FINANCIAL REPORTING MATTERS · 2020. 12. 24. · financial reporting period. New FRSs effective for annual financial periods beginning on 1 January 2010 . 009) and FRS 27 (2009) apply

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FINANCIAL REPORTTING MATTERS DECEMBER 2010 ISSUE 33 | MICA (P) 177/11/2010

In this year-end issue, we provide an overview oof changes in financial reporting standards for 2010 and introduce those changes that will bec ome effective in 2011. We also summarise the amendments in the newly issued Improvemments to FRSs 2010 and the proposed changes to the accounting for leases.

In addition, we feature a tax incentive scheme tthat was introduced this year and discuss how businesses can take advantage of the Prodductivity and Innovation Credit scheme.

Overview of 2010 ch anges in FRSs

02 WWe summarise the rrequirements of each nnew or revised sstandard that are eeffective in 2010 ccalendar year-end.

Improvements to FRRSs 2010

18 WWe set out a brief ssummary of each of tthe amendments and hhighlight those that mmmay be worth may be worth aadopting earlier.

Other local developmments

2727 WWe summarise the ccchanges in legislation changes in legislation aand other regulatory ddevelopments that hhave an impact on ffinancial reporting.

Lease accounting in the future

09 We explain how the proposed requirements will be applied, the likely impact on the financial statements and the potential tax implications in Singapore.

Productivity and Innovation Credit scheme

23 We provide the details of this tax credit scheme and explain how it can benefit businesses.

International developments

2929 We summarise the new exposure drafts new exposure drafts and standards issued by the IASB and other developments affecting current and future IFRS reporters.

© 2010 KPMG LLP (Registrationn No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapte r 163A), and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMMG International”), a Swiss entity. All rights reserved. Printed in Singapore.

Revised FRS 103 (2

2

A.

Revised FRS 103 Business Combinations (2009) and FRS 27 Separate and Consolidated Financial Statements (2009)

Effective: Annual periods beginning from 1 July 2009

Refer to Financial Reporting Matters – September 2009 for details

Financial Reporting Matters

Overvieww of 2010 changes in

Financial Reporting Standards

In this section, we summarise the new and revised FRSs that are effectivve for the first time for a company with an p y annual period eending 31 December 2010. We have also included those that are issued but not effective for entities to consider the impact of these changes for the coming financial reportiing period.

New FRSs effeective for annual financial periods beginning on 1 January 22010

009) and FRS 27 (2009) apply to acquisition accounting for business combinatioons. While the approach taken in FRS 103 (2009) and FRS 27 (2009) does not invoolve a fundamental change in the model for accounting for business combinatioons and non-controlling interests, there can be changes to its practice.

The key changes incclude the following: • Most transactioon costs will be recognised as an expense. • Purchases and sales of non-controlling shareholdings when control is

retained should be accounted for fully as equity transactions without impact to the income stateement.

• The practicabiliity exception to fair value measurement of identifiable intangible assetss is eliminated.

• Any pre-existinng interests in an acquired company will be remeasured to fair value at the acquisition date, with any gain or loss recognised in profit or loss.

• Any retained innterest in a previously-consolidated subsidiary is remeasured to ffair value through profit or loss when control over the subsidiary is lostt.

• Any settlementt of pre-existing business relationships that are effected at th ti f th purchhase be account d f ted for outtsid ide of the bbusinessthe time of the p b f th i combination.

• Contingent connsideration is measured at fair value at the acquisition date. Generally, subseequent changes will be recognised in profit or loss if the contingent consideration is classified as a liability.

Find out more IFRS Handbook: Business Combinations and Non-controlling IFRS Handbook: Business Combinations and Non controlling Interests is a publication produced by KPMG International Standards Group.

This publication provides a comprehensive analysis of IFRS 3 (2008) Business Combinations and accounting for non-controlling interests under IAS 27 (2008) Consolidated and Separate Financial Statements. It includes extensive interpretative guidance and illustrative examples to elaborate interpretative guidance and illustrative examples to elaborate or clarify the practical application of IFRS 3 and IAS 27.

Printed copies of th is publication are available at a charge of S$230 (exclusive of

GST at the prevailingg rate).

© 2010 KPMG LLP (Registrationn No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited

Liability Partnership Act (Chapte r 163A), and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMMG International”), a Swiss entity. All rights reserved. Printed in Singapore.

FRS 103 (2009) whi

3 Financial Reporting Matters

INT FRS 117 Distributions of Non-cash Assets to Owners


Refer to Financial Reporting Matters – March 2009 for details.

Amendments to FRS 102 Share-based Payment – Group Cash-settled Share-based Payment Transactions

Eff Effectitive: Annuall periiodds beginningA b i i from 1 January 2010

Refer to Financial Reporting Matters – December 2009 for details.

Improvements to FRSs for 2009

Effective: Annual periods beginning from 1 January 2010

Refer to Financial Reporting Matters – September 2009 for details.

Amendment to FRS 39 Financial Instruments: Recognition and Measurement (Issue of additional Application Guidance on Eligible Hedged Items)


Refer to IFRS Briefing Sheet – Issue 100 for details.

INT FRS 117 requirees entities to recognise certain distributions of non-cash assets at fair value, and to recognise in profit or loss the difference between the fair value of the ass ets distributed and their carrying amounts.

The interpretation a pplies to non-reciprocal distributions of non-cash assets to owners acting in theeir capacity as owners, in which all owners of the same class of equity are treatedd equally.

This interpretation ddoes not apply to common control transactions.

The amendments p rovide guidance on accounting for group cash-settled share-based payment trannsactions from the perspective of the receiving entity as well as the settling entityy.

The amendments reequire an entity receiving goods or services in either an equity-settled or cash-settled payment transaction to account for the transaction in its separate or individuaal financial statements.

As a result of the ammendments, INT FRS 108 Scope of FRS 102 and INT FRS 111 FRS 102 – Group annd Treasury Share Transactions are incorporated into FRS 102 and withdrawn.

Improvements to FRRSs for 2009 is the result of the second annual improvement project. It contains 115 amendments to 12 FRSs that result in accounting changes for presentation, reccognition, measurement or disclosure purposes.

Five of these amenddments are effective for annual periods beginning on or after 1 July 2009 as they are largely consequential changes made with the revised

ch is effective from 1 Julyy 2009. The remainingg amendments are generally effectiive for annual periods beginning on or after 1 January 2010.

Additional Applicatioon Guidance has been issued to clarify how the existing principles underlyingg hedge accounting should be applied in two particular situations:

(a) A one-sided riskk in a hedged item The amendments cl arify that an entity can designate a one-sided risk of a hedged item in a hedging re lationship, i.e. it could designate only changes in the cash flows or fair value off a hedged item above (or below) a specified price or other variable. This would improve hedge effectiveness, particularly for a purchased option used as the hhedging instrument in a cash flow hedge of a highly probably forecast transaction.

An example of hedgAn example of hedg ging a one-sided risk is when an entity hedges against theging a one sided risk is when an entity hedges against the increase (but not thee decrease) in the price of a forecast commodity purchase above a specified prrice. It is the increase above the specified price that is designated as the heedged risk.


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AAmenddment to FRS 39 FinanciialFRS 39 Fi l Instruments: Recognition and Measurement (Issue of additional Application Guidance on Eligible Hedged Items) (continued)



Revised FRS 101 First-time Adoption of Financial Reporting Standards of Financial Reporting Standards (improved structure)


Amendments to FRS 101 – Additional Exemptions for First-time Adopters



B.

