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Section 11: Basic Financial Instruments.
11.2 Accounting policy choice.
11.2.1 Extract from FRS 102 Section 11.2-11.2A.
11.2.2 OmniPro comment – Accounting Policy Choice.
11.3 Scope of the Section 11 and Section 12.
11.3.1 Extract from FRS 102 Section 11.3, 11.5, 11.7 and Glossary to FRS 102.
11.3.2 OmniPro comment – Scope of Section 11.
11.3.2.1 Financial assets and liabilities not within the remit of Section 11 and 12.
11.4 Classification of financial instruments.
11.4.1 Extract from FRS 102 Section 11.6 and 11.8.
11.4.2 OmniPro comment – classification of financial instruments and scope (within Section 11 or 12)
11.4.2.2 – Investment in Shares.
11.5 Conditions for debt instruments to meet the definition of a basic financial instrument
11.5.1 Extract from FRS 102 Section 11.9.
11.5.2 OmniPro comment – basic financial instruments.
11.6 Initial and subsequent measurement of debt instruments.
11.6.1 Extract from FRS 102 Section 11.12-11.20.
11.6.1.2 Subsequent measurement
11.6.1.3 Amortised cost and effective interest method.
11.6.2.2 Short-term receivables/payable within one year
11.6.2.3 Transaction costs – definition/treatment
11.6.2.4 Effective interest rate calculation and amortised cost
11.6.2.4.1 Effective interest rate
11.6.2.4.3 Put or call options when calculating effective interest rate
11.6.2.4.4 Diagram 1 Rules for Accounting for basic financial instruments
11.6.2.4.5 – Financing Arrangement
11.6.2.4.6 Steps in determining the effective interest rate
11.6.2.4.7 Changes in cash flow estimates (amortised cost model)
11.6.2.4.8 Non market loans- inter-company loan / director’s loans
11.6.2.4.8.1 Determining the market rate of interest
11.6.2.4.8.2: Analysis of debt and credits on initial recognition of loans – financing arrangements.
11.6.2.4.9 Sales and purchases made under unusual credit terms – Debtors/creditors
11.6.2.4.11 Loans repayable on demand
11.6.2.4.12 Loan repayable on demand but with notice of 1 year and 1 day
11.6.2.4.15 Variable interest rate over the life of the loan
11.6.2.4.16 Issues surrounding directors or intra-group loans
11.6.2.4.16.1 Factors that indicate a related party loan is not at market rates.
11.7.1 Extract from FRS 102 Section 11.27-11.32.
11.7.2.1.2 Fair value hierarchy
11.8 Impairments of financial assets held at cost or amortised cost
11.8.1 Extract from FRS 102 Section 11.21-11.26.
11.8.2.1 Indicators of Impairment
11.8.2.2 Individual and group impairments.
11.8.2.3 Impairment debt instruments.
11.8.2.4 Reversal of Impairments.
11.8.2.5 Impairment of financial assets carried at cost
11.9 Derecognition of a Financial Asset
11.9.1 Extract from FRS 102 Section 11.33-11.35.
11.9.2 OmniPro comment – Decrecognition of Financial Assets.
11.10 Derecognition of financial liabilities.
11.10.1 Extract from FRS 102 Section 11.36-11.38.
11.6.2.4.5 Derecognition rules – overview
11.10.2.2 Derecognition of Financial Liability.
11.11.1 Extract from FRS 102 Section 11.38A.
11.11.2 OmniPro comment – Presentation – set off
11.12.1 Extract from FRS 102 Section 11.39-11.48A.
11.12.2.1 Disclosure requirements.
11.12.2.2 Sample Disclosure requirements.
11.12.2.2.1 Extract from accounting policy notes
11.12.2.2.2 Extract of notes to the financial statements – Financial instruments note disclosures
11.12.2.2.3 Extract of notes to the financial statements – interest disclosures.
11.12.2.2.3.1 Note: Interest receivable and similar income.
11.12.2.2.3.2 Note: Interest payable and similar expenses.
11.12.2.2.4 – Debtors Disclosures
11.12.2.2.5 – Creditors disclosures
11.12.2.2.7 Statement of Comprehensive Income
11.12.2.2.8 – Statement of Change in Equity
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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
11.12 Disclosures
11.12.1 Extract from FRS 102 Section 11.39-11.48A
11.39 The disclosures below make reference to disclosures for certain financial instruments measured at fair value through profit or loss. Entities that have only basic financial instruments (and therefore do not apply Section 12), and have not chosen to designate financial instruments as at fair value through profit or loss (in accordance with paragraph 11.14(b)) will not have any financial instruments measured at fair value through profit or loss and hence will not need to provide such disclosures.
