with guidance notes
IFRS Example
Consolidated Financial
Statements 2021
Global
Assurance
IFRS
Important Disclaimer:
This document has been developed as an information resource. It is intended as a guide only and the application of its contents to specific situations will depend on the particular circumstances
involved. While every care is taken in its presentation, personnel who use this document to assist in evaluating compliance with International Financial Reporting Standards should have sufficient
training and experience to do so. No person should act specifically on the basis of the material contained herein without considering and taking professional advice.
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Contents
Introduction 1
IFRS Example Consolidated Financial 4
Statements
Consolidated statement of profit or loss 5
Consolidated statement of comprehensive income 7
Consolidated statement of financial position 8
Consolidated statement of changes in equity 10
Consolidated statement of cash flows 11
Notes to the IFRS Example Consolidated 12
Financial Statements
Nature of operations
General information, statement of compliance
with IFRS and going concern assumption
New or revised Standards or Interpretations
Significant accounting policies
Acquisitions and disposals
Interests in subsidiaries
Investments accounted for using the
equity method
Revenue
Segment reporting
Goodwill
Other intangible assets
Property, plant and equipment
Leases
Investment property
Financial assets and liabilities
Deferred tax assets and liabilities
Inventories
Trade and other receivables
Cash and cash equivalents
Disposal groups classified as held for sale and
discontinued operations
Equity
Employee remuneration
Provisions
Trade and other payables
Contract and other liabilities
Reconciliation of liabilities arising from
financing activities
Finance costs and finance income
Other financial items
Tax expense
Earnings per share and dividends
Non-cash adjustments and changes in
working capital
Related party transactions
Contingent liabilities
Financial instruments risk
Fair value measurement
Capital management policies and procedures
Events after the reporting date
Authorisation of financial statements
Appendices to the IFRS Example Consolidated 105
Financial Statements
Appendix A: Organising the statement of profit 106
or loss by function of expenses
Appendix B: Statement of comprehensive income 108
presented in a single statement
Appendix C: Effective dates of new IFRS Standards 110
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements
IFRS Example Consolidated Financial Statements 2021
The preparation of financial statements in accordance
with International Financial Reporting Standards (‘IFRS’) is
challenging. Each year, new Standards and amendments
are published by the International Accounting Standards
Board (‘IASB’) with the potential to significantly impact the
presentation of a complete set of financial statements.
The member firms of Grant Thornton International Ltd
(‘GTIL’) have extensive expertise in the application of IFRS.
GTIL, through its IFRS Team, develops general guidance
that supports its member firms’ commitment to high quality,
consistent application of IFRS and is therefore pleased to
share our insights by publishing ‘IFRS Example Consolidated
Financial Statements ’ (‘Example Financial Statements’).
These Example Financial Statements are based on the activities
and results of Illustrative Corporation and its subsidiaries (‘the
Group’) – a fictional consulting, service and retail entity that
has been preparing IFRS consolidated financial statements for
several years. The form and content of IFRS financial statements
will always depend on the activities and transactions of the
reporting entity. Our objective in preparing these Example
Financial Statements is to illustrate one possible approach to
financial reporting by an entity engaging in transactions that
are typical across a range of non-specialist sectors. However,
as with any publication of this type, these example financial
statements cannot envisage every possible transaction and
therefore cannot be regarded as comprehensive. Management
as defined by the IASB, is ultimately responsible for the fair
presentation of financial statements and therefore they
may find other approaches more appropriate for its specific
circumstances.
These Example Financial Statements have been updated to
reflect changes in IFRS that are effective for the year ending
December . No account has been taken of any new
developments after October .
Introduction
About us
We’re a network of independent assurance, tax and
advisory firms, made up of ,+ people in
countries. For more than years, we have helped
dynamic organisations realise their strategic ambitions.
Whether you’re looking to finance growth, manage
risk and regulation, optimise your operations or realise
stakeholder value, we can help you.
We’ve got scale, combined with local market understanding.
