liability has

arisen that can be measured reliably. This means, in effect, that recognition of

income occurs simultaneously with the recognition of increases in assets or

decreases in liabilities.

3.35 Expenses are recognised in the income statement when a decrease in future

economic benefits related to a decrease in an asset or an increase of a liability has

arisen that can be measured reliably. This means, in effect, that recognition of

expenses occurs simultaneously with the recognition of an increase in liabilities or a

decrease in assets. Expenditure incurred on assets that generate economic benefits

over several financial reporting periods is normally recognised as an expense in the

income statement on the basis of systematic and rational allocation procedures. This

is often necessary in recognising the expenses associated with the using up of assets

such as property, plant and equipment, patents and trademarks; in such cases the

expense is referred to as depreciation or amortisation. An expense is also recognised

immediately in the income statement when an expenditure produces no future

economic benefits or when, and to the extent that, future economic benefits do not

qualify, or cease to qualify, for recognition in the balance sheet as an asset. An

expense is also recognised in the income statement in those cases when a liability is

incurred without the recognition of an asset.

3.36 The requirements for recognising and measuring assets, liabilities, income

and expenses in these Principles are based on pervasive principles that are identified

in paragraphs 3.21 - 3.35 of this Section. In the absence of a requirement in

GAPSME that applies specifically to a transaction or other event or condition,

paragraph 5.5 establishes a hierarchy for an entity to follow in deciding on the

appropriate accounting policy in the circumstances. The second level of that

hierarchy (paragraph 5.5(b)) requires an entity to consider the pervasive recognition

and measurement principles set out in paragraphs 3.21 - 3.35 and paragraph 3.39 of

this Section.

Derecognition of the elements of financial statements

3.37 After an asset or liability is recognised on the balance sheet, it shall be

derecognised if, and to the extent that, it is no longer probable that any future

economic benefits associated with the item will flow to or from the entity.

Measurement of the elements of financial statements

3.38 Measurement is the process of determining the monetary amounts at which

assets, liabilities, income and expenses are to be recognised and carried in the

balance sheet and income statement. Measurement involves the selection of a basis

of measurement. These Principles specify which measurement basis an entity shall

use for many types of assets, liabilities, income and expenses. In the absence of a

requirement in GAPSME that applies specifically to a transaction or other event or

condition, an entity shall have regard to measurement bases for similar assets,

liabilities, income and expenses when determining monetary amounts at which such

transactions, other events or conditions are to be initially and subsequently

measured.

3.39 Items recognised in the financial statements shall be measured by

reference to their cost unless these Principles allow an alternative measurement

basis.

3.40

The components of asset and liability items shall be valued separately.

Section 4: Presentation of financial statements

4.1

A complete set of financial statements comprises

(a) a balance sheet;

(b) an income statement; and

(c) notes to the financial statements

Provided that medium-sized entities shall prepare additional statements as

provided for in paragraphs 4.30 and 4.33 of these Principles

Provided further that in respect of the statements referred to in paragraphs

4.1(a) and (b), 4.30 and 4.33, an entity may use titles for the statements other than those

used in these Principles.

The annual financial statements shall constitute a composite whole. They

shall be drawn up in accordance with the provisions of these Principles.

4.2

The financial statements shall be identified clearly and distinguished from

other information in the same published document and each component of the

financial statements shall be identified clearly. In addition, the following

information shall be displayed prominently, and repeated when it is necessary for a

proper understanding of the information presented

(a) the name of the reporting entity and any change in its name since the

end of the preceding financial reporting period;

(b) the information necessary to identify the register with which the entity

is registered, together with the number of the company in the register,

the legal form of the company, the location of the registered office, and

where appropriate, the fact that the company is being wound up;

(c) whether the financial statements cover the individual entity or a group

of entities;

(d) the date of the end of the financial reporting period or the period

covered by the financial statements, whichever is appropriate to that

component of the financial statements;

(e) the presentation currency, as defined in Section 18 of these Principles;

and

(f)

the level of rounding, if any, used in presenting amounts in the financial

statements.

4.3

An entity that is permitted to apply GAPSME in accordance with

regulation 5, and that opts to apply these Principles, shall present a complete set of

financial statements (including comparative information) at least annually. When the

end of an entity’s financial reporting period changes and the annual financial

statements (including comparatives) are presented for a period longer or shorter than

one year, the entity shall disclose

(a) that fact;

(b) the reason for using a longer or shorter period; and

(c) the fact that comparative amounts for the income statement, statement

of changes in equity (if applicable), statement of cash flows (if

applicable) and related notes are not entirely comparable.

4.4

An entity shall retain the presentation and classification of items in the

financial statements from one financial reporting period to the next unless

(a) it is apparent, following a significant change in the nature of the entity’s

operations or a review of its financial statements, that another

presentation or classification would be more appropriate having regard

to the criteria for the selection and application of accounting policies; or

(b) these Principles require a change in presentation.

4.5

When the presentation or classification of items in the financial statements

is changed, an entity shall reclassify comparative amounts unless the quantification

of that reclassification is impracticable. When comparative amounts are reclassified,

an entity shall disclose

(a) the nature of the reclassification;

(b) the amount of each item or class of items that is reclassified; and

(c) the reason for the reclassification.

4.6

When it is impracticable to quantify the amount of the reclassification, an

entity shall disclose

(a) the reason for not reclassifying the amounts; and

(b) the nature of the adjustments that would be required, had the amounts

been able to be determined and reclassified.

4.7

Comparative amounts for the previous financial reporting period shall be

shown for every item presented in the financial statements and notes thereto.

Comparative information shall be included for narrative and descriptive information

when it is relevant to an understanding of the current financial reporting period’s

financial statements. Where there is no amount to be shown for an item for the

current financial reporting period but a comparative amount can be shown for the

previous period, the comparative amount shall be shown. Where a comparative

amount is not comparable with that for the current financial reporting period for the

reason contemplated in paragraphs 5.7 - 5.9 of these Principles, it shall be adjusted

and particulars of the adjustment and the reasons for it shall be disclosed in a note to

the financial statements.

4.8

Comparative amounts are not required to be disclosed in relation to any

amounts stated in the notes to the financial statements for the items listed below

(a) a reconciliation of the carrying amount of property, plant and equipment

and investment property at the beginning and end of the financial

reporting period as required by sub-paragraph (f) of paragraph 7.27, and

paragraph 8.14 (by virtue of a reference to the requirements of

paragraph 7.27), respectively of these Principles;

(b) a reconciliation of the carrying amount of intangible assets at the

beginning and end of the financial reporting period as required by sub-

paragraph (b) of paragraph 11.20 of these Principles;

(c) a reconciliation of the carrying amount of goodwill at the beginning and

end of the financial reporting period as required by paragraph 21.22of

these Principles;

(d) a reconciliation of the carrying amount of each category of investments

classified as non-current assets at the beginning and end of the financial

reporting period as required by sub-paragraph (b) of paragraph 9.39of

these Principles;

(e) a reconciliation of the carrying amount of non-current investments in

subsidiaries, associates and jointly controlled entities at the beginning

and end of the financial reporting period as required by sub-paragraph

(b) of paragraph 10.29 of these Principles; and

(f)

a reconciliation of the carrying amount of each class of provisions at the

beginning and the end of the financial reporting period as required by

sub-paragraph (c) of paragraph 17.17 of these Principles.

4.9

An entity shall present separately each material class of similar items. An

entity shall present separately items of a dissimilar nature or function unless they are

immaterial. Omissions or misstatements of items are material if they could,

individually or collectively, influence the economic decisions of users taken on the

basis of the financial statements. Materiality depends on the size and nature of the

omission or misstatement judged in the surrounding circumstances. The size or

nature of the item, or a combination of both, could be the determining factor.

4.10 An entity shall not offset assets and liabilities, or income and expenses,

unless required or permitted by these Principles, in which case the amounts which

are set off shall be specified as gross amounts in the notes to the financial

statements.

4.11 An entity’s financial statements shall comply with the requirements set out

in this Section as to their form and content.

Balance Sheet

4.12 The balance sheet presents an entity’s assets, liabilities and equity at a

point in time. The opening balance sheet for each financial year shall correspond to

the closing balance sheet for the preceding financial year.

4.13 An entity may adopt one of the layouts set out in this Section. The

following items shall be shown separately on the face of the balance sheet, in the

order indicated, and under the headings and sub-headings listed below. Items

preceded by Arabic numerals may be combined under their respective sub-heading

when they are immaterial for the purposes of the financial statements giving a true

and fair view, or such combination makes for greater clarity, in which latter case the

items combined shall be dealt with separately in the notes. The layout, nomenclature

and terminology of items in the balance sheet that are preceded by Arabic numerals

may be amended according to the nature of the entity and its transactions to provide

information that is relevant to an understanding of the entity’s financial position.

In respect of each item an entity also needs to show the corresponding

amount for the preceding financial reporting period. Unless there is a corresponding

item that needs to be shown, an entity shall not show any item listed below for which

there is no amount for the current period.

Horizontal layout of the balance sheet

ASSETS

Non-current assets

Intangible assets

1. Development costs

2. Concessions, patents, licences, trade marks and similar rights and assets, if

they were acquired for valuable consideration

3. Goodwill

4. Payments on account

Property, plant and equipment

1. Land and buildings

2. Plant and machinery

3. Other fixtures and fittings, tools and equipment

4. Payments on account and tangible assets in the course of construction

Investment property

Financial investments

1. Shares in subsidiaries

2. Loans to subsidiaries

3. Shares in associates and jointly controlled entities

4. Loans to associates and jointly controlled entities

5. Other non-current investments (other than loans)

The objective of these regulations is to prescribe the

general accounting principles that shall be adhered to by small and

medium-sized entities complying with all the criteria set out in

regulation 4.

(1) In these regulations, unless the context otherwise

requires

"the Act" means the Accountancy Profession Act;

"balance sheet date" means the date on which the balance sheet

of an entity is drawn up;

"company" shall have the meaning assigned to it in the

Companies Act;

"entity" or "reporting entity" means a commercial partnership as

defined in the Companies Act and any other body, corporate or

unincorporate, which carries on a trade or business and which is

required to prepare financial statements in terms of the laws of

Malta;

"financial reporting period " means the period ending on the

entity’s balance sheet date for which financial statements are

prepared;

"financial statements" means the statements prepared by an

entity comprising the following documents

(a) a balance sheet;

(b) an income statement; and

(c) notes to the financial statements

Provided that for medium-sized entities the financial

statements shall also comprise the following documents

(a) a statement of changes in equity; and

(b) a statement of cash flows;

"public company" shall have the meaning assigned to it in the

Companies Act;

"public interest entity" shall have the meaning assigned to it in

the Accountancy Profession Act;

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

"regulated market" shall have the meaning assigned to it in the

Companies Act;

"security" shall have the meaning assigned to it in the

Companies Act;

"the Schedule" means the Schedule to these regulations and

forming an integral part hereof.

(2) References to an "entity" or "reporting entity" in these

regulations shall, in the case of an entity or reporting entity

preparing consolidated financial statements in terms of section 22

of the Schedule, be construed as referring to the group of entities in

respect of which consolidated financial statements are presented for

as a single economic entity.

(3) Unless the context otherwise requires, terms used in these

regulations and which are not defined herein shall have the

meaning assigned to them in the Act.

An entity shall, for financial reporting periods

commencing on or after 1st January 2016, prepare financial

statements in accordance with the general accounting principles for

small and medium-sized entities set out in the Schedules unless the

Board of Directors of a company or, in the case of an entity other

than a company, its governing body, has resolved to prepare

financial statements in accordance with IFRS as adopted by the EU

for that financial reporting period; or the entity does not satisfy the

requirements set out in regulation 5 for the applicability of the

Schedule

Provided that for financial reporting periods beginning on or

before 1st January 2015, the regulations as were in force prior to the

coming into force of these regulations shall continue to apply

mutatis mutandis to such entities.

(1)

This regulation shall apply to small and medium-sized

entities

(a) "small entities" means entities which on their balance

sheet dates do not exceed the limits of at least two of

the three following criteria

(i) balance sheet total: € 4,000,000;

(ii) revenue: € 8,000,000;

(iii) average number of employees

during

the

financial year: 50

(b) "medium-sized entities" means entities which are not

small entities and which on their balance sheet dates

do not exceed the limits of at least two of the three

following criteria

(i) balance sheet total: € 20,000,000;

(ii) revenue: € 40,000,000;

(iii) average number of employees

during

the

financial year: 250.

(2)

For the purposes of sub-regulation (1)

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

(a) "balance sheet total" shall consist of the total value of

assets held by an entity, including those that are

current and non-current, as defined in the Schedule;

(b) "revenue" means the amounts derived from the sale of

products and the provision of services after deducting

sales rebates and value added tax and other taxes

directly linked to revenue; and

(c) the "average number

of

employees"

shall

be

determined as follows

(i)

in relation to whole-time employees, the

aggregate number of full weeks worked by all

the whole-time employees of the entity during

the financial reporting period, divided by the

number of full weeks comprised in that financial

reporting period, rounded off to the nearest

number; and

(ii) in relation to part-time employees, the aggregate

number of hours worked by all the part-time

employees of the entity during the financial

reporting period, divided by the number of full

weeks comprised in that financial reporting

period and again divided by forty, rounded off to

the nearest number.

(3) For the purposes of calculating the thresholds in sub-

regulation (1), entities for which revenue is not relevant shall be

required to include income from other sources.

(4) In relation to a subsequent financial year, where, on its

balance sheet date, an entity exceeds or ceases to exceed the limits

of two of the three criteria set out in sub-regulation (1)(a) and (b),

as applicable, that fact shall affect the application of this regulation

only if it occurs in two consecutive financial years

(a) where an entity exceeds the criteria in sub-regulation

(1)(a) it shall apply the provisions applicable to

medium-sized entities insofar as it does not exceed the

criteria in sub-regulation (1)(b);

(b) where an entity exceeds the criteria in sub-regulation

(1)(b) it shall stop applying the Principles set out in

the Schedule.

(5) In determining whether an entity qualifies as small or

medium-sized under sub-regulation (1)(a) or (b) (qualification in

relation to subsequent financial year by reference to circumstances

in preceding financial years) in relation to a financial year in

respect of which the amendments made by these regulations have

effect, the entity is to be treated as having qualified as small or

medium-sized (as the case may be) in any previous year in which it

would have so qualified if amendments to the same effect as the

amendments made by these regulations had had effect in relation to

that previous year.

(6) In the case of the first financial reporting period of an

entity, the entity shall determine whether the criteria have been

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

exceeded by computing the assets comprising the balance sheet

total, total revenue and the average number of employees for the

first financial reporting period in accordance with the Schedule

such that it shall be deemed to have exceeded the criteria if as at the

end of the first financial reporting period two of the balance sheet

total, total revenue and average number of employees for the

relevant financial reporting period exceeded the limits established

in sub-paragraphs (i), (ii) and (iii) of sub-regulation (1)(a) or

(1)(b).

(7) For the purposes of this regulation, where a financial

reporting period is shorter or longer than one calendar year, the

total revenue generated during that financial reporting period shall

be deemed to be the amount arrived at by dividing the total revenue

figure generated in that financial reporting period by the number of

months in that financial reporting period, and multiplying that

number by twelve.

(8)

The Schedule shall not apply to public interest entities.

Other loans

Trade and other receivables

1. Trade receivables

2. Amounts owed by group entities

3. Amounts owed by associates and jointly controlled entities

4. Other receivables

5. Subscribed capital called but not paid

6. Prepayments and accrued income

Deferred tax assets

Current assets

Inventories

1. Raw materials and consumables

2. Work in progress

3. Finished goods and goods for resale

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

4. Payments on account

Trade and other receivables

Trade receivables

1. Amounts owed by group entities

2. Amounts owed by associates and jointly controlled entities

3. Other receivables

4. Subscribed capital called but not paid

5. Prepayments and accrued income

Current tax assets

Financial investments

1. Shares in subsidiaries

2. Loans to subsidiaries

3. Shares in associates and jointly controlled entities

4. Loans to associates and jointly controlled entities

5. Other current investments

Cash and cash equivalents

EQUITY AND LIABILITIES

Equity

Share capital

Share premium account

Revaluation reserve

Other reserves

Retained earnings

Minority interest

Liabilities

Non-current liabilities

Borrowings

1. Bank loans

2. Other borrowings

Trade and other payables

1. Payments received on account of orders

2. Trade payables

3. Bills of exchange payable

4. Amounts owed to group entities

5. Amounts owed to associates and jointly controlled entities

6. Other creditors (including indirect tax and social security)

Accruals and deferred income

Deferred tax liabilities

Provisions

1. Provisions for employee benefits and similar obligations

2. Other provisions

Current liabilities

Borrowings

1. Bank loans

2. Other borrowings

Trade and other payables

1. Payments received on account of orders

2. Trade payables

3. Bills of exchange payable

4. Amounts owed to group entities

5. Amounts owed to associates and jointly controlled entities

6. Other creditors (including indirect tax and social security)

7. Accruals and deferred income

Current tax liabilities

Provisions

1. Provisions for employee benefits and similar obligations

2. Other provisions

Vertical layout of the balance sheet

ASSETS

Non-current assets

Intangible assets

1. Development costs

2. Concessions, patents, licences, trade marks and similar rights and assets, if

they were acquired for valuable consideration

3. Goodwill

4. Payments on account

Property, plant and equipment

1. Land and buildings

2. Plant and machinery

3. Other fixtures and fittings, tools and equipment

4. Payments on account and tangible assets in the course of construction

Investment property

Financial investments

1. Shares in subsidiaries

2. Loans to subsidiaries

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

3. Shares in associates and jointly controlled entities

4. Loans to associates and jointly controlled entities

5. Other non-current investments (other than loans)

6. Other loans

Trade and other receivables

1. Trade receivables

2. Amounts owed by group entities

3. Amounts owed by associates and jointly controlled entities

4. Other receivables

5. Subscribed capital called but not paid

6. Prepayments and accrued income

Deferred tax assets

Current assets

Inventories

1. Raw materials and consumables

2. Work in progress

3. Finished goods and goods for resale

4. Payments on account

Trade and other receivables

1. Trade receivables

2. Amounts owed by group entities

3. Amounts owed by associates and jointly controlled entities

4. Other receivables

5. Subscribed capital called but not paid

6. Prepayments and accrued income

Current tax assets

Financial investments

1. Shares in subsidiaries

2. Loans to subsidiaries

3. Shares in associates and jointly controlled entities

4. Loans to associates and jointly controlled entities

5. Other current investments

Cash and cash equivalents

Current liabilities

Borrowings

1. Bank loans

2. Other borrowings

Creditors: amounts becoming due and payable within one year

1. Payments received on account of orders

2. Trade payables

3. Bills of exchange payable

4. Amounts owed to group entities

5. Amounts owed to associates and jointly controlled entities

6. Other creditors (including indirect tax and social security)

7. Accruals and deferred income

Current tax liabilities

Provisions

1. Provisions for employee benefits and similar obligations

2. Other provisions

Net current assets/liabilities

Total assets less current liabilities

Non-current liabilities

Borrowings

1. Bank loans

2. Other borrowings

Creditors: amounts becoming due and payable after more than one year

1. Payments received on account of orders

2. Trade payables

3. Bills of exchange payable

4. Amounts owed to group entities

5. Amounts owed to associates and jointly controlled entities

6. Other creditors (including indirect tax and social security)

7. Accruals and deferred income

Deferred tax liabilities

Provisions

1. Provisions for employee benefits and similar obligations

2. Other provisions

Equity

Share capital

Share premium account

Revaluation reserve

Other reserves

Retained earnings

Minority interest

4.14 The face of the balance sheet shall also include line items that present the

following amounts (if applicable)

(a) the total of assets classified as held for sale and assets included in

disposal groups classified as held for sale in accordance with Section 23

of these Principles; and

(b) liabilities included in disposal groups classified as held for sale in

accordance with Section 23.

4.15 An entity shall present additional line items, headings and subtotals on the

face of the balance sheet when such presentation is relevant to an understanding of

the entity’s financial position. Additional line items are also included when the size,

nature or function of an item or aggregation of similar items is such that separate

presentation is relevant to an understanding of the entity’s financial position. The

judgment on whether additional items are presented separately is based on an

assessment of

(a) the nature and liquidity of assets;

(b) the function of assets within the entity; and

(c) the amounts, nature and timing of liabilities.

4.16 An entity shall present current and non-current assets, and current and

non-current liabilities, as separate classifications on the face of its balance sheet in

accordance with paragraphs 4.17 and 4.18, except when a presentation based on

liquidity provides information that is reliable and more relevant. When this applies,

all assets and liabilities shall be presented in order of approximate liquidity.

4.17

An entity shall classify an asset as current when

(a) it expects to realise the asset, or intends to sell or consume it, in the

entity’s normal operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(c) it expects to realise the asset within twelve months after the end of the

reporting period; or

(d) the asset is cash or a cash equivalent, unless it is restricted from being

exchanged or used to settle a liability for at least twelve months after

the end of the reporting period.

An entity shall classify all other assets as non-current. When the entity’s

normal operating cycle is not clearly identifiable, its duration is assumed to be

twelve months.

4.18

An entity shall classify a liability as current when

(a) it expects to settle the liability in the entity’s normal operating cycle;

(b) it holds the liability primarily for the purpose of trading;

(c) the liability is due to be settled within twelve months after the end of the

reporting period; or

(d) the entity does not have an unconditional right to defer settlement of the

liability for at least twelve months after the end of the reporting period.

An entity shall classify all other liabilities as non-current.

4.19 Where an asset or liability relates to more than one layout item, its

relationship to other items shall be disclosed either under the item where it appears

or in the notes to the financial statements.

Income statement

4.20 All items of income and expense recognised in the financial statements for

the period shall be included in the income statement, unless these are specifically

permitted orrequired to be taken directly to reserves.

These Principles provide different treatment for the following, amongst

others

(a) the effects of corrections of errors and changes in accounting policies

are presented as adjustments of prior periods in accordance with Section

5 rather than as part of profit or loss in the period in which they arise;

and

(b) revaluation surpluses (see Section 7) and some gains and losses arising

on translating the financial statements of a foreign operation (see

Section 18) are reported directly in equity, rather than as part of profit

or loss, when they arise.

4.21 In relation to the income statement, an entity may adopt one of the layouts

set out in this Section. The items prescribed in paragraph 4.22 shall be shown

separately on the face of the income statement, in the order indicated. Items

preceded by Arabic numerals may be combined when they are immaterial for the

purposes of the financial statements giving a true and fair view, or such combination

makes for greater clarity, in which latter case the items combined are dealt with

separately in the notes. The layout, nomenclature and terminology of items in the

income statement that are preceded by Arabic numerals may be amended according

to the nature of the entity and its transactions to provide information that is relevant

to an understanding of the entity’s financial performance.

4.22 An entity shall present in its income statement an analysis of expenses

using a classification based on either the nature of expenses or their function within

the entity, whichever provides information that is reliable and more relevant.