Amendment to FRS 32 Financial Instruments: PresentationInstruments: Presentation – Classification of Rights Issues

Effective: Annual periods beginning from 1 February 2010

Refer to Financial Reporting Matters – March 2010 for details

(b) Inflation in a finnancial hedged item Inflation generally caannot be designated as the hedged risk as it is not separately identifiable or reliablly measurable, except where it is a contractually specified portion of the cash fflows of a recognised inflation-linked bond and the other cash flows of the instrumment are not affected by the inflation portion.

For example, changees in fair value of a 7% fixed rate bond caused by inflation is not separately ident not separately ident ifiable or reliably measurable Conversely the inflation portion ifiable or reliably measurable. Conversely, the inflation portion of a bond that carriees interest at 3% plus inflation can be separately identifiable and reliably measuraable.

The revised version of FRS 101 restructures the format without changing its technicaltechnical contentcontent. TThe objecti as to make FRS 101 easier for readers to he objective was to make FRS 101 easier for readers to understand.

The revised version moves the exemptions and exceptions contained in the main body of FRS 101 to different appendices. It also removes FRS 101 transitional provisionns that are no longer considered relevant.

The amendments exxempt: • entities using th e full cost method from retrospective application of

FRSs for oil and gas assets. • entities with exissting leasing contracts from reassessing the

classification of those contracts in accordance with INT FRS 104 Determining whhether an Arrangement contains a Lease when the application of theeir national accounting requirements produced the same result.

New FRSs nott yet effective [1]

This amendment adddresses the accounting for rights issues (rights, options and t ) hi h ddenominatted id i n a currency othther than ththe functi tionall currencywarrants) which are i th f

of the issuer.

Previously, such righhts issues were accounted for as derivative liabilities. The

amendment requires that rights issues to acquire a fixed number of the entity’s

own equity instrumeents for a fixed amount of any currency, are equity

instruments if the e ntity offers the rights, options or warrants pro rata to all of its

existing owners of t the same class of its own nonthe same class of its own non-derivative equity instruments. derivative equity instruments. existing owners of t This is regardless off the currency in which the exercise price is denominated.

[1] This is from the perspeective of a company with an annual financial period beginning 1 January 2011.

© 2010 KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapterr 163A), and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPM G International”), a Swiss entity. All rights reserved. Printed in Singapore.


INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments



Improvements to FRSs for 2010

Effective: Annual periods beginning from 1 July 2010 and 1 January 2011

Refer to page 18 of this publication for details..

Amendment to FRS 101 First-time Adoption of Financial Reporting Standards - Limited Exemption from Comparatives FRS 107 Disclosures for First-time Adopters



INT FRS 119 provid es guidance on how to account for the extinguishment of a financial liability by tthe issue by equity instruments. These transactions are often referred to as ‘debt for equity swaps’.

• Equity instruments issued to a creditor to extinguish part or all of a financial liability would bee “consideration paid” in accordance with paragraph 41 of FRS 39 Financial Insttruments: Recognition and Measurement.

• The equity instruuments would be measured initially at the fair value of those equity instruments unless that fair value cannot be reliably measured, in which case the equity instruments should be measured to reflect the fair value of the financial liability extinguished.

• Any difference bbetween the carrying amount of the financial liability and the initial measuremment of the equity instruments would be recoggnised as a gainq y g or loss in profit oor loss.

Improvements to FRRSs for 2010 is the result of the third annual improvement project. It contains 111 amendments to seven FRSs that result in accounting changes for presenttation, recognition, measurement or disclosure purposes.

FFour o f th f these amen ddmentts are effffectitive ffor annuall periiodds bbegiinniing on or aftfter 1 July 2010 as they are largely consequential changes made with the revised FRS 103 which is effective from 1 July 2009. The remaining amendments are generally effective ffor annual periods beginning on or after 1 January 2011.

In this issue of Financial Reporting Matters, we highlighted two amendments that may be worth early--adopting in 2010. For standards that are adopted early, entities are remindeentities are remindeed to make appropriate disclosures in their financial ed to make appropriate disclosures in their financial statements.

FRS 101 was amendded to provide to first-time adopters the same relief from the requirement to provvide comparative period disclosures for the information required to be presented by thee amendments to FRS 107 Financial Instruments – Improving Disclosures about F Financial InstrumentsFinancial Instruments as it had to existing FRS reporters as it had to existing FRS reporters. In that Disclosures about F In that way, first-time adoppters are not disadvantaged as compared with current FRS reporters.

The amendments too FRS 107 require enhanced disclosures of financial instruments measured at fair value to be based on a three-level fair value hierarchy that reflects the significance of the innputs in such fair value measurements.

As a consequence oof the amendment to FRS 101, the transitional provisions of the amendments to FRSS 107 were clarified. In summary, information for comparative periods, i.e. periods before the amendments to FRS 107 become effective, including an opening statemeent of financial position as at a date before 31 December 2009, need not comply with thee disclosures required by the amendments to FRS 107.



FRS 24 (revised 2010) Related Party Disclosures



INT FRS 115 Agreements for the Construction of Real Estate (issued together with an Accompanying Note which is an integral part of and to be read toggether with INT FRS 115)


Refer to Financial Reporting Matters – September 2010 for details

Amendments to INT FRS 114 FRS 19 – ThThe LiLimitit on a DDefifi ned B d Benefitfit Asset, Minimum Funding Requirements and their Interaction – Prepayments of a Minimum Funding Requirement



Th i d t d dd ld clarifies ththe defi finition off a rellatted partty andd isimplifilifies theThe revised standard ifi d iti d th disclosure requiremeents for government-related entities.

The definition of a reelated party has been amended to remove inconsistencies and

to make it symmetriical. While the symmetry will make the standard more

straight forward, all entities will need to re-assess their related party relationships.

This may require thee collection and disclosure of additional information, especially

in respect of other in nvestments and roles of individual investors, key management and roles of individual investors, key managementin respect of other in nvestments

personnel and their close family members.

The revised standardd provides a partial exemption for government-related entities.

The standard still reqquires disclosures that are important to users of financial

statements but elimminates requirements to disclose information that is costly to

gather and of less vaalue to users. Disclosure about these transactions is only

required if they are i ndividually or collectively significant.

INT FRS 115 providees guidance on the appropriate accounting standard to be

applied when accou nting for revenue arising from agreements for the

construction of real estate. An entity shall account for the transaction under

FRS 11 Constructionn Contracts or FRS 18 Revenue depending on whether the

buyer is able to speccify the major structural elements of the design of the real

estate before constr estate before constr ruction begins and/or specify major structural changes once ruction begins and/or specify major structural changes once construction is in proogress.

INT FRS 115 also adddresses the timing of revenue recognition for agreements to construct real estatee. Revenue arising from agreements for the construction of real estate is recognnised by reference to the stage of completion in accordance with FRS 11 in the f ollowing cases: • The aggreement mmeets the definition of a construction contract under FRS 11. • The agreement i s only for rendering of services in accordance with FRS 18. • The agreement i s for the sale of goods but meets all the recognition criteria

under FRS 18 coontinuously as construction progresses.

The Accompanying Note of INT FRS 115 sets out the consensus that the sale of uncompleted residential property units in Singapore, under the standard sale and purchase agreementts (as prescribed in the schedule to the Housing Developers Rules) would result in the transfer, to the purchasers, of the control and the significant risks and rewards of ownership of the uncompleted property units in their current state, aas construction progresses. Revenue is recognised by reference to the stagge of completion when all the other recognition criteria under FRS 18.14 are met ccontinuously as construction progresses.