That means we’re everywhere you are, as well as where
you want to be.
Telling the COVID Story
Reporting the impact of COVID- global pandemic in the
financial statements will, for many reporting entities, still
be a challenge. Preparers of financial statements will need
to think about how, where and in what form they should
report COVID- in their financial statements in light of
IFRS as they currently exist. We believe it is important to
not only comply with the guidance set out in IFRS, but
also ensure the financial statements are an effective part
of any wider communication the entity intends to share
with its stakeholders. COVID- was the main focus of
the financial statements for reporting entities in ,
be it positive or negative, and has continued to remain
prominent this year, so financial statements with an
annual reporting date in should be prepared with
this in mind.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements
Using the Example Financial Statements
The Appendices illustrate an alternative presentation of the
statement of profit or loss and the statement of comprehensive
income and contain an overview of effective dates of
new Standards.
For guidance on the Standards and Interpretations applied,
reference is made to IFRS sources throughout the Example
Financial Statements on the left-hand side of each page.
The Example Financial Statements do not address any
jurisdictional or regulatory requirements in areas such as
management commentary, remuneration reporting or audit
reporting. They also do not take into account any specific
economic situations around the world. They do however provide
commentary around COVID- given this has been a global
pandemic impacting virtually every reporting entity that exists.
Most importantly, these Example Financial Statements
should not be used as a disclosure checklist as facts and
circumstances vary between entities and each entity should
assess individually what information needs to be disclosed in
its financial statements.
IFRS Taxonomy
The IFRS taxonomy reflects the presentation and disclosure
requirements of the IFRS Standards issued by the IASB. It
improves communication between prepares and users of IFRS
financial statements by enabling preparers to tag required
disclosures making them easily accessible when viewing
financial statements electronically. The IASB usually publishes
the annual IFRS taxonomy in the first quarter of each year.
Climate-related matters and financial reporting
There is an increasing interest in the impact of climate change
on an entity’s financial position, financial performance and
cashflows as well as their business strategies for this. In
November , the IASB released educational material on
the effects of climate related matters on financial statements
prepared applying IFRS Standards. It does not change
existing IFRS requirements, it simply highlights how existing
requirements require entities to consider climate-related
matters when the impact to the financial statements is material.
Grant Thornton International Ltd
November 2021
Most importantly, these
Example Financial Statements
should not be used as a
disclosure checklist as
facts and circumstances
vary between entities and
each entity should assess
individually what information
needs to be disclosed in its
financial statements.’
‘
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements
Telling the COVID Story
Disclosures outside financial statements
The financial statements are just one part of a reporting
entity’s communication with stakeholders. Depending on
jurisdictional requirements, an annual report typically
includes the financial statements, a management
commentary and information about governance, strategy
and business developments (often including corporate and
social responsibility). It is important the annual report is
considered holistically to ensure it delivers a consistent and
coherent message about COVID- to investors and other
stakeholders (‘users’).
IAS ‘Presentation of Financial Statements’ acknowledges
an entity may present, outside the financial statements,
a financial review that describes and explains the main
features of the organisation’s financial performance
(including cashflows) and financial position, both locally and
internationally. Reports and statements presented outside
financial statements are outside the scope of IFRS.
Even though reports and statements outside financial
statements are excluded from the scope of IFRS, they are
not outside of scope of domestic regulation. If users are told
what they need to know in a well-constructed and logical
manner, it is highly likely the reporting entity will have
done a great deal to comply and satisfy local regulatory
requirements. In certain jurisdictions there may be certain
reconciliations required between alternative performance
measures (APMs) and IFRS.
Remember it is always important to make sure certain
required information is placed either in the primary
financial statements or in the notes to the financial
statements. Particular attention should be given to
making sure any disclosures placed outside the financial
statements are not required by IFRS to be included within
the financial statements.
When reporting on the economic consequences of the
pandemic on the reporting entity a key factor is considering
whether the message is communicated in a consistent and
coherent way. It should always align with any narrative
contained elsewhere in the annual report.