The ‘function of expense’ method classifies expenses according to their

function as part of cost of sales or, for example, the costs of distribution or

administrative activities. An entity that adopts a classification using the ‘function of

expense’ method presents the following items (which may be combined or amended

as appropriate in accordance with paragraph 4.21 of these Principles)

1. Revenue

2. Cost of sales (after taking into account any necessary provisions for

depreciation, amortisation and impairment of assets)

3. Gross profit or loss

4. Distribution costs (after taking into account any necessary provisions for

depreciation, amortisation and impairment of assets)

5. Administrative expenses (after taking into account any necessary provisions

for depreciation, amortisation and impairment of assets)

6. Other operating income

7. Income from shares in subsidiaries, associates and jointly controlled entities

accounted for under the cost method and recognised in accordance with paragraph

13 (with a separate indication of that derived from subsidiaries)

8. Share of profit or loss of subsidiaries, associates and jointly controlled

entities accounted for under the equity method and recognised in accordance with

paragraph 10.17 (with a separate indication of that derived from subsidiaries)

9. Income from other investments (with as separate indication of that derived

from subsidiaries)

10. Other interest receivable and similar income (with a separate indication of

that derived from subsidiaries)

Adjustments to the carrying amounts of other investments held as current

assets

Interest payable and similar charges (with a separate indication of the amount

payable to the subsidiaries);

Profit or loss before tax for the period and, or year;

Tax on profit or loss before tax;

Profit or loss after tax for the period and, or year

The ‘nature of expense’ method aggregates expenses in the income

statement according to their nature (for example, depreciation, purchases of

materials, transport costs, employee benefits and advertising costs), and are not

reallocated among various functions within the entity. An entity that adopts a

classification using the ‘nature of expense’ method presents the following items

(which may be combined or amended as appropriate in accordance with paragraph

4.21 of these Principles)

1. Revenue

2. Changes in inventories of finished goods and work in progress

3. Work performed by the entity for its own purposes and capitalised.

4. (a) Raw materials and consumables used

(b) Otherexternal expenses

5. Staff costs

(a) wages and salaries;

(b) social security costs, with a separate indication of those relating to

pensions.

6. Depreciation, amortisation and impairment

7. Other operating expenses

8. Other operating income

9. Income from shares in subsidiaries, associates and jointly controlled entities

accounted for under the cost method and recognised in accordance with paragraph

10.13 (with a separate indication of that derived from subsidiaries)

10. Share of profit or loss of subsidiaries, associates and jointly controlled

entities accounted for under the equity method and recognised in accordance with

paragraph 10.17 (with a separate indication of that derived from subsidiaries)

11. Income from other investments (with as separate indication of that derived

from subsidiaries)

12. Other interest receivable and similar income (with a separate indication of

that derived from subsidiaries)

13. Adjustments to the carrying amounts of other investments held as current

assets

14. Interest payable and similar charges (with a separate indication of the

amount payable to subsidiaries)

15. Tax on profit or loss before tax

Profit or loss after tax

Profit or loss for the period / year

4.23 If an entity prepares consolidated financial statements, it shall disclose

separately the following items on the face of the income statement as allocations of

profit or loss for the period

(a) profit or loss attributable to minority interest; and

(b) profit or loss attributable to equity holders of the parent.

4.24 An entity shall present additional line items, headings and subtotals on the

face of the income statement when such presentation is relevant to an understanding

of the entity’s financial performance.

4.25 An entity shall disclose separately, either on the face of the income

statement or in the notes, the amount and nature of individual items of income or

expenditure which are of exceptional size or incidence, such as

(a) write-downs of inventories to net realisable value, and the reversal of

such write-downs;

(b) write-downs of property, plant and equipment to recoverable amount,

and the reversal of such write-downs;

(c) restructurings of the activities of an entity and reversals of any

provisions for the costs of restructuring;

(d) disposals of items of property, plant and equipment;

(e) disposals of investment property;

(f)

disposals of investments;

(g) litigation settlements; and

(h) the reversal of other provisions

Provided that if an entity elects not to deliver to the Registrar its profit and

loss account in terms of the first proviso of sub-article (2) of article 183 of the

Companies Act, this disclosure shall be made at least in the notes.

4.26 An entity shall disclose the average number of employees during the

financial year (as determined in accordance with paragraph (c) of sub-regulation (2)

of regulation 5 of these regulations).

Income statement - Additional disclosures for medium-sized entities

4.27 Medium-sized entities classifying expenses by function shall disclose the

amounts of depreciation and amortisation expense (if not disclosed elsewhere), and

employee benefits expense (analysed into wages and salaries, social security costs

and pension costs), recognised in the income statement for the period.

4.28 In addition to the disclosure required in paragraph 4.26, medium-sized

entities shall also disclose the average number of employees during the financial

year broken down by categories.

4.29 Medium-sized entities shall disclose the remuneration of the entity’s

auditors, including sums paid in respect of expenses, in a note to the financial

statements.

Statement of changes in equity

4.30 In addition to the statements required in paragraph 4.1, medium-sized

entities shall prepare a statement of changes in equity.

4.31 The statement of changes in equity presents a medium-sized entity’s profit

or loss for a period, items of income and expense recognised directly in equity for

the period, the effects of changes in accounting policies and corrections of errors

recognised in the period, and the amounts of investments by, and dividends and other

distributions to, equity holders during the period.

4.32 A medium-sized entity presenting a statement of changes in equity shall

show on the face of the statement

(a) the profit or loss for the period;

(b) each item of income or expense for the period that, as required by these

Principles, is credited or charged directly in equity, and the total of

these items;

(c) total income and expense for the period (calculated as the sum of (a)

and (b)), showing separately the total amounts attributable to equity

holders of the parent and to minority interest;

(d) for each component of equity, the effects of changes in accounting

policies and corrections of prior period errors;

(e) the amounts of investments by, and dividends and other distributions to,

equity holders;

(f)

the balance of retained earnings at the beginning of the period and at the

end of the reporting period, and the changes during the period; and

(g) a reconciliation between the carrying amount of each class of

contributed equity and each reserve at the beginning and the end of the

period.

Statement of cash flows

4.33 In addition to the statements required in paragraph 4.1, medium-sized

entities shall prepare a statement of cash flows.

4.34 The statement of cash flows provides information about the historical

changes in cash and cash equivalents of an entity, showing separately changes during

the period from operating, investing and financing activities. Cash is taken as "cash

held at call with banks and in hand". Cash equivalents are held to meet short-term cash

commitments rather than for investment or other purposes. Therefore, an investment

normally qualifies as a cash equivalent only when it has a short maturity of, say,

three months or less from the date of acquisition. Bank overdrafts are normally

considered financing activities similar to borrowings. However, if they are repayable

on demand and form an integral part of an entity’s cash management, bank

overdrafts are a component of cash and cash equivalents.

4.35 A medium-sized entity shall present a statement of cash flows that reports

cash flows for a period classified by operating activities, investing activities and

financing activities.

4.36 Cash flows from operating activities are primarily derived from the

principal revenue-producing activities of the entity. Therefore, they generally result

from the transactions and other events and conditions that enter into the

determination of profit or loss. An entity shall report cash flows from operating

activities using either

(a) the direct method, whereby major classes of gross cash receipts and

gross cash payments are disclosed; or

(b) the indirect method, whereby profit or loss is adjusted for the effects of

non-cash transactions, any deferrals or accruals of past or future

operating cash receipts or payments, and items of income or expense

associated with investing or financing cash flows.

4.37 Under the direct method, information about major classes of gross cash

receipts and gross cash payments may be obtained either

(a) from the accounting records of the entity; or

(b) by adjusting sales, cost of sales and other items in the income statement

for

(i)

changes during the period in inventories and operating

receivables and payables;

(ii) other non-cash items; and

(iii) other items for which the cash effects are investing or financing

cash flows.

4.38 Under the indirect method, the net cash flow from operating activities is

determined by adjusting profit or loss for the effects of

(a) changes during the period in inventories and operating receivables and

payables;

(b) non-cash items such as depreciation, provisions, deferred taxes,

unrealised foreign currency gains and losses, undistributed profits of

subsidiaries, associates and joint ventures, and minority interests; and

(c) all other items for which the cash effects relate to investing or financing

activities.

4.39 Cash flows arising from investing activities represent expenditures made

for resources intended to generate future income and cash flows related to the

acquisition and disposal of non-current assets and other investments not included in

cash equivalents.

4.40 Financing activities result in changes in the size and composition of the

contributed equity and borrowings of the entity.

4.41 An entity shall report separately major classes of gross cash receipts and

gross cash payments arising from investing and financing activities. The aggregate

cash flows arising from acquisitions and from disposals of subsidiaries or other

business units shall be presented separately and classified as investing activities.

4.42 Cash flows from interest and dividends received and paid shall each be

disclosed separately. Cash flows shall be classified in a consistent manner from

period to period as either operating, investing or financing activities.

4.43 Cash flows arising from taxes on income shall be separately disclosed and

shall be classified as cash flows from operating activities unless they can be

specifically identified with financing and investing activities.

4.44 A medium-sized entity shall disclose the components of cash and cash

equivalents and shall present a reconciliation of the amounts reported in the

statement of cash flows to the equivalent items reported in the balance sheet.

4.45 A medium-sized entity shall exclude from the statement of cash flows,

investing and financing transactions that do not require the use of cash or cash

equivalents. An entity shall disclose such transactions elsewhere in the financial

statements in a way that provides all the relevant information about these investing

and financing activities.

Notes to the financial statements

4.46

The notes, which form an integral part of the financial statements, shall

(a) present information about the basis of preparation of the financial

statements and the specific accounting policies used;

(b) disclose

(i)

the information required by these Principles that is not presented

on the face of the balance sheet, income statement, statement of

changes in equity (if applicable), or statement of cash flows (if

applicable); and

(ii) all the disclosures required by the respective Sections of these

Principles; and

(c) provide additional information that is not presented on the face of the

balance sheet, income statement, statement of changes in equity (if

applicable) or statement of cash flows (if applicable) but is relevant to

an understanding of any of them.

4.47 Notes shall, as far as practicable and applicable, be presented in a

systematic manner. Each item on the face of the balance sheet, income statement,

statement of changes in equity (if applicable) and statement of cash flows (if

applicable) shall be cross-referenced to any related information in the notes.

4.48

Notes are normally presented in the following order

(a) a statement that the financial statements have been prepared in

compliance with these Principles;

(b) a summary of significant accounting policies applied;

(c) supporting information for items presented on the face of the balance

sheet, income statement, statement of changes in equity (if applicable)

and statement of cash flows (if applicable), in the order in which each

statement and each line item is presented; and

(d) other disclosures as required by these Principles.

Section 5: Accounting policies, estimates and errors

5.1

Accounting policies are those principles, bases, conventions, rules and

practices applied by an entity that specify how the effects of transactions and other

events are to be reflected in its financial statements through recognising, selecting

measurement bases for, and presenting assets, liabilities, income, expenses and

changes to equity. Accounting policies define the process whereby transactions and

other events are reflected in the financial statements. For example, an accounting

policy for a particular type of expenditure may specify whether an asset or an

expense is to be recognised; the basis on which it is to be measured; and where in the

income statement or balance sheet it is to be presented.

5.2

A change in accounting estimate is an adjustment of the carrying amount

of an asset or a liability, or the amount of the periodic consumption of an asset, that

results from the assessment of the present status of, and expected future benefits and

obligations associated with, assets and liabilities. Changes in accounting estimates

result from new information or new developments and, accordingly, are not

corrections of errors. Examples of estimates include those required of

(a) bad debts;

(b) inventory obsolescence;

(c) the useful lives of, or expected pattern of consumption (depreciation

method) of the future economic benefits embodied in, depreciable

assets.

5.3

Prior period errors are omissions from, and misstatements in, the 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 the financial statements for

those periods were authorised for issue, and that information could reasonably be

expected to have been obtained and taken into account in the preparation and

presentation of those financial statements. Such errors include the effects of

mathematical mistakes, mistakes in applying accounting policies, oversights or

misinterpretations of facts, and fraud.

Accounting policies

5.4

When a Section of these Principles specifically applies to a transaction,

event or condition, the accounting policy or policies applied to that item shall be

determined by applying the relevant Section. In the absence of a Section in these

Principles that specifically applies to a transaction, event or condition, management

shall use its judgement in developing and applying an accounting policy that results

in information that is

(a) relevant to the economic decision-making needs of users; and

(b) reliable, in that the financial statements

(i)

represent faithfully the financial position, financial performance

and cash flows of the entity;

(ii) reflect the economic substance of the transactions, other events

and conditions, and not merely their legal form;

(iii) are neutral, i.e. free from bias;

(iv) are prudent; and

(v) are complete in all material respects.

5.5

In making the judgement described in the preceding paragraph,

management shall refer to, and consider the applicability of, the following sources in

descending order

(a) the requirements and guidance in these Principles dealing with similar

and related issues;

(b) the definitions, recognition criteria and measurement concepts for

assets, liabilities, income and expenses in paragraphs 3.21 – 3.35 and

paragraph 3.39 of Section 3 of these Principles; and

(c) the requirements and guidance in generally accepted accounting

principles and practice dealing with similar and related issues.

If additional guidance is needed to make the judgement described in the

preceding paragraph, management may also consider the most recent

pronouncements of standard-setting bodies that use a conceptual framework to

develop accounting standards that is similar to that used in the development of

generally accepted accounting principles and practice, other accounting literature

and accepted industry practices, to the extent that these do not conflict with the

requirements and guidance in these Principles.

5.6

An entity shall select and apply its accounting policies consistently for

similar transactions, other events and conditions. Where GAPSME permits a choice

of accounting policy for categories of transactions, events and conditions, an entity

shall select the policy that is most appropriate to its particular circumstances for the

purpose of giving a true and fair view, taking account of the objectives of relevance,

reliability, comparability and understandability, and shall apply that policy

consistently to each such category of transactions, events and conditions.

5.7

An entity shall change an accounting policy only if the change

(a) is required by these Principles; or

(b) results in the financial statements providing reliable and more relevant

information about the effects of transactions, events or conditions on the

entity’s financial position, financial performance or cash flows.

5.8

The initial application of a policy to revalue assets in accordance with

Section 7 and Section 8, is a change in an accounting policy to be dealt with in

accordance with the requirements of the relevant Section, rather than in accordance

with this Section.

5.9

An entity shall account for all changes in accounting policy

retrospectively. When a change in accounting policy is applied retrospectively, the

entity adjusts the opening balance of each affected component of equity for the

earliest prior period presented, and the other comparative amounts disclosed for each

prior period presented, as if the new accounting policy had always been applied.

When it is impracticable to determine the period-specific effects of changing an

accounting policy on comparative information for one or more prior periods

presented, the entity shall apply the new accounting policy to the carrying amounts

of assets and liabilities as at the beginning of the earliest period for which

retrospective application is practicable, which may be the current period, and shall

make a corresponding adjustment to the opening balance of each affected component

of equity for that period.

5.10 In addition to the disclosures on accounting policies required by Section 4

of these Principles, an entity shall also disclose the following information

(a) the measurement basis (or bases) used in preparing the financial

statements;

(b) the accounting policy the entity has chosen whenever GAPSME allows

an accounting policy choice for a category of transaction, event or

condition;

(c) the other accounting policies used that are relevant to an understanding

of the financial statements; and

(d) whenever there has been a change in accounting policy that has an

effect on the current period or any prior period, or might have an effect

on future periods, the entity shall also disclose the following

information

(i)

the nature of the change in accounting policy and, if applicable,

the title of the Section of these Principles that requires the change

in accounting policy;

(ii) unless the change in accounting policy is required by these

Principles, the reasons why applying the new accounting policy

provides reliable and more relevant information;

(iii) for the current period and each prior period presented, to the

extent practicable, the amount of the adjustment for each financial

statement line item affected;

(iv) the amount of the adjustment relating to periods before those

presented, to the extent practicable; and

(v)

an explanation if it is impracticable to determine the amounts to

be disclosed in (iii) or (iv) above.

Financial statements of subsequent periods need not repeat these

disclosures.

Changes in accounting estimates

5.11 An entity shall recognise the effect of a change in an accounting estimate

prospectively by including it in profit or loss in

(a) the period of the change, if the change affects that period only; or

(b) the period of the change and future periods, if the change affects both.

5.12 To the extent that a change in an accounting estimate gives rise to changes

in assets and liabilities, or relates to an item of equity, it shall be recognised by

adjusting the carrying amount of the related asset, liability or equity item in the

period of the change.

5.13 An entity shall disclose the nature and amount of a change in an

accounting estimate that has a significant effect in the current period or is expected

to have a significant effect in future periods, except for the disclosure of the effect

on future periods when it is impracticable to estimate that effect.

Correction of prior period errors

5.14 To the extent practicable, an entity shall correct material prior period

errors retrospectively in the first set of financial statements authorised for issue after

its discovery by

(a) restating the comparative amounts for the prior period presented in

which the error occurred; or

(b) if the error occurred before the earliest prior period presented, restating

the opening balances of assets, liabilities and equity for the earliest

prior period presented.

5.15

An entity shall disclose the following about prior period errors

(a) the nature of the prior period error;

(b) for each prior period presented, to the extent practicable, the amount of

the correction for each financial statement line item affected;

(c) in the circumstances described in paragraph 5.14(b), the amount of the

correction at the beginning of the earliest prior period presented; and

(d) if retrospective restatement is impracticable for a particular prior

period, the circumstances that led to the existence of that condition and

a description of how and from when the error has been corrected.

Financial statements of subsequent periods need not repeat these

disclosures.

Section 6: Revenue and construction contracts

6.1

Revenue is the gross inflow of economic benefits during the period arising

in the course of the ordinary activities of an entity when those inflows result in

increases in equity, other than increases relating to contributions from equity

participants.

This Section shall be applied in accounting for revenue arising from the

following transactions and events

(a) the sale of goods;

(b) the rendering of services; and

(c) the use by others of entity assets yielding income such as interest,

royalties, rent and dividends.

For avoidance of doubt, this provision is deemed to compliment and not modify the

definition of "revenue" set out in regulation 5(2)(b).

6.2

This Section shall also be applied in accounting for construction contracts

in the financial statements of contractors. A construction contract is a contract

specifically negotiated for the construction of an asset or a combination of assets that

are closely interrelated or interdependent in terms of their design, technology and

function or their ultimate purpose or use. Because of the nature of the activity

undertaken in construction contracts, the date at which the contract activity is

entered into and the date when the activity is completed usually fall into different

accounting periods. This Section lays down principles for determining when contract

revenue and contract costs should be recognised as revenue and expenses in the

income statement.

Measurement of revenue

6.3

An entity shall measure revenue at the fair value of the consideration

received or receivable. The fair value of the consideration received or receivable

excludes the amount of any trade discounts and volume rebates allowed by the

entity.

6.4

An entity shall include in revenue only the gross inflows of economic

benefits received and receivable by the entity on its own account. An entity shall

therefore exclude from revenue all amounts collected on behalf of third parties such

as sales taxes, goods and services taxes and value added taxes. Similarly, in an

agency relationship, thegross inflows of economic benefits exclude amounts collected

on behalf of the principal and which do not result in increases in equity for the entity.

The amounts collected on behalf of the principal are not revenue. Instead, revenue is

the amount of commission.

6.5

In most cases, the consideration is in the form of cash or cash equivalents

and the amount of revenue is the amount of cash or cash equivalents received or

receivable. However, when the inflow of cash or cash equivalents is deferred, and

the arrangement constitutes in substance a financing transaction, the fair value of the

consideration is the present value of all future receipts determined using an imputed

rate of interest. An entity shall recognise the difference between the present value of

all future receipts and the nominal amount of the consideration as interest revenue.

Sale of goods

6.6

An entity shall recognise revenue from the sale of goods when all the

following conditions are satisfied

(a) the entity has transferred to the buyer the significant risks and rewards

of ownership of the goods;

(b) the entity retains neither continuing managerial involvement to the

degree usually associated with ownership nor effective control over the

goods sold;

(c) the amount of revenue can be measured reliably;

(d) it is probable that the economic benefits associated with the transaction

will flow to the entity; and

(e) the costs incurred or to be incurred in respect of the transaction can be

measured reliably.

Rendering of services

6.7

When the outcome of a transaction involving the rendering of services can

be estimated reliably, an entity shall recognise revenue associated with the

transaction by reference to the stage of completion of the transaction at the end of

the reporting period (sometimes referred to as the percentage of completion method)

and paragraph 6.13 of these Principles shall apply in that regard. The outcome of a

transaction can be estimated reliably when all the following conditions are satisfied

(a) the amount of revenue can be measured reliably;

(b) it is probable that the economic benefits associated with the transaction

will flow to the entity;

(c) the stage of completion of the transaction at the end of the reporting

period can be measured reliably; and

(d) the costs incurred for the transaction and the costs to complete the

transaction can be measured reliably.

6.8

When the outcome of the transaction involving the rendering of services

cannot be estimated reliably, an entity shall recognise revenue only to the extent of

the expenses recognised that are recoverable.

Interest, royalties, rent and dividends

6.9

An entity shall recognise revenue arising from the use by others of entity

assets yielding interest, royalties, rent and dividends on the bases set out in

paragraph 6.10 when

(a) it is probable that the economic benefits associated with the transaction

will flow to the entity; and

(b) the amount of the revenue can be measured reliably.

6.10

An entity shall recognise revenue on the following bases

(a) interest shall be recognised on an accrual or time proportion basis;

(b) royalties shall be recognised on an accrual basis in accordance with the

substance of the relevant agreement;

(c) dividends shall be recognised when the shareholder’s right to receive

payment is established; and

(d) taking into account the provisions of Section 14 of these Principles, rent

shall be recognised on an accrual basis in accordance with the substance

of the relevant agreement.

Construction contracts

6.11 When the outcome of a construction contract can be estimated reliably, an

entity shall recognise contract revenue and contract costs associated with the

construction contract as revenue and expenses respectively by reference to the stage

of completion of the contract activity at the end of the reporting period (often

referred to as the percentage of completion method). Reliable estimation of the

outcome requires reliable estimates of the stage of completion, future costs and

collectability of billings.

6.12 An entity shall review and, when necessary, revise the estimates of revenue

and costs as the service transaction or construction contract progresses.

6.13

An entity shall determine the stage of completion of a transaction or

contract using the method that measures most reliably the work performed. Possible

methods include

(a) the proportion that costs incurred for work performed to date bear to the

estimated total costs. Costs incurred for work performed to date do not

include

(i)

costs relating to future activity on the contract, such as costs of

material that have been delivered to a contract site or set aside for

use in a contract but not yet installed, used or applied during

contract performance, unless the materials have been made

specially for the contract; and

(ii) prepayments, such as payments made to subcontractors in

advance of work performed under the subcontract;

(b) surveys of work performed; or

(c) completion of a physical proportion of the service transaction or

contract work.

Progress payments and advances received from customers often do not

reflect the work performed.

6.14 An entity shall recognise costs that relate to future activity on the

transaction or contract, such as for materials or prepayments, as an asset if it is

probable that the costs will be recovered. Such costs represent an amount due from

the customer and are classified as work in progress.

6.15 An entity shall recognise as an expense immediately any costs that are not

probable of being recovered.

6.16

When the outcome of a construction contract cannot be estimated reliably

(a) an entity shall recognise revenue only to the extent of contract costs

incurred that it is probable will be recoverable; and

(b) the entity shall recognise contract costs as an expense in the period in

which they are incurred.

6.17 When it is probable that total contract costs will exceed total contract

revenue on a construction contract, the expected loss shall be recognised as an

expense immediately.

6.18 If the collectability of an amount already recognised as contract revenue is

no longer probable, the entity shall recognise the uncollectible amount as an expense

rather than as an adjustment of the amount of contract revenue.

6.19

An entity shall present

(a) the gross amount due from customers for contract work as an asset; and

(b) the gross amount due to customers for contract work as a liability.

6.20 The gross amount due from customers for contract work is the net amount

of (i) costs incurred plus recognised profits, less (ii) the sum of recognised losses

and progress billings for all contracts in progress for which costs incurred plus

recognised profits (less recognised losses) exceeds progress billings.

6.21 The gross amount due to customers for contract work is the net amount of

(i) costs incurred plus recognised profits, less (ii) the sum of recognised losses and

progress billings for all contracts in progress for which progress billings exceed

costs incurred plus recognised profits (less recognised losses).

Revenue - disclosures

6.22 An entity shall disclose the accounting policies adopted for the recognition

of revenue, including the methods adopted to determine

(a) the stage of completion of transactions involving the rendering of

services;

(b) the contract revenue recognised in the period; and

(c) the stage of completion of contracts in progress.

Revenue - Additional disclosures for medium-sized entities

6.23 In addition to the disclosure in paragraph 6.22, a medium-sizedentity shall

also disclose the amount of each category of revenue recognised during the period,

including revenue arising from

(a) the sale of goods;

(b) the rendering of services;

(c) interest;

(d) royalties;

(e) rent; and

(f)

dividends.

