ACCOUNTING MEASUREMENTS Under IFRS

ACCOUNTING MEASUREMENTS Under IFRS, all business combinations are treated as purchases. Goodwill is the difference between the fair value of the consideration given and the fair value of the subsidiary’s assets, liabilities, and contingent liabilities. Goodwill is tested annually for impairment. Negative goodwill should be immediately recognized in income. Jointly controlled entities may be accounted for either by proportional consolidation (preferred) or the equity method. Investments in associates are accounted for by the equity method. An associate is an entity in which the investor has significant influence, but which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not to control those policies. It is presumed to exist when the investor holds at least 20 percent of the investee’s voting power and not to exist when less than 20 percent is held; these presumptions may be reb tted if there is clear evidence to the contrary.

Translation of the financial statements of foreign operations is based on the functional currency concept. The functional currency is the currency of the primary economic environment in which the foreign entity operates. It can be either the same currency that the parent uses to present its financial statements or a different, foreign currency. (a) If the foreign entity has a functional currency different from the reporting currency of the parent, the financial statements are translated using the current rate method with the resulting translation adjustment included in stockholders’ equity. (Under the current rate method, assets and liabilities are translated at the year-end, or current, exchange rate; revenues and expenses are translated at the transaction rates [or, in practice, the average rate].) If the foreign entity has the same functional currency as the reporting
currency of the parent, financial statements are translated as follows:

1. Year-end rate for monetary items
2. Transaction-date exchange rates for nonmonetary items carried at historical cost
3. Valuation-date exchange rates for nonmonetary items carried at fair value

Translation adjustments are included in current period income.If a foreign entity has the functional currency of a hyperinflationary economy, its financial statements are first restated for the effects of inflation, then translated using the current rate method described above. Assets are valued at either historical cost or fair value. If the fair value method is used, revaluations must be carried out regularly and all items of a given class must be revalued. Revaluation increases are credited to equity. Depreciation is charged systematically over the asset’s useful life, reflecting the pattern of benefit consumption. Research costs are charged to expense when incurred. Development costs are capitalized after the technical and commercial feasibility of the resulting product or service has been established. Inventories are valued at the lower of cost or net realizable value. FIFO and weighted average are acceptable cost bases under IFRS, but LIFO is not. Finance leases are capitalized and a ortized, while operating leases are expensed on a systematic basis, usually expensing the lease payments on a straight-line basis.

The cost of providing employee benefits is recognized in the period in which the benefit is earned by the employee rather than when it is paid or payable. Provisions are liabilities of uncertain timing or amount. They are recognized when a past event has created a legal or constructive obligation, an outflow of resources is probable, and the amount of the obligation can be estimated reliably. Contingent liabilities are a possible obligation, an obligation that will probably not require an outflow of resources, or an obligation that cannot be reliably estimated. They are not recognized as liabilities, but are instead disclosed in the notes.5 Contingent assets are also not recognized. Deferred taxes are provided in full, using the liability method, for temporary differences between the carrying amount of an asset or liability and its tax base. Deferred tax assets and liabilities should be measured at the tax rates that are expected to apply when the asset is realized or the liability is sett ed. They are not discounted.