Disclosure of accounting policies for financial instruments
11.40 In accordance with paragraph 8.5, an entity shall disclose, in the summary of significant accounting policies, the measurement basis (or bases) used for financial instruments and the other accounting policies used for financial instruments that are relevant to an understanding of the financial statements.
Statement of financial position – categories of financial assets and financial liabilities
11.41 An entity shall disclose the carrying amounts of each of the following categories of financial assets and financial liabilities at the reporting date, in total, either in the statement of financial position or in the notes:
(a) financial assets measured at fair value through profit or loss (paragraphs 11.14(b), 11.14(d)(i), 12.8 and 12.9);
(b) financial assets that are debt instruments measured at amortised cost (paragraph 11.14(a));
(c) financial assets that are equity instruments measured at cost less impairment (paragraphs 11.14(d)(ii), 12.8 and 12.9);
(d) financial liabilities measured at fair value through profit or loss (paragraphs 11.14(b), 12.8 and 12.9). Financial liabilities that are not held as part of a trading portfolio and are not derivatives shall be shown separately;
(e) financial liabilities measured at amortised cost (paragraph 11.14(a)); and
(f) loan commitments measured at cost less impairment (paragraph 11.14(c)).
11.42 An entity shall disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance. For example, for long-term debt such information would normally include the terms and conditions of the debt instrument (such as interest rate, maturity, repayment schedule, and restrictions that the debt instrument imposes on the entity).
11.43 For all financial assets and financial liabilities measured at fair value, the entity shall disclose the basis for determining fair value, eg quoted market price in an active market or a valuation technique. When a valuation technique is used, the entity shall disclose the assumptions applied in determining fair value for each class of financial assets or financial liabilities. For example, if applicable, an entity discloses information about the assumptions relating to prepayment rates, rates of estimated credit losses, and interest rates or discount rates.
11.44 If a reliable measure of fair value is no longer available for ordinary or preference shares measured at fair value through profit or loss, the entity shall disclose that fact.
Derecognition
11.45 If an entity has transferred financial assets to another party in a transaction that does not qualify for derecognition (see paragraphs 11.33 to 11.35), the entity shall disclose the following for each class of such financial assets:
(a) the nature of the assets;
(b) the nature of the risks and rewards of ownership to which the entity remains exposed; and
(c) the carrying amounts of the assets and of any associated liabilities that the entity continues to recognise.
Collateral
11.46 When an entity has pledged financial assets as collateral for liabilities or contingent liabilities, it shall disclose the following:
(a) the carrying amount of the financial assets pledged as collateral; and
(b) the terms and conditions relating to its pledge.
Defaults and breaches on loans payable
11.48 An entity shall disclose the following items of income, expense, gains or losses:
(a) income, expense, net gains or net losses, including changes in fair value, recognised on:
(i) financial assets measured at fair value through profit or loss;
(ii) financial liabilities measured at fair value through profit or loss (with separate disclosure of movements on those which are not held as part of a trading portfolio and are not derivatives);
(iii) financial assets measured at amortised cost; and
(iv) financial liabilities measured at amortised cost;
(b) total interest income and total interest expense (calculated using the effective interest method) for financial assets or financial liabilities that are not measured at fair value through profit or loss; and
(c) the amount of any impairment loss for each class of financial asset. A class of financial asset is a grouping that is appropriate to the nature of the information disclosed and that takes into account the characteristics of the financial assets.
Financial instruments at fair value through profit or loss
11.48A An entity, including an entity that is not a company, shall provide the following disclosures only for financial instruments measured at fair value through profit or loss in accordance with paragraph 36(4) of Schedule 1 to the Regulations. This does not include financial liabilities held as part of a trading portfolio nor derivatives. The required disclosures are:
(a) The amount of change, during the period and cumulatively, in the fair value of the financial instrument that is attributable to changes in the credit risk of that instrument, determined either:
(i) as the amount of change in its fair value that is not attributable to changes in market conditions that give rise to market risk; or
(ii) using an alternative method the entity believes more faithfully represents the amount of change in its fair value that is attributable to changes in the credit risk of the instrument.
(b) The method used to establish the amount of change attributable to changes in own credit risk, or, if the change cannot be measured reliably or is not material, that fact.