Construction contracts - Additional disclosures for medium-sized entities

6.24 In addition to the disclosures required in paragraph 6.23, a medium-sized

entity shall also disclose the amount of contract revenue recognised as revenue in the

period.

6.25 A medium-sized entity shall disclose each of the following for contracts in

progress at the balance sheet date

(a) the aggregate amount of costs incurred and recognised profits (less

recognised losses) to date;

(b) the amount of advances received; and

(c) the amount of retentions.

6.26 Retentions are amounts of progress billings that are not paid until the

satisfaction of conditions specified in the contract for the payment of such amounts

or until defects have been rectified. Progress billings are amounts billed for work

performed on a contract whether or not they have been paid by the customer.

Advances are amounts received by the contractor before the related work is

performed.

Section 7: Property, plant and equipment

7.1

Property, plant and equipment are tangible assets that

(a) are held for use in the production or supply of goods or services, for rental

to others (unless they meet the definition of investment property in

paragraph 8.1), or for administrative purposes; and

(b) are expected to be used during more than one period.

Recognition

7.2

The cost of an item of property, plant and equipment shall be recognised as

an asset if, and only if

(a) it is probable that future economic benefits associated with the item will

flow to the entity; and

(b) the cost of the item can be measured reliably.

Measurement at recognition

7.3

An entity shall measure an item of property, plant and equipment at initial

recognition at its cost.

7.4

The cost of an item of property, plant and equipment comprises

(a) its purchase price, including legal and brokerage fees, import duties and

non-refundable purchase taxes, after deducting trade discounts and

rebates;

(b) any costs directly attributable to bringing the asset to the location and

condition necessary for it to be capable of operating in the manner

intended by management. These can include staff costs arising directly

from the construction or acquisition of the item of property, plant and

equipment, the costs of site preparation, initial delivery and handling,

installation and assembly, and testing of functionality; and

(c) the initial estimate of the costs of dismantling and removing the item

and restoring the site on which it is located, the obligation for which an

entity incurs either when the item is acquired or as a consequence of

having used the item during a particular period for purposes other than

to produce inventories during that period.

The cost of a self-constructed asset is determined using the same principles

as for an acquired asset.

7.5

Subsequent expenditure shall be capitalised as part of the cost of property,

plant and equipment only if

(a) it enhances the economic benefits of an asset in excess of the previously

assessed standard of performance (i.e. if it is an ‘improvement’); or

(b) it replaces or restores a component that has been separately depreciated

over its useful life.

Otherwise it shall be recognised in the income statement as it is incurred.

7.6

An entity may adopt an accounting policy of capitalising finance costs

(such as interest). Where such a policy is adopted, only those finance costs that are

directly attributable to the acquisition, construction or production of a qualifying

asset shall be capitalised as part of the cost of that asset. A qualifying asset is an

asset that necessarily takes a substantial period of time to get ready for its intended

use. The total amount of finance costs capitalised during a period shall not exceed

the total amount of finance costs incurred during that period.

7.7

Capitalisation of directly attributable costs, including finance costs, shall

be suspended during extended periods in which active development is interrupted.

Recognition of such costs in the carrying amount of an item of property, plant and

equipment ceases when the item is in the location and condition necessary for it to be

capable of operating in the manner intended by management, even if the asset has

not yet been brought into use.

Measurement after recognition

7.8

A class of property, plant and equipment is a grouping of assets of a

similar nature and use in an entity’s operations.

7.9

An entity shall account for all items in the same class of property, plant

and equipment (i.e. having a similar nature, function or use in the business) after

initial recognition using either

(a) the cost model in paragraph 7.10; or

(b) the revaluation model in paragraphs 7.11 - 7.19.

7.10 Under the cost model, an entity shall measure an item of property, plant

and equipment at cost less any accumulated depreciation and any accumulated

impairment losses.

7.11 Under the revaluation model, an item of property, plant and equipment

whose fair value can be measured reliably shall be carried at a revalued amount,

being its fair value at the date of the revaluation less any subsequent accumulated

depreciation and subsequent accumulated impairment losses. Revaluations shall be

made with sufficient regularity to ensure that the carrying amount does not differ

materially from that which would be determined using fair value at the balance sheet

date.

7.12 Where an item of property, plant and equipment is revalued all items in the

same class shall be revalued, but a policy of revaluation need not be applied to all

classes of property, plant and equipment.

7.13 The fair value of land and buildings is usually determined from market-

based evidence by appraisal that is normally undertaken by professionally qualified

valuers. The fair value of items of plant and equipment is usually their market value

determined by appraisal.

7.14 If there is no market-based evidence of fair value because of the

specialised nature of the item of property, plant and equipment and the item is rarely

sold, except as part of a continuing business, an entity may need to estimate fair

value using an income or a depreciated replacement cost approach.

7.15 The frequency of revaluations depends upon the changes in fair values of

th e i te m s of pr o p e r ty, p la nt an d eq u ip m e n t be in g r e v a l u e d . N e v ertheless,

revaluations shall be made at least every five years and in the intervening years

where it is likely that there has been a material change in value. When the fair value

of a revalued asset differs materially from its carrying amount, a further revaluation

is required. Some items of property, plant and equipment experience significant and

volatile changes in fair value, thus necessitating annual revaluation. Such frequent

revaluations are unnecessary for items of property, plant and equipment with only

insignificant changes in fair value. Instead, it may be necessary to revalue the item

only every three or five years.

7.16 Gains and losses arising on the revaluation of assets shall be recognised in

an equity reserve, net of any attributable taxation element.

7.17 If an asset’s carrying amount is increased as a result of a revaluation, the

increase shall be credited directly to an equity reserve. However, the increase shall

be recognised in profit or loss to the extent that it reverses a revaluation decrease of

the same asset previously recognised in profit or loss in accordance with paragraph

7.18.

7.18 If an asset’s carrying amount is decreased as a result of a revaluation, the

decrease shall be recognised in profit or loss. However, the decrease shall be debited

directly to an equity reserve to the extent of any credit balance existing in that

reserve in respect of that asset.

7.19 The revaluation surplus included in an equity reserve in respect of an item

of property, plant and equipment may be transferred directly to retained earnings

(not through profit or loss) when the asset is derecognised. This may involve

transferring the whole of the surplus when the asset is retired or disposed of.

However, some of the surplus may be transferred as the asset is used by an entity. In

such a case, the amount of the surplus transferred would be the difference between

depreciation based on the revalued carrying amount of the asset and depreciation

based on the asset’s original cost.

Depreciation

7.20 The cost (or revalued amount) less estimated residual value of an item of

property, plant and equipment shall be depreciated on a systematic basis over the

asset’s useful life. An entity shall select a depreciation method that reflects the

pattern in which it expects to consume the asset’s future economic benefits. The

possible depreciation methods include the straight-line method.

7.21 Depreciation of an asset begins when it is available for use, i.e. when it is

in the location and condition necessary for it to be capable of operating in the

manner intended by management. Depreciation of an asset ceases at the earlier of the

date that the asset is classified as held for sale (or included in a disposal group that is

classified as held for sale) and the date that the asset is derecognised. Therefore,

depreciation does not cease when the asset becomes idle or is retired from active use

unless the asset is fully depreciated.

7.22 The depreciation charge for each period shall be recognised in profit or

loss, unless it is included in the carrying amount of another asset.

7.23 Where an item of property, plant and equipment comprises two or more

major components with substantially different useful lives, each component shall be

accounted for separately for depreciation purposes and depreciated over its

individual useful life. Each part of an item of property, plant and equipment with a

cost that is significant in relation to the total cost of the item shall be depreciated

separately. With certain exceptions, such as sites used for extractive purposes or

landfill, land has an unlimited life and therefore is not depreciated.

7.24 The useful lives and residual values of property, plant and equipment shall

be reviewed regularly and, when necessary, revised. On revision, the carrying

amount of the item of property, plant and equipment at the date of revision, less the

revised residual value, shall be depreciated over the revised remaining useful life.

Such a change shall be accounted for as a change in an accounting estimate in

accordance with Section 5 of these Principles.

7.25 An entity shall review the depreciation method regularly. If there has been

a significant change in the pattern in which the entity expects to consume the asset’s

future economic benefits, the entity shall change the method to reflect the new

pattern. A change from one method of providing depreciation to another is

permissible only on the grounds that the new method will give a fairer presentation

of the results and of the financial position. Such a change does not, however,

constitute a change of accounting policy; the carrying amount of the item of

property, plant and equipment is depreciated using the revised method over the

remaining useful life, beginning in the period in which the change is made. A change

in the depreciation method shall be accounted for as a change in an accounting

estimate in accordance with Section 5 of these Principles.

Impairment

7.26 To determine whether an item of property, plant and equipment is

impaired, an entity applies Section 12 of these Principles. That Section explains how

an entity reviews the carrying amount of its assets, how it determines the recoverable

amount of an asset, and when it recognises, or reverses the recognition of, an

impairment loss.

Disclosure

An entity shall disclose, for each class of property, plant and equipment

(a) the measurement bases used for determining the gross carrying amount;

(b) the depreciation methods used;

(c) the useful lives or the depreciation rates used;

(d) where material, the financial effect of a change during the period in

either the estimate of useful lives or the estimate of residual values;

(e) the gross carrying amount and the accumulated depreciation

(aggregated with accumulated impairment losses) at the beginning and

end of the period; and

(f)

having regard to paragraph 4.8(a) of these Principles, for each class of

property, plant and equipment, a reconciliation of the carrying amount

at the beginning and end of the period showing

(i)

additions (reflecting additions resulting from business

combinations);

(ii) disposals;

(iii) transfers (reflecting transfers to assets classified as held for sale

or included in a disposal group classified as held for sale in

accordance with section 23 of the Principles);

(iv) revaluation gains and losses;

(v) impairment losses recognised or reversed in profit or loss in

accordance with Section 12 of these Principles;

(vi) depreciation;

(vii)

accumulated depreciation and impairment losses released on

disposal and transfers;

(viii) the net exchange differences arising on the translation of the

financial statements from the functional currency into a different

presentation currency (see Section 18 of these Principles); and

(ix) other changes.

7.28 Where there has been a change in the depreciation method used, the effect,

if material, shall be disclosed in the period of change. The reason for the change

shall also be disclosed.

7.29 Where applicable, the notes shall disclose (i) the fact that finance costs are

incurred in determining the cost of the assets, and (ii) the amount of finance costs so

capitalised.

7.30 Where property, plant and equipment have been revalued an entity shall

(a) a table in the notes showing movements in the revaluation reserve in the

financial year, with an explanation of the tax treatment of items therein,

with disclosure of the treatment for taxation purposes of amounts

debited or credited to equity;

(b) the comparable amounts determined under the cost model (i.e. the

aggregate historical cost amount, less accumulated depreciation, that

would have been included had the assets not been revalued, reflecting

any write-downs to recoverable amount that would have been necessary);

(c) the bases of the valuation, including the significant assumptions underlying

the valuation models and techniques.

7.31

Entities shall disclose

(a) the amount of property, plant and equipment pledged as security for

liabilities; and

(b) the amount of contractual commitments for the acquisition of property,

plant and equipment (however authorised but not contracted

commitments should also be reflected).

Additional disclosures for medium-sized entities

7.32 In respect of the reconciliation referred to in paragraph 7.27(f), in addition

to the items mentioned therein, and having regard to paragraph 4.8(a) of these

Principles, a medium-sized entity shall also disclose

(a) assets classified as held for sale or included in a disposal group

classified as held for sale in accordance with Section 23 of these

Principles; and

(b) additions resulting from business combinations.

7.33 Where items of property, plant and equipment were revalued, the year in

which they were revalued shall be disclosed. When an item of property, plant and

equipment was revalued during the financial year to which the financial statements

relate, in addition to the disclosures referred to in paragraph 7.30, a medium-sized

entity shall also disclose in those financial statements

(a) the effect of any revaluation made during the year; and

(b) whether an independent valuer was involved.

Section 8: Investment property

8.1

Investment property is property (land or a building, or part of a building,

or both) held by the owner or by the lessee under a finance lease to earn rentals or for

capital appreciation or both, rather than for

(a) use in the production or supply of goods or services or for

administrative purposes (hence covered by the definition of property,

plant and equipment under Section 7 of these Principles and accounted

for in accordance with the provisions of that Section); or

(b) sale in the ordinary course of business (hence covered by the definition

of inventories under Section 15 of these Principles and accounted for in

accordance with the provisions of that Section).

Recognition

8.2

Investment property shall be recognised as an asset when, and only when

(a) it is probable that the future economic benefits that are associated with

the investment property will flow to the entity; and

(b) the cost of the investment property can be measured reliably.

Measurement at recognition

8.3

An entity shall measure investment property at its cost at initial

recognition. The cost of a purchased investment property comprises its purchase

property transfer taxes and other transaction costs. The cost of a self-constructed

investment property is its cost at the date when the construction or development is

complete. Until that date an entity shall apply the measurement principles in Section

7 of these Principles.

Measurement after recognition

8.4

After initial recognition, an entity shall choose as its accounting policy

either the cost model in paragraph 8.5, or the fair value model in paragraphs 8.6 -

8.10, and shall apply that policy to all of its investment property.

8.5

An entity that chooses the cost model shall measure all of its investment

property after initial recognition at cost less any accumulated depreciation and any

accumulated impairment losses and shall account for all of its investment property

by applying the principles for property, plant and equipment measured under the cost

model in accordance with the requirements of paragraph 7.10 and paragraphs 7.20 -

7.25 of Section 7 of these Principles. To determine whether an investment property

is impaired, an entity applies Section 12 of these Principles. That Section explains

how an entity reviews the carrying amount of its assets, how it determines the

recoverable amount of an asset, and when it recognises, or reverses the recognition

of, an impairment loss.

8.6

An entity that chooses the fair value model shall measure all of its

investment property after initial recognition at fair value less any accumulated

depreciation.

8.7

The best evidence of fair value is given by current prices in an active

market for similar property in the same location and condition and subject to similar

lease and other contracts. In the absence of current prices in an active market, an

entity considers information from a variety of sources, including

(a) current prices in an active market for properties of different nature,

condition or location (or subject to different lease or other contracts),

adjusted to reflect those differences;

(b) recent prices of similar properties on less active markets, with

adjustments to reflect any changes in economic conditions since the

date of the transactions that occurred at those prices; and

(c) discounted cash flow projections based on reliable estimates of future

cash flows and using discount rates that reflect current market

assessments of the uncertainty in the amount and timing of the cash

flows.

8.8

If, in exceptional cases, there is clear evidence when an entity first

acquires an investment property (or when an existing property first becomes

investment property following the completion of construction or development, or

after a change of use) that the fair value of the investment property is not reliably

determinable on a continuing basis, an entity shall measure that investment property

using the cost model in paragraph 8.5 and the residual value of that investment

property shall be assumed to be zero. The fair value of an investment property is not

reliably determinable on a continuing basis when, and only when, comparable

market transactions are infrequent and alternative reliable estimates of fair value are

not available. An entity may nevertheless measure all its other investment property

using the fair value model.

8.9

Paragraphs 7.15 - 7.19 and paragraphs 7.20 - 7.25 of Section 7 of these

Principles shall also apply to investment property measured under the fair value

model.

8.10 Upon first-time adoption of GAPSME an entity shall transfer any fair

value gains on an item of investment property, previously recognised in profit or loss

and standing to the credit of retained earnings or another reserve in accordance with

another financial reporting framework, to a separate component of equity.

Transfers

8.11 If an item of property, plant and equipment becomes an investment

property, and the entity will account for the investment property under the fair value

model, any difference between the asset’s carrying amount and its fair value at the

date when it becomes an investment property shall be treated in the same way as a

revaluation in accordance with Section 7 of these Principles.

8.12 If a property held as inventories, or a completed self-constructed property,

becomes an investment property, and the entity will account for the investment

property under the fair value model, any difference between the asset’s previous

carrying amount and its fair value at the date when it becomes an investment

property shall be recognised in a separate component of equity.

8.13 When an investment property carried at fair value is transferred to

property, plant and equipment or inventories, following a change of use, the

property’s deemed cost for subsequent accounting in accordance with Sections 7 and

15 respectively, shall be its fair value at the date of change of use. The cumulative

amount recognised in equity in respect of that investment property may be

transferred to retained earnings when, and only when, the asset (property, plant and

equipment or inventory) is derecognised.

Disclosure

8.14 Entities shall make the disclosures required by paragraphs 7.27 - 7.31 of

Section 7 of these Principles, insofar as applicable.

8.15 Medium-sized entities shall also make the disclosures required by

paragraphs 7.32 - 7.33 of Section 7 of these Principles, insofar as applicable.

Section 9: Financial assets, financial liabilities and equity

9.1

This Section does not apply to

(a) Investments in subsidiaries, associates and joint ventures as defined in

Section 10; and;

(b) Finance leases as defined in Section 14;

9.2

A financial instrument is any contract that gives rise to a financial asset of

one entity and a financial liability or equity instrument of another entity.

9.3

A financial asset is primarily any asset that is

(a) cash;

(b) an equity instrument of another entity; or

(c) a contractual right

(i) to receive cash or another financial asset from another entity; or

(ii) to exchange financial assets or financial liabilities with another

entity under conditions that are potentially favourable to the

entity.

9.4

A financial liability is primarily any liability that is a contractual

obligation

(a) to deliver cash or another financial asset to another entity; or

(b) to exchange financial assets or financial liabilities with another entity

under conditions that are potentially unfavourable to the entity.

9.5

A derivative is a financial instrument with all three of the following

characteristics

(a) its value changes in response to the change in a specified interest rate,

financial instrument price, commodity price, foreign exchange rate,

index of prices or rates, credit rating or credit index, or other variable,

provided in the case of a non-financial variable that the variable is not

specific to a party to the contract;

(b) it requires no initial net investment or an initial net investment that is

smaller than would be required for other types of contracts that would

be expected to have a similar response to changes in market factors; and

(c) it is settled at a future date.

Commodity-based contracts that give either contracting party the right to

settle in cash or some other financial instrument shall be considered to be derivative

financial instruments, except where such contracts

(a) were entered into and continue to meet the entity’s expected purchase,

sale or usage requirements at the time they were entered into and

subsequently;

(b) were designated as commodity-based contracts at their inception; and

(c) are expected to be settled by delivery of the commodity.

9.6

An equity instrument is any contract that evidences a residual interest in

the assets of an entity after deducting all of its liabilities.

9.7

The amortised cost of a financial asset or financial liability is the amount

at which the financial asset or financial liability is measured at initial recognition

minus principal repayments, plus or minus the cumulative amortisation using the

effective interest method of any difference between that initial amount and the

maturity amount, and minus any reduction (directly or through the use of an

allowance account) for impairment or uncollectibility.

9.8

The effective interest method is a method of calculating the amortised cost

of a financial asset or a financial liability and of allocating the interest income or

interest expense over the relevant period. The effective interest rate is the rate that

exactly discounts estimated future cash payments or receipts through the expected

life of the financial instrument or, when appropriate, a shorter period to the net

carrying amount of the financial asset or financial liability.

9.9

Fair value is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm’s length

transaction.

9.10 Transaction costs are incremental costs that are directly attributable to the

acquisition, issue or disposal of a financial asset or financial liability. An

incremental cost is one that would not have been incurred if the entity had not

acquired, issued or disposed of the financial instrument.

Definitions of categories of financial instruments

9.11

A financial asset or financial liability is classified as held for trading if

(a) it is acquired or incurred principally for the purpose of selling or

repurchasing it in the near term;

(b) on initial recognition it is part of a portfolio of identified financial

instruments that are managed together and for which there is evidence

of a recent actual pattern of short-term profit-taking; or

(c) it is a derivative (except for a derivative that is a designated and

effective hedging instrument).

9.12 Held-to-maturity investments are non-derivative financial assets with

fixed or determinable payments and fixed maturity that an entity has the positive

intention and ability to hold to maturity other than

(a) those that the entity designates as available-for-sale; and

(b) those that meet the definition of loans and receivables.

An entity shall not classify any financial assets as held to maturity if the

entity has, during the current financial year or during the two preceding financial

years, sold or reclassified more than an insignificant amount of held-to-maturity

investments before maturity (more than insignificant in relation to the total amount

of held-to-maturity investments) other than sales or reclassifications that

(a) are so close to maturity or the financial asset’s call date (for example,

less than three months before maturity) that changes in the market rate

of interest would not have a significant effect on the financial asset’s

fair value;

(b) occur after the entity has collected substantially all of the financial

asset’s original principal through scheduled payments or prepayments;

or

(c) are attributable to an isolated event that is beyond the entity’s control, is

non-recurring and could not have been reasonably anticipated by the

entity.

9.13 Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market, other than

(a) those that the entity intends to sell immediately or in the near term,

which shall be classified as held for trading; and

(b) purchased loans and receivables that the entity upon initial recognition

designates as available-for-sale.

9.14 Available-for-sale financial assets are those non-derivative financial assets

that are designated as available-for-sale or are not classified as

(a) loans and receivables;

(b) held-to-maturity investments; or

(c) held for trading financial assets.

Recognition

9.15 An entity shall recognise a financial asset or a financial liability in its

balance sheet when, and only when, the entity becomes a party to the contractual

provisions of the instrument.

Measurement of financial assets and financial liabilities at recognition

9.16 When a financial asset or financial liability is recognised initially, an entity

shall measure it at its fair value, in addition to in the case of a financial asset or

financial liability not classified as held for trading subsequently measured at fair

value, transaction costs that are directly attributable to the acquisition or issue of the

financial asset or financial liability.

An arrangement involving a financial asset or a financial liability constitutes, in effect,

a financing transaction if payment is deferred beyond normal business terms or is

financed at a rate of interest that is not a market rate. If an arrangement constitutes a

financing transaction, an entity shall measure the financial asset or financial liability at

initial recognition at the present value of future payments discounted at a market rate of

interest for a similar debt instrument. Accordingly, an entity shall measure all of its

financial instruments at initial recognition at cost (equivalent to transaction price and fair

value), comprising purchase price and for instruments that are not held for trading

subsequently measured at fair value, transaction costs that are directly attributable to the

acquisition of the instrument. Transaction costs do not include debt premiums or

discounts, financing costs or internal administrative or holding costs.

Measurement of financial assets after recognition

9.17 After initial recognition, an entity may measure a specific category of

financial assets (excluding derivatives that are assets) at their fair values, without

any deduction for transaction costs it may incur on sale or other disposal, except for

the following financial assets

(a) loans and receivables, which shall be measured at amortised cost using

the effective interest method;

(b) held-to-maturity investments, which shall be measured at amortised cost

using the effective interest method; and

(c) investments in equity instruments that do not have a quoted market

measured and derivatives that are linked to and must be settled by

delivery of such equity instruments, which shall be measured at cost.

Notwithstanding the above and paragraph 9.29, an entity m ay, at initial

recognition, irrevocably designate any financial asset or any financial liability as

measured at fair value through profit or loss ("FVTPL") when doing so results in

more relevant information, because either

(i)

it eliminates or significantly reduces a measurement or recognition

inconsistency (sometimes referred to as "an accounting mismatch") that

would otherwise arise from measuring assets or liabilities or

recognising the gains and losses on them on different bases; or

(ii) a group of financial assets, financial liabilities or both is managed and

its performance is evaluated on a fair value basis, in accordance with a

documented risk management or investment strategy, and information

about the group is provided internally on that basis.

Provided that an entity that prepared its financial statements under the

requirements of these regulations for financial years ended on or before 31st

December 2022, is allowed to apply the irrevocable designation referred to above

solely to financial instruments initially recognised on 1st January 2023 or thereafter.

Provided further that when pursuant to the entity’s accounting policy choice,

financial assets classified as held for trading and available-for-sale financial assets

are not subsequently measured at fair value, each category shall be measured at cost

or amortised cost using the effective interest method, whichever is applicable taking

cognisance of the debt or equity nature of the instrument. For avoidance of doubt,

the application of cost or amortised cost using the effective interest method is not an

accounting policy choice.