Our view when drafting content for the annual report and
the financial statements, is that preparers should question:
• what is important to the business and what are its main
objectives?
• are these objectives consistent throughout the annual
report?
• is the right level of emphasis being placed on disclosures
relating to COVID-?
• are the messages about the impact of COVID-
consistent?
• is the disclosure sufficient for the reader to be able to
understand the impact of COVID- on the entity and
assist them in making economic decisions?
• are the financial statements using the same terminology
between the financial statements, management
commentary and any APMs that are being referred
to? For example, if the statement of financial position
is referred to as the balance sheet, is reference to the
balance sheet made consistently throughout the report –
rather than switching between the two titles for the same
primary financial statement?
• where the annual report includes alternative performance
measures (APMs), have they all been properly reconciled
to IFRS-based amounts included in the financial
statements?
• if any changes have been made to assumptions in light
of the pandemic since the entity last reported or if any
new assumptions have been made, has a full explanation
of these changes and their impact on the financial
statements been disclosed?
For more information, please refer to our article on
COVID : Alternative performance measures.
IFRS Example Consolidated
Financial Statements
Illustrative Corporation Group
31 December 2021
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of
profit or loss
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
Telling the COVID Story
An entity should present additional line items when it is
relevant to an understanding of the entity’s financial position,
financial performance or its cash flows. While an entity is
allowed to add lines into its primary financial statements
in respect of COVID-, it is important to ensure COVID-
related matters are not given undue prominence and
therefore we would discourage this approach. In our view, it
would not be appropriate to add columns that exclude the
impact of COVID- in the financial statements.
In respect of the above view, IAS requirements would not
allow such a presentation. It states that total comprehensive
income comprises all of ‘profit or loss’ and of ‘other
comprehensive income’. These are defined as:
• ‘the total of income less expenses, excluding the
components of other comprehensive income’ for profit
or loss, and
• ‘items of income and expense (including reclassification
adjustments) that are not recognised in profit or
loss as required or permitted by other IFRS’ for other
comprehensive income.
In other words, due to the above IAS requirements, it would
not be appropriate to present some selected items of revenue
and expenses as non-recurring or unusual, and they should
never be described as extraordinary. When preparing
financial statements bear in mind that an unusual or new
type of transaction is more likely to be material than a
routine or regularly occurring transaction of the same size.
IAS . provides some examples of items considered
‘unusual’ that could warrant disclosure that may otherwise
fall below materiality thresholds, and some these could be
relevant when reporting on the consequences of COVID-:
• write-downs of inventories to net realisable value or of
property, plant and equipment to recoverable amount,
as well as reversals of such write-downs
• restructurings of the activities of an entity and reversals
of any provisions for the costs of these restructurings
• disposals of items of property, plant and equipment
• disposals of investments
• discontinued operations
• litigation settlements, and
• other reversals of provisions.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of
profit or loss
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
Guidance note
IAS 1 permits an entity to present a statement of profit
or loss and comprehensive income as:
• a single statement with profit or loss and other
comprehensive income presented in two sections, or
• two statements: a separate statement of profit
or loss and a separate statement of other
comprehensive income. If so, the separate
statement of profit or loss shall immediately
precede the statement presenting other
comprehensive income, which shall begin with profit
or loss (IAS 1.10A).
These Example Financial Statements illustrate a
statement of profit or loss and other comprehensive
income in two statements. A single statement
presentation is shown in Appendix B.
This statement of profit or loss illustrates an example
of the ‘nature of expense’ method. See Appendix A for
a format illustrating the ‘function of expense’ or ‘cost
of sales’ method.
There may be situations where additional line items,
headings and subtotals need to be included. IAS 1.85
requires an entity to present such additional items
(including the disaggregation of the line items listed
in IAS 1.82) in the statements of profit or loss and other
comprehensive income when such presentation is
relevant to an understanding of the entity’s financial
performance.