(c) For a financial liability, the difference between the financial liability’s carrying amount and the amount the entity would be contractually required to pay at maturity to the holder of the obligation.
(d) If an instrument contains both a liability and an equity feature, and the instrument has multiple features that substantially modify the cash flows and the values of those features are interdependent (such as a callable convertible debt instrument), the existence of those features.
(e) If there is a difference between the fair value of a financial instrument at initial recognition and the amount determined at that date using a valuation technique, the aggregate difference yet to be recognised in profit or loss at the beginning and end of the period and a reconciliation of the changes in the balance of this difference.
(f) Information that enables users of the entity’s financial statements to evaluate the nature and extent of relevant risks arising from financial instruments to which the entity is exposed at the end of the reporting period. These risks typically include, but are not limited to, credit risk, liquidity risk and market risk. The disclosure should include both the entity’s exposure to each type of risk and how it manages those risks.
11.12.2 OmniPro comment
11.12.2.1 Disclosure requirements
Section 11.31 to 11.48A of FRS 102 detail the disclosure requirement for financial assets and liabilities accounted for as basic instruments as well as the disclosure requirements for items held at fair value. 11.11.2.2 illustrates these.
Note: if an entity meets the criteria for it to be categorised as a qualifying company, that entity does not have to provide the detailed disclosures in the notes to the financial statements as stated in Section 1 of FRS 102. A qualifying entity is an entity whose parent company prepares consolidated financial statements and these financial statements include the result of that entity but also discloses the details of financial instruments in those financial statements. Note however, any company law requirements still have to be complied with and comparatives will have to be given.
Example 26: Sample Disclosure Requirements
11.12.2.2 Sample Disclosure requirements
11.11.2.2.1 Extract from accounting policy notes
Financial instruments
The company has adopted Section 11 and Section 12 of FRS 102 when accounting for financial instruments.
a) Trade and other debtors.
Trade and other debtors including amounts owed to group companies are recognised initially at transaction price (including transaction costs) unless a financing arrangement exists in which case they are measured at the present value of future receipts discounted at a market rate. Subsequently these are measured at amortised cost less any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. All movements in the level of the provision required are recognised in the profit and loss.
b) Cash and cash equivalents.
Cash and cash equivalents include cash on hand, demand deposits and other short- term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.
c) Other financial assets.
Other financial assets include investment which are not investments in subsidiaries, associates or joint ventures. Investments are initially measured at fair value which usually equates to the transaction price and subsequently at fair value where investments are listed on an active market or where non listed investments can be reliably measured. Movements in fair value is measured in the profit and loss.
Where fair value cannot be measured reliably or can no longer be measured reliably, investments are measured at cost less impairment.
d) Trade and other creditors.
Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables, other payable and amounts due to group companies are recognised initially at the transaction price net of transaction costs and subsequently measured at amortised cost using the effective interest method.
e) Borrowings.
Borrowings are recognised initially at the transaction price (present value of cash payable to the bank, including transaction costs). Borrowings are subsequently stated at amortised cost. Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Preference shares, which are mandatorily redeemable on a specific date, are classified as bor-rowings. The dividends on these preference shares are recognised in the profit and loss as a finance cost.
Borrowings are classified as current liabilities unless the Company has a right to defer settle-ment of the liability for at least 12 months after the reporting date.
f) Derivatives.
Derivatives are initially measured recognised at fair value on the date the contract is entered in-to and subsequently re-measured at their fair value. Changes in the fair value are recognised in the profit and loss within finance costs or finance income as appropriate, unless they are in-cluded in a hedging arrangement.
Derivative financial instruments are not basic.
Hedge accounting is not applied.
OR WHERE HEDGE ACCOUNTING IS APPLIED
Derivative financial instruments are used to manage the Group’s exposure to foreign currency risk and interest rate risk through the use of forward currency contracts and interest rate swaps. These derivatives are generally designated as cash flow hedges in accordance with Section 12. The Group does not enter into speculative derivative transactions.
g) Derecognition.
Financial liabilities are derecognised when the liability is extinguished, that being when the con-tractual obligation is discharged.
h) Offsetting financial instruments.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
i) Compound financial instruments.