Financial assets that are designated as hedged items are subject to measurement

under the hedge accounting requirements. All financial assets except those classified as

held for trading and subsequently measured at fair value are subject to review for

impairment (vide paragraphs 9.21-9.28). After initial recognition, an entity shall measure

derivative instruments that are assets at their fair values. The carrying amount of quoted

financial assets that are classified as current assets and are not measured at fair value, shall

be the lower of cost and fair value less costs to sell..

9.18 The best evidence of fair value is quoted prices in an active market. If the

market for a financial instrument is not active, an entity establishes fair value by

using a valuation technique. The objective of using a valuation technique is to

establish what the transaction price would have been on the measurement date in an

arm’s length exchange motivated by normal business considerations. Valuation

techniques include using recent arm’s length market transactions between

knowledgeable, willing parties, if available, reference to the current fair value of

another instrument that is substantially the same, discounted cash flow analysis and

ot her m odel s. If th ere is a valu atio n t echn iqu e com m onl y u sed by m arket

participants to price the instrument and that technique has been demonstrated to

provide reliable estimates of prices obtained in actual market transactions, the entity

uses that technique. The chosen valuation technique makes maximum use of market

inputs and relies as little as possible on entity-specific inputs. It incorporates all

factors that market participants would consider in setting a price and is consistent

w i t h ac c e p te d e c o n om i c m e t ho do l og i e s fo r p r i c in g f i na nc ial in s t ruments.

Periodically, an entity calibrates the valuation technique and tests it for validity

using prices from any observable current market transactions in the same instrument

or based on any available observable market data.

9.19 A gain or loss arising from a change in the fair value of a financial asset or

financial liability shall be recognised, as follows

(a) a gain or loss on a financial asset or financial liability classified as held

for trading, which is measured at fair value, shall be recognised in profit

or loss;

(b) a gain or loss on an available-for-sale financial asset, which is measured

at fair value, shall be recognised directly in equity except for

impairment losses and foreign exchange gains and losses until the

financial asset is derecognised, at which time the cumulative gain or

loss previously recognised in equity shall be recognised in profit or loss.

However, interest calculated using the effective interest method is

recognised in profit or loss. Dividends on an available-for-sale equity

instrument are recognised in profit or loss when the entity’s right to

receive payment is established For the purpose of recognising foreign

exchange gains and losses under Section 18, a monetary available-for-sale

financial asset is treated as if it were carried at amortised cost in the foreign

currency. Accordingly, for such a financial asset, exchange differences

resulting from changes in amortised cost are recognised in profit or loss and

other changes in carrying amount are recognised in equity. For available-for-

sale financial assets that are not monetary items under Section 18 (such as,

equity instruments), the gain or loss that is recognised in equity includes any

related foreign exchange component.

9.20 For financial assets and financial liabilities carried at amortised cost, a

gain or loss is recognised in profit or loss when the financial asset or financial

liability is derecognised or impaired, and through the amortisation process.

Impairment of financial assets

9.21 A financial asset or a group of financial assets is impaired and impairment

losses are incurred if, and only if, there is objective evidence of impairment as a

result of one or more events that occurred after the initial recognition of the asset (a

‘loss event’) and that loss event (or events) has an impact on the estimated future

cash flows of the financial asset or group of financial assets that can be reliably

estimated.

9.22

If there is objective evidence that an impairment loss on financial assets

carried at amortised cost has been incurred, the amount of the loss is measured as the

difference between the asset’s carrying amount and the present value of estimated

future cash flows (excluding future credit losses that have not been incurred)

discounted at the financial asset’s original effective interest rate (ie the effective

interest rate computed at initial recognition). The amount of the loss shall be

recognised in profit or loss.

9.23 If, in a subsequent period, the amount of the impairment loss decreases and

the decrease can be related objectively to an event occurring after the impairment

was recognised, the previously recognised impairment loss shall be reversed. On the

date the impairment is reversed, the reversal shall not result in a carrying amount of the

financial asset that exceeds what the amortised cost would have been had the impairment

not been recognised. The amount of the reversal shall be recognised in profit or loss.

9.24 If there is objective evidence that an impairment loss has been incurred on

an unquoted equity instrument that is not carried at fair value, the amount of the

impairment loss is measured as the difference between the carrying amount of the

financial asset and the present value of estimated future cash flows discounted at the

current market rate of return for a similar financial asset. Such impairment losses

shall not be reversed.

9.25 When a decline in the fair value of an available-for-sale financial asset has

been recognised directly in equity and there is objective evidence that the asset is

impaired, the cumulative loss that had been recognised directly in equity shall be

reclassified from equity to profit or loss as a reclassification adjustment even though

the financial asset has not been derecognised.

9.26 The amount of the cumulative loss that is removed from equity and

recognised in profit or loss shall be the difference between the acquisition cost (net

of any principal repayment and amortisation) and current fair value, less any

impairment loss on that financial asset previously recognised in profit or loss.

9.27 Impairment losses recognised in profit or loss for an investment in an

equity instrument classified as available-for-sale shall not be reversed through profit

or loss.

9.28 If, in a subsequent period, the fair value of a debt instrument classified as

available-for-sale increases and the increase can be objectively related to an event

occurring after the impairment loss was recognised in profit or loss, the impairment

loss shall be reversed, with the amount of the reversal recognised in profit or loss.

Measurement of financial liabilities after recognition

9.29 After initial recognition, an entity shall measure all financial liabilities at

amortised cost using the effective interest method, except for

(a) financial liabilities classified as held for trading (excluding derivatives

that are liabilities), which may be measured at fair value; and

(b) derivatives that are liabilities, which shall be measured at fair value.

Financial liabilities that are designated as hedged items are subject to the

hedge accounting requirements. For avoidance of doubt, when pursuant to the entity’s

accounting policy choice, financial liabilities classified as held for trading (excluding

derivatives) are not subsequently measured at fair value, these liabilities shall be measured

at amortised cost using the effective interest method.

Hedging

9.30 If there is a designated hedging relationship between a hedging instrument

and a hedged item, accounting for the gain or loss on the hedging instrument and the

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

hedged item shall follow the rules below.

Hedging relationships are of three types

(a) fair value hedge: a hedge of the exposure to changes in fair value of a

recognised asset or liability or an unrecognised firm commitment, or an

identified portion of such an asset, liability or firm commitment, that is

attributable to a particular risk and could affect profit or loss;

(b) cash flow hedge: a hedge of the exposure to variability in cash flows

that (i) is attributable to a particular risk associated with a recognised

asset or liability or a highly probable forecast transaction and (ii) could

affect profit or loss;

(c) hedge of a net investment in a foreign operation.

9.32 A hedging relationship qualifies for hedge accounting if, and only if, all of

the following conditions are met

(a) At the inception of the hedge there is formal designation and

documentation of the hedging relationship and the entity’s risk

management objective and strategy for undertaking the hedge. That

documentation shall include identification of the hedging instrument,

the hedged item or transaction, the nature of the risk being hedged and

how the entity will assess the hedging instrument’s effectiveness in

offsetting the exposure to changes in the hedged item’s fair value or

cash flows attributable to the hedged risk.

(b) The hedge is expected to be highly effective in achieving offsetting

changes in fair value or cash flows attributable to the hedged risk,

consistently with the originally documented risk management strategy

for that particular hedging relationship.

(c) For cash flow hedges, a forecast transaction that is the subject of the

hedge must be highly probable and must present an exposure to

variations in cash flows that could ultimately affect profit or loss.

(d) The effectiveness of the hedge can be reliably measured, ie the fair

value or cash flows of the hedged item that are attributable to the

hedged risk and the fair value of the hedging instrument can be reliably

measured.

(e) The hedge is assessed on an ongoing basis and determined actually to

have been highly effective throughout the financial reporting periods for

which the hedge was designated.

9.33 If a fair value hedge meets the aforesaid conditions during the period, it

shall be accounted for as follows

(a) the gain or loss from remeasuring the hedging instrument at fair value

(for a derivative hedging instrument) shall be recognised in profit or

loss; and

(b) the gain or loss on the hedged item attributable to the hedged risk shall

adjust the carrying amount of the hedged item and be recognised in

profit or loss. This applies if the hedged item is otherwise measured at

cost. Recognition of the gain or loss attributable to the hedged risk in

profit or loss applies if the hedged item is an available-for-sale financial

asset which is measured at fair value.

9.34 If a cash flow hedge meets the aforesaid conditions during the period, it

shall be accounted for as follows

(a) the portion of the gain or loss on the hedging instrument that is

determined to be an effective hedge shall be recognised directly in

equity; and

(b) the ineffective portion of the gain or loss on the hedging instrument

shall be recognised in profit or loss.

9.35 Hedges of a net investment in a foreign operation, including a hedge of a

monetary item that is accounted for as part of the net investment, shall be accounted

for similarly to cash flow hedges

(a) the portion of the gain or loss on the hedging instrument that is

determined to be an effective hedge shall be recognised directly in

equity; and

(b) the ineffective portion shall be recognised in profit or loss.

Debt/Equity classification

9.36 A financial instrument, or its component parts, shall be classified as a

financial liability, a financial asset or an equity instrument in accordance with the

substance of the contractual arrangement rather than its legal form. Some financial

instruments take the legal form of equity but are liabilities in substance and others

may combine features associated with equity instruments and features associated

with financial liabilities. For example a preference share that provides for mandatory

redemption by the issuer for a fixed or determ inable amount at a fixed or

determinable future date, or gives the holder the right to require the issuer to redeem

the instrument at or after a particular date for a fixed or determinable amount, is a

financial liability.The entity shall assess the terms of the instrument to determine whether

it contains both a liability and an equity component. Such components shall be classified

separately as financial liabilities, financial assets or equity instruments in accordance with

the requirements of this paragraph. The entity shall allocate the initial recognition amount

between the liability and equity component by assigning to the equity component the

residual amount after deducting from the fair value of the instrument as a whole the

amount separately determined for the liability component in accordance with the

requirements of paragraph 9.16.

9.37 Dividends relating to a financial instrument or a component that is a

financial liability shall be recognised as expense in profit or loss. Distributions to

holders of an equity instrument shall be debited by the entity directly to equity, net

of any related income tax benefit. If an entity declares dividends after the balance

sheet date, the dividends shall not be recognised as a liability at the balance sheet

date.

Disclosure

9.38 For financial instruments measured at fair value an entity shall disclose in

the notes, for each category of financial instrument

(a) the significant assumptions underlying the valuation models and

techniques used, if any, in accordance with paragraph 9.18 of these

Principles; and

(b) the fair value at the balance sheet date and the changes in fair value

recognised in the income statement and changes included in fair value

reserves during the period in accordance with paragraph 9.39(b)(iii) and

(iv).

9.39

An entity shall disclose

(a) its accounting policy for each category of financial instrument; and

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

(b) having regard to paragraph 4.8(d) of these Principles, a reconciliation of

the carrying amount of each category of instrument or investment,

classified as non-current assets at the beginning and end of the period

showing

(i) additions;

(ii) disposals;

(iii) impairment losses or reversal of impairment losses where

applicable;

(iv) write-downs to fair value less costs to sell for quoted instruments

that are classified as current assets and not measured at fair value;

(v) gains and losses resulting from changes in the fair value of

instruments measured under the fair value through equity model,

distinguishing between those recognised in equity and those

recognised in profit or loss;

(vi) gains and losses resulting from changes in the fair value of held-

for-trading investments measured under the fair value through

profit or loss model, recognised in profit or loss;

(vii)

the net exchange differences arising on the translation of the

financial statements from the functional currency into a different

presentation currency (see Section 18 of these Principles); and

(viii) other changes.

Unless presented elsewhere in the financial statements, an entity shall

disclose a table showing movements in fair value reserves during the financial year.

9.40 For each class of derivative financial instrument, an entity shall disclose in

the notes, information about the extent and the nature of the instruments, including

significant terms and conditions that may affect the amount, timing and certainty of

future cash flows.

An entity shall disclose

(a) amounts owed by the entity becoming due and payable after more than

five years; and

(b) financial liabilities covered by valuable security furnished by the entity,

together with an indication of the nature and form of the security given.

Additional disclosures for medium-sized entities

9.42 A medium-sized entity that carries quoted investments at cost or amortised

cost shall disclose the market value of those investments if it is materially different

from their carrying amount.

9.43 A medium-sized entity that carries unquoted non-current investments at

cost or amortised cost, the carrying amount of which is in excess of their fair value,

shall disclose the following

(a) the book value and the fair value of either the individual assets or

appropriate groupings of those individual assets, and

(b) the reasons for not reducing the book value, including the nature of the

evidence underlying the assumption that the book value will be

recovered.

9.44 When the fair value of an unquoted equity investment cannot be measured

reliably, and that investment is hence measured at cost, an entity shall disclose that

fact together with the reason why the fair value of that investment cannot be

measured reliably.

9.45 A medium-sized entity shall disclose the carrying amount of any financial

assets that it has pledged as collateral for liabilities or contingent liabilities.

Equity disclosures for medium-sized entities

An entity with share capital shall disclose the following in the notes

(a) for each class of share capital

(i) the number of shares authorised;

(ii) the number of shares issued and fully paid, and issued but not

fully paid;

(iii) the nominal value, or in the absence of a nominal value the

accounting par value, of the shares subscribed during the financial

year;

(iv) a reconciliation of the number of shares outstanding at the

beginning and at the end of the period showing the number

allotted, their aggregate nominal value, and the consideration

received by the entity during the year for the allotment;

(v) the rights, preferences and restrictions attaching to that class

including restrictions on the distribution of dividends and the

repayment of capital;

(vi) the existence of any participation certificates, convertible

debentures, warrants, options or similar securities or rights, with

an indication of their number and the rights they confer;

(vii) shares in the entity held by the entity itself; and

(viii) shares reserved for issue under options and contracts for the sale

of shares, including the terms and amounts.

(b) a description of each reserve within equity; and

(c) for any part of the allotted share capital that consists of redeemable

shares

(i)

the earliest and latest dates on which the company has the power

to redeem those shares;

(ii) whether those shares must be redeemed in any event or are liable

to be redeemed at the option of the company or of the shareholder;

and

(iii) whether any (and, if so, what) premium is payable on redemption.

The notes shall state

(a) the aggregate amounts of dividends paid in the financial year (other

than those for which a liability existed at the immediately preceding

balance sheet date);

(b) the aggregate amount of dividends that the company is liable to pay at

the balance sheet date; and

(c) the aggregate amount of dividends that are proposed before the date of

approval of the financial statements, and not otherwise disclosed under

paragraph (a) or (b) above.

9.48 If any fixed cumulative dividends on the company’s shares are in arrears,

the amount of the arrears and the period for which each class of dividends is in

arrears shall be disclosed.

Section 10: Investments in subsidiaries, associates and joint ventures

10.1 This Section shall be applied by an investor in accounting for its equity

investments in subsidiaries, associates and joint ventures in its individual financial

statements. Individual financial statements are the financial statements of the

investor prepared in accordance with these Principles. Except as provided for in

paragraph 22.19 of these Principles, this Section does not apply to consolidated

financial statements, which are specifically covered in Section 22 of GAPSME.

10.2 Investments in entities other than subsidiaries, associates and joint

ventures shall be accounted for in accordance with the requirements of Section 9 of

these Principles.

Definitions

10.3 A subsidiary is an entity, including an unincorporated entity such as a

partnership, which is controlled by another entity, known as the parent (also referred

to as the ‘investor’ throughout this Section). Control is the power to govern the

financial and operating policies of an entity so as to obtain benefits from its

activities. Control is presumed to exist when the parent has, directly or indirectly

through subsidiaries, a majority of the shareholders’ voting rights of an entity unless,

in exceptional circumstances, it can be clearly demonstrated that such ownership

does not constitute control. Control also exists when the parent owns half or less of

the voting power of an entity but it

(a) has sole control pursuant to an agreement with other shareholders in or

members of that entity (a subsidiary entity), a majority of shareholders'

or members' voting rights in that entity and is at the same time a

shareholder in or member of that entity;

(b) has the right to exercise a dominant influence over an entity (a

subsidiary entity); or

(c) has the right to appoint or remove the majority of the members of the

board of directors or equivalent governing body and control of the

entity is by that board or body and is at the same time a shareholder in

or a member of that entity.

The existence and effect of potential voting rights that are currently

exercisable or convertible, including potential voting rights held by another entity,

are considered when assessing whether an entity has the power to govern the

financial and operating policies of another entity.

In any case, an entity is required to draw up consolidated financial

statements if that entity has the power to exercise, or actually exercises, dominant

influence or control over another entity.

10.4 An associate is an entity, including an unincorporated entity such as a

partnership, over which the investor has significant influence and that is neither a

subsidiary nor an interest in a joint venture. Significant influence is the power to

participate in the financial and operating policy decisions of the associate but is not

control or joint control over those policies. If an investor holds, directly or indirectly

(e.g. through subsidiaries), 20% or more of the voting power of the investee, it is

presumed that the investor has significant influence, unless it can be clearly

demonstrated that this is not the case. Conversely, if the investor holds, directly or

indirectly (e.g. through subsidiaries), less than 20% of the voting power of the

investee, it is presumed that the investor does not have significant influence, unless

such influence can be clearly demonstrated. A substantial or majority ownership by

another investor does not preclude an investor from having significant influence.

The existence of significant influence by an investor is usually evidenced in one or

more of the following ways

(a) representation on the board of directors or equivalent governing body of

the investee;

(b) participation in policy making processes;

(c) material transactions between the investor and the investee;

(d) interchange of managerial personnel; or

(e) provision of essential technical information.

The existence and effect of potential voting rights that are currently

exercisable or convertible, including potential voting rights held by other entities,

are considered when assessing whether an entity has significant influence.

10.5 A joint venture is a contractual arrangement whereby two or more parties

undertake an economic activity that is subject to joint control. The following

characteristics are common to all joint ventures

(a) two or more venturers are bound by a contractual arrangement; and

(b) the contractual arrangement establishes joint control.

Joint control is the contractually agreed sharing of control over an

economic activity, and exists only when the strategic financial and operating

decisions relating to the activity require the unanimous consent of the parties sharing

control (the venturers). A venturer (also referred to as the ‘investor’ throughout this

Section) is a party to a joint venture and has joint control over that joint venture.

10.6 Joint ventures can take the form of jointly controlled operations, jointly

controlled assets, or jointly controlled entities.

10.7 The operation of some joint ventures involves the use of the assets and

other resources of the venturers rather than the establishment of a corporation,

partnership or other entity or of a financial structure that is separate from the

venturers themselves. Each venturer uses its own property, plant and equipment and

carries its own inventories. It also incurs its own expenses and liabilities and raises

its own finance, which represent its own obligations. The joint venture activities may

be carried out by the venturer ’s employees alongside the venturer ’s similar

activities. The joint venture agreement usually provides a means by which the

revenue from the sale of the joint product and any expenses incurred in common are

shared among the venturers. These are referred to as jointly controlled operations.

10.8 Some joint ventures involve the joint control, and often the joint

ownership, by the venturers of one or more assets contributed to, or acquired for the

purpose of, the joint venture and dedicated to the purposes of the joint venture.

These are referred to as jointly controlled assets.

10.9 A jointly controlled entity is a joint venture that involves the establishment

of a corporation, partnership or other entity in which each venturer has an interest.

The entity operates in the same way as other entities, except that a contractual

arrangement between the venturers establishes joint control over the economic

activity of the entity.

10.10 Investments in subsidiaries, associates and jointly controlled entities are

sometimes collectively referred to as “investee” throughout this Section.

Accounting for investments in subsidiaries, associates and jointly controlled

entities

10.11 An investor shall initially account for all investments in subsidiaries,

associates and jointly controlled entities at cost, comprising its purchase price and any

directly attributable cost.

10.12 Subsequent to initial recognition, an investor shall account for all its

investments in subsidiaries, associates and jointly controlled entities, using one of

the following

(a) the cost method in paragraphs 10.13 and 10.14; or

(b) the equity method in paragraphs 10.15 - 10.25.

Cost method

10.13 Under the cost method, an investor shall measure all its investments in

subsidiaries, associates and jointly controlled entities at cost less any accumulated

impairment losses. The investor shall recognise a dividend from a subsidiary,

associate or jointly controlled entity in profit or loss in its individual financial

statements when its right to receive the dividend is established.

10.14 The investor shall recognise impairment in accordance with Section 12 of

these Principles. In assessing whether there is an indication that an investment in a

subsidiary, associate or jointly controlled entity (collectively referred to as investee)

may be impaired an entity shall consider available evidence that indicates that the

dividend from an investee recognised in the current financial reporting period

exceeds that investee’s profit for the financial reporting period in which the dividend

is declared. Where applicable, an entity shall apply the guidance in paragraph 10.24

for the purposes of determining an investment’s recoverable amount.

Equity method

10.15 Where an investee draws up consolidated financial statements, the equity

method shall be based on the consolidated financial statements of the investee.

10.16 Investments in subsidiaries, associates or jointly controlled entities are

accounted for under the equity method from the date on which they fall within the

respective definition. Under the equity method, the investment is initially recognised

at cost. The difference between that amount and the amount corresponding to the

investor ’s share of the capital and reserves of the investee shall be disclosed

separately in the consolidated balance sheet or in the notes to the consolidated

financial statements. That difference shall be calculated as at the date on which that

method is used for the first time.

10.17 The investor’s share of the profit or loss of the investee is recognised in

the investor’s profit or loss. Distributions received from an investee reduce the

carrying amount of the investment. Adjustments to the carrying amount may also be

necessary for changes in the investor’s proportionate interest in the subsidiary,

associate or jointly controlled entity arising from changes in the investee’s equity

that have not been recognised in their profit or loss. Such changes include those

arising from the revaluation of property, plant and equipment and from foreign

exchange translation differences. The investor’s share of those changes is recognised

directly in equity of the investor.

10.18 When potential voting rights exist, the investor’s share of profit or loss of

the investee and of changes in the investee’s equity is determined on the basis of

present ownership interests and does not reflect the possible exercise or conversion

of potential voting rights.

10.19 If an investee uses accounting policies other than those of the investor for

like transactions and events in similar circumstances, adjustments shall be made to

conform the investee’s accounting policies to those of the investor when the

investee’s financial statements are used by the investor in applying the equity

method.

10.20 Appropriate adjustments are made to the investor’s share of the profits or

losses after acquisition to eliminate the investor’s share of the investee’s unrealised

profits and losses resulting from transactions between an investor and an investee.

10.21 The most recent available financial statements of the subsidiary, associate

or jointly controlled entity are used by the investor in applying the equity method.

When the reporting dates of the investor and the investee are different, the investee

prepares, for the use of the investor, financial statements as of the same date as the

financial statements of the investor unless it is impracticable to do so.

10.22 If, under the equity method, an investor’s share of losses of a subsidiary,

associate or jointly controlled entity equals or exceeds its interest in the investment,

the investor discontinues recognising its share of further losses. The investment is

reported at nil value. Thereafter, additional losses are provided for, and a liability is

recognised, only to the extent that the investor has incurred legal or constructive

obligations or made payments on behalf of the investee. If the subsidiary, associate

or jointly controlled entity subsequently reports profits, the investor resumes

recognising its share of those profits only after its share of the profits equals the

share of losses not recognised.

10.23 After application of the equity method, including recognising the

associate’s losses in accordance with paragraph 10.22 the investor applies the

requirements of Section 12 to determine whether it is necessary to recognise any

additional impairment loss with respect to the investor’s investment.

10.24 For the purposes of determining whether an investment in a subsidiary,

associate or jointly controlled entity is impaired in accordance with Section 12 of

these Principles, an entity shall compare the investment’s recoverable amount

(higher of fair value less costs to sell and value in use) with its carrying amount,

whenever there is an indication that the investment may be impaired. In determining

the value in use of investments in subsidiaries, associates or jointly controlled

entities, an entity estimates

(a) its share of the present value of the estimated future cash flows expected

to be generated by the investee, including the cash flows from the

operations of the subsidiary, associate or jointly controlled entity and

the proceeds on the ultimate disposal of the investment; or

(b) the present value of the estimated future cash flows expected to arise

from dividends to be received from the investment and from its ultimate

disposal.

