Summary FAC3703 Summarised Study Notes

FAC3703

NOTES

,Related parties


 Reporting entity must disclose transactions with related parties

A person or a close member of that person’s family is related to the reporting entity if
that person:
 Has control or joint control over reporting entity
 Has significant influence over the reporting entity =<20%
 Is a member of key management personnel of the reporting entity or a parent
of the reporting entity
 An entity is related to a reporting entity if any of the following conditions apply:
 The entity and reporting entity are members of the same group e.g. fellow
subsidiaries
 One entity is an associate or joint venture of the other entity
 Both entities are joint ventures of the same third party
 One entity is a joint venture of a third party and the other is an associate of the
third party
 The entity is a post-employment benefit plan for employees of reporting entity
or entity related to the reporting entity. If the reporting entity is itself a plan the
sponsoring employers are also related to the entity
 Entity is controlled or jointly controlled by person with control or joint control
in the reporting entity e.g. Mr A has 60% in ABC ltd and 60% in EFG ltd ABC
ltd and EFG ltd are related


Close member of the family of a person
- That person’s children and spouse or domestic partner
- Children of that person’s spouse or domestic partner
- Dependents of that person or that person’s spouse or domestic partner


Government-related entity = entity that is controlled, jointly controlled or significantly
influenced by a government


The following are not related parties
 Two entities simply because they have a director or member of key management in
common, or because a member of key management of one entity has significant
influence over the other


Disclosure – related parties
Disclosure must include:

,  The nature of the relationship between the related parties
 Amount of the transactions
 The amount of any outstanding balances(payable and receivable must be
distinguished)
 The terms and conditions, any security and method of settlement
 Details of guarantees given or received
 Provisions for doubtful debt relating to outstanding balances
 The expenses recognised in respect of doubtful debt due during the period


Disclosure of related party transaction is made for:
 Parent
 Entities that are jointly controlled or exercise significant influence
 Subsidiaries
 Associate
 Joint ventures
 Key management personnel of the entity or its parent


Possible examples of related party transactions:
 Purchase or sale of property
 Leases
 Rendering or receiving services


Government-related entities are exempt from disclosure requirements
If this exemption is applied must disclose the following:
 Name of the government as well as the nature of the relationship
 The nature and amount of each individual significant transaction
 For transactions that are collectively significant but not individually significant, a
quantitative and qualitative indication of their extent




Financial instruments


Financial liability
 Contractual obligation to deliver cash or other financial asset
 Can be settled in the entity’s own equity instruments:
 Non derivative obliged to deliver a variable number of its own shares
 Derivative obliged to deliver a fixed number of its own shares

, NOT FINANCIAL ASSET NOT FINANCIAL LIABILITY
 Inventories, PPE, right of use asset, intangible asset
 Assets leased out by operating lease
 Prepaid expenses = future economic benefit is to receive goods or services, not right
to receive cash or other financial asset.
 Deferred revenue and most warranties
 Income taxes created as a result of statutory requirements imposed by government =
taxes are not contractual


AMORTISED COST
 We use amortised cost if business model is :
 To hold asset in order to collect contractual cash flows
 And cash flows are solely payments of principal and interest on the principal
amount outstanding.
 Interest goes to profit and loss
 Transaction costs are capitalised
FAIR VALUE THROUGH PROFIT AND LOSS
 Transaction costs go straight to profit and loss
 We use this if amortised cost is not used


FAIR VALUE THROUGH OCI
 At initial recognition entity can choose this, but it is irreversible.
 Transaction costs are capitalised


Financial liability = amortised cost = capitalise transaction costs


Timing of recognition
 When entity becomes party to a contract and as a result has right to receive or
obligation to pay cash.


Impairment and un-collectability of financial assets
Expected credit loss model applies to:
 Financial assets at amortised cost
 Financial assets (other than shares) at fair value through OCI