The amendment to INT FRS 114, which is itself an interpretation of FRS 19 Employee Benefits, applies in the limited circumstances when an entity is subject to minimum fundingg requirements (MFR), and makes an early payment of contributions to cov er those requirements. The amendment permits such early payment to be recoggnised as an asset rather than an expense. This is on the basis that the entity has a future economic benefit from the prepayment in the form of reduced cassh outflows in future years in which MFR payments would otherwise be requireed.



C.

IFRS for Small and Medium-sized Entities (SMEs)

Effective: To be determined by the national regulator in each jurisdictionj


IFRS 9 Financial Instruments


Refer to IFRS Briefing Sheet – Issue 160 and 219 for details.

Recently issueed IFRSs not yet adopted in Singapore [2]

IFRS for SMEs is intended to facilitate financial reporting for small and medium-sized (SMEs) entitiees by: • providing signiificantly less guidance than full IFRSs • simplifying, in certain areas, the recognition and measurement

requirements coompared to full IFRSs • removing the m more complex optionmore complex option in certain areas in which full IFRSs allow in certain areas in which full IFRSs allow • removing the m

for more than onne accounting option.

A summary of the kkey requirements in the IFRS for SMEs, and the significant differences betweeen the IFRS for SMEs and existing IFRS requirements (full IFRS) is available in IFRS Briefing Sheet – Issue 144.

On 12 November 20009, the IASB issued IFRS 9 (2009) as part of its comprehensive review of financial instruments accounting. IFRS 9 (2009) deals with classification annd measurement of financial assets only. It retains, but simplifies, the mixedd measurement model and establishes two primary measurement categgories for financial assets – amortised cost and fair value. The basis of classificcation depends on the entity’s business model and the contractual cash floww characteristics of the financial asset.

On 28 October 20100, the IASB issued a new version of IFRS 9 (IFRS 9 (2010)). IFRS 9 (2010) includdes all the requirements of IFRS 9 (2009) without amendment. Howevver, the new version of IFRS 9 also incorporates requirements with rrespect to the classification and measurement of financial liabilities and the de recognition of financial assets and financial liabilities. Except as describedd below, these requirements have been carried forward without amendmentt from IAS 39.

As a result IFRS 9 h as been reformatted and renumbered. The newly integrated guidance also includdes those paragraphs of IAS 39 dealing with fair value measurement and aaccounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives. Relevant questions and answers included in the Guidincluded in the Guid dance on Implementing IAS 39 have been copied across into dance on Implementing IAS 39 have been copied across into Guidance on Implemmenting IFRS 9 that accompanies the revised standard. There are two substtantive changes from the requirements in IAS 39 for classification and m easurement of liabilities. These relate to the fair value option and to certain derivaatives linked to unquoted equity instruments.

The guidance in IASS 39 on impairment of financial assets, and on hedge accountingg continuees to apply until all the reqquirements of IAS 39 have been pp y replaced. The IASB expects this to occur during 2011.

[2] As at 30 November 20110.



Amendments to IFRS 7 FinancialAmendments to IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets


Refer to IFRS Briefing Sheet – Issue 216 for detailsdetails.

The amendments to The amendments to o IFRS 7 introduce new disclosure requirements abouto IFRS 7 introduce new disclosure requirements about transfers of financia l assets including disclosures for:

• Financial assetss that are not derecognised in their entirety For each class o f transferred assets, the entity should disclose: – the nature off the risks and rewards associated with those assets – a description of the relationship between the transferred assets and the

associated liaabilities, includingg the restrictions on the entityy’s use of those assets

– the carrying aamounts of the transferred assets that the entity continues to recognise and of the associated liabilities

– fair value infoormation of the transferred assets and associated liabilities in transactions in which the counterparty’s recourse is limited to the transferred assets

– the carrying aamounts of the original assets at the time of transfer in transactions in which the transferred assets are recognised to the extent of the entity’s ccontinuing involvement.

• Financial assetss that are derecognised in their entirety but for which the entity retains coontinuing involvement For each type off continuing involvement, the entity should disclose: – the carrying aamounts and fair values of the assets and liabilities

representingrepresenting the entity’s continuing involvement the entity s continuing involvement – the entity’s mmaximum exposure to loss and how this maximum exposure

was determinned – a maturity annalysis of the undiscounted cash flows that may be payable to

the transfereee in respect of the transferred assets – the gain or looss on transfer of the assets – income and eexpenses arising from the entity’s continuing involvement (for

the current pperiod and cumulatively) – specific detailed disclosures in respect of situations in which transfer

activity is nott evenly distributed throughout the reporting period (e.g. a high level of activiity in the closing days).


9

U de t e cu e t eease sta da d t o ease c ass cat o s e st a ce eases

What are the proposed changes?

What are the reasons for the changge?


Lease acccounting in the future The IASB and FFASB issued a joint ED/2010/9 Leases in an attempt to address longstanding criticisms that lease accounting hass been too permissive of off-balance sheet treatment by leessees, overly complex and dominated by arbitrary rules. We explain how the proposed requirements will be applied and the likely impact on the financial statements. WWe also provide our initial assessment on the tax implicationss in Singapore.

The ED proposes thhat a new standard on lease accounting would replace FRS 17 Leases, INT FRS 104 Determining whether an Arrangement contains a Lease, INT FRS 15 Operatinng Leases – Incentives and INT FRS 27 Evaluating the Substance of Transaactions Involving the Legal Form of a Lease. It proposes new models for lessee and lessor accounting, which would change current lease accounting requiremments significantly.

The ED proposes aa model for lessee accounting under which a lessee would recognise a “right-of-use” asset representing its right to use the underlying asset and a liability representing its obligation to pay lease rentals over the lease term.

The ED proposes twwo different accounting models for lessors: the performance obligattion approach and the derecognition approach. If a lessorret itains exposure tto i ifi t i k d b fit i t d ith th d l isignificant risks and benefits associated with the underlyingasset, then it would apply the performance obligation approach to the lease; otherwise it would aapply the derecognition approach.

• Under the perforrmance obligation approach, the lessor would continue to recognise its inteerest in the underlying asset. The lessor would recognise a new asset repreesenting its right to receive lease payments from the lessee and a new liabilitty representing its obligation to deliver use of the underlying asset toasset to the lessthe lesssee during the lease termsee during the lease term.

• Under the dereccognition approach, the lessor would recognise a new asset representing its right to receive lease payments from the lessee. It would also derecognisee a portion of the underlying asset representing the lessee’s rights and reclasssify the remaining portion as a residual asset representing its right to the undeerlying leased asset at the end of the lease term.

Under the current leease standard,, two lease classifications exist: finance leases and operating leasess. Based on various factors. If a lease is classified as a finance lease, assets and liaabilities are shown on the lessee’s balance sheet. However, an operating lease iss accounted as an “off-balance sheet” item and the lessee does not show any assets or liabilities on the balance sheet. Instead, the lessee simply accounts for the lease payments as an expense over the lease term.

1. Operating leasse accounting understates the assets and liabilities of lessees. The EDD proposes that lessees account for all lease contracts under the ‘right-of-usee’ model, and recognise an asset for its right to use the underlying asseet and a liability for its obligation to make lease payments.

© 2010 KPMG LLP (Registration No. T08LL1267L), an accounting limited liability partnership registered in Singapore under the Limited Liability Partnership Act (Chapterr 163A), and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Singapore.

What is within scope of the ED?