Under appropriate assumptions, both methods give the same result.

10.25 An investor shall discontinue the use of the equity method from the date it

ceases to have

(a) control over the subsidiary’s financial and operating policies and does

not have joint control or significant influence; or

(b) significant influence in participating in the financial and operating

policy decisions of the associate; or

(c) joint control over a jointly controlled entity and does not have

significant influence.

Accordingly the investor shall account for the investment in accordance

with Section 9 of these Principles. The carrying amount of the investment at that

date shall be recognised as its cost on initial measurement.

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

Recognition and Measurement - investments in jointly controlled operations and

jointly controlled assets

10.26 In respect of its interests in jointly controlled operations, a venturer shall

recognise in its financial statements

(a) the assets that it controls and the liabilities that it incurs; and

(b) the expenses that it incurs and its share of the income that it earns from

the sale of goods or the rendering of services by the joint venture

and shall measure assets and liabilities recognised in (a) above in accordance with

the respective requirements of these Principles.

10.27 In respect of its interests in jointly controlled assets, a venturer shall

recognise in its financial statements

(a) its share of the jointly controlled assets, classified according to the

nature of the assets;

(b) any liabilities that it has incurred;

(c) its share of any liabilities incurred jointly with the other venturers in

relation to the joint venture;

(d) any income from the sale or use of its share of the output of the joint

venture, together with its share of any expenses incurred by the joint

venture; and

(e) any expenses that it has incurred in respect of its interest in the joint

venture

and shall measure assets and liabilities recognised in (a), (b) and (c) above in

accordance with the respective requirements of these Principles.

Disclosure

10.28 An investor shall disclose its accounting policy for its investments in

subsidiaries, associates and jointly controlled entities.

10.29 An entity shall disclose for investments insubsidiaries, associates and

jointly controlled entities

(a) the gross carrying amount and the accumulated impairment losses at the

beginning and end of the period; and

(b) having regard to paragraph 4.8(a) of these Principles, a reconciliation of

the carrying amount at the beginning and end of the period showing

(i) additions;

(ii) disposals;

(iii) impairment losses recognised or reversed in profit or loss in

accordance with Section 12 of these Principles;

(iv) its share of the profit or loss on investments in subsidiaries,

associates and jointly controlled entities accounted for under the

equity method;

(v) distributions received from subsidiaries, associates and jointly

controlled entities accounted for under the equity method;

(vi) the net exchange differences arising on the translation of the

financial statements from the functional currency into a different

presentation currency (see Section 18 of these Principles);

(vii)

accumulated impairment losses released on disposals; and

(viii) transfers.

10.30 For investments in subsidiaries, associates and jointly controlled entities

accounted for under the equity method, an investor shall present and disclose its share of

the profit or loss of the investees separately on the face of the income statement.

Additional disclosures for medium-sized entities

10.31 For investments in subsidiaries, associates and jointly controlled entities

accounted for under the cost method an investor shall disclose

(a) income received from distributions out of the investee’s accumulated

profits, recognised in the investor’s profit or loss for the period, unless

shown separately on the face of the income statement; and

(b) the information required by Section 12 of these Principles.

10.32 An investor shall present and disclose for investments in subsidiaries,

associates and jointly controlled entities accounted for under the equity method

(a) its share of changes recognised directly in the equity of the investee in

accordance with paragraph 10.17, unless shown separately on the

statement of changes in equity;

(b) its share of the results attributable to discontinued operations;

(c) the carrying amount of those investments;

(d) the difference referred to in paragraph 10.16 shall be disclosed

separately in the consolidated balance sheet or in the notes to the

consolidated financial statements; and

(e) the information required by Section 12 of these Principles.

10.33 A medium-sized entity that carries non-current investments in subsidiaries,

associates and jointly controlled entities under the cost model, the carrying amount

of which is in excess of their fair value, shall disclose the following

(a) the book value and the fair value of either the individual assets or

appropriate groupings of those individual assets, and

(b) the reasons for not reducing the book value, including the nature of the

evidence underlying the assumption that the book value will be

recovered.

10.34 For each significant subsidiary, associate and jointly controlled entity an

investor, which is a medium-sized entity, shall disclose

(a) the name and registered office or principal place of business (if

incorporated) of the entity;

(b) the legal form of the entity;

(c) if the entity is incorporated outside Malta, the country in which it is

incorporated;

(d) the identity and proportion of the nominal value of each class of shares

held and if different, the proportion of voting power held;

(e) the amount of capital and reserves and the profit or loss for the latest

financial period for which financial statements have been prepared;

(f)

the financial reporting framework under which those financial

statements have been prepared (for example International Financial

Reporting Standards as adopted by the EU); and

(g) whether those financial statements have been audited.

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

10.35 A medium-sized entity shall also disclose

(a) for subsidiaries and associates, the nature and extent of any significant

restrictions on the ability of the subsidiaries and associates to transfer

funds to the investor in the form of cash dividends, or repayment of

loans or advances;

(b) in respect of associates the investor shall disclose

(i)

its share of the contingent liabilities of an associate incurred

jointly with other investors; and

(ii) those contingent liabilities that arise because the investor is

severally liable for all or part of the liabilities of the associate.

10.36 A venturer shall disclose the aggregate amount of the following contingent

liabilities, unless the probability of loss is remote, separately from the amount of

other contingent liabilities

(a) any contingent liabilities that the venturer has incurred in relation to its

interests in joint ventures and its share in each of the contingent

liabilities that have been incurred jointly with other venturers;

(b) its share of the contingent liabilities of the joint ventures themselves for

which it is contingently liable; and

(c) those contingent liabilities that arise because the venturer is

contingently liable for the liabilities of the other venturers of a joint

venture.

10.37 A venturer shall disclose the aggregate amount of the following

commitments in respect of its interests in joint ventures separately from other

commitments

(a) any capital commitments of the venturer in relation to its interests in

joint ventures and its share in the capital commitments that have been

incurred jointly with other venturers; and

(b) its share of the capital commitments of the joint ventures themselves.

Section 11: Intangible assets other than goodwill

11.1 An intangible asset is an identifiable non-monetary asset without physical

substance. Such an asset is identifiable when

(a) it is separable, i.e. it is capable of being separated or divided from the

entity and sold, transferred, licensed, rented or exchanged, either

individually or together with a related contract, asset or liability; or

(b) it arises from contractual or other legal rights, regardless of whether

those rights are transferable or separable from the entity or from other

rights and obligations

Provided that for the purposes of this section, cryptographic assets and

tokens shall not be considered as intangible assets.

Acquired intangible assets - Recognition and Measurement at recognition

11.2

An intangible asset shall be recognised if, and only if

(a) it is probable that the expected future economic benefits that are

attributable to the asset will flow to the entity; and

(b) the cost of the asset can be measured reliably.

11.3

An intangible asset purchased with a business shall be recognised

separately from the purchased goodwill if its fair value can be measured reliably as

required by paragraph 21.7(c) of these Principles. The probability recognition

criterion is always considered satisfied for intangible assets that are separately

acquired. In a business combination, an acquirer recognises at the acquisition date

separately from goodwill an intangible asset of the acquiree if the asset's fair value

can be measured reliably, irrespective of whether the asset had been recognised by

the acquiree before the business combination. Therefore, the probability recognition

criterion is always considered to be satisfied for intangible assets acquired in

business combinations because the effect of probability that the future economic

benefits embodied in the asset will flow to the entity is reflected in the fair value

measurement of the intangible asset.

11.4 An intangible asset shall be measured initially at cost. The cost of a

separately acquired intangible asset comprises

(a) its purchase price, including import duties and non-refundable purchase

taxes, after deducting trade discounts and rebates; and

(b) any directly attributable cost of preparing the asset for its intended use.

If an intangible asset is acquired in a business combination, the cost of that

intangible asset is its fair value at the acquisition date.

11.5 The nature of intangible assets is such that, in many cases, there are no

additions to such an asset or replacements of part of it. Accordingly, most

subsequent expenditures are likely to maintain the expected future economic benefits

embodied in an existing intangible asset rather than meet the definition of an

intangible asset and the recognition criteria in these Principles.

Internally-generated intangible assets - Recognition and Measurement at

recognition

11.6 The creation of internally-generated intangible assets involves a research

phase and a development phase. Research is original and planned investigation

undertaken with the prospect of gaining new scientific or technical knowledge and

understanding. Development is the application of research findings or other

knowledge to a plan or design for the production of new or substantially improved

materials, devices, products, processes, systems or services before the start of

commercial production or use. Expenditure on research (or on the research phase of

an internal project) shall be recognised as an expense in the period in which it is

incurred. An intangible asset arising from development (or from the development

phase of an internal project) shall be recognised if, and only if, an entity can

demonstrate all the following

(a) the technical feasibility of completing the intangible asset so that it will

be available for use or sale;

(b) its intention to complete the intangible asset and use or sell it;

(c) its ability to use or sell the intangible asset;

(d) how the intangible asset will generate probable future economic

benefits. Among other things, the entity can demonstrate the existence

of a market for the output of the intangible asset or the intangible asset

itself or, if it is to be used internally, the usefulness of the intangible

asset;

(e) the availability of adequate technical, financial and other resources to

complete the development and to use or sell the intangible asset; and

(f)

its ability to measure reliably the expenditure attributable to the

intangible asset during its development.

11.7 The cost of an internally-generated intangible asset for the purpose of

paragraph 11.4 is the sum of the expenditure incurred from the date when the

intangible asset first meets the recognition criteria in paragraphs 11.2 and 11.6 of

these Principles.

11.8 The cost of an internally generated intangible asset comprises all directly

attributable costs necessary to create, produce, and prepare the asset to be capable of

operating in the manner intended by management. Examples of directly attributable

costs would typically include costs of materials and services used, staff costs arising

from the generation of the intangible asset and fees payable to register a legal right.

Recognition as an expense

11.9 An entity shall recognise expenditure on an intangible item as an expense

when it is incurred unless it forms part of the cost of an intangible asset that meets

the recognition criteria.

11.10 An entity shall recognise expenditure on the following items as an expense

and shall not recognise such expenditure as intangible assets

(a) internally generated brands, mastheads, publishing titles, customer lists

and items similar in substance;

(b) expenditure on start-up activities (i.e. start-up costs), unless this

expenditure is included in the cost of an item of property, plant and

equipment. Start-up costs may consist of establishment costs such as

legal and secretarial costs incurred in establishing a legal entity,

expenditure to open a new facility or business (i.e. pre-opening costs) or

expenditure for starting new operations or launching new products or

processes (i.e. pre-operating costs);

(c) expenditure on training activities;

(d) expenditure on advertising and promotional activities; and

(e) expenditure on relocating or reorganising part or all of an entity.

Intangible assets - Measurement after recognition

11.11 After initial recognition, an intangible asset shall be carried at its cost less

any accumulated amortisation and any accumulated impairment losses. To determine

whether an intangible asset is impaired, an entity applies Section 12. That Section

explains when and how an entity reviews the carrying amount of its assets, how it

determines the recoverable amount of an asset and when it recognises or reverses an

impairment loss.

11.12 The cost less estimated residual value of an intangible asset shall be

amortised and allocated on a systematic basis over the asset’s useful life. The

residual value of an intangible asset shall be assumed to be zero unless there is a

commitment by a third party to purchase the asset at the end of its useful life.

Amortisation shall begin when the asset is available for use, i.e. when it is in the

location and condition necessary for it to be capable of operating in the manner

intended by management, and shall cease at the earlier of the date that the asset is

classified as held for sale (or included in a disposal group that is classified as held

for sale) in accordance with Section 23 and the date that the asset is derecognised.

11.13 In exceptional cases where the useful life attributable to development costs

cannot be reliably estimated, they shall be written off over a maximum period of 10

years.

11.14 The amortisation method used shall reflect the pattern in which the asset's

future economic benefits are expected to be consumed by the entity. If that pattern

cannot be determined reliably, the straight-line method shall be used. The

amortisation charge for each period shall be recognised in profit or loss unless it is

included in the carrying amount of another asset.

11.15 An intangible asset’s useful life and any residual value shall be reviewed

regularly and, when necessary, revised. On revision, the carrying amount of the

intangible asset at the date of revision, less the revised residual value, shall be

amortised over the revised remaining useful life. Such a change shall be accounted

for as a change in an accounting estimate in accordance with Section 5 of these

Principles.

11.16 An entity shall review the amortisation method regularly. A change from

one amortisation method to another is permissible only on the grounds that the new

method will give a fairer presentation of the results and of the financial position.

Such a change does not, however, constitute a change of accounting policy; the

carrying amount of the intangible asset is amortised using the revised method over

the remaining useful life, beginning in the period in which the change is made. A

change in the amortisation method shall be accounted for as a change in an

accounting estimate in accordance with Section 5 of these Principles.

11.17 Intangible assets shall not be revalued.

Disclosures

11.18 Entities shall disclose the following for each class of intangible assets,

distinguishing between internally-generated intangible assets and other intangible

assets

(a) the useful lives or the amortisation rates used; and

(b) the amortisation methods used.

11.19 A class of intangible assets is a grouping of assets of a similar nature and

use in an entity’s operations. Examples of separate classes may include

(a) brand names;

(b) mastheads and publishing titles;

(c) computer software;

(d) licences and franchises;

(e) copyrights, patents and other industrial property rights, service and

operating rights;

(f)

recipes, formulae, models, designs and prototypes; and

(g) intangible assets under development.

The classes mentioned above are disaggregated (aggregated) into smaller

(larger) classes if this results in more relevant information for the users of the

financial statements.

11.20 An entity shall disclose, for each class of intangible assets

(a) the gross carrying amount and the accumulated amortisation

(aggregated with accumulated impairment losses) at the beginning and

end of the period; and

(b) having regard to paragraph 4.8(b) of these Principles, a reconciliation of

the carrying amount at the beginning and end of the period showing

(i)

additions (reflecting those from internal development, those

acquired separately, and those acquired through a business

combination);

(ii) transfers (reflecting transfers to assets held for sale);

(iii) disposals;

(iv) impairment losses recognised or reversed in profit or loss in

accordance with Section 12 of these Principles;

(v) amortisation;

(vi) accumulated amortisation and impairment losses released on

disposals and transfers;

(vii)

the net exchange differences arising on the translation of the

financial statements from the functional currency into a different

presentation currency (see Section 18 of these Principles); and

(viii) other changes.

11.21. Section 5 of these Principles requires an entity to disclose the nature and

amount of a change in an accounting estimate that has a material effect in the current

period or is expected to have a material effect in subsequent periods. Such disclosure

may arise from changes in

(a) the assessment of an intangible asset’s useful life;

(b) the amortisation method; or

(c) residual values.

11.22 An entity shall disclose

(a) the existence and carrying amounts of intangible assets pledged as

security for liabilities; and

(b) the amount of contractual commitments for the acquisition of intangible

assets.

Section 12: Impairment of assets

12.1 This Section shall be applied in accounting for the impairment of the

following assets

(a) property, plant and equipment;

(b) investment property;

(c) intangible assets;

(d) goodwill; and

(e) investments in subsidiaries, associates and jointly controlled entities.

12.2 This Section does not apply to financial assets within the scope of Section

9, which contains separate provisions that prescribe when and how an impairment

loss on investments or financial assets is to be determined, recognised and reversed.

Recognising and measuring an impairment loss on individual assets

12.3 An entity shall assess at each reporting date whether there is any indication

that an asset may be impaired. If any such indication exists, the entity shall estimate

the recoverable amount of the asset.

12.4 The recoverable amount of an asset (or a group of assets) is the higher of

its fair value less costs to sell and its value in use. Fair value less costs to sell is the

amount obtainable from the sale of an asset in an arm’s length transaction between

knowledgeable, willing parties, less the costs of disposal. Value in use is the present

value of the future cash flows expected to be derived from an asset. Estimating the

value in use of an asset involves the following steps

(a) estimating the future cash inflows and outflows to be derived from

continuing use of the asset and from its ultimate disposal; and

(b) applying the appropriate discount rate to those future cash flows.

12.5

In measuring value in use an entity shall

(a) base cash flow projections on reasonable and supportable assumptions

that represent management’s best estimate of the range of economic

conditions that will exist over the remaining useful life of the asset;

(b) base cash flow projections on the most recent financial budgets/

forecasts approved by management. Such projections shall cover a

maximum period of five years, unless a longer period can be justified.

12.6 To give effect to the principle in paragraph 12.4(a) an entity shall include

the following when estimating future cash flows

(a) projections of cash inflows from the continuing use of the asset;

(b) projections of cash outflows that are necessarily incurred to generate the

cash inflows from continuing use of the asset (including cash outflows

to prepare the asset for use) and can be directly attributed, or allocated

on a reasonable and consistent basis, to the asset; and

(c) net cash flows, if any, to be received (or paid) for the disposal of the

asset at the end of its useful life.

12.7 To give effect to the principle in paragraph 12.4(b) an entity shall apply a

pre-tax discount rate that reflects current market assessments of

(a) the time value of money; and

(b) the risks specific to the asset for which the future cash flow estimates

have not been adjusted.

12.8 If, and only if, the recoverable amount of an asset is less than its carrying

amount, the carrying amount of the asset shall be reduced to its recoverable amount.

That reduction is an impairment loss.

12.9 An impairment loss shall be recognised immediately in profit or loss,

unless the asset is carried at revalued amount in accordance with another Section of

these Principles (for example, in accordance with the revaluation model in Section

7). Any impairment loss of a revalued asset shall be treated as a revaluation decrease

in accordance with that other Section.

12.10 After the recognition of an impairment loss, the depreciation

(amortisation) charge for the asset shall be adjusted in future periods to allocate the

asset’s revised carrying amount, less its residual value (if any), on a systematic basis

over its remaining useful life.

Recognising and measuring an impairment loss on a group of assets and goodwill

12.11 If an entity cannot estimate the recoverable amount for an individual asset,

the entity shall measure the recoverable amount for the group of assets to which the

asset belongs. For this purpose, recoverable amount shall be estimated for the

smallest identifiable group of assets that

(a) generates cash inflows from continuing use that are largely independent

of the cash flows from other assets or groups of assets;

(b) includes the asset for which impairment is indicated; and

(c) the recoverable amount of which can be estimated reliably.

For the purpose of determining the recoverable amount of a group of

assets, the principles in paragraphs 12.4 - 12.7 shall apply and any reference to ‘an

asset’ therein shall be construed as being a reference to ‘a group of assets’.

12.12 Goodwill does not generate cash flows to an entity that are independent of

the cash flows of other assets. As a consequence the recoverable amount of goodwill

must be derived from measurement of the recoverable amount of the larger group of

assets of which the goodwill is a part.

12.13 An impairment loss shall be recognised for a group of assets (to which

goodwill could have been allocated) if, and only if, the recoverable amount of the

group of assets is less than its carrying amount. The impairment loss shall be

allocated to reduce the carrying amount of the assets of the group in the following

order

(a) first, to reduce the carrying amount of any goodwill allocated to the

group; and

(b) then, to the other non-cash assets of the group pro-rata on the basis of

the carrying amount of each asset.

These reductions in carrying amounts shall be treated as impairment losses

on individual assets and recognised accordingly.

Reversing an impairment loss

12.14 An entity shall assess at each reporting date whether there is any indication

that an impairment loss recognised in prior periods for an asset other than goodwill

may no longer exist or may have decreased. If any such indication exists, the entity

shall estimate the recoverable amount of that asset or the group of assets to which

the asset belongs if an entity cannot estimate the recoverable amount for the

individual asset.

12.15 An impairment loss recognised in prior periods for an asset other than

goodwill shall be reversed if, and only if, there has been a change in the estimates

used to determine the asset’s recoverable amount since the last impairment loss was

recognised. If this is the case, the carrying amount of the asset shall, except as

described in paragraph 12.16, be increased to its recoverable amount. That increase

is a reversal of an impairment loss.

12.16 The increased carrying amount of an asset other than goodwill attributable

to a reversal of an impairment loss shall not exceed the carrying amount that would

have been determined (net of amortisation or depreciation) had no impairment loss

been recognised for the asset in prior years.

12.17 A reversal of an impairment loss for an asset other than goodwill shall be

recognised immediately in profit or loss, unless the asset is carried at revalued

amount in accordance with another section of these Principles (for example, in

accordance with the revaluation model in Section 7). Any reversal of an impairment

loss of a revalued asset shall be treated as a revaluation increase in accordance with

that other Section. A reversal of an impairment loss for a group of assets shall be

allocated to the non-cash assets of the group, except for goodwill, pro-rata with the

carrying amounts of those assets. These increases in carrying amounts shall be

treated as reversals of impairment losses for individual assets and recognised

accordingly.

12.18 After a reversal of an impairment loss is recognised, the depreciation

(amortisation) charge for the asset shall be adjusted in future periods to allocate the

asset’s revised carrying amount, less its residual value (if any), on a systematic basis

over its remaining useful life.

12.19 An impairment loss recognised for goodwill shall not be reversed in a

subsequent period.

Disclosures

12.20 A medium-sized entity shall disclose the following for each class of assets

(a) the amount of impairment losses recognised in profit or loss during the

period and the line item(s) of the income statement in which those

impairment losses are included;

(b) the amount of reversals of impairment losses recognised in profit or loss

during the period and the line item(s) of the income statement in which

those impairment losses are reversed;

(c) the amount of impairment losses on revalued assets recognised directly

in equity during the period; and

(d) the amount of reversals of impairment losses on revalued assets

recognised directly in equity during the period.

12.21 A medium-sized entity shall disclose the following for each material

impairment loss recognised or reversed during the period for an individual asset,

including goodwill (insofar as applicable), or a group of assets

(a) the events and circumstances that led to the recognition or reversal of

the impairment loss;

(b) the amount of the impairment loss recognised or reversed;

(c) for an individual asset, the nature of the asset;

(d) for a group of assets, a description of the group; and

(e) whether the recoverable amount of the asset (group) is its fair value less

costs to sell or its value in use.

12.22 A medium-sized entity shall disclose the following information for the

aggregate impairment losses and the aggregate reversals of impairment losses

recognised during the period for which no information is disclosed in accordance

with paragraph 12.21

(a) the main classes of assets affected by impairment losses and the main

classes of assets affected by reversals of impairment losses; and

(b) the main events and circumstances that led to the recognition of these

impairment losses and reversals of impairment losses.

12.23 Paragraphs 12.20 - 12.22 shall apply to a small entity when the amount and

nature of individual items of income or expenditure emanating from the requirements

of this Section are of exceptional size or incidence.

Section 13: Government grants

13.1 Government grants are assistance by government, inter-governmental

agencies and similar bodies whether local, national or international, in the form of

cash or transfers of assets to an entity in return for past or future compliance with

certain conditions relating to the operating activities of the entity. Loans at nil or low

interest rate are a form of government assistance, but the benefit is not quantified by

the imputation of interest, hence this benefit shall not be considered as a government

grant for the scope of this Section.

Recognition

13.2 Government grants shall not be recognised until there is reasonable

assurance that

(a) the entity will comply with the conditions attaching to them; and

(b) the grants will be received.

13.3 Subject to paragraph 13.2, government grants shall be recognised in the

income statement so as to match them with the expenditure towards which they are

intended to contribute. Any grants relating to future periods shall be recognised as

deferred income.

13.4 To the extent that the grant is made as a contribution towards expenditure

on a non-current asset, the entity may choose to deduct the grant from the purchase

in accordance with paragraph 13.3.

13.5 Potential liabilities to repay grants either in whole or in part in specified

circumstances shall be provided for only to the extent that repayment is probable.

The repayment of a government grant related to income and recognised as such

under paragraph 13.3 shall be accounted for by setting off the repayment against any

unamortised deferred income relating to the grant. Any excess shall be charged

immediately to the income statement. The repayment of a grant related to a non-

current asset and recognised as such under paragraph 13.4 shall be recorded by

increasing the carrying amount of the asset. The cumulative additional depreciation

that would have been recognised to date as an expense in the absence of the grant

shall be recognised immediately as an expense.