Compound financial instruments issued by the company comprise of convertible preference shares which can be converted to a set amount of ordinary shares at a future date. The liability component of the compound instrument is initially recognised at the fair value of a similar liability where the conversion to equity option is not available. Subsequently this is measured at amortised cost using the effective interest rate method. The equity component is measured the difference between the fair value of the liability component and the fair value of the instrument as a whole. The equity component is not re-measured. Transaction costs are apportioned to the equity and liability component as a proportion that each type instrument is to the total fair value of the compound instrument.
j) Hedge accounting
Cash flow hedges
Subject to the satisfaction of certain criteria, relating to the documentation of the risk, objectives and strategy for the hedging transaction and the on-going measurement of its effectiveness, cash flow hedges are accounted for under hedge accounting rules. In such cases, any unrealised gain or loss arising on the effective portion of the derivative instrument is recognised in the cash flow hedging reserve, a separate component of equity and posted to other comprehensive income. Unrealised gains or losses on any ineffective portion of the derivative are recognised in the income statement. When the hedged transaction occurs the related gains or losses in the hedging reserve are transferred to the Income Statement.
The company engages in hedge accounting for forward contracts in order to manage foreign currency fluctuations as well as interest rate swaps.
Changes in fair values of derivatives designated as cash flow hedges which meet the conditions for hedge accounting are recognised in directly in equity through other comprehensive income to the extent that they are effective. Any ineffectiveness is charged to the profit and loss. Any gain or loss recognised in OCI is transferred from equity to the profit and loss when the hedge relationship ends.
Cash flow hedges are those of highly probable forecasted future income or expenses. In order to qualify for hedge accounting, the Group is required to document the relationship between the item being hedged and the hedging instrument and demonstrate, at inception, that the hedge relationship will be highly effective on an on-going basis. The hedge relationship must be tested for effectiveness on subsequent reporting dates.
There is no significant difference between the timing of the cash flows and income statement effect of cash flow hedges.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit and loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the crite-ria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the profit and loss.
11.12.2.2.2 Extract of notes to the financial statements – Financial instruments note disclosures
| 2015 | 2014 | |
| CU | CU | |
| Financial assets at fair value through profit or loss | ||
| Listed investments | 2000 | 3000 |
|
Other investments
|
XXX | XXX |
| Financial assets at fair value through profit or loss | ||
| X% Preference shares (see note 4) | XXX | XXX |
| Financial assets that are equity instruments measured at cost less impairment | ||
| Investments (see note 3) | 10,000 | 10,000 |
| Loan commitment carried at cost less impairment | 1,000 | 500 |
| Financial assets that are debt instruments measured at amortised cost | ||
| Intercompany loans | 100000 | 90000 |
| Loan notes | 80000 | 75000 |
| Other debtors including deposits receivable | 40000 | 41000 |
| Trade debtors | 30000 | 15000 |
| Cash and short term deposits | 30000 | 15000 |
|
Financial liabilities at fair value through profit and loss |
||
| Derivative financial instruments – Forward foreign contracts (see note 1) | 3000 | 2000 |
| Derivative financial instruments – Interest rate swap (see note 2) | XXX | XXX |
| Financial liabilities measured at amortised cost | ||
| Trade creditors | 20000 | 10000 |
| Intercompany loans | 20000 | 10000 |
| Accounts payable | 20000 | 10000 |
| Finance leases | 20000 | 10000 |
| Bank loans and loan notes | 20000 | 10000 |
| Accruals for goods and services | 20000 | 10000 |
| Bank overdraft | 20000 | 10000 |
|
Note 1: The company takes out foreign currency contracts to hedge against the risk of foreign exchange movements. At 31 December 2015, the company had forward contracts to purchase FC100,000 at a rate of CU1=FC.80. These contracts expire within 6 months of the year end. The fair value of these instruments at 31 December 2015 was CU10,000 (2014: CU2,000). This has been recognised in the profit and loss. The forward contracts are measured at fair value by utilising observable market date, more specifically quoted prices. Note 2: The fair value of interest rate swaps is calculated as the present value of the expected future cash flows based on observable yield curves. The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2015 were CUxxxxx (2014: CUxxxxxx). At 31 December 2015, the average fixed interest rate on the swap portfolio was X% (2014: X%). The main floating rates are EURIBOR and LIBOR. |
||
OR WHERE HEDGING IS APPLIED
Derivatives – forward foreign exchange contracts
Forward foreign exchange contracts are marked to market using quoted forward exchange rates at the reporting date.
The absolute principal amount of the outstanding forward foreign exchange contracts at 31 December 2015 was CUXXXX (2014: CUXXXXXXX).
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity (note XX) on forward foreign exchange contracts as of 31 December 2015 are recognised in the profit and loss in the period or periods during which the hedged transaction affects the income statement. This is generally within 12 months of the end of the reporting period.