Financial Reporting Matters 10

22. Similar transacctions can be accounted for differently Similar transacctions can be accounted for differently. Economically similar transactions can be accounted for very differently because of the distinction between operating and finance leases. This makes it difficult for in vestors to compare different entities and the implications of different leasess. This also provides opportunities to structure transactions to achieve a particcular accounting outcome.

The proposals wwould result in the same accounting for most lease contracts byy lessees. As a result,, financial statements will be more compparable and the opportunityy to structure transactions to achieve a desired accounting outcome will bee reduced.

The ED defines a le ase as a “contract in which the right to use a specified asset (the underlying asseet) is conveyed, for a period of time, in exchange for consideration”. The ED proposes specific guidance to certain lease contracts, such as: • S bl Subleases: AAn eentiity may act as bbothh a llessor andd a llessee off thhe same asset. That is, an entity maay lease a piece of equipment from a lessor under a head lease and then subleet that same piece of equipment to a lessee under a sublease, thereby acting as ann intermediate lessor. The ED includes specific guidance on the presentation of subleases by the intermediate lessor.

• Short-term leasses: Leases for which the maximum possible lease term is 1212 months or less amonths or less a are within scope of the proposals However lessees andare within scope of the proposals. However, lessees and lessors may elect too apply the following simplified requirements to such leases on a lease-by-lease bassis:

• A lessee wo uld be permitted to measure the right-of-use asset at the undiscountedd amount of the lease payments plus recoverable initial direct costs, and thhe obligation to pay rentals at the undiscounted amount of the estimated fuuture lease payments

• A lessor wouuld be permitted not to recognise assets and liabilities arising from the leasse contract and not to derecognise any portion of the underlying assset.

Lessees and lessorss following these simplified requirements would recognise lease payments in pprofit or loss over the lease term.

• Investment prooperty (IP): A lessor that applies the fair value model under FRS 40 Investment Property would be outside the scope of the ED and would

ti t l FRRS 40 t it IP H l th t li th t ticontinue to apply FRRS 40 to its IP. However, a lessor that applies the cost option falls within scope off the ED. A lessee that applies the fair value model for IP would be permitted but not required to measure its right-of-use asset in accordance with thee fair value model in IAS 40, with changes in the liability to make lease paymennts in profit or loss.

The ED excludes leaases of: • intangibleintangible assetsassetsss • natural resourcees and related exploration • biological assetss • in-substance purrchases and sales.


t

Accounting model for Accounting model for lessees


The ED proposes a The ED proposes a a model for lessee accounting under which a lessee would a model for lessee accounting under which a lessee would recognise a “right-oof-use” asset representing its right to use the underlying asset and a liability repressenting its obligation to pay lease rentals over the lease term.

A. Initial measuremment 1) The right-of-usee asset would be calculated initially as being equal to the

lease liability pluus direct costs incurred. Direct costs are defined as any costs to negotiate or aarrange a lease that would not have been incurred had the lease transactionn not have been made.

2) The lease liabil ity would be calculated as the net present value of the anticipated leasee payments.

The elements that wwould affect the initial measurement of the liability consist of the following:

Les PV

see’s lease liability = V of lease payments

Discount rate

Lease term Contingent rentals, term

options penalties and id l lresidual value guarantees

Elements of the lease liability

Description

Discount rate This would be the lessee’s incremental borrow be changed after the initial measurement.

wing rate (or the rate implicit in the lease). This discount rate cannot

Lease term This would be estimated as the longest possib account the effect of any options to extend or t

This is different from the current FRS 17 where certain’. Determining the longest possible lease amount of judgement and may have significant

le lease term that is more likely than not to occur, taking into terminate the lease.

e the lease term would include these options if it was ‘reasonably e term that is more likely than not to occur will require a significant t impact on the amount of the lease liability in some cases.

Contingent These would be estimated and included in the reasonable number of possible outcomes. Con consumer price index or prime interest rate, wo or else by reference to prevailing spot rates or

The ED’s proposal for contingent rentals is diffe generally recognise contingent rentals as they a

lease payments based on a probability-weighted average for ap y p y g g tingent rentals based on changes in an index or rate, e.g. the ould be estimated using forward rates or indices if readily available, indices.

erent from current practice under FRS 17, in which lessees are incurred.

rentals, term option penalties and lessee residual value

Although amounts payable under residual value under FRS 17, it is the maximum lease exposu Obtaining the data on which to make these pro judgments to be made. Having the systems to significant changes is also going to be difficult.

e guarantees are included in a lessees’s minimum lease payments re under the guarantee and not the expected amount payable.

obability assessments is likely to be challenging, requiring significant enable the assessments to be updated whenever there are

Amounts payable unnder purchase options would be excluded from the lease payments under thee ED. The IASB considers purchase options as not being part of an obligation to mof an obligation to m make lease payments but rather as terminating the lease make lease payments but rather as terminating the lease contract and purchaasing the underlying assets. The ED proposes that purchase options be recognis ed only when they are exercised.


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Accounting model for Accounting model for lessees (continued)

What are the key impacts for the lessees?


B. Subseqquent measurement 1) The right-of-usse asset is amortised at cost from the date the lease begins

through to the eend of the lease into the profit and loss statement. Amortisation off the asset is based on either the straight line method or units of production, wwhichever is practical and systematic for the lessee. Further, the right-of-usee asset is evaluated for impairment in accordance with FRS 36 Impairment of AAssets.

2) The lease liabi ilityility is subsequently measured at amortised cost using the is subsequently measured at amortised cost using the 2) The lease liabi effective interest rate method in which the lease payments would be allocated betweeen interest expense and reductions in the remaining liability.

3) At each reportting period, the right-of-use asset and liability is evaluated for any significcant changes and the carrying amount of the liability is adjusted accorddingly. Changes in the carrying amount of the liability that arise from reassessmment of the lease term would be included in the carrying amount of the rt of the rright of se asset Changes that arise from reassessment of right-of-use asset. Changes that arise from reassessment of contingent renttals, lessee residual value guarantees and term option penalties wouldd be: • included in thhe right-of-use asset to the extent that the changes relate to

future periodds • recognised inn profit or loss to the extent that the changes relate to current

or prior perioods.

Under FRS 17, estimmates made on inception of a lease generally are not revisited during the lease ter m, and estimated cash flows are adjusted only if there is a change to the termss of the lease. In contrast, the ED’s approach would result in greater volatility in tthe liabilities recognised by lessees since a reassessment of future lease paymennts would be required when any new facts or circumstances indicate that there iss a significant change in the lease liability.

The table below illusstrates the key impacts of the new proposals as compared to the current operatinng and finance lease classifications:

In $ 000’s Existing FRS 17 Operating

lease

Existing FRS 17

Finance lease

Right of use

model

Assets at inceptio

- Underlying lease

Ri h f- Right of use asse

on

ed asset

et

0

00

1,000

00

0

2001,200

Total assets 0 1,000 1,200

Liabilities at inceeption

- Accrual lease pa yable 100 0 0

- Finance lease liability 0 1,000 0

- Obligation to payy rentals 0 0 1,200

Net assets 100 0 0

Profit and loss inn year one

- Lease rental exppense (100) 0 0

- Contingent rentaals expense (20) (20) 0

- Finance expensee 0 (49) (58)

- Depreciation exppense 0 (71) 0

- Amortisation 0 0 (86)

Total net profit/(loss) (120) (140) (144)


The new measu

l


What are the key impacts for What are the key impacts for the lessees? (continued)

Accounting models for lessors

What are the differences between the two accounting models?

How does the lessor determine which model to use?

From the lessee’s pperspective are that:are that:From the lessee s p the key impactsperspective, the key impacts • All leases are oon the balance sheet.