Disclosures

13.6 An entity shall disclose the accounting policy adopted for government

grants, including an explanation of how the grant is presented in the financial

statements.

Disclosures for medium-sized entities

13.7 A medium-sized entity shall disclose the following regardless of which

choice it has made under paragraph 13.4

(a) the nature and amounts of government grants recognised in the financial

statements; and

(b) where the results of the period are affected materially by the receipt of

forms of government assistance other than grants, the nature of that

assistance and, to the extent that the effects on the financial statements

can be measured, an estimate of those effects.

Section 14: Leases

14.1 A lease is classified as a finance lease if it transfers substantially all the

risks and rewards incidental to ownership. A lease is classified as an operating lease

if it does not transfer substantially all the risks and rewards incidental to ownership.

14.2 Whether a lease is a finance lease or an operating lease depends on the

substance of the transaction rather than the form of the contract. Examples of

situations that individually or in combination would normally lead to a lease being

classified as a finance lease are

(a) the lease transfers ownership of the asset to the lessee by the end of the

lease term;

(b) the lessee has the option to purchase the asset at a price that is expected

to be sufficiently lower than the fair value at the date the option

becomes exercisable for it to be reasonably certain, at the inception of

the lease, that the option will be exercised;

(c) the lease term is for the major part of the economic life of the asset even

if title is not transferred;

(d) at the inception of the lease the present value of the minimum lease

payments amounts to at least substantially all of the fair value of the

leased asset; and

(e) the leased assets are of such a specialised nature that only the lessee can

use them without major modifications.

14.3 Lease classification is made at the inception of the lease and is not

changed during the term of the lease unless the lessee and the lessor agree to change

the provisions of the lease (other than simply by renewing the lease), in which case

the lease classification shall be re-evaluated.

14.4 The inception of the lease is the earlier of the date of the lease agreement

and the date of commitment by the parties to the principal provisions of the lease.

The commencement of the lease term is the date from which the lessee is entitled to

exercise its right to use the leased asset. It is the date of initial recognition of the

lease (i.e. the recognition of the assets, liabilities, income or expenses resulting from

the lease, as appropriate).

14.5 Minimum lease payments are the payments that the lessee is or can be

required to make, excluding contingent rent, costs for services and taxes to be paid

by and reimbursed to the lessor, together with

(a) for a lessee, any amounts guaranteed by the lessee or by a party related

to the lessee; or

(b) for a lessor, any residual value guaranteed to the lessor by

(i) the lessee;

(ii) a party related to the lessee; or

(iii) a third party unrelated to the lessor that is financially capable of

discharging the obligations under the guarantee.

14.6 The lease term is the non-cancellable period for which the lessee has

contracted to lease the asset together with any further terms for which the lessee has

the option to continue to lease the asset, with or without further payment, when at

the inception of the lease it is reasonably certain that the lessee will exercise the

option.

14.7 A hire purchase contract is a contract for the hire of an asset that contains a

provision giving the hirer an option to acquire legal title to the asset upon the

fulfilment of certain conditions stated in the contract. Those hire purchase contracts

which are of a financing nature shall be accounted for on a basis similar to that set

out below for finance leases. Conversely, other hire purchase contracts shall be

accounted for on a basis similar to that set out below for operating leases.

Accounting by lessees

14.8 At the commencement of the lease term, lessees shall recognise finance

leases as assets and liabilities in their balance sheets at amounts equal to the fair

value of the leased asset or, if lower, the present value of the minimum lease

payments, each determined at the inception of the lease. The discount rate to be used

in calculating the present value of the minimum lease payments is the interest rate

implicit in the lease. The interest rate implicit in the lease is the discount rate that, at

the inception of the lease, causes the aggregate present value of (a) the minimum

lease payments and (b) the unguaranteed residual value to be equal to the fair value

of the leased asset. Leased assets shall be recognised, initially measured and

subsequently accounted for in accordance with the applicable Sections of these

Principles.

14.9 A lessee shall apportion minimum lease payments between the finance

charge and the reduction of the outstanding liability. The lessee shall allocate the

finance charge to each period during the lease term so as to produce a constant

periodic rate of interest on the remaining balance of the liability. In allocating the

finance charge to periods during the lease term, a lessee may use an approximation

to simplify the calculation.

14.10 The rental under an operating lease shall be charged on a straight-line basis

over the lease term even if the payments are not made on such a basis, unless another

systematic and rational basis is more appropriate.

14.11 Incentives to sign a lease, in whatever form they may take, shall be spread

by the lessee on a straight-line basis over the lease term or, if shorter than the full

lease term, over the period to the review date on which the rent is first expected to be

adjusted to the prevailing market rate.

14.12 A lessee shall depreciate an asset leased under a finance lease in

accordance with paragraphs 7.20 - 7.25 of these Principles, which apply to assets

held as property, plant and equipment and investment property, and paragraphs 11.12

- 11.16 which apply to intangible assets. If there is no reasonable certainty that the

lessee will obtain ownership by the end of the lease term, the asset shall be fully

depreciated over the shorter of the lease term and its useful life. However, in the case

of a hire purchase contract that has the characteristics of a finance lease the asset

shall be depreciated over its useful life.

Accounting by lessors

14.13 Lessors shall recognise assets held under a finance lease in their balance

sheets and present them as a receivable at an amount equal to the net investment in

the lease.

14.14 Net investment in the lease is the gross investment in the lease discounted

at the interest rate implicit in the lease. Gross investment in the lease is the aggregate

of

(a) the minimum lease payments receivable by the lessor under a finance

lease, and

(b) any unguaranteed residual value accruing to the lessor.

14.15 The recognition of finance income shall be based on a pattern reflecting a

constant periodic rate of return on the lessor's net investment in the finance lease, or

a reasonable approximation thereto.

14.16 Unearned finance income is the difference between

(a) the gross investment in the lease, and

(b) the net investment in the lease.

14.17 Rental income from an operating lease shall be recognised on a straight-

line basis over the period of the lease, even if the payments are not made on such a

basis, unless another systematic and rational basis is more appropriate.

14.18 An asset held for use in operating leases by a lessor shall be recorded and

accounted for as property, plant and equipment in accordance with Section 7, or as

investment property in accordance with Section 8, or as an intangible asset in

accordance with Section 11, of these Principles according to the nature of the asset.

14.19 A manufacturer or dealer lessor shall not recognise a selling profit under

an operating lease. The selling profit under a finance lease shall be restricted to the

excess of the fair value of the asset over the manufacturer’s or dealer’s cost less any

grants receivable by the manufacturer or dealer towards the purchase, construction

or use of the asset.

Sale and leaseback transactions – accounting by the seller/lessee

14.20 In a sale and leaseback transaction that results in a finance lease, any

apparent profit or loss (i.e. the difference between the sale price and the previous

carrying value) shall be deferred and amortised in the financial statements of the

seller/lessee over the shorter of the lease term and the useful life of the asset.

14.21 In a sale and leaseback transaction that results in an operating lease

(a) any profit or loss shall be recognised immediately, provided it is clear

that the transaction is established at fair value;

(b) if the sale price is below fair value any profit or loss shall be recognised

immediately, except that if the apparent loss is compensated for by

future rentals at below market price it shall to that extent be deferred

and amortised over the remainder of the lease term (or, if shorter, the

period during which the reduced rentals are chargeable); or

(c) if the sale price is above fair value, the excess over fair value shall be

deferred and amortised over the shorter of the remainder of the lease

term and the period to the next rent review (if any).

Sale and leaseback transactions - accounting by the buyer/lessor

14.22 A buyer/lessor shall account for a sale and leaseback in the same way as

other leases are accounted for, i.e. using the methods set out in paragraphs 14.13 -

Disclosure by lessees

14.23 In respect of operating leases, the lessee shall disclose the total of future

minimum lease payments that it is committed to make.

Disclosure by lessees that are medium-sized entities

14.24 Disclosure shall be made of

(a) either

(i)

for each class of asset, the gross amounts of assets that are held

under finance leases together with the related accumulated

depreciation; or

(ii) alternatively to being shown separately from that in respect of

owned assets, the information in (i) above may be integrated with

it, such that the totals of gross amount, accumulated depreciation,

net carrying amount and depreciation allocated for the period for

each class of asset held under finance leases are included with

similar amounts for owned assets. Where this alternative

treatment is adopted, the net amount of assets held under finance

leases and the amount of depreciation allocated for the period in

respect of assets under finance leases included in the overall total

shall be disclosed separately; and

(b) the amounts of obligations related to finance leases (net of finance

charges allocated to future periods). These shall be disclosed separately

from other obligations and liabilities, either on the face of the balance

sheet or in the notes.

14.25 In addition to the disclosure required in paragraph 14.23 in respect of

operating leases, a lessee that is a medium-sized entity shall analyse the total of

future minimum lease payments that it is committed to make, into those in which the

commitment expires within that year, those expiring in the second to fifth years

inclusive, and those expiring over five years from the balance sheet date.

Disclosure by lessors that are medium-sized entities

14.26 Disclosure shall be made of

(a) the gross amounts of assets held for use in operating leases and the

related accumulated depreciation charges;

(b) the cost of assets acquired, whether by purchase or finance lease, for the

purpose of letting under finance leases; and

(c) the net investment in (i) finance leases and (ii) hire purchase contracts

at each balance sheet date.

Section 15: Inventories

15.1

Inventories are assets

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or

(c) in the form of materials or supplies to be consumed in the production

process or in the rendering of services.

Measurement of inventories

15.2 Inventories shall be measured at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business

less the estimated costs of completion and the estimated costs necessary to make the

sale.

15.3 The cost of inventories shall comprise all costs of purchase, costs of

conversion and other costs incurred in bringing the inventories to their present

location and condition.

15.4 The costs of purchase of inventories comprise the purchase price, import

duties and other taxes (other than those subsequently recoverable by the entity from

the taxing authorities), and transport, handling and other costs directly attributable to

the acquisition of finished goods, materials and services. Trade discounts, rebates

and other similar items are deducted in determining the costs of purchase. The cost

of a self-constructed inventory item is its cost at the date when the construction or

development is complete. Until that date an entity shall apply Section 7 of these

Principles.

15.5 The costs of conversion of inventories include costs directly related to the

units of production, such as direct labour. They also include a systematic allocation

of fixed and variable production overheads that are incurred in converting materials

into finished goods. An entity shall allocate fixed production overheads to the costs

of conversion based on the normal capacity of the production facilities.

15.6 Examples of costs excluded from the cost of inventories and recognised as

expenses in the period in which they are incurred are

(a) abnormal amounts of wasted materials, labour or other production costs;

(b) storage costs, unless those costs are necessary in the production process

before a further production stage;

(c) administrative overheads that do not contribute to bringing inventories

to their present location and condition; and

(d) selling costs.

15.7 To the extent that service providers have inventories, they measure them at

the cost of their production. These costs consist primarily of the labour and other

costs of personnel directly engaged in providing the service and attributable

overheads. Labour and other costs relating to sales and general administrative

personnel shall not be included. The cost of inventories of a service provider does

not include profit margins or non-attributable overheads that are often factored into

prices charged by service providers.

15.8 The cost of inventories of items that are not ordinarily interchangeable and

goods or services produced and segregated for specific projects shall be assigned by

using specific identification of their individual costs. The cost of other inventories

shall be assigned by using the first-in, first-out (FIFO), weighted average cost

formula or a method reflecting generally accepted best practice. An entity shall use

the same cost formula for all inventories having a similar nature and use to the

entity.

15.9 Where inventories are constantly being replaced and their value is not

material to assessing the company’s state of affairs and their quantity, value and

composition are not subject to material variation, they may be included at a fixed

quantity and value.

Recognition as an expense

15.10 When inventories are sold, the carrying amount of those inventories shall

be recognised as an expense in the period in which the related revenue is recognised.

The amount of any write-down of inventories to net realisable value and all losses of

inventories shall be recognised as an expense in the period the write-down or loss

occurs. The amount of any reversal of any write-down of inventories, arising from an

increase in net realisable value, shall be recognised as a reduction in the amount of

inventories recognised as an expense in the period in which the reversal occurs.

15.11 Some inventories may be allocated to other asset accounts, for example,

inventory used as a component of self-constructed property, plant or equipment.

Inventories allocated to another asset in this way are recognised as an expense

during the useful life of that asset.

Disclosures

15.12 An entity shall disclose the accounting policy adopted in measuring

inventories.

Disclosures for medium-sized entities

15.13 A medium-sized entity shall also disclose

(a) the total carrying amount of inventories and the carrying amount in

classifications appropriate to the entity;

(b) the amount of any write-downs to net realisable value recognised as an

expense in the period; and

(c) the amount of any reversal of any write-downs to net realisable value

recognised in the period, and a description of the circumstances or

events that led to such reversal.

Section 16: Income taxes

16.1 Accounting profit is profit or loss for a period before deducting tax

expense.

16.2

Taxable profit (tax loss) is the profit (loss) for a period, determined in

accordance with the rules established by the taxation authorities, upon which income

taxes are payable (recoverable).

16.3 Tax expense (tax income) comprises current tax expense (current tax

income) and deferred tax expense (deferred tax income).

16.4 Current tax is the amount of income taxes payable (recoverable) in respect

of the taxable profit (tax loss) for a period. Deferred tax expense (income) is the

amount of tax expense (income) included in the determination of profit or loss for

the period in respect of changes in deferred tax assets and deferred tax liabilities

during the period.

16.5 Deferred tax liabilities are the amounts of income taxes payable in future

periods in respect of taxable temporary differences.

16.6 Deferred tax assets are the amounts of income taxes recoverable in future

periods in respect of

(a) deductible temporary differences;

(b) the carry forward of unused tax losses; and

(c) the carry forward of unused tax credits.

16.7 Temporary differences are differences between the carrying amount of an

asset or liability in the balance sheet and its tax base. Temporary differences may be

either

(a) taxable temporary differences, which are temporary differences that will

result in taxable amounts in determining taxable profit (tax loss) of

future periods when the carrying amount of the asset or liability is

recovered or settled; or

(b) deductible temporary differences, which are temporary differences that

will result in amounts that are deductible in determining taxable profit

(tax loss) of future periods when the carrying amount of the asset or

liability is recovered or settled.

16.8 The tax base of an asset or liability is the amount attributed to that asset or

liability for tax purposes.

Recognition of deferred tax liabilities, deferred tax assets and deferred tax

16.9 An entity shall recognise a deferred tax liability for all taxable temporary

differences, except to the extent that the deferred tax liability arises from

(a) the initial recognition of goodwill; or

(b) the initial recognition of an asset or liability which

(i) is not a business combination; and

(ii) at the time of the transaction, affects neither accounting profit nor

taxable profit (loss).

However, for all taxable temporary differences associated with

investments in subsidiaries and associates, and interests in joint ventures, a deferred

tax liability shall be recognised, except to the extent that both the following

conditions are satisfied

(a) the parent, investor or venturer is able to control the timing of the

reversal of the temporary difference; and

(b) it is probable that the temporary difference will not reverse in the

foreseeable future.

16.10 An entity shall recognise a deferred tax asset for all deductible temporary

differences to the extent that it is probable that taxable profit will be available

against which the deductible temporary differences can be utilised, unless the

deferred tax asset arises from the initial recognition of an asset or liability in a

transaction that

(a) is not a business combination; and

(b) at the time of the transaction, affects neither accounting profit nor

taxable profit (loss).

However, for all deductible temporary differences associated with

investments in subsidiaries and associates, and interest in joint ventures an entity

shall recognise a deferred tax asset to the extent that, and only to the extent that, it is

probable that

(a) the temporary difference will reverse in the foreseeable future; and

(b) taxable profit will be available against which the temporary difference

can be utilised.

16.11 An entity shall recognise a deferred tax asset for the carry forward of

unused tax losses and unused tax credits to the extent that it is probable that future

taxable profit will be available against which the unused tax losses and unused tax

credits can be utilised.

16.12 At each balance sheet date an entity shall re-assess any unrecognised

deferred tax assets, and shall recognise a previously unrecognised deferred tax asset

only to the extent that it has become probable that future taxable profit will allow the

deferred tax asset to be recovered.

16.13 An entity shall recognise deferred tax as income or an expense and include

it in profit or loss for the period, except to the extent that the tax arises from

(a) a transaction or event which is recognised, in the same or a different

period, directly in equity, in which case the deferred tax shall be

charged or credited directly to equity; or

(b) a business combination (see paragraph 16.14 - 16.18).

Deferred tax arising from a business combination and the resulting effect on

goodwill

16.14 The cost of a business combination is allocated by recognising the

identifiable assets acquired and liabilities and contingent liabilities assumed at their

fair values at the acquisition date. Temporary differences arise when the tax bases of

the identifiable assets acquired and liabilities and contingent liabilities assumed are

not affected by the business combination or are affected differently. For example,

when the carrying amount of an asset is increased to fair value but the tax base of the

asset remains at cost to the previous owner, a taxable temporary difference arises

which results in a deferred tax liability. The resulting deferred tax liability affects

goodwill (see paragraph 16.15).

16.15 In accordance with Section 21, an entity recognises any deferred tax assets

(to the extent that they meet the recognition criteria in paragraph 16.10) or deferred

tax liabilities resulting from a business combination as identifiable assets and

liabilities at the acquisition date. Consequently, those deferred tax assets and

liabilities affect goodwill or the amount of any excess of the acquirer’s interest in the

net fair value of the acquiree’s identifiable assets, liabilities and contingent

liabilities over the cost of the combination (sometimes referred to as ‘negative

goodwill’). However, in accordance with paragraph 16.9(a), an entity does not

recognise deferred tax liabilities arising from the initial recognition of goodwill.

16.16 Goodwill arising in a business combination is measured as the excess of

the cost of the business combination over the acquirer’s interest in the net fair value

of the acquiree’s identifiable assets, liabilities and contingent liabilities, in

accordance with paragraph 21.10 of these Principles. Very often, upon initial

recognition of goodwill, a taxable temporary difference arises. This Section does not

permit the recognition of the resulting deferred tax liability because goodwill is

measured as a residual and the recognition of the deferred tax liability would

increase the carrying amount of goodwill. Similarly, subsequent reductions in that

unrecognised deferred tax liability are also regarded as arising from the initial

recognition of goodwill and are therefore not recognised as required by paragraph

16.9(a).

16.17 As a result of a business combination, an acquirer may consider it probable

that it will recover its own deferred tax asset that was not recognised before the

business combination. For example, the acquirer may be able to utilise the benefit of

its unused tax losses against the future taxable profit of the acquiree. In such cases,

the acquirer recognises a deferred tax asset, but does not include it as part of the

accounting for the business combination, and therefore does not take it into account

in determining the goodwill or the amount of any excess of the acquirer’s interest in

the net fair value of the acquiree’s identifiable assets, liabilities and contingent

liabilities over the cost of the combination (sometimes referred to as ‘negative

goodwill’).

16.18 The potential benefit of the acquiree’s income tax loss carryforwards or

other deferred tax assets might not satisfy the criteria for separate recognition (under

paragraph 21.7 of these Principles) when a business combination is initially

accounted for but might be realised subsequently. An entity shall recognise acquired

deferred tax benefits as new information about facts and circumstances that existed

at the acquisition date become available and in no case later than twelve months

from the acquisition date. The entity shall recognise the resulting deferred tax

income in profit or loss. In addition, the acquirer shall

(a) reduce the carrying amount of goodwill to the amount that would have

been recognised if the deferred tax asset had been recognised as an

identifiable asset from the acquisition date; and

(b) recognises the reduction in the carrying amount of goodwill as an

expense.

However, this procedure shall not result in the creation of ‘negative

goodwill’, nor shall it increase the amount previously recognised for any ‘negative

goodwill’.

Recognition of current tax liabilities, current tax assets and current tax

16.19 An entity shall recognise any unpaid current tax for current and prior

periods as a liability.

16.20 An entity shall recognise as an asset any amount already paid in respect of

current and prior periods that exceeds the amount due for those periods.

16.21 An entity shall recognise current tax as income or an expense and include

it in profit or loss for the period, except to the extent that the tax arises from

(a) a transaction or event which is recognised, in the same or a different

period, directly in equity, in which case the current tax shall be charged

or credited directly to equity; or

(b) a business combination (see paragraphs 16.14 - 16.18).

16.22 When an entity pays dividends to its shareholders it may be required to pay

a portion of the dividends to taxation authorities, in the form of withholding tax, on

behalf of shareholders. Such an amount paid or payable to taxation authorities shall

be recognised in equity as part of the dividends.

Measurement

16.23 An entity shall measure current tax liabilities (assets) for the current and

prior periods, and related tax expense (income), at the amount expected to be paid to

(recovered from) the taxation authorities, using the tax rates (and tax laws) that have

been enacted or substantively enacted by the reporting date.

16.24 An entity shall measure deferred tax assets and liabilities, and related tax

expense (income), at the tax rates that are expected to apply to the period when the

asset is realised or the liability is settled, based on tax rates (and tax laws) that have

been enacted or substantively enacted by the reporting date.

16.25 The measurement of deferred tax liabilities and deferred tax assets shall

reflect the tax consequences that would follow from the manner in which the entity

expects, at the reporting date, to recover or settle the carrying amounts of its assets

and liabilities. For example, if the temporary difference arises from an item of

income that is expected to be taxable as a capital gain in a future period, the deferred

tax liability is measured using the capital gain tax rate.

16.26 Deferred tax assets and deferred tax liabilities shall not be discounted.

16.27 An entity shall review the carrying amount of a deferred tax asset at each

reporting date. An entity shall reduce the carrying amount of a deferred tax asset and

increase tax expense to the extent that it is no longer probable that sufficient taxable

profit will be available to allow recovery of the deferred tax asset. The entity shall

reverse that reduction to the extent that it subsequently becomes probable that

sufficient taxable profit will be available.

Presentation

16.28 Deferred tax assets (liabilities) shall not be classified as current assets

(liabilities).

16.29 An entity shall offset current tax assets and current tax liabilities if, and

only if, the entity

(a) has a legally enforceable right to set off the recognised amounts; and

(b) intends either to settle on a net basis, or to realise the asset and settle the

liability simultaneously.

16.30 An entity shall offset deferred tax assets and deferred tax liabilities if, and

only if

(a) the entity has a legally enforceable right to set off current tax assets

against current tax liabilities; and

(b) the deferred tax assets and the deferred tax liabilities relate to income

taxes levied by the same taxation authority on either

(i) the same taxable entity; or

(ii) different taxable entities which intend either to settle current tax

liabilities and assets on a net basis, or to realise the assets and

settle the liabilities simultaneously, in each future period in which

significant amounts of deferred tax liabilities or assets are

expected to be settled or recovered.

16.31 The tax expense (income) related to profit or loss shall be presented on the

face of the income statement.

Disclosures for medium-sized entities

16.32 An entity shall disclose the major components of tax expense (income)

separately.

16.33 The aggregate current and deferred tax relating to items that are charged or

credited to equity shall be disclosed separately.

16.34 An entity shall disclose a numerical reconciliation between tax expense

(income) and the product of accounting profit multiplied by the applicable tax

rate(s), disclosing also the basis on which the applicable tax rate(s) is (are)

computed.

16.35 An entity shall also disclose, in respect of each type of temporary

difference, and in respect of each type of unused tax losses and unused tax credits

(a) the amount of the deferred tax assets and liabilities recognised in the

balance sheet for each period presented; and

(b) the amount of the deferred tax income or expense recognised in the

income statement, if this is not apparent from the changes in the

amounts recognised in the balance sheet.

16.36 In respect of discontinued operations an entity shall disclose the tax

expense relating to

(a) the gain or loss on discontinuance; and

(b) the profit or loss from the discontinued operation for the period,

together with the corresponding amounts for each prior period

presented.