Derivatives – Interest Rate Swaps
The fair value of interest rate swaps is calculated as the present value of the expected future cash flows based on observable yield curves.
The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2015 were CUxxxxx (2014: CUxxxxxx).
At 31 December 2015, the average fixed interest rate on the swap portfolio was X% (2014: X%). The main floating rates are EURIBOR and LIBOR. Gains and losses recognised in the hedging reserve in equity (note XX) on interest rate swap contracts as of December 2015 will be continually released to the income statement within finance cost until the maturity of the relevant interest rate swap.
Note 3: At the year end the fair value of certain equity investments could not be determined. As a result
the carrying value prior to this date has now been deemed to be the cost of the investments.
Note 4: These preference shares are classified as a non-basic financial instrument under Section 12 of FRS 102. The fair value of this financial liability is determined by assessing the present value of future cash flows at a market rate of interest at each period end date and utilising the discounted cash flow valuation technique. The market rate of interest used to present value the cash flows at the period end date was x% (2016: 0%). There was no movement on the fair value of this instrument between the date of initial recognition and the period end date. As the fair value has remained the same there was no fair value movement in relation to credit risk. The future cash flows utilised in the valuation model are cash flows which are unavoidable.
OR
Movement of €XXX was recognised in the profit and loss account for the fair value movement on this liability in the year. €XXX of this movement related to the change in credit risk for the company during the year. The future cash flows utilised in the valuation model are cash flows which are unavoidable.
Note 5: Listed investments are valued at the bid market price as listed on the stock exchange at the period end.
Note 6: The company owns 15% of an unlisted manufacturing company. This investment has been carried at fair value. Fair value has been determined through the use of a valuation model. This investment has been valued at 3.5 times the profit before tax with a further X% applied to this value to represent minority discount.
11.12.2.2.3 Extract of notes to the financial statements – interest disclosures
11.12.2.2.3.1 Note: Interest receivable and similar income
|
2015 |
2014 | |||||
| Bank interest receivable | 10000 | 5000 | ||||
| Interest on intra-group loans (see ii below) | 2000 | 0 | ||||
| Economic benefits provided on inter-group loan (see (i) below) | 200000 | 0 | ||||
| Interest income on other financial assets | 1000 | 1000 | ||||
| Total interest income on financial assets not measured at fair value through profit and loss i.e. on an amortised cost basis | 213000 | 6000 | ||||
| Fair value movement on financial liabilities/assets | XX | XXX | ||||
| Gain on derivative financial instruments | 1000 | 2000 | ||||
| Total interest receivable and similar income | 214000 | 4000 | ||||
|
i) On XX March 2015, the Company obtained a CU1,000,000 interest free loan from a fellow subsidiary company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition the Company recognised the loan for CU800,000. The difference between the nominal amount of the loan and the initial fair value is CU200,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as income upon initial recognition. NOTE THIS MAY NOT BE APPLICABLE TO ALL SUCH LOANS AS THE CREDIT WOULD GO AS A CREDIT TO CAPITAL CONTRIBUTION. EACH FACT AND CIRCUMSTANCE MUST BE REVIEWED. ii) In accordance with Section 11 as the Company received loans as detailed above at non market rates, the Company recognised these loans at their estimated fair value at the issuance date as detailed in note X. CUXXX was recognised as an interest charge reflecting the unwinding of the non-market rate loan. |
||||||
11.12.2.2.3.2 Note: Interest payable and similar expenses |
2015 | 2014 | ||||
| Interest payable on bank loans and overdrafts | 10000 | 5000 | ||||
| Preference share dividend | 2000 | 0 | ||||
| Finance lease interest | 1000 | 1000 | ||||
| Interest on inter-group loan (see (ii) below) | 10000 | 0 | ||||
| Economic benefits transferred on inter-group loan (see (i) below) | 200000 | 0 | ||||
| Total interest payable on financial assets not measured at fair value through profit and loss i.e. on an amortised cost basis | 223000 | 6000 | ||||
| Fair value movement on financial liabilities/assets | XX | XXX | ||||
| Loss on derivative financial instruments | 1000 | 2000 | ||||
| Total interest payable and similar expenses | 224000 | 4000 | ||||
| i) On XX March 2015, the Company advanced a CU1,000,000 interest free loan to a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for CU800,000. The difference between the nominal amount of the loan and the initial fair value is CU200,000. As this is not a financial asset, nor do the Company view this as a cost of an investment in a subsidiary this amount is recognised as an expense upon initial recognition. NOTE THIS MAY NOT BE APPLICABLE TO ALL LOANS AS THE DEBIT MAY GO AS A DISTRIBUTION IN EQUITY. EACH LOAN MUST BE LOOKED AT IN ORDER TO DETERMINE THE CORRECT ACCOUNTING OPTION. | ||||||
| ii) In accordance with Section 11 as the Company received loans as detailed above at non market rates, the Company recognised these loans at their estimated fair value at the issuance date as detailed in note X. CUXXX was recognised as an interest charge reflecting the unwinding of the non-market rate loan. | ||||||
11.12.2.2.4 – Debtors Disclosures
Extract of notes to the financial statements – debtors disclosures incorporating financial instrument requirements
| DEBTORS | ||
| 2015 | 2014 | |
| CU | CU | |
| Trade debtors | 1,022,788 | 1,083,813 |
| Other debtors | 279,008 | 57,864 |
| Amounts owed by group companies (see (i) below) | 790,000 | 0 |
| Prepayments | 20,795 | 12,710 |
| Directors’ Loans (see (ii) below) | 112,633 | 104,332 |
| VAT | 30,090 | 13,614 |
| 2,225,224 | 1,272,333 |
The fair values of trade and other receivables approximate to their carrying amounts. Trade debtors are stated after provisions for impairments of CU105,000 (2014: CU113,000).