IAS 1.85A requires any additional subtotals presented
to be:
• comprised of line items made up of amounts
recognised and measured in accordance with IFRS
• presented and labelled in a manner that makes
the line items that constitute the subtotal clear and
understandable
• consistent from period to period
• no more prominent than the subtotals and totals
required in IFRS for the statement(s) presenting
profit or loss and other comprehensive income.
This statement of profit or loss presents an operating
profit subtotal, which is commonly seen but is not
required or defined in IFRS. Where this subtotal is
provided, the figure disclosed should include items
that would normally be considered to be operating.
It is inappropriate to exclude items clearly related
to operations (eg inventory write-downs and
restructuring and relocation expenses) on the basis
they do not occur regularly or are unusual in amount
(IAS 1.BC56).
This statement of profit or loss includes an amount
representing the entity’s share of profit from equity
accounted investments (after tax and, if applicable,
non-controlling interest).
IAS 1.51(c)
IAS 1.51(d-e)
Notes 2021 2020
IAS 1.82(a) Revenue 8, 9 205,793 191,228
IAS 1.85 Other income 299 708
IAS 1.85 Changes in inventories (7,923) (6,815)
IAS 1.85 Costs of material (42,535) (39,420)
IAS 1.85 Employee benefits expense 22 (113,809) (109,515)
IAS 1.85 Change in fair value of investment property 14 310 175
IAS 1.85 Depreciation, amortisation and impairment
of non-financial assets
(10,093) (8,881)
IAS 1.82(ba) Impairment losses of financial assets 34.2 (212) (228)
IAS 1.85 Other expenses (8,598) (8,943)
Operating profit 23,232 18,309
IAS 1.82(c) Share of profit from equity accounted
investments
7 391 141
IAS 1.82(b) Finance costs 27 (3,869) (3,993)
IAS 1.85 Finance income 27 964 885
IAS 1.85 Other financial items 28 ,943 1,182
Profit before tax 21,661 16,524
IAS 1.82(d) Tax expense 29 (6,794) (4,888)
Profit for the year from continuing
operations
14,867 11,636
IAS 1.82(ea) Loss for the year from discontinued operations 20 (9) (325)
IAS 1.81A(a) Profit for the year 14,858 11,311
Profit for the year attributable to:
IAS 1.81B(a)(i) Non-controlling interest 121 116
IAS 1.81B(a)(ii) Owners of the parent 14,737 11,195
14,858 11,311
Notes 2021 2020
Earnings per share 30
IAS 33.67A Basic earnings (loss) per share
IAS 33.66 – From continuing operations 1.19 0.93
IAS 33.68A – From discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
IAS 33.67A Diluted earnings (loss) per share
IAS 33.66 – From continuing operations 1.19 0.93
IAS 33.68A – From discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement
of comprehensive income
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
Guidance note
IAS 1 requires the entity to disclose reclassification
adjustments (amounts previously recognised in other
comprehensive income that are reclassified to
profit or loss) and related tax effects (IAS 1.90–1.92).
These Example Financial Statements present
reclassification adjustments and current year gains
and losses relating to other comprehensive income
in the statement of comprehensive income. An entity
may instead present reclassification adjustments
in the notes, in which case the components of other
comprehensive income are presented after any related
reclassification adjustments (IAS 1.94).
IAS 1.82A requires an entity to present line items of
other comprehensive income for the period, classified
by nature and grouped into those that (in accordance
with other IFRS):
• will not be reclassified subsequently to profit or loss,
and
• will be reclassified subsequently to profit or loss
when specific conditions are met.
IAS 1.82A requires the share of the other comprehensive
income of associates and joint ventures accounted
for using the equity method to be classified and
presented in the same way.
IAS 1.90 permits a choice for disclosure of the amount
of income tax relating to each component of other
comprehensive income. In this example the entity
presents components of other comprehensive income
before tax with one amount shown for the aggregate
amount of income tax relating to all components
of other comprehensive income (IAS 1.91(b)). When
an entity selects this alternative, it must allocate
the tax between the items that might be reclassified
subsequently to the profit or loss section and those
that will not be reclassified subsequently to the profit
or loss section.