16.37 The following shall also be disclosed

(a) the amount (and expiry date, if any) of deductible temporary

differences, unused tax losses, and unused tax credits for which no

deferred tax asset is recognised in the balance sheet; and

(b) the amount of a deferred tax asset and the nature of the evidence

supporting its recognition when

(i)

the utilisation of the deferred tax asset is dependent on future

taxable profits in excess of the profits arising from the reversal of

existing taxable temporary differences; and

(ii) the entity has suffered a loss in either the current or preceding

period in the tax jurisdiction to which the deferred tax asset

relates.

Section 17: Provisions and contingencies

17.1

A provision is a liability of uncertain timing or amount.

17.2 A contingent asset is a possible asset that arises from past events and

whose existence will be confirmed only by the occurrence or non-occurrence of one

or more uncertain future events not wholly within the control of the entity.

Contingent assets occur where the inflow of economic benefits is probable, but not

virtually certain.

17.3

A contingent liability is

(a) a possible obligation that arises from past events and whose existence

will be confirmed only by the occurrence or non-occurrence of one or

more uncertain future events not wholly within the control of the entity;

or

(b) an obligation at the balance sheet date that arises from past events but is

not recognised because

(i)

it is not probable that a transfer of economic benefits will be

required to settle the obligation; or

(ii) the amount of the obligation cannot be measured with sufficient

reliability.

17.4 This Section does not apply to deferred tax and leases, which are covered

by more specific requirements of GAPSME.

Recognition and measurement of provisions

17.5

An entity shall recognise a provision only when

(a) the entity has a present obligation as a result of a past event;

(b) it is probable (i.e. more likely than not) that the entity will be required

to transfer economic benefits in settlement; and

(c) the amount of the obligation can be estimated reliably.

17.6 The entity shall recognise the provision as a liability in the balance sheet

and shall recognise the amount of the provision as an expense in profit or loss unless

(a) it is part of the cost of producing inventories (see paragraph 15.3) or (b) it is

included in the cost of property, plant and equipment in accordance with paragraph

7.4.

17.7 An entity shall measure a provision at the best estimate of the amount

required to settle the obligation at the reporting date. When the effect of the time

value of money is material, the amount of a provision shall be the present value of

the amount expected to be required to settle the obligation. The discount rate (or

rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of

the time value of money. The risks specific to the liability should be reflected either

in the discount rate or in the estimation of the amounts required to settle the

obligation, but not both. Gains from the expected disposal of assets shall be excluded

from the measurement of a provision. When a provision is measured at the present

value of the amount expected to be required to settle the obligation, the unwinding of

the discount shall be recognised as finance cost. Provisions shall not be used to

adjust the value of assets.

17.8 Where some or all of the expenditure required to settle a provision may be

reimbursed by another party (e.g. through an insurance claim), the reimbursement

shall be recognised, as a separate asset, only when it is virtually certain to be

received if the entity settles the obligation. In the income statement, the expense

relating to the provision may be presented net of the recovery.

17.9 An entity shall review provisions at each reporting date and adjust them to

reflect the current best estimate of the amount that would be required to settle the

obligation at that reporting date. Any adjustments to the amounts previously

recognised shall be recognised in profit or loss unless the provision was originally

recognised as part of the cost of inventories or property, plant and equipment.

17.10 A provision shall be used only for expenditures for which the provision

was originally recognised.

Recognition and measurement of contingencies

17.11 Contingent liabilities and contingent assets shall not be recognised.

Nevertheless, paragraph 21.7(c) of these Principles requires a contingent liability

assumed in a business combination to be recognised if its fair value can be measured

reliably. The requirements of this paragraph shall not prejudice the application of

paragraph 21.7(c).

17.12 Contingent liabilities recognised separately as part of allocating the cost of

a business combination are excluded from the scope of this Section. However, the

acquirer shall disclose for those contingent liabilities the information required to be

disclosed by this Section for each class of provision.

Disclosures

17.13 An entity shall disclose the aggregate amount of contingent liabilities

(disclosing guarantees) as at the balance sheet date. An entity shall disclose the

nature and form of any valuable security provided.

17.14 An entity shall disclose the aggregate amount of financial commitments

that are relevant to assessing the entity’s financial position. Any commitments

concerning pensions and group entities or associates shall be disclosed separately.

17.15 The nature and business purpose of the entity's arrangements that are not

included in the balance sheet shall be disclosed, provided that the risks or benefits

arising from such arrangements are material and in so far as the disclosure of such

risks or benefits is necessary for the purposes of assessing the financial position of

the entity.

17.16 Unless disclosed elsewhere as required by other Sections of these

Principles, an entity shall disclose, where practicable, the following information

(a) the existence of any restrictions on title and the carrying amount of any

assets that the entity has pledged as collateral for liabilities or

contingent liabilities;

(b) the aggregate amount, or estimated amount, of capital expenditure

contracted but not provided for; and

(c) the aggregate amount, or estimated amount, of capital expenditure

authorised but not contracted.

Additional disclosures for medium-sized entities

17.17 For each class of provision, an entity shall disclose

(a) a brief description of the nature of the obligation and the expected

timing of any resulting outflows of economic benefits;

(b) an indication of the uncertainties about the amount and timing of those

outflows; and

(c) having regard to paragraph 4.8(f) of these Principles, a reconciliation of

the carrying amount at the beginning and the end of the financial

reporting period showing

(i)

additional provisions made in the period, including increases to

existing provisions;

(ii) amounts used (i.e. incurred and charged against the provision)

during the period;

(iii) unused amounts reversed during the period; and

(iv) the increase during the period in the discounted amount arising

from the passage of time and the effect of any change in the

discount rate.

17.18 Unless the possibility of any outflow of resources in settlement is remote,

an entity shall disclose for each class of contingent liability at the balance sheet date

(a) a brief description of the nature of the contingent liability; and

(b) where practicable

(i)

an estimate of its financial effect (if it is impracticable to estimate

the financial effect, that fact shall be stated); and

(ii) an indication of the uncertainties relating to the amount or timing

of any outflow.

17.19 In determining which provisions or contingent liabilities may be

aggregated to form a class, it is necessary to consider whether the nature of the items

is sufficiently similar for a single statement about them to fulfil the requirements of

sub-paragraphs 17.18(a), 17.18(b)(i) and 17.18(b)(ii) respectively.

17.20 Where an inflow of economic benefits is probable, an entity shall disclose

a brief description of the nature of the contingent assets at the balance sheet date,

and, where practicable, an estimate of their financial effect. If it is impracticable to

estimate the financial effect, that fact shall be stated.

17.21 In addition to the disclosure required in paragraph 17.16, a medium-sized

entity shall also disclose the financial impact of the entity's arrangements that are not

included in the balance sheet, provided that the risks or benefits arising from such

arrangements are material and in so far as the disclosure of such risks or benefits is

necessary for the purposes of assessing the financial position of the entity.

17.22 In extremely rare cases, disclosure of some or all of the information

required by paragraphs 17.18 - 17.22 can be expected to prejudice seriously the

position of the entity in a dispute with other parties on the subject matter of the

provision, contingent liability or contingent asset. In such cases, an entity need not

disclose the information, but shall disclose the general nature of the dispute, together

with the fact that, and reason why, the information has not been disclosed.

Section 18: Foreign currency translation

1 An entity’s functional currency is the currency of the primary economic

environment in which the entity operates and generates net cash flows. A foreign

currency is any currency that is not the functional currency.

18.2 An entity’s presentation currency is the currency in which its financial

statements are presented, which may be regulated by relevant legislation where

applicable.

18.3 Monetary items are money held and assets and liabilities to be received or

paid in a fixed or determinable amount of money.

Determining the functional currency

18.4

An entity shall identify its functional currency.

18.5 The primary economic environment in which an entity operates is

normally the one in which it primarily generates and expends cash. The following

are the most important factors an entity considers in determining its functional

currency

(a) the currency

(i)

that mainly influences sales prices for goods and services (this

will often be the currency in which sales prices for its goods and

services are denominated and settled); and

(ii) of the country whose competitive forces and regulations mainly

determine the sales prices of its goods and services;

(b) the currency that mainly influences labour, material and other costs of

providing goods or services (this will often be the currency in which

such costs are denominated and settled).

18.6 The following factors may also provide evidence of an entity’s functional

currency

(a) the currency in which funds from financing activities (i.e. issuing debt

and equity instruments) are generated;

(b) the currency in which receipts from operating activities are usually

retained.

18.7 The following additional factors are considered in determining the

functional currency of a foreign operation, and whether its functional currency is the

same as that of the reporting entity (the reporting entity, in this context, being the

entity that has the foreign operation as its subsidiary, branch, associate or joint

venture)

(a) whether the activities of the foreign operation are carried out as an

extension of the reporting entity, rather than being carried out with a

significant degree of autonomy. An example of the former is when the

foreign operation only sells goods imported from the reporting entity

and remits the proceeds to it. An example of the latter is when the

operation accumulates cash and other monetary items, incurs expenses,

generates income and arranges borrowings, all substantially in its local

currency;

(b) whether transactions with the reporting entity are a high or a low

proportion of the foreign operation’s activities;

(c) whether cash flows from the activities of the foreign operation directly

affect the cash flows of the reporting entity and are readily available for

remittance to it;

(d) whether cash flows from the activities of the foreign operation are

sufficient to service existing and normally expected debt obligations

without funds being made available by the reporting entity.

18.8 As noted in paragraph 18.1, the functional currency of an entity reflects

the underlying transactions, events and conditions that are relevant to the entity.

Accordingly, once the functional currency is determined, it can be changed only if

there is a change to those underlying transactions, events and conditions, such as a

change in the currency in which those underlying transactions, events and conditions

are denominated.

18.9 When there is a change in an entity’s functional currency, the entity shall

account for the effect of the change in functional currency prospectively from the

date of the change. In other words, an entity translates all items into the new

functional currency using the exchange rate at the date of the change. The resulting

translated amounts for non-monetary items are treated as their historical cost.

Reporting foreign currency transactions in the functional currency

18.10 When a transaction qualifies for recognition in accordance with these

Principles, and such a transaction is denominated in a foreign currency, an entity

shall record it by applying to the foreign currency amount the spot exchange rate,

between the functional currency and the currency in which the transaction is

denominated, at the date on which the transaction first qualifies for recognition. For

practical reasons, unless the relevant exchange rate or rates fluctuate significantly, a

rate that approximates the actual rate at the date of the transaction is often used, for

example, an average rate for a week or a month may be used for all transactions in

each foreign currency occurring during that period.

18.11 At each balance sheet date, an entity shall

(a) translate foreign currency monetary items using the closing rate;

(b) translate non-monetary items that are measured in terms of historical

cost in a foreign currency using the exchange rate at the date of the

transaction; and

(c) translate non-monetary items that are measured at fair value in a foreign

currency using the exchange rate at the date when the fair value was

determined.

18.12 Except as described in paragraph 18.14, an entity shall recognise, in profit

or loss in the period in which they arise, exchange differences arising on the

settlement of monetary items or on translating monetary items at rates different from

those at which they were translated on initial recognition during the period or in

previous financial statements.

18.13 When a gain or loss on a non-monetary item is recognised directly in

equity, an entity shall recognise any exchange component of that gain or loss directly

in equity. Conversely, when a gain or loss on a non-monetary item is recognised in

profit or loss, an entity shall recognise any exchange component of that gain or loss

in profit or loss.

Net investment in a foreign operation

18.14 An entity may have a monetary item that is receivable from or payable to a

foreign operation. An item for which settlement is neither planned nor likely to

occur in the foreseeable future is, in substance, a part of the entity’s net investment

in that foreign operation, and is accounted for in accordance with paragraph 18.15.

Such monetary items may include long-term receivables or loans. They do not

include trade receivables or trade payables.

18.15 Exchange differences arising on a monetary item that forms part of a

reporting entity’s net investment in a foreign operation (see paragraph 18.14) shall

be recognised in profit or loss in the individual financial statements of the reporting

entity or the individual financial statements of the foreign operation, as appropriate.

In the financial statements that include the foreign operation and the reporting entity

(for example, consolidated financial statements when the foreign operation is a

subsidiary), such exchange differences shall be recognised initially in a separate

component of equity and recognised in profit or loss on disposal of the net

investment in accordance with paragraph 18.19.

Use of a presentation currency other than the functional currency

18.16 If an entity’s presentation currency differs from its functional currency,

that entity shall translate its results and financial position into the presentation

currency, using the following procedures

(a) assets and liabilities for each balance sheet presented (i.e. including

comparatives) shall be translated at the closing rate at the date of that

balance sheet;

(b) income and expenses for each income statement (i.e. including

comparatives) shall be translated at exchange rates at the dates of the

transactions. If exchange rates between the functional and presentation

currencies do not fluctuate significantly, an entity may use a rate that

approximates the exchange rates at the dates of the transactions, for

example an average rate for the period; and

(c) all resulting exchange differences shall be recognised as a separate

component of equity.

Translation of a foreign operation into the investor’s presentation currency

18.17 In incorporating the results and financial position of a foreign operation

with those of the reporting entity (for example by consolidation or the equity

method), the entity shall translate the results and financial position of the foreign

operation into the reporting entity’s presentation currency by applying the

requirements of paragraph 18.16 of these Principles. Where the foreign operation is

to be consolida ted, the reportin g entity shall subsequently f ol l ow n or m a l

consolidation procedures, such as the elimination of intra-group balances and intra-

group transactions of a subsidiary (see Section 22 Consolidated Financial

Statements). However, an intra-group monetary asset (or liability), whether short-

term or long-term, cannot be eliminated against the corresponding intra-group

liability (or asset) without showing the results of currency fluctuations in the

consolidated financial statements. This is because the monetary item represents a

commitment to convert one currency into another and exposes the reporting entity to

a gain or loss through currency fluctuations. Accordingly, in the consolidated

financial statements of the reporting entity, an entity continues to recognise such an

exchange difference in profit or loss or, if it arises from the circumstances described

in paragraph 18.15, the entity shall classify it as equity until the disposal of the

foreign operation.

18.18 Any goodwill arising on the acquisition of a foreign operation and any fair

value adjustments to the carrying amounts of assets and liabilities arising on the

acquisition of that foreign operation shall be treated as assets and liabilities of the

foreign operation. Thus, they shall be expressed in the functional currency of the

foreign operation and shall be translated at the closing rate in accordance with

paragraph 18.16(a).

18.19 On the disposal of a foreign operation, the cumulative amount of the

exchange differences deferred in the separate component of equity relating to that

foreign operation shall be recognised in profit or loss when the gain or loss on

disposal is recognised.

Disclosures

18.20 For items included in the financial statements which are or were originally

denominated in a foreign currency, an entity shall disclose the bases of conversion

used to express them in the functional currency.

18.21 An entity shall disclose the currency in which the financial statements are

presented. When the presentation currency is different from the functional currency,

an entity shall state that fact and shall disclose the functional currency and the

reason for using a different presentation currency.

18.22 When there is a change in the entity’s functional currency the entity shall

disclose that fact and the reason for the change in functional currency.

Disclosures for medium-sized entities

18.23 An medium-sized entity shall also disclose

(a) the amount of exchange differences recognised in profit or loss; and

(b) net exchange differences classified in a separate component of equity,

for instance in accordance with paragraph 18.13, and a reconciliation of

the amount of such exchange differences at the beginning and end of the

period.

Section 19: Post balance sheet events

1 Post balance sheet events are those events, favourable and unfavourable,

that occur between the balance sheet date and the date when the financial statements

are authorised for issue. There are two types of events

(a) Adjusting events are those that provide evidence of conditions that

existed at the balance sheet date; and

(b) Non-adjusting events are those that are indicative of conditions that

arose after the balance sheet date.

Recognition and Measurement

19.2 An entity shall adjust the amounts recognised in its financial statements,

including related disclosures, to reflect adjusting events after the balance sheet date.

When adjusting the amounts recognised in the financial statements, an entity shall

have regard to the recognition, measurement and disclosure requirements in the

relevant sections of these Principles. Examples of adjusting events are

(a) the settlement, after the balance sheet date, of a court case that confirms

that the entity had a present obligation at the balance sheet date, in

which case an entity shall recognise a corresponding liability and shall

adjust the amount previously recognised as provisions in accordance

with Section 17 of these Principles; and

(b) the receipt of evidence after the balance sheet date that indicates that an

asset was impaired at the balance sheet date, such as a customer being

declared bankrupt or inventories being sold at an amount that is lower

than their previously recognised net realisable value. In such case an

entity shall recognise an impairment loss, or adjust a previously

recognised impairment loss, in accordance with Sections 12 and 15 of

these Principles.

19.3 An entity shall not adjust the amounts recognised in its financial

statements to reflect non-adjusting events after the balance sheet date. Nevertheless,

if non-adjusting events after the balance sheet date are material, non-disclosure

could influence the economic decisions of users taken on the basis of the financial

statements hence disclosures may need to be given in accordance with this section.

Examples of non-adjusting events are a decline in market value of investments

between the balance sheet date and the date when the financial statements are

authorised for issue, or an entity declaring dividends to holders of equity instruments

after the balance sheet date.

Disclosure

19.4 An entity shall disclose the following for each material category of non-

adjusting event after the balance sheet date

(a) the nature of the event; and

(b) an estimate of its financial effect, or a statement that such an estimate

cannot be made.

19.5 An entity shall disclose the date on which the financial statements were

authorised for issue and who gave that authorisation.

Section 20: Related party disclosures

1 A related party is a person or entity that is related to the entity that is

preparing its financial statements (referred to as the ‘reporting entity’).

(a) A person or a close member of that person’s family is related to a

ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING

PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES)

reporting entity if that person

(i) has control or joint control of the reporting entity;

(ii) has significant influence over the reporting entity; or

(iii) is a member of the key management personnel of the reporting

entity or of a parent of the reporting entity.

(b) An entity is related to a reporting entity if any of the following

conditions applies

(i)

the entity and the reporting entity are members of the same group

(which means that each parent, subsidiary and fellow subsidiary

is related to the others);

(ii) one entity is an associate or joint venture of the other entity (or an

associate or joint venture of a member of a group of which the

other entity is a member);

(iii) both entities are joint ventures of the same third party;

(iv) one entity is a joint venture of a third entity and the other entity is

an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of

employees of either the reporting entity or an entity related to the

reporting entity. If the reporting entity is itself such a plan, the

sponsoring employers are also related to the reporting entity;

(vi) the entity is controlled or jointly controlled by a person identified

in (a);

(vii)

a person identified in (a)(i) has significant influence over the

entity or is a member of the key management personnel of the

entity (or of a parent of the entity).

20.2 For the purposes of the paragraph 20.1 the relevant terms shall have the

following meaning

(a) key management personnel shall mean those persons having authority

and responsibility for planning, directing and controlling the activities

of the entity, directly or indirectly, including any director (whether

executive or otherwise) of that entity;

(b) post-employment benefit plans are formal or informal arrangements

under which an entity provides post-employment benefits for one or

more employees;

(c) close members of the family of a person are those family members who

may be expected to influence, or be influenced by, that person in their

dealings with the entity and include

(i) that person’s children and spouse or domestic partner;

(ii) children of that person’s spouse or domestic partner; and

(iii) dependants of that person or that person’s spouse or domestic

partner;

(d) control, joint control and significant influence shall have the meaning

assigned to them in Section 10 of these Principles.

The following are not necessarily related parties

(a) two entities simply because they have a director in common;

(b) two venturers simply because they share joint control over a joint

venture;

(c) any of the following simply by virtue of their normal dealings with an

entity (even though they may affect the freedom of action of an entity or

participate in its decision making process)

(i)

providers of finance,

(ii)

trade unions,

(iii)

public utilities, and

(iv)

government departments and agencies,

(d) a customer, supplier, franchisor, distributor or general agent with whom

an entity transacts a significant volume of business, merely by virtue of

the resulting economic dependence.

20.4 A related party transaction is a transfer of resources, services or

obligations between related parties, regardless of whether a price is charged.

Disclosure

20.5 An entity shall disclose the name and registered office of that entity which

draws up the consolidated financial statements of the smallest body of entities of which

it forms part as a subsidiary.

20.6 An entity shall disclose the following in relation to members of the entity’s

board of directors and other members of its administrative, managerial and

supervisory bodies

(a) the amount of advances and credits granted with indications of the

interest rates, main conditions and any amounts repaid or written off or

waived; and

(b) any commitments entered into on their behalf by way of guarantees of

any kind with an indication of the total for each category.

20.7 Without prejudice to paragraph 20.8, if an entity enters into transactions

with specific categories of related parties, the entity shall disclose the amount of the

transactions, the nature of the related party relationships and other information about

the transactions and outstanding balances necessary for an understanding of the

financial position of the entity. These specific categories shall include parties having

control, joint control or significant influence over the entity, subsidiaries, associates

and jointly controlled entities of the entity and members of the reporting entity’s

board of directors. Such disclosures may include for example

(a) the amount of the transactions in aggregate for each significant category

of transactions, except when separate disclosure is necessary for an

understanding of the effects of related party transactions on the

financial position of the entity;

(b) the amount of outstanding balances in aggregate and: (i) their terms and

conditions, including whether they are secured, and the nature of the

consideration to be provided in settlement; and (ii) details of any

guarantees given or received;

(c) provisions for doubtful debts related to the amount of outstanding

balances; and

(d) the expense recognised during the period in respect of bad or doubtful

debts due from related parties.

20.8 An entity is exempt from disclosing related party transactions between

members of a group, provided that subsidiaries which are party to the transactions

are wholly owned by a member of the group.

Additional disclosures for medium-sized entities

20.9 A medium-sized entity shall always disclose, where applicable, the name

and registered office of the ultimate parent, if different from the immediate parent,

together with the name and registered office of the entity which draws up the

consolidated financial statements of the largest body of entities of which it forms

part as a subsidiary entity.A medium-sized entity shall disclose the place where

copies of the consolidated financial statements referred to in this Paragraph and

Paragraph 20.5 may be obtained, provided that they are available.

20.10 A medium-sized entity shall also disclose the following in relation to

members of the entity’s board of directors and other members of its administrative,

managerial and supervisory bodies

(a) the amount of the emoluments granted in respect of the financial year by

reason of their responsibilities; and

(b) any commitments arising or entered into in respect of retirement

pensions of former members of the entity’s board of directors.

20.11 The disclosures required by paragraph 20.7 shall be made by a medium-

sized entity in respect of all related parties. Information about individual

transactions may be aggregated according to their nature except where separate

information is necessary for an understanding of the effects of related party

transactions on the financial position of the entity.

Section 21: Business combinations and goodwill

1 This Section shall be applied by a parent in accounting for its investments

in subsidiaries in the consolidated financial statements, if any, that present the

financial results of the parent and its subsidiaries as those of a single economic

entity in accordance with Section 22 of these Principles. This Section shall also be

applied to any transaction or other event that meets the definition of a business

combination. This Section shall not be applied by an investor in accounting for its

investments in subsidiaries in its individual financial statements (as defined in

paragraph 10.1), the accounting for which is specifically covered in Section 10 of

GAPSME.

21.2 A business is an integrated set of activities and assets that is capable of being

conducted and managed for the purpose of providing goods or services to customers,

generating investment income (such as dividends or interest) or generating other income

from ordinary activities. A business combination is the bringing together of separate

entities or businesses into one reporting entity. The result of nearly all business

combinations is that one entity, the acquirer, obtains control of one or more other

separate businesses, individually referred to as "the acquiree". The acquisition date is the

date on which the acquirer effectively obtains control of the acquiree. Control is defined

in paragraph 10.3 of these Principles.

21.3 The acquirer is the combining entity that obtains control of the other

combining entities or businesses.

Method of accounting

21.4 Save as provided for in paragraph 21.18, all business combinations shall be

accounted for by applying the purchase method. Applying the purchase method

involves the following steps

(a) identifying an acquirer;

(b) measuring the cost of the business combination; and

(c) allocating, at the acquisition date, the cost of the business combination

to the assets acquired and liabilities and contingent liabilities assumed.

21.5 The acquirer shall measure the cost of a business combination as the

aggregate of

(a) the fair values, at the date of exchange, of assets given, liabilities

incurred or assumed, and equity instruments issued by the acquirer, in

exchange for control of the acquiree; plus

(b) any costs directly attributable to the business combination.