Amounts owed by directors are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
THE BELOW IS APPLICABLE IF LOAN GIVEN TO A SISTER COMPANY AS A RESULT OF THE PARENT COMPANY REQUIRING IT TO PROVIDE THE LOAN AND IT DOES NOT PROVIDE SUBSTANTIAL BENENFIT TO THE COMPANY PROVIDING THE LOAN
(i) On XX March 2015, the Company provided a CU1,000,000 interest free loan to a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for CU700,000. The difference between the nominal amount of the load and the initial fair value is CU300,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as income upon initial recognition. Amount of CUXXX was recognised as interest income in the profit and loss account which represented the unwinding of the discount for the year.
OR IF THE LOAN WAS TO THE PARENT COMPANY FROM THE SUBSIDIARY
(I) On XXXX the Company provided a €XXXXX interest free loan to XXX Limited. Section 11 of FRS 102 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for €XXX. The difference between the nominal amount of the loans and the initial fair value is €XXXXX. As this is not a financial asset, nor do the Company view this as a cost of an investment, this amount is recognised as a distribution to equity to the Company’s parent XXX Limited upon initial recognition.
OR IF THE LOAN WAS TO THE SUBSIDIARY COMPANY FROM THE PARENT COMPANY
(I) On XXXX the Company provided a €XXXXX interest free loan to XXX Limited. Section 11 of FRS 102 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for €XXX. The difference between the nominal amount of the loans and the initial fair value is €XXXXX. In accordance with Section 11 of FRS 102 the substance of this agreement is akin to an investment in its subsidiary, therefore this difference of CUXXXX is recognised as an addition to its current investment in the Subsidiary upon initial recognition.
(ii) THE USUAL COMPANY LAW DISCLOSURES ARE REQUIRED HERE.
11.12.2.2.5 – Creditors disclosures
Extract of notes to the financial statements – creditors disclosures incorporating finan-cial instrument requirements
Creditors: amounts failing due within one year
| 2015 | 2014 | |
| CU | CU | |
| Trade creditors | 669,675 | 475,652 |
| Other creditors and accruals | 186,051 | 178,139 |
| Bank Loans and overdrafts | 1,066,950 | 2,064,128 |
| Amount due to group company (see (i) below) | 688,000 | 0 |
| Finance Lease | 31,198 | 39,933 |
| Derivative financial instruments | 3,000 | 2,000 |
| Corporation tax due | 280,351 | 64,812 |
| Other Taxation and Social Security | 25,665 | 26,245 |
| 2,953,746 | 2,850,909 |
THE BELOW NOTE IS INCLUDED IF THE LOAN WAS NOT FORCED TO BE PROVIDED BY THE PARENT COMPANY
(i) The company received loans totalling CU1,000,000 million at non market rates from a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for CU700,000. The difference between the nominal amount of the loan and the initial fair value is CU300,000. As this is not a financial liability, nor do the Company view this as a capital contribution from a sister company, this amount is recognised as income upon initial recognition.
OR WHERE THE ULTIMATE PARENT FORCED THE SISTER COMPANY TO PROVIDE THE FAVOURABLE LOAN THEN THE BELOW DISCLOSURE WOULD BE MADE.