– There will bee an increase in assets and liabilities. Operating leases as well as existing fi nance leases will be affected since the amount capitalised will be different. The right-of-use asset includes present value of the lease payments plus expectations about lease term, contingent rentals, residual value guaranntee and term option penalties.

– This will havee an effect on key ratios, such as debt equity ratios and

possibly on ccompliance with bank covenants.

– This may also impact the amount of headroom when testing for impairment ssince there is an increase in assets. There will be no increase in cash flowss from the cash generating units, but there will be an increase in the assetss to be covered in the test and rental expenses will be removed from cash flows as they are now financing charges.

• From a profit annd loss perspective:Th ill b e a ffront loadi ding of if intterestt expense iin the earlly years of a– There will be t l th f lease, as thee lease liability will be amortised similarly to the way a finance lease is amortised today.

– However, th ere will be an increase in EBITDA since rental expenses are replaced by aamortisation of the right-of-use asset and interest expense below the linne.

• rement method regarding contingent rental and residual value will requirevalue will requiree significant judgments, and the requirement to reassess e significant judgments, and the requirement to reassess whenever significant changes occur means there will be more volatility in profit or loss.

The ED proposes twwo different accounting models for lessors: • The performance obligation approach, which is used when the lessor

retains significannt risks or benefits of the underlying asset. • The derecognittion approach, which is used when the lessor does not retain

significant benefsignificant beneffits or risksfits or risks. Once an accountingg model has been applied, the lessor cannot change the chosen model after lease inception.

The key difference bbetween the two accounting models is that under the derecognition approoach, the lessor derecognises a portion of the underlying asset that is being leased . Under the performance obligation approach, a liability is recorded to recoggnise the obliggation of ppermittingg the lessee to use the underlying asset. Thhe similarity between both models is that a lease receivable (the right to receive future lease payments) is recorded.

The basis for concluusions indicates that the lessor’s business model might be helpful in determininng which approach to use. If the lessor operates the leasing business primarily too provide finance, this is indicative of the derecognition approach. If the mo del is to actively manage the underlying assets by releasing, or selling at the end off the lease, this is indicative of the performance obligation approach. However, the proposals still require a lease by lease assessment.

The following are coonsiderations for the lessor when determining whether they are exposed to sign ificant risks or benefits (not all inclusive): • Significant contingent rentals based on use or performance of the lease • Options to extennd or terminate the lease •• Material non distinct services provided under the leaseMaterial non-distinct services provided under the lease • Remaining usefuul life of the asset is not significant after the lease • Residual value gguarantees included in the lease.



U d th f bli Under the performance obligatiti on approach

Contingent rentals and amounts receivable under residual value guarantees

would be included only if the lessor can measure the

amounts reliably

Under the derecognition approach

The lessor would coontinue to recognise its interest in the underlying asset. It would also recognisse a new asset representing its right to receive lease payments from the lessee andd a new liability representing its obligation to deliver use of the underlying asset to tthe lessee during the lease term.

A. Initial measuremment 1) Right to receivve lease payments – Generally, the lessor would measure the

present value oof the lease payments in a similar manner to a lessee, except thhat: • the discount rate would be the rate that the lessor charges the lessee • contingent reentals and amounts receivable under residual value guarantees

would be inccluded only if the lessor can measure the amounts reliably. 2) Lease liability –– This would be calculated based on the amount of the right to

receive asset pluus any initial recoverable direct costs incurred by the lessor to secure the lesseee such as commissions and legal costs.

BB. Subsequent me Subsequent me asurementasurement 1) Right to receivve lease payments – The lessor would measure its lease asset

at amortised coost using the effective interest method and recognise any impairment in aaccordance with FRS 39 Financial Instruments: Recognition and Measuremment.

2) The lease liabiility subsequently would be amortised into income based on the pattern of uuse of the underlying asset by the lessee. If the lessor cannot determine this ppattern reliably,y, then it would use the straigght-line method.

3) The lessor wo uld reassess its lease asset and adjust its liability in a similar manner similar as how a lessee would reassess its lease liability and adjust its right-of-use asset.

The lessor would reecognise a new asset representing its right to receive lease payments from the lessee. It would also derecognise a portion of the underlying asset representing tthe lessee’s rights and reclassify the remaining portion as a resididuall assett repree ti it i ht t th d l i l d t t th d fsenting its right to the underlying leased asset at the end of the lease term.

A. Initial measure ment 1) Right to receivve lease payments – The lessor would initially measure its

lease asset as described under the performance obligation approach as described abovve.

2) The residual aasset would be measured by allocating the original carrying amount f tht of the d l i t Th ll ti i b d th ti f th f iunderlying asset. The allocation is based on the ratio of the fair value of the leaase payments to the fair value of the underlying asset at the date of inceptioon of the lease. This would determine the portion of the carrying amounnt of the underlying asset to be derecognised – with the remainder reclaassified as a residual asset.

3) Any gain or looss arising at commencement of the lease would be recognised in pprofit or loss (day-one gain).

B SB. Subbsequent me asurement 1) Right to receivve lease payments – The lessor would measure its lease asset

at amortised coost using the effective interest method and recognise any impairment in aaccordance with FRS 39. This is similar to the subsequent measurement oof the lease asset under the performance obligation approach.


x


U d th d iti hUnder the derecognition approach (continued)

What are the key impacts for the lessors?

2)2) Th id l b d f i l d i The residual asset may not be remeasured to fair value and is not depreciated, hoowever, it is subject to impairment testing under FRS 36.

3) The lessor wo uld reassess its lease asset in a manner similar to how a lessee would reeassess its liability, except that the lessor would: • allocate any change in the carrying amount of its lease asset that is

attributable tto a reassessment of the lease term between its residual asset and profit or loss

• recognise other changes in the carrying amount of its lease asset in profit recognise other changes in the carrying amount of its lease asset in profit or loss.

The table below illusstrates the key impacts of the new proposals as compared to the current operatinng and finance lease classifications.

In $ 000’s Existing FRS 17 Operating lease

Ex F isting FRS 17 Finance lease

Performance obligation approach

De-recognition approach

Assets at inception

- Underlying leased asset

- Lease receivable

- Lease obligation

-Net lease asset

-Residual asset

1,000

0

0

0

0

1000

0

0

1,000

1,200

(1,200)

1,000

0

1,200

0

400

Total assets 1,000 1,000 1,000 1,600

Profit and loss in year one

-Rental income

-Amortisation of PO liability

-Contingent rentals

-Finance income

-Depreciation expense

-Gain/(loss) at inception of lease

100

0

20

0

(71)

0

0

0

20

49

0

0

0

86

0

58

(71)

0

0

0

0

58

0

600

Total net profit 49 69 73 658

What is the effective date and transitional provision?

When will the proposed changes be finalised?

From the lessor’s peerspective, the key impacts with: • the pperformancce obliggation apppp roach means more front loadingg of income

(i.e. reverse of thhe lessee) and no upfront gain • the derecognition approach results in an upfront gain but also results in

deferral of incomme as the residual asset cannot be revalued until the end of the lease.

The ED does not proopose an effective date and does not specify whether early adoption would be ppermitted. This is because the IASB are currently seeking views in a separate consultation document consultation document on whether or how to sequence on whether or how to sequence views in a separate effective dates in orrder to reduce the burden of this ED and other new standards scheduled to be commpleted in 2011. Once adopted, an entity will have to evaluate and recognise all ouutstanding leases as of the date of initial application use a ‘simplified retrospecctive approach’.