Alternatively, an entity may present each component
of other comprehensive income net of related tax
effects (IAS 1.91(a)).
If the tax effect of each component of other
comprehensive income is not presented in the
statement of profit or loss and other comprehensive
income, it is presented in the notes (IAS 1.90 – see
Note 21.3).
IAS 1.51(c)
IAS 1.51(d-e)
Notes 2021 2020
IAS 1.81A(a) Profit for the year 14,858 11,311
Other comprehensive income:
IAS 1.82A(a)(i) Items that will not be reclassified subsequently to profit or loss
IAS 16.77(f) Revaluation of land 12 303 –
IAS 19.120(c) Remeasurement of net defined benefit liability 22 3,830 (3,541)
IAS 1.90
IAS 1.91(b)
Income tax relating to items not reclassified 21.3 (1,240) 1,062
IAS 1.82A(a)(ii) Items that will be reclassified subsequently to profit or loss
Cash flow hedging
IFRS 7.24C(b)
(i)
– current year gains (losses) 21.3 890 540
IAS 1.92
IFRS 7.24C(b)
(iv)
– reclassification to profit or loss 21.3 (640) (712)
IAS 21.52(b) Exchange differences on translating foreign
operations
(664) (341)
IAS 1.82A(b) Share of other comprehensive income of equity
accounted investments
7 5 –
IAS 1.92 – reclassification to profit or loss (3) –
IAS 1.90
IAS 1.91(b)
Income tax relating to items that will be
reclassified
21.3 176 95
IAS 1.81A(b) Other comprehensive income for the year,
net of tax
2,657 (2,897)
IAS 1.81A(c) Total comprehensive income for the year 17,515 8,414
Total comprehensive income for the year attributable to:
IAS 1.81B(b)(i) Non-controlling interest 121 116
IAS 1.81B(b)(ii) Owners of the parent 17,394 8,298
17,515 8,414
Consolidated statement
of financial position
as at 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
Guidance note:
These Example Financial Statements use the
terminology in IAS 1. However, an entity is permitted
to use other titles (eg ‘balance sheet’ instead of
‘statement of financial position’) for the statements
identified in IAS 1 (IAS 1.10).
IAS 1.38A requires an entity to present, at a minimum,
two statements of financial position, two statements
of profit or loss and other comprehensive income, two
statements of cash flows, two statements of changes
in equity, and related notes. These statements and
related notes should be prepared for the current
period and prior period.
In addition, IAS 1.10(f) and IAS 1.40A require an entity
to present a third statement of financial position as at
the beginning of the preceding period if:
• it applies an accounting policy retrospectively,
makes a retrospective restatement of items in its
financial statements or reclassifies items in the
financial statements, and
• the retrospective application, retrospective
restatement or the reclassification has a material
effect on the information in the statement of
financial position at the beginning of the
preceding period.
An entity can also elect to include additional
comparative information (such as a third statement
of financial position) as long as that information is
prepared in accordance with IFRS (IAS 1.38C). When
the additional comparative information includes one
or more of the statements identified in IAS 1.10, an
entity must also present related note information.
In contrast, IAS 1.40C states an entity that is required
to present a third statement of financial position at the
beginning of the preceding period does not need to
present the related notes for that statement.
In the prior year, Illustrative Corporation Group
adopted IFRS 16 and elected to apply the modified
retrospective approach for this Standard. Accordingly,
the Group did not restate its comparatives for previous
periods and as a result presentation of a third
statement of financial position was not required.
The consolidated statement of financial position
reflects the separate classification of current and
non-current assets and liabilities. When presentation
based on liquidity is reliable and more relevant, the
entity instead presents assets and liabilities in order
of liquidity (IAS 1.60). Regardless of which method is
used, the entity shall disclose the amount expected to
be recovered or settled after more than twelve months
for each asset and liability line item that combines
amounts expected to be recovered or settled within
and after more than twelve months (IAS 1.61).