(i) The company received loans totalling CU1,000,000 million at non market rates from a fellow sister company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument at the date of the transaction. Upon initial recognition, the Company recognised the loan for CU700,000. The difference between the nominal amount of the loan and the initial fair value is CU300,000. In accordance with Section 11 of FRS 102 the substance of this agreement is akin to a capital contribution from its parent company (as the parent has requested the sister company to provide the loan) and therefore recognised in equity. The movement on the loan in the year of CU6,285 (2015: CU5,980) represented the unwinding of the discount for the year and was recognised as an interest expense.
OR THE BELOW IF THE LOAN IS GIVEN BY ITS PARENT COMPANY
(i) The company received loans totalling CU150,000 at non market rates from its parent company in 2013 which are interest free and repayable on 31 December 2019. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loan issued by calculating the present value of all future cash payments discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for CU105,780. The difference between the nominal amount of the loan and the initial fair value was CU44,220. In accordance with Section 11 of FRS 102 the substance of this agreement is akin to a capital contribution from its parent company and therefore recognised in equity. The movement on the loan in the year of CU6,285 (2015: CU5,980) represented the unwinding of the discount for the year and was recognised as an interest expense.
OR THE BELOW IF THE LOAN IF RECEIVED BY A PARENT COMPANY FROM ITS SUBSIDIARY COMPANY
(j) The company received loans totalling CU1,000,000 million at non market rates from a subsidiary company. Section 11 requires that all Financial Assets and Liabilities are initially recognised at their fair value. The Company estimates the fair value of interest free loans issued by calculating the present value of all future cash receipts discounted using the prevailing rates of interest for a similar instrument. Upon initial recognition, the Company recognised the loan for CU700,000. The difference between the nominal amount of the loan and the initial fair value is CU300,000. As this is not a financial liability, the company views this as a distribution from its subsidiary, this amount is recognised as income upon initial recognition.
BORROWINGS
| Within 1 year | Between 1 & 2 years | Between 2 & 5 years | After 5 years | Total | ||
| CU | CU | CU | CU | CU | ||
| Repayable other than by instalments | ||||||
| Bank Overdrafts | 0 | 0 | 0 | 0 | 0 | |
| Repayable by instalments | ||||||
| Preference shares (see note x) | 0 | 0 | 0 | 0 | ||
| Term loan | 13,740 | 0 | 1,053,210 | – | 1,066,950 |
The bank facilities are secured by a debenture incorporating fixed and floating charges over the assets of the company and personal guarantees from the Directors. Set against the term loan is unamortised transaction fees of CU at the year end (2015:XX)
The facilities expiring within one year are annual facilities subject to review at various dates during 2015/2016. The rate of interest applied on these loans is 4%.
The loan outstanding within 2 to 5 years is repayable on 30 November 2015 and an interest rate of 5% is applied on this loan.
11.12.2.2.6 FINANCIAL ASSETS
| At fair value | At cost less impairment | Total | |
| CU | CU | CU | |
| Costs | |||
| At beginning of year | 200,000 | 100,000 | 300,000 |
| Additions in year | 30,000 | 30,000 | |
| Fair value adjustments | (20,000) | – | (20,000) |
| Disposals in year | – | (20,000) | (20,000) |
| At end of year | 180,000 | 110,000 | 290,000 |
| Amounts provided | |||
| At beginning of year | – | – | – |
| Movement | – | (10,000) | (10,000) |
| At end of year | – | (10,000) | (10,000) |
| Carrying amount | |||
| At 31 December 2015 | 180,000 | 100,000 | 280,000 |
The fair value of the listed investments at 31 December 2015 is CU180,000 (2014: CU200,000).
OR
The company owns 15% of an unlisted manufacturing company. This investment has been carried at fair value. Fair value has been determined through the use of a valuation model. This investment has been valued at 3.5 times the profit before tax with a further X% applied to this value to represent minority discount.
Other investments are not listed and are held at cost less impairment as fair value cannot be reliably measured.