Both the IASB and tthe ASC have invited comments on the ED, and the comment pperiods closed on 1 5 December 2010 and 22 October 2010,, resppectivelyy. The release of the final sstandard is planned for June 2011.



What are the tax implications for Currently, for Singappore income tax purposes, leases can be divided into three lessors and lessees in Singapore? types with the followwing tax treatment:

Type of lease

Tax treatment

Entitlement for lessor Entitlement for lessee Entitlement for lessee under

PIC[1]

Operating lease[2] Capital allowance claim on 100% of cost of asset

Deduction o payments

on 100% of lease Deduction on 250% of lease payments

Finance lease[3] Capital allowance claim on 100% of cost of asset

Deduction o payments (i charges)

on 100% of lease ncluding finance

Deduction on 250% of lease payments (including finance charges)

Finance lease treated as sale agreement[4]

NA Capital allow of cost of a

wance claim on 100% asset

Capital allowance claim on 250% of cost of asset

How will the ED affect tax in Singapore?

The tax implicationns for lessees: 1) The amortisatioon of the right-of-use asset in profit or loss would generally not

be an allowable deduction for tax purposes and will be excluded from the computation of ttaxable profit. Instead, the lessee will be entitled for a deduction basedbased on the leaon the leaase payments as stipulated in the lease ase payments as stipulated in the lease contractcontract. Unless IRASUnless IRAS decides to changge the tax treatment, tax adjustments would be necessary.

2) Changes arisingg from reassessment of contingent rentals, lessee residual value guarantees and tterm option penalties recognised in profit or loss runs contrary to the basic tax prinnciple since only expenses that are incurred for tax purposes are allowable. Unlesss the IRAS is prepared to deviate from this principle, tax adjustments would be necessary.

3) Interest expensse relating to the lease liability would generally not be an allowable deduction for tax purposes since it is not considered to be an actual cost incurred. Unnless the IRAS is agreeable to align the tax treatment with the accounting treatment and adopt the accounting treatment of taxing/ allowing interest based o n effective interest rate, then tax adjustments would be necessary.

[1] Refers to Productivity and Innovation Credit scheme – see page 23 for more details. The benefit from the eenhanced deduction under the PIC is granted only to the lessee of the qualifyin g asset since it is the lessee that has put the asset into productive use.

[2] An operating lease is aany lease other than a finance lease. This is typically a pure rental of asset. [3] A finance lease is one where the obsolescence, risks or rewards incidental to ownership of the asset

is substantially transferrred from the lessor to the lessee. [4] A finance lease is treatted as a sale agreement where any of the following are met:

• the lessee has an op tion to purchase the asset during the term of the lease including any

extension/renewal thhereof or upon its expiry

• the asset which is leaased is a limited use asset • the asset in a sale annd lease-back transaction has been previously used by the lessee or any other

person • the lessor and lesseee are related to each other and certain other conditions are satisfied • the parties to the lea se include a lessor, lessee and one or more long-term creditors who provide a

substantial part of thee financing for the acquisition of the leased asset without any recourse to the

lessor for the repaymment of the loan.



Th t i li ti ns f for lessors:The tax implication l How will the ED affect tax in Singapore? (continued) 1) The recognitionn of interest income using the effective interest method and

the upfront gain under the derecognition method runs contrary to the basic tax principle that on ly realised income is subject to tax. Unless the IRAS is prepared to deviate from tthis principle, tax adjustments would be necessary.

2) Under the dereccognition method, the lessor derecognises a portion of the underlying asseasseet, and a residual asset remains and is not residual asset remains depreciated. For taxunderlying et, and a and is not depreciated. For tax purposes, if the lease meets the definition of finance lease (which is not treated as a sale agreemment) under the current tax rules, the lessor can still claim capital allowance for thee original asset although it is no longer in the lessor’s accounting records. A tax a djustment will have to be made to bring the asset back into the lessor’s tax bookks and tracked for tax computation purposes of computing capital allowances. Thiss situation is similar to the current position whereby finance leases for accounting purposes are not reflected as a fixed asset in the lessor's books under FRSS 17.

3) For tax purposees, the conditions to treat a finance lease as a sale agreement appear to be moore stringent than what the ED considers in-substance purchases and sales (not in the scope of ED) to be. Therefore, the lessor would still need to establish if a finaance lease is treated as a sales agreement based on the relevant tax criteria so as to apply the correct tax treatment.




Improve ments to FRSs 2010 On 7 October 22010, the ASC has issued its third omnibus standard Improovements to FRSs 2010. The improvements follows very cloosely to those issued by the IASB in May 2010.

The Improvements to IFRSs 2010 are the result of the IASB’s third annual improvements projeect. This project involves the IASB accumulating, throughout the year, what it bellieves are non-urgent but necessary improvements to IFRSs and then processingg these amendments collectively.

The Improvements to IFRSs 2010 contain 11 amendments to six standards and one interpretation. EEffective dates, early application and transitional requirements are dealt with on a sstandard-by-standard basis.

We set out below a brief summary of each of these amendments. It is worth double-checking thiss list against your own circumstances to see if any of them introduce any changges in policy or presentation or are relevant to this year’s transactionstransactions.

In particular, we hig hlight below two amendments that may be worth noting earlier:

1. Amendment re lating to the presentation of each component of equity in the statement oof changes in equity Paragraph 106 oof FRS 1 Presentation of Financial Statements was amendedg p to clarify that en tities may present the reconciliation from opening to closing balance for eachh component of other comprehensive income (OCI) either in the statement off changes in equity or in the notes to the financial statements.

Our Singapore Illlustrative Financial Statements 2010 presents the changes in presents the chaanges in OCI attributable to each item of OCI in the statement of changes in eqquity.

2. Amendments too disclosure requirements under FRS 107 Financial Instruments: Diisclosures These amendmeents reduces the amount of disclosures previously required by entities. Entities are no longer required to disclose the: • Entity’s maxximum exposure to credit risk if the carrying amount of the

financial asseet is already represents the maximum exposure. • Carrying ammount of financial assetsmount of financial assets that would have been past due or that would have been past due or • Carrying am

impaired if thheir terms had not been renegotiated. • Description and fair value of collateral held as security and other credit

enhancemennts in respect of financial assets that are past due but not impaired andd in respect of financial assets that are individually determined to be impaireed. However, the entity will be required to disclose the financial effeect in respect of a financial instrument.

For entities adoppting these amendments early, appropriate disclosures should be made in the ffinancial statements.



Summary of Improvements to FRSs 2010

Subject of Amendment Amendment Effective Date

FRS 1 Presentation of Financial Statements – Presentation of statement of changes in equity

FRS 1 requires for each compo from opening to closing balance statement of changes in equity to show separately changes ari profit or loss, in OCI and from t acting in their capacity as owne

FRS 1 i d d t l if thFRS 1 is amended to clarify tha changes in each component of transactions recognised in OCI presented, but is permitted to b statement of changes in equity

onent of equity a reconciliation es to be presented in the

y. That reconciliation is required sing from items recognised in

transactions with owners ers.

t th di ti fat the disaggregation of equity arising from is also required to be

be presented either in the y or in the notes.

Effective for annual periods beginning on or after 1 January 2011.

Early application is permitted.

FRS 27 Consolidated and Separate Financial Statements – Transition

FRS 27 (2009) resulted in a num amendments to FRS 21 The Ef Exchange Rates, FRS 28 Inves 31 Interests in Joint Ventures T31 Interests in Joint Ventures. T

mber of consequential ffects of Changes in Foreign tments in Associates and FRS These added guidance about These added guidance about

Effective for annual periods beginning on or after 1 July 2010.