IAS 1.51(c)
IAS 1.51(d-e)
Notes 31 Dec
2021
31 Dec
2020
Assets
IAS 1.60
IAS 1.66-67
Non-current
IAS 1.55 Goodwill 10 5,041 3,537
IAS 1.54(c) Other intangible assets 11 17,424 13,841
IAS 1.54(a) Property, plant and equipment 12 18,606 16,194
Right-of-use assets 13 29,534 32,205
IAS 1.54(e) Investments accounted for using
the equity method
7 860 467
IAS 1.54(b)
IFRS 16.48
Investment property 14 12,662 12,277
IAS 1.55 Other long-term assets 8 185 160
IAS 1.54(d) Other long-term financial assets 15.1 4,051 4,137
IAS 1.54(o)
IAS 1.56
Deferred tax assets
16 – 905
Non-current assets 88,363 83,723
IAS 1.60
IAS 1.66
Current
IFRS 5.38
IAS 1.54(j)
Assets included in disposal group
classified as held for sale
20 103 3,908
IAS 1.54(g) Inventories 17 18,298 17,226
IAS 1.55
Prepayments and other
short-term assets
8 406 422
IAS 1.54(h) Trade and other receivables 18 32,720 24,824
IAS 1.54(d)
IAS 1.55
Derivative financial instruments
15.4
15.1
716 442
IAS 1.54(d) Other short-term financial assets 15.1 655 649
IAS 1.54(i) Cash and cash equivalents 19 34,729 11,197
Current assets 87,627 58,668
IAS 1.55 Total assets 175,990 142,391
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement
of financial position
as at 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
IAS 1.51(c)
IAS 1.51(d-e)
Notes 31 Dec
2021
31 Dec
2020
Equity and liabilities
Equity
Equity attributable to owners of the parent
IAS 1.54(r) Share capital 21 13,770 12,000
IAS 1.78(e) Share premium 19,645 3,050
IAS 1.78(e) Other components of equity 21 2,265 (392)
IAS 1.54(r) Retained earnings 49,076 37,041
Equity attributable to owners of the parent 84,756 51,699
IAS 1.54(q) Non-controlling interest 713 592
IAS 1.55 Total equity 85,469 52,291
Liabilities
IAS 1.60
IAS 1.69
Non-current
IAS 1.55 Pension and other employee obligations 22.3 10,386 13,642
IAS 1.54(m) Borrowings 15.5 21,070 21,265
IFRS 16.47(b) Lease liabilities 13 31,194 33,003
IAS 1.54(o)
IAS 1.56
Deferred tax liabilities 16 1,903 –
IAS 1.55 Other liabilities 25 620 –
Non-current liabilities 65,173 67,910
IAS 1.60
IAS 1.69
Current
IFRS 5.38
IAS 1.54(p)
Liabilities included in disposal
group classified as held for sale
20 – 449
IAS 1.54(l) Provisions 23 1,215 3,345
IAS 1.55 Pension and other employee obligations
22.3 1,467 1,496
IAS 1.54(m) Borrowings 15.5 4,815 3,379
IFRS 16.47(b) Lease liabilities 13 2,522 2,506
IAS 1.54(k) Trade and other payables 24 8,497 6,550
IAS 1.54(n) Current tax liabilities 4,174 930
IAS 1.54(m) Derivative financial instruments 15.4 – 160
IAS 1.55 Contract and other liabilities 25 2,658 3,375
Current liabilities 25,348 22,190
IAS 1.55 Total liabilities 90,521 90,100
IAS 1.55 Total equity and liabilities 175,990 142,391
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of
changes in equity
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
Guidance note
IAS 1.106 provides a list of items to be presented in the statement of changes in equity. An entity may present the required reconciliations for each component of other comprehensive income either in:
• the statement of changes in equity or
• the notes to the financial statements (IAS 1.106A).