21.6 The acquirer shall, at the acquisition date, allocate the cost of a business

combination by recognising the acquiree’s identifiable assets and liabilities and

those contingent liabilities that satisfy the recognition criteria at their fair values at

that date, except for non-current assets (or disposal groups) that are classified as held

for sale, which shall be recognised at fair value less costs to sell. Any difference

between the cost of the business combination and the acquirer’s interest in the net

fair value of the identifiable assets, liabilities and contingent liabilities so recognised

shall be accounted for in accordance with paragraphs 21.9 - 21.17.

21.7 The acquirer shall recognise separately the acquiree’s identifiable assets,

liabilities and contingent liabilities at the acquisition date only if they existed at that

date and if they satisfy the following criteria at that date

(a) in the case of an asset other than an intangible asset, it is probable that

any associated future economic benefits will flow to the acquirer, and

its fair value can be measured reliably;

(b) in the case of a liability other than a contingent liability, it is probable

that an outflow of resources will be required to settle the obligation, and

its fair value can be measured reliably; and

(c) in the case of an intangible asset or a contingent liability, its fair value

can be measured reliably.

21.8 The acquirer’s income statement shall incorporate the acquiree’s profits

and losses after the acquisition date by including the acquiree’s income and expenses

based on the cost of the business combination to the acquirer. For example,

depreciation expense included after the acquisition date in the acquirer’s income

statement that relates to the acquiree’s depreciable assets shall be based on the fair

values of those depreciable assets at the acquisition date, i.e. their cost to the

acquirer.

Goodwill - Recognition and Measurement at recognition

21.9

Internally generated goodwill shall not be recognised.

21.10 The acquirer shall, at the date of acquisition of a business

(a) recognise goodwill acquired in a business combination as an asset; and

(b) initially measure that goodwill at its cost, being the excess of the cost of

the business combination over the acquirer’s interest in the net fair

value of the identifiable assets, liabilities and contingent liabilities

recognised in accordance with paragraph 21.7.

21.11 If the acquirer’s interest in the net fair value of the identifiable assets,

liabilities and contingent liabilities recognised in accordance with paragraph 21.7

exceeds the cost of the business combination (sometimes referred to as ‘negative

goodwill’), the acquirer shall

(a) reassess the identification and measurement of the acquiree’s

identifiable assets, liabilities and contingent liabilities and the

measurement of the cost of the combination; and

(b) recognise immediately in profit or loss any excess remaining after that

reassessment.

Goodwill - Measurement after recognition

21.12 After initial recognition, goodwill shall be carried at its cost less any

accumulated amortisation and any accumulated impairment losses. To determine

whether goodwill is impaired, an entity applies Section 12 of these Principles. That

Section explains how an entity reviews the carrying amount of its assets, how it

determines the recoverable amount of an asset, and when it recognises, or reverses

the recognition of, an impairment loss. Because goodwill does not generate cash

flows independently of other assets or groups of assets, it is necessary to allocate

goodwill to the group (groups) of assets that is (are) expected to benefit from the

synergies of the business combination for the purpose of estimating its recoverable

amount. Any resulting impairment losses shall be recognised in accordance with

paragraphs 12.11 – 12.13 of these Principles.

21.13 The residual value assigned to goodwill shall be zero.

21.14 An entity shall amortise goodwill on a straight-line basis over its useful

life, which shall not exceed 20 years. In exceptional cases where the useful life of

goodwill cannot be reliably estimated, it shall be written off over a maximum period

of 10 years. The amortisation charge for each period shall be recognised in profit or

loss.

21.15 The useful life of goodwill shall be reviewed regularly and revised if

necessary, subject to the constraint that the revised useful life shall not exceed 20

years or 10 years as applicable, from the date of acquisition. The carrying amount at

the date of revision shall be amortised over the revised estimate of remaining useful

life. Such a change shall be accounted for as a change in an accounting estimate in

accordance with Section 5 of these Principles.

21.16 Goodwill shall not be revalued.

21.17 An impairment loss recognised for goodwill shall not be reversed in a

subsequent period.

Business combinations within a group

21.18The book values of shares held in the capital of an entity included in the

consolidation may be set off against the corresponding percentage of capital of the

acquiree, provided that the entities in the business combination are ultimately

controlled by the same party both before and after the business combination, and that

control is not transitory

Provided that the requirements in paragraphs 21.18 and 21.19, shall also

apply in the case of a combination of businesses under common control

Provided further that if the business combination under common control has

not resulted in the acquirer holding shares in the capital of an entity, the acquirer

may apply paragraph 21.18 in its financial statements and

(a) the consideration paid shall be used as a substitute for the book values

of shares held in the capital of the acquiree; and

(b) the percentage ownership of net assets shall be used as a substitute for

the percentage of capital

Provided further that entities electing to apply paragraph 21.18 to business

combinations under common control shall not apply paragraph 21.4 to such business

combinations.

21.19 Any difference arising under paragraph 21.18 shall be added to or deducted

from consolidated reserves, as appropriate. For the avoidance of doubt, the terms

consolidated reserves and equity are interchangeable in this respect.

Disclosure

21.20 For each business combination (or group of individually immaterial

business combinations) that was (were) effected during the period, the acquirer shall

disclose the following in the consolidated financial statements

(a) the names and descriptions of the combining entities or businesses;

(b) the acquisition date;

(c) the percentage of voting equity instruments acquired;

(d) the cost of the combination and a description of the components of that

cost, including any costs directly attributable to the combination. When

equity instruments are issued or issuable as part of the cost, the

following shall also be disclosed

(i) the number of equity instruments issued or issuable; and

(ii) the fair value of those instruments and the basis for determining

that fair value;

(e) details of any operations the entity has decided to dispose of as a result

of the combination;

(f)

the amounts recognised at the acquisition date for each class of the

acquiree’s assets, liabilities and contingent liabilities, including

goodwill;

(g) the methods used to calculate the value of goodwill and any significant

changes in value in relation to the preceding financial year;

(h) a description of the factors that contributed to the recognition of

goodwill, and an explanation of the period over which goodwill is

amortised;

(i)

a description of each intangible asset that was not recognised separately

from goodwill and an explanation of why the intangible asset’s fair

value could not be measured reliably (see paragraph 11.3 of these

Principles);

(j)

the amount of any excess recognised in profit or loss and the line item in

the income statement in which the excess is recognised, together with a

description of the nature of any excess recognised in profit or loss in

accordance with paragraph 21.11; and

(k) the amount of the acquiree’s profit or loss since the acquisition date

included in the acquirer’s profit or loss for the period, unless disclosure

would be impracticable. If such disclosure would be impracticable, that

fact shall be disclosed, together with an explanation of why this is the

case.

21.21 For each business combination effected after the end of the reporting

period but before the financial statements are authorised for issue, the acquirer shall

make the disclosures required by paragraph 21.20 unless such disclosure would be

impracticable. If disclosure of any of that information would be impracticable, that

fact shall be disclosed, together with an explanation of why this is the case.

21.22 Having regard to paragraph 4.8(c) of these Principles, in respect of all

business combinations, an acquirer shall disclose a reconciliation of the carrying

amount of goodwill at the beginning and end of the reporting period, showing

separately

(a) the gross amount and accumulated amortisation and impairment losses

at the beginning of the period;

(b) changes arising from new business combinations, amortisation,

impairment losses, disposals of previously acquired businesses, and

other changes; and

(c) the gross amount and accumulated amortisation and impairment losses

at the end of the period.

21.23 When an entity applies the method described in paragraph 21.18, the resulting

movement in reserves and the names and registered offices of the entities concerned

shall be disclosed in the notes to the consolidated financial statements.

Section 22: Consolidated financial statements

1 Consolidated financial statements are the financial statements of a group

presented as those of a single economic entity.

22.2 Entities that are required, or that elect, to prepare consolidated financial

statements may only apply these regulations if the group does not exceed the limits of at

least two of the three following criteria on the balance sheet date of the parent

(a) total revenue (as defined in paragraph (b) of sub-regulation (2) of

regulation 5 of these regulations): forty million euro (€40,000,000)

computed net, or forty-eight million euro (€48,000,000) computed

gross;

(b) balance sheet (as defined in paragraph (a) of sub-regulation (2) of

regulation 5 of these regulations): twenty million euro (€20,000,000)

computed net, or twenty-four million euro (€24,000,000) computed

gross;

(c) employees (as determined in accordance with paragraph (c) of sub-

regulation (2) of regulation 5 of these regulations): two hundred and

fifty (250)

For the avoidance of doubt, the determination of thresholds computed

gross shall mean that the group revenue and balance sheet shall be computed without

any set-offs and other adjustments that would be required for the preparation of

consolidated financial statements. Determination of thresholds computed net shall

mean that group revenue and balance sheet shall be computed after such adjustments

have been effected.

22.3 For the purposes of calculating the criteria in paragraph 22.2, entities for

which total revenue is not relevant shall be required to include income from other

sources.

22.4 In relation to a subsequent financial year, where, on its balance sheet date,

an entity exceeds or ceases to exceed the limits of two of the three criteria set out in

paragraph 22.2, as applicable that fact shall affect the application of this regulation

only if it occurs in two consecutive financial years.

22.5 In determining whether an entity or group exceeds the thresholds in

paragraph 22.2, (qualification in relation to subsequent financial year by reference to

circumstances in preceding financial years) in relation to a financial year in relation

to which the Schedule has effect, the entity or group is to be treated as having

qualified as small or medium-sized (as the case may be) in any previous year in

which it w ould have so qualified i f am endm ents to the sam e effect as the

amendments made by the Schedule had had effect in relation to that previous year.

22.6 In the case of the first financial reporting period of an entity or group, the

entity or group shall determine whether the criteria in paragraph 22.2 have been

exceeded by computing the assets comprising the balance sheet total, total revenue

and the average number of employees for the first financial reporting period in

accordance with the Schedule such that it shall be deemed to have exceeded the

relevant criteria if as at the end of the first financial reporting period two of the

balance sheet total, total revenue and average number of employees exceeded the

limits established in paragraph 22.2.

22.7 For the purposes of this Section, where a financial reporting period is

shorter or longer than one calendar year, the total revenue generated during that

financial reporting period shall be deemed to be the amount arrived at by dividing

the total revenue figure generated in that financial reporting period by the number of

months in that financial reporting period, and multiplying that number by twelve.

22.8 If, in certain circumstances, one or more of the subsidiaries to be

consolidated are prohibited from applying GAPSME in the preparation of their

individual financial statements, the group’s consolidated financial statements may

nevertheless be prepared in accordance with this Section (subject to the overriding

principle in paragraph 22.2) provided that the following information is disclosed in

the consolidated financial statements

(a) the fact that a subsidiary (subsidiaries) has (have) prepared financial

statements in accordance with a financial reporting framework other

than GAPSME;

(b) the name (names) of the relevant subsidiary (subsidiaries); and

(c) the financial reporting framework under which those financial

statements have been prepared.

Consolidation procedures

22.9 The consolidated financial statements present financial information about

the group as a single economic entity. In preparing consolidated financial statements,

an entity shall

(a) combine the financial statements of the parent and its subsidiaries line

by line by adding together like items of assets, liabilities, equity,

income and expenses;

(b) eliminate the carrying amount of the parent’s investment in each

subsidiary and the parent’s portion of equity of each subsidiary;

(c) measure minority interests in the profit or loss of consolidated

subsidiaries for the reporting period separately from the parent

shareholders’ interest; and

(d) measure minority interests in the net assets of consolidated subsidiaries

separately from the parent shareholders’ equity in them. Minority

interests in the net assets consist of

(i)

the amount of those minority interests at the date of the original

combination; and

(ii) the minority’s share of changes in equity since the date of the

combination.

22.10 When potential voting rights exist (such as voting rights that would result

from exercise of share options or warrants or from conversion of convertible

securities), the proportions of profit or loss and changes in equity to the parent and

minority interests are determined on the basis of existing ownership interests and do

not reflect the possible exercise or conversion of potential voting rights.

22.11 Intra-group balances and transactions, including income, expenses and

dividends, are eliminated in full. Profits and losses resulting from intra-group

transactions that are recognised in assets, such as inventory and fixed assets, are

eliminated in full. Intra-group losses may indicate an impairment that requires

recognition in the consolidated financial statements.

22.12 The financial statements of the parent and its subsidiaries used in the

preparation of the consolidated financial statements shall be prepared as of the same

reporting date.

22.13 Consolidated financial statements shall be prepared using uniform

accounting policies for like transactions and other events and conditions in similar

circumstances. If a member of the group uses accounting policies other than those

adopted in the consolidated financial statements for like transactions and events in

similar circumstances, appropriate adjustments are made to its financial statements

in preparing the consolidated financial statements.

22,14 The income and expenses of a subsidiary are included in the consolidated

financial statements from the acquisition date. The income and expenses of a

subsidiary are included in the consolidated financial statements until the date on

which the parent ceases to control the subsidiary. The difference between the

proceeds from the disposal of the subsidiary and the carrying amount of the interest

in the subsidiary as of the date of disposal, including the cumulative amount of any

exchange differences that relate to the subsidiary recognised in equity in accordance

with Section 18, is recognised in the consolidated income statement as the gain or

loss on the disposal of the subsidiary.

22.15 If an entity ceases to be a subsidiary but the investor (former parent)

continues to hold some equity shares, those shares shall be accounted for in

accordance with Section 9 of these Principles from the date the entity ceases to be a

subsidiary, provided that it does not become an associate or a jointly controlled

entity. The carrying amount of the investment at the date that the entity ceases to be

a subsidiary shall be regarded as the cost on initial measurement of an investment.

22.16 An entity shall present minority interest in the consolidated balance sheet

within equity, separately from the parent shareholders’ equity.

22.17 An entity shall disclose minority interest in the profit or loss of the group

separately in the income statement, as required by paragraph 4.23.

22.18 Losses applicable to the minority in a consolidated subsidiary may exceed

the minority interest in the subsidiary’s equity. The excess, and any further losses

applicable to the minority, are allocated against the majority interest except to the

extent that the minority has a binding obligation and is able to make an additional

investment to cover the losses. If the subsidiary subsequently reports profits, such

profits are allocated to the majority interest until the minority’s share of losses

previously absorbed by the majority has been recovered.

Accounting for investments in associates and jointly controlled entities in the

consolidated financial statements

22.19 When an entity prepares consolidated financial statements it shall measure

all its investments in associates and jointly controlled entities in its consolidated

financial statements in accordance with the equity method in paragraphs 10.15 –

10.25, and shall give the disclosures required by paragraph 10.32, of these

Principles. An entity shall account for its investments in jointly controlled

operations and jointly controlled assets in its consolidated financial statements in

accordance with paragraphs 10.26 and 10.27 of these Principles.

Disclosure

22.20 An entity’s consolidated financial statements shall include all the relevant

disclosures required by the respective Sections of these Principles, in a way which

facilitates the assessment of the financial position of the entities included in the

consolidation taken as a whole, taking account of the essential adjustments resulting

from the particular characteristics of consolidated financial statements as compared

to annual financial statements, including the following

(a) in disclosing transactions between related parties, transactions between

related parties included in a consolidation that are eliminated on

consolidation shall not be included;

(b) in disclosing the amounts of emoluments and advances and credits

granted to members of the board, only amounts granted by the parent

and its subsidiaries to members of the board of the parent shall be

disclosed.

22.21 Where an entity included in a consolidation has an associate, that associate

shall be shown in the consolidated balance sheet as a separate item with an

appropriate heading.

Section 23: Discontinued operations and non-current assets held for sale

1 A discontinued operation is a component of an entity that either has been

disposed of, or is classified as held for sale, and

(a) represents a separate major line of business or geographical area of

operations;

(b) is part of a single coordinated plan to dispose of a separate major line of

business or geographical area of operations; or

(c) is a subsidiary acquired exclusively with a view to resale.

23.2 A disposal group is a group of assets to be disposed of, by sale or other wise,

together as a group in a single transaction, and liabilities directly associated with

those assets that will be transferred in the transaction.

Discontinued operations - Presentation and Disclosure

23.3 An entity shall disclose a single amount on the face of the income

statement comprising the total of -

(a) the post-tax profit or loss of discontinued operations; and

(b) the post-tax gain or loss recognised on the measurement to fair value

less costs to sell or on the disposal of the assets or group(s) of assets and

liabilities constituting the discontinued operation.

Discontinued operations - Presentation and Disclosure for Medium-sized entities

23.4

An entity shall disclose

(a) an analysis of the single amount mentioned in paragraph 23.3 into

(i)

the revenue, expenses, pre-tax profit or loss and income tax

expense of discontinued operations; and

(ii) the gain or loss recognised on the measurement to fair value less

costs to sell or on the disposal of the assets or group(s) of assets

constituting the discontinued operation and the related income tax

expense.

The analysis may be presented in the notes or on the face of the income

statement. If it is presented on the face of the income statement it shall

be presented in a section identified as relating to discontinued

operations, i.e. separately from continuing operations; and

(b) the net cash flows attributable to the operating, investing and financing

activities of discontinued operations. These disclosures may be

presented either in the notes or on the face of the financial statements.

23.5 Unless impracticable, an entity shall restate the disclosures in the

preceding paragraphs for prior periods presented in the financial statements so that

the disclosures relate to all operations that have been discontinued by the end of the

reporting period for the latest period presented.

23.6 If an entity ceases to classify a component of an entity as held for sale, the

entity shall reclassify the results of operations of the component previously

presented in discontinued operations and shall include them in income from

continuing operations for all periods presented. The amounts for prior periods shall

be described as having been restated.

Non-current assets held for sale

23.7 An entity shall classify a non-current asset (including property, plant and

equipment, intangibles, and investments in subsidiaries, associates and joint

ventures) as held for sale if its carrying amount will be recovered principally through

a sale transaction rather than through continuing use. For this to be the case, the

asset (or disposal group) must be available for immediate sale in its present

condition subject only to terms that are usual and customary for sales of such assets,

its sale must be highly probable, and the entity must expect to complete the sale

within one year from the date of classification as held for sale.

23.8 An entity shall measure a non-current asset (or disposal group) classified

as held for sale at the lower of its carrying amount and fair value less costs to sell.

23.9 An entity shall not depreciate (or amortise) a non-current asset while it is

classified as held for sale or while it is part of a disposal group classified as held for

sale. Interest and other expenses attributable to the liabilities of a disposal group

classified as held for sale shall continue to be recognised.

Non-current assets held for sale - Presentation

23.10 An entity shall present a non-current asset classified as held for sale and

the assets of a disposal group classified as held for sale separately from other assets

in the balance sheet. The liabilities of a disposal group classified as held for sale

shall be presented separately from other liabilities in the balance sheet. Those assets

and liabilities shall not be offset and presented as a single amount.

23.11 An entity shall not reclassify or re-present amounts presented for non-

current assets (or for the assets and liabilities of disposal groups) classified as held

for sale in the balance sheets for prior periods to reflect the classification in the

balance sheet for the latest period presented.

Non-current assets held for sale - Presentation and Disclosure for medium-sized

entities

23.12 The major classes of assets and liabilities classified as held for sale shall

be separately disclosed by a medium-sized entity either on the face of the balance

sheet or in the notes.

23.13 A medium-sized entity shall present separately any cumulative income or

expense recognised directly in equity relating to a non-current asset (or disposal

group) classified as held for sale.

23.14 A medium-sized entity shall disclose the following information in the

period in which non-current assets have been either classified as held for sale or

(a) a description of the asset or disposal group;

(b) a description of the facts and circumstances of the sale, or leading to the

expected disposal, and the expected manner and timing of that disposal;

and

(c) the gain or loss recognised, if not separately presented on the face of the

income statement.

Section 24: Adoption of GAPSME

An entity shall apply this Section upon

(a) First-time adoption of GAPSME, i.e. when it prepares financial

statements that conform to these Principles in which the entity makes an

explicit and unreserved statement in those financial statements of

compliance with the General Accounting Principles for Small and

Medium-Sized Entities (GAPSME), and any of the following

circumstances prevail

(i)

the entity did not present financial statements for previous

periods; or

(ii) the entity presented all its previous financial statements in

conformity with a financial reporting framework other than

GAPSME.

(b) Subsequent adoption of GAPSME, i.e. when the entity applied these

Principles in previous financial reporting periods but presented its most

recent previous financial statements in conformity with a financial

reporting framework other than GAPSME. Typically this would apply

when, as a result of the occurrence of specific circumstances an entity is

disqualified from applying these Principles, but the entity is

subsequently eligible to re-apply GAPSME in accordance with these

regulations and the entity opts to re-apply these Principles, thus

preparing financial statements that conform to these Principles.

First-time adoption

2 Paragraph 4.1 of these Principles defines a complete set of financial

statements.

24.3 Paragraph 4.7 of these Principles requires a complete set of financial

statements to show comparative amounts in respect of the previous comparable

period for every item presented in the financial statements and notes thereto. An

entity may present comparative information in respect of more than one comparable

prior period. Therefore, the date of an entity’s transition to these Principles is the

beginning of the earliest period for which the entity presents full comparative

information in accordance with GAPSME in its first financial statements that

conform to these Principles.

24.4 An entity shall prepare an opening GAPSME balance sheet at the date of

the transition to GAPSME. This is the starting point for its accounting under

24.5 An entity shall use the same accounting policies in its opening GAPSME

balance sheet and throughout all periods presented in the financial statements to

which paragraph 24.1 refers. Those accounting policies shall comply with the

relevant Sections of these Principles.

24.6

An entity shall, in its opening balance sheet

(a) recognise all assets and liabilities whose recognition is required by

these Principles;

(b) not recognise items as assets or liabilities if these Principles do not

permit such recognition;

(c) reclassify items that it recognised under its previous financial reporting

framework as one type of asset, liability or component of equity, but are

a different type of asset, liability or component of equity under these

Principles; and

(d) apply these Principles in measuring all recognised assets and liabilities.

24.7 The accounting policies that an entity uses in its opening balance sheet

under these Principles may differ from those that it used for the same date using its

previous financial reporting framework. The resulting adjustments arise from

transactions, other events or conditions before the date of transition to these

Principles. Therefore, an entity shall recognise those adjustments directly in retained

earnings (or, if appropriate, another category of equity) at the date of transition to

these Principles.

24.8 If it is impracticable for an entity to restate the opening balance sheet at

the date of transition in accordance with these Principles, the entity shall apply

paragraphs 24.4 – 24.7 in the earliest period for which it is practicable to do so, and

shall disclose the date of transition and the fact that data presented for prior periods

are not comparable. If it is impracticable for an entity to provide any disclosures

required by these Principles for any period before the period in which it prepares its

first financial statements that conform to these Principles, the omission shall be

disclosed.

Subsequent adoption

24.9 Upon subsequent adoption an entity shall apply paragraphs 24.4 – 24.7,

and the term opening balance sheet shall be taken to refer to the balance sheet as at

the beginning of the earliest period for which the entity presents full comparative

information in accordance with these Principles in the financial statements that

conform to these Principles.

Presentation and disclosure

24.10 An entity shall disclose the date of the transition to GAPSME, and shall

explain whether it is a case of first-time adoption or subsequent adoption of

GAPSME. In the latter case, an entity shall also disclose the date of the end of the

latest financial reporting period for which the entity had previously prepared its

financial statements in accordance with these Principles.

24.11 An entity shall explain how the transition from its previous financial

reporting framework to these Principles affected its reported financial position and

financial performance. In particular, an entity’s financial statements to which

paragraph 24.1 refers shall include

(a) reconciliations of its equity reported under its previous financial

reporting framework to its equity under these Principles for both of the

following dates

(i) the date of transition to these Principles; and

(ii) the end of the latest period presented in the entity’s most recent

annual financial statements under its previous financial reporting

framework; and

(b) a reconciliation of the profit or loss reported under its previous financial

reporting framework for the latest period in the entity’s most recent

annual financial statements to its profit or loss under these Principles

for the same period.