Transition requirements for disposals of all or part of a fore ign operation and about Early application is permitted. amendments made as a accounting for a loss of signific ant influence or joint control result of FRS 27 (2009) respectively. However, it was nnot specified whether those to FRS 21, FRS 28 amendments were to be applieed retrospectively or and FRS 31 prospectively.

The 2010 Improvements clarify amendments should be applied amendments to FRS 28 and FRamendments to FRS 28 and FR of the renumbering in FRS 27 (

y that the consequential d prospectively, except for the RS 31 that solely are the result RS 31 that solely are the result 2009).

FRS 34 Interim Financial Reporting – Significant events and transactions

FRS 34 is amended by adding a list of events or transactions th FRS 34, being examples of:

• recognition of a loss from th assets

• significant changes in an ensignificant changes in an en circumstances that have an items in the statement of fi whether such items are acc

• significant transfers of finan levels of the fair value hiera

• changes in assets’ classifica sale to held to maturity) as a purpose or usepurpose or use.

In addition, paragraphs 15 and references to materiality are re FRS 34 that describes other mi

a number of examples to the at require disclosure under

he impairment of financial

ntity’s business or economic ntity s business or economic impact on the fair value of nancial position, regardless of counted for at fair value

ncial instruments between rchy

ation (e.g. from available for a result of changes in their

16 were restructured and moved from the section in nimum disclosures.


Early application is permitted and is required to be disclosed.disclosed.

INT FRS 113 Customer Loyalty Programmes – Fair value of award credit

The terminology used in respec award credits in a customer loy INT FRS 113 uses the term “fa value of award credits and the v such award credits could be redsuch award credits could be red amended states that the fair va account the amount of discoun would be offered to customers award credits.

ct of the values of awards and yalty programme is amended. air value” in relation to both the value of the awards for which deemed INT FRS 113 asdeemed. INT FRS 113 as alue of award credits takes into ts or incentives that otherwise

s that have not earned the


Early application is permitted Early application is permitted and is required to be disclosed.



Summary of Improvements to FRSs 2010 (continued)


FRS 101 First-time Adoption of IFRSs – Accounting policy changes in the year of adoption

FRS 101 is amended to clarify t Policies, Changes in Accounting not apply to the changes in acc during the period covered by th statements.

In addition, the amendment pro that publish interim financial infthat publish interim financial inf change their accounting policie provided in FRS 101 during the FRS financial statements and c

• the entity should explain an first interim and the first an

• the entity should update rec GAAP t FRS i l d d i tGAAP to FRSs included in t information for those chang the change is made.

that FRS 8 Accounting g Estimates and Errors does

counting policies that occur heir first FRS financial

ovides guidance for entities formation under FRS 34 and formation under FRS 34 and s or use of the exemptions period covered by their first

larifies that:

y such changes between the nual financial statements

conciliations from previous h i i t i fi i lhe previous interim financial

ges in the interim period when


Early application is permitted and is required to be disclosed.

FRS 101 – Revaluation basis as deemed cost

FRS 101 is amended to extend that a first-time adopter is perm fair value measurement as dee assets. This is when such reva reporting periods covered by its statements (e g revaluation of statements (e.g. revaluation of occurrence of an initial public o revaluation basis is permitted o occurs at or prior to the date of driven fair value measurement at the date when the event trig occurred.

For example, Company B will p statements for the year endingstatements for the year ending date of transition of 1 January 2 completes an initial public offer revaluation of certain assets. If then B determines:

• the FRS cost or a deemed c of FRS 101 and recognises adjustments to retained ear

it if i t t 1 Jequity, if appropriate, at 1 J • a deemed cost using the re

IPO occurs and recognises adjustments to retained ear equity, if appropriate, at 30 to “roll back” the event-driv 2010.

the scope of paragraph D8 so mitted to use an event-driven med cost for some or all of its

aluation occurred during the s first FRS financial certain assets on the certain assets on the ffering). Currently such a

only when the revaluation f transition to FRSs. The event-is required to be determined

ggering such a revaluation

prepare its first FRS financial 31 December 2011 with a 31 December 2011 with a 2010. At 30 April 2010 B ring, which resulted in the B applies this exemption,

cost using paragraphs D5 – D7 the corresponding

rnings or another category of 2010anuary 2010

evaluation amount(s) when the the corresponding

rnings or another category of April 2010; B is not permitted

ven valuation to 1 January


Entities that adopted FRSs in periods before the effective periods before the effective date of FRS 101 or applied FRS 101 in a previous period e.g. entities with a date of transition of 1 January 2005, are permitted to apply this amendment retrospectively in the first annual period after the amendment is effective i e 1 January 2011i.e. 1 January 2011.






FRS 101 – Use of deemed cost for rate-regulated operations

FRS 101 is amended to provide deemed cost exemption. In par plant and equipment or intangib regulated activities, the carrying previous GAAP may include am capitalisation under FRSs. The carrying amounts being permitt cost at the date of transition to cost at the date of transition to

This exemption may be applied provided that each item to whic tested for impairment in accord of Assets at the date of transiti exemption and the basis on wh determined under previous GAA disclosed.

e an additional optional rticular for items of property, ble assets used in certain rate-g amounts determined under

mounts that do not qualify for amendment results in such ted to be used as deemed FRSsFRSs.

d on an item-by-item basis, ch this exemption is applied be dance with FRS 36 Impairment on to FRSs. Use of this

hich carrying amounts were AP are required to be



FRS 103 Business Combinations – Transitional requirements for contingent consideration from a business combination that occurred before the effective date of the revised FRS

FRS 103 is amended to state th consideration arising in a busine accounted for in accordance wi not been settled or otherwise r of FRS 103 (2009) continues to accordance with FRS 103 (2004

For such contingent considerat combination is adjusted if and wcombination is adjusted if and w contingent consideration is pro measured reliably. That means Instruments: Recognition and M to contingent consideration wit amendment, i.e. liability-classifi not measured at fair value throu

hat the contingent ess combination that had been ith FRS 103 (2004) that has resolved at the adoption date o be accounted for in 4).

ion, the cost of the business when payment of the when payment of the bable and the amount can be that FRS 39 Financial

Measurement does not apply thin the scope of the ied contingent consideration is ugh profit or loss.


The amendment is required to be applied prospectively from the date that an entity first applied FRS 103 (2009).


FRS 103 – Measurement of non-controlling interests

FRS 103 is amended to limit th measure non-controlling interesg recognition either at fair value o share of the acquiree’s identifia that give rise to a present owne entitle the holder to a share of liquidation.

The accounting policy choice do instruments, such as written op instruments or options grantedinstruments or options granted arrangements. Such interests w fair value or otherwise in accord FRSs, e.g. share-based paymen measured in accordance with F Payment.

e accounting policy choice to sts (NCI) upon initialp or at the NCI’s proportionate able net assets to instruments ership interest and currently net assets in the event of

oes not apply to other ptions classified as equity under share-based paymentunder share based payment

will generally be measured at dance with other relevant nts that give rise to NCI will be FRS 102 Share-based

Effective for annual periods beginning on or after 1 Julyg g y 2010.