11.12.2.2.7 Statement of Comprehensive Income
| Profit for the financial year | 1,000,000 | 500,000 |
| Exchange differences on retranslation of foreign operations | XXX | XXX |
| Cash flow hedges | ||
| – effective portion of changes in fair value to cash flow hedges | 9 XXX | XXX |
| – fair value of cash flow hedges transferred to income statement | 10 XXX | XXX |
| Actuarial loss in respect of the defined pension scheme | 11 (XXX) | (XXX) |
| Gain/(loss) on revaluation of intangible assets | 12 XXX | (XXX) |
| Gain/(loss) on revaluation of property, plant and equipment | 13 XXX | (XXX) |
| Gain/(loss) on revaluation of subsidiaries, associates, etc. | 14 XXX | (XXX) |
| Deferred tax on components of other comprehensive income | 15 XXX | XXX |
| Total other comprehensive income for the year net of tax | 200,000 | (100,000) |
| Total comprehensive income for the year | 1,200,000 | 400,000 |
11.12.2.2.8 – Statement of Change in Equity
Extract from the Changes in Equity showing the movement on the cash flow hedge reserve in line with Section 12 disclosure requirements
| Called up Share Capital |
Other Reserves |
Capital Contribution |
Profit and Loss Account | Cash flow hedge Reserve |
Total Equity |
|
| CU | CU | CU | CU | CU | CU | |
| Balance at 1 January 2014 | 100,000 | 115,375 | 115,375 | 1,000 | 441,375 | |
| Distribution (see note (i)) | – | (XXXX) | – | – | – | (XXXX) |
| Transfers | – | XX | (XXX) | (XX) | – | – |
| Profit for the year | – | 10,000 | – | 83,818 | – | 93,818 |
| Balance at 31 December 2014 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 535,193 |
| Balance at 1 January 2015 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 535,193 |
| Equity Shares issued net of issue costs | 20,000 | – | – | – | – | 30,000 |
| Profit for the year | – | – | – | 1,005,772 | – | 1,005,772 |
| Equity dividends paid (see note XX) | – | – | – | (10,000) | – | (10,000) |
| Transfers | – | XX | (XXX) | (XX) | – | – |
| Capitalisation of shares | – | – | 1,000 | (1,000) | – | – |
| Other Comprehensive Income | – | – | – | – | (15,000) | (15,000) |
| Balance at 31 December 2015 | 109,000 | 225,000 | (14,000) | 1,214,965 | (15,000) | 1,554,965 |
Cash flow hedge reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred since XXXXX.
Capital Contribution
The capital contribution arose as a result of loans advanced by the parent company at non-market rates and represents the difference between the present value of the future cashflows discounted at the market rate of interest for a similar instrument and the amount of the loan received. The reclassification of CUXXX (2015: CUXX) between the profit and loss reserve and the capital contribution represents the unwinding of the discount on the non-market rate loan in the current year for the deemed interest for the period. Refer to note XX for further details.
Other reserves
Other reserves relates to the difference between the nominal value of the loan issued to XXX Limited and its updated fair value as outlined more fully in note X (reference to the debtors note here). The movement in the reserve in the year relates to the reclassification of the interest income recognised on the effective interest rate basis in profit and loss account from to move this from profit and loss account to other reserves as the other reserve is utilised. The reclassification of €XXX between the profit and loss reserve and the other reserve represents the unwinding of the discount on the non-market rate loan in the current year for the deemed interest for the period. Refer to note (debtors note) for further details.
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Examples
Example 1: Investment in shares.
Example 2: Investment in shares – 15%.
Example 3: variable and fixed interest payments.
Example 5: Fixed and variable interest payments.
Example 6: Fixed rate loan for a set period and then a reversion to the banks variable rate.
Example 8: Loan/bond which is convertible into the borrower’s equity.
Example 9: Loan issued which is linked to a general inflation index.
Example 10: Variation in return.
Example 11: Prepayment options.
Example 12: Loan extension option.
Example 12a: Unguaranteed Capital
Example 12b: Collective investment funds.
Example 13: loan at market rates with transaction costs.
Example 13a: Change in estimate.
Example 14: Intercompany loan from a parent company.
Example 15: Loan provided to the company by a director
Example 16a: Intercompany loan from a related party or a fellow subsidiary.
Example 16b: Loan from subsidiary to the parent company.
Example 16c: Sale with unusual credit terms.
Example 16d: Purchase with unusual credit terms.
Example 17a: Loans repayable on demand..
Example 17b: Loan repayable on demand but with notice of 1 year and 1 day.
Example 18: Bonds – discount/premium.
Example 20: Impairment of debt instruments.
Example 20a: Bonds with an impairment
Example 21: Asset recognised due to settlement
Example 22: Sale of debtors with recourse.
Example 23: Sale of debtors without recourse.
Example 24: Transfer of assets at fair value subject to a call option.
Example 25: Substantial modification of a loan.
Example 26: Sample disclosure requirements
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