The Example Financial Statements present the reconciliations for each component of other comprehensive income in the notes to the financial statements (see Note 21.3). This reduces
duplicated disclosures and allows the overall changes in equity to be presented more clearly in the statement of changes in equity.
IFRS 2 ‘Share-based Payment’ requires an entity to recognise equity-settled share-based payment transactions as changes in equity but does not specify how this is presented, that is, in
a separate reserve within equity or within retained earnings. In our view, either approach is allowed under IFRS (although this may be subject to local regulations in some jurisdictions). In
these Example Financial Statements, the changes in equity are credited to retained earnings.
IAS 1.51(c)
IAS 1.51(d-e)
Notes Share
capital
Share
premium
Other
components
of equity
Retained
earnings
Total
attributable
to owners of
parent
Non-
controlling
interest
Total
equity
IAS 1.106(d) Balance at 1 January 2021 12,000 3,050 (392) 37,041 51,699 592 52,291
Dividends 30 – – – (3,000) (3,000) – (3,000)
Issue of share capital on exercise of
employee share options
22.2 270 1,415 – – 1,685 – 1,685
Employee share-based
compensation
22.2 – – – 298 298 – 298
Issue of share capital on private
placement
21 1,500 15,180 – – 16,680 – 16,680
IAS 1.106(d)(iii) Transactions with owners 1,770 16,595 – (2,702) 15,663 – 15,663
IAS 1.106(d)(i) Profit for the year – – – 14,737 14,737 121 14,858
IAS 1.106(d)(ii)
IAS 1.106A
Other comprehensive income 21.3 – – 2,657 – 2,657 – 2,657
IAS 1.106(a)
Total comprehensive income for
the year
– – 2,657 14,737 17,394 121 17,515
Balance at 31 December 2021 13,770 19,645 2,265 49,076 84,756 713 85,469
IAS 1.106(d) Balance at 1 January 2020 12,000 3,050 2,505 25,380 42,935 476 43,411
Employee share-based
compensation
22.2 – – – 466 466 – 466
IAS 1.106(d)(iii) Transactions with owners – – – 466 466 – 466
IAS 1.106(d)(i) Profit for the year – – – 11,195 11,195 116 11,311
IAS 1.106(d)(ii)
IAS 1.106A
Other comprehensive income 21.3 – – (2,897) – (2,897) – (2,897)
IAS 1.106(a)
Total comprehensive income for
the year
– – (2,897) 11,195 8,298 116 8,414
Balance at 31 December 2020 12,000 3,050 (392) 37,041 51,699 592 52,291
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement
of cash flows
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units, except per share amounts)
IAS 1.51(c)
IAS 1.51(d-e)
Notes 2021 2020
IAS 7.10 Operating activities
Profit before tax 21,661 16,524
Non-cash adjustments 31 11,942 12,352
Contributions to defined benefit plans (1,186) (1,273)
Net changes in working capital 31 (11,891) 4,189
Settling of derivative financial instruments (33) 716
IAS 7.35 Taxes reclaimed (paid) 6,149 (7,229)
Net cash from continuing operations 26,642 25,279
IFRS 5.33(c) Net cash from (used in) discontinued operations 20 (22) 811
Net cash from operating activities 26,620 26,090
IAS 7.10 Investing activities
Purchase of property, plant and equipment (76) (3,281)
Proceeds from disposal of property, plant and equipment 86 –
Purchase of other intangible assets (3,746) (4,459)
Proceeds from disposal of other intangible assets 809 –
Acquisition of subsidiaries, net of cash acquired 5 (15,491) (12,075)
IAS 7.39
Proceeds from sale of subsidiaries, net of
cash sold
6.3 3,117 –
Proceeds from disposal and redemption of
non-derivative financial assets
228 73
IAS 7.31 Interest received 745 447
IAS 7.31 Dividends received 27 69 21
IAS 7.35 Taxes paid (244) (140)
Net cash used in investing activities (14