Early application is permitted and is required to be and is required to be disclosed.

g

FRS 103 – Unreplaced and voluntarily

FRS 103 (2009) currently conta of the market-based measure o payment awards that are issue awards between consideration combination compensation cos to replace the acquiree’s existin

FRS 103 is amended so that th also applies to voluntarily replac awards. Additionally, guidance accounting for unreplaced acqu

ins guidance on the attribution of an acquirer’s share-based d in exchange for acquiree transferred and post-

st when an acquirer is obliged ng awards.

e guidance for such awards ced unexpired acquiree is introduced about the

uiree awards.




replaced sharebased payment awards





FRS 107 Financial Instruments: Disclosures – Amendments to disclosures

FRS 107 is amended to add an qualitative disclosure should be quantitative disclosures to bett entity’s exposure to risks arisin

The existing disclosure requirem amended as follows: • FRS 107 is amended to clar • FRS 107 is amended to clar

amount that best represent exposure to credit risk is req amount of a financial asset exposure already.

• Additional requirement to d collateral held as security an in respect of a financial inst disclosure is quantification o i k i iti t d b th ll risk is mitigated by the colla

enhancement obtained. Thi the existing requirement to nature of such collateral.

• FRS 107 is amended to stat disclosure in respect of coll the entity is required only in held at the end of the repor

The following requirements hav 107: • Disclosure of the carrying a

would have been past due o not been renegotiated.

• Disclosure of the descriptio held as security and other c of financial assets that are p in respect of financial asset determined to be impaired.

Additionally, the clause stating are not required when a risk is removed from FRS 107. The ge considerations continue to appl FRS 107 in the same way as th

explicit statement that the e made in the context of the er enable users to evaluate an g from financial instruments.

ments of FRS 107 are

rify that the disclosure of the rify that the disclosure of the ts an entity’s maximum quired only if the carrying does not reflect such

isclose the financial effect of nd other credit enhancements rument. An example of such of the extent to which credit t l d th ditateral and other credit s disclosure is in addition to describe the existence and

te that clarification that ateral taken possession off by

n respect of such collateral rting period.

ve been removed from FRS

mount of financial assets that or impaired if their terms had

n and fair value of collateral credit enhancements in respect past due but not impaired and s that are individually

that quantitative disclosures not material has been

eneral materiality ly to all disclosures required by

hey apply to other FRSs.





What is Productivity and Innovation Credit (PIC)?

Who is eligible for the PIC?


Producti vity and Innovation Credit Sccheme

Intended as an impetus to increase productivity, improvements improvements and innovation in Singapore the Productivity and innovation in Singapore, the Productivity and Innovation Credit (PIC) was introduced in Budget 2010. The PIC providees tax benefit for investments in a range of activities along the innovation value chain. In this issue, we provide details on the PIC and explain how it can benefit businesses.

The PIC provides ennhanced tax deductions to businesses that incur expenditures either on: (i) Research & deveelopment (R&D) activities done in Singapore (ii) Approved designn projects done in Singapore (iii) Registration of inntellectual property rights (IPRs) (iv) Acquisition of IPPRs (v) Acquisition or leaasing of prescribed automation equipment (vi) Training of empl oyees.

All businesses whic h incurred qualifying expenditure during the basis period for Years of Assessmennt (YA) 2011 to 2015 may be eligible for the PIC. The basis period for any YA reefers to the preceding financial year.

For example, if the ffinancial year of a business ends on 31 October, the basis period for YA 2011 wwill be 1 November 2009 to 31 October 2010period for YA 2011 w will be 1 November 2009 to 31 October 2010.


th 1sg y y )

s

st th

a


What are the tax benefits The PIC provides th e following tax benefits: under the PIC?

Activity area

Qualifying expenditure (net of any grant/ subsidy by Government)

Deduction of qu

expendit

n/ allowance ualifying ture per YA Remarks

on the 1 $300,000

st

0 on the

balance R&D Staff costs & consumables for R&D

done in Singapore 250% 150% Existing R&D incentives will be phased out.

Design Costs incurred in Singapore to create new products & industrial designs

250% 100% The DesignSingapore Council will administer scheme & approve design expenditure.

Registration of IPRsof IPRs

Costs to register patents, trademarks, design & plant variety design & plant variety

250% 100% Covers official fees paid to respective Registry (e g for filing application/ registration) and (e.g. for filing application/ registration) and professional fees paid to agent.

Acquisition Costs to acquire IPRs for use in trade/ 250% 100% IPRs cover patent, copyright, trademark, of IPRs business in Singapore (exclude EDB

approved IPRs and IPRs related to media & digital entertainment content)

registered design, geographical indication, layout design of integrated circuits, trade secret or information, and plant variety.

Does not cover legal fees, registration fees, stamp duty && other acquisition costs.

Requirement to own legal & economic rights of IP will remain.

Automation Costs to purchase/ lease prescribed 250% 100% Includes wide range of equipment & software

equipment automated equipment listed in “Income Tax (Automation Equipment) Rules 2004” [1]

for automating processes.

However, no enhanced deduction will be granted for lease payments of software except for instances where the lease payment of the qualifying equipment is inclusive of payment for the software and no breakdown is available.

Training for Costs on external training as well as in- 250% 100% Covers course fees paid to external training

employees house training which are Workforce Development Agency (WDA) certified or Institute of Technical Education (ITE) or Institute of Technical Education (ITE) certified or other prescribed courses.

service providers, remuneration of in-house trainers for delivery of course, rental of external training premises, cost of training materials, stationery and refreshments provided during course.

Does not cover remuneration of in-house trainers for other duties including preparation of training materials, employees attending the courses (absentee payroll), accommodation, traveling/ transport and overheads like rental & utilitiesutilities.

[1] The list of prescribed automation equipment has been reviewed and expanded to include those used in business settings othe in business settings othe er than an office or factory er than an office or factory. Further feedback has been sought on the expanded Further feedback has been sought on the expanded list of equipment as part of the public consultation of the draft Income Tax (Amendment) Bill 2010. The revised list has yet to be enacted.


Conversion option

t t


What are the tax benefits The enhanced deduuction/allowance are capped for each category of activity to under the PIC? (continued) focus the benefits oof PIC on small and medium enterprises (SMEs). For YA 2011

and 2012, a combin ed cap of up to $600,000 will apply for each category of activity over two ye ars. For example, if the SME incurs qualifying training expenditure of $1500,000 and $500,000 in YA 2011 and YA 2012 respectively, it is eligible to claim a deeduction of 250% on $150,000 and $450,000 for YA 2011 and YA 2012 respective ly, with the balance $50,000 qualifying expenditure for YA 2012 being eligible ffor normal deduction of 100% For YA 2013 to YA 2015, thethe2012 being eligible ffor normal deduction of 100%. For YA 2013 to YA 2015annual cap is $300,0000. The combined cap for YA 2011 and 2012 is to help SMEs benefit from the PICC without having to rush to implement their investments.

Subject to the existing tax provisions, any utilised tax deductions/ allowances under the PIC that ccannot be fully set-off against other income of the business can be: • carried back to the immediate preceding YA• f d d th G R li f S transferred undeer the Group Relief System • carried forward tto future YAs.

Option to convert qualifying deductions into cash Eligible businesses may opt to convert their deductions/allowances under the PIC

at a rate of 7% into a cash payout. They can convert up to the combined cap of $600,000 (but not leess than $1,500) for YA 2011 and YA 2012 into cash (i.e. $42,000) and up to $$300,000 (but not less than $1,500) for YA 2013 (i.e. cash payout of $21,000).

Eligible businesses refer to those businesses that are carrying on business operations and empploy at least three local employees (i.e. Singaporeans or Singapore permanent residents) with CPF contributions in the last month of the basis period for the relevant YA. Thi

FINANCIAL REPORTING MATTERS · 2020. 12. 24. · financial reporting period. New FRSs effective for annual financial periods beginning on 1 January 2010 . 009) and FRS 27 (2009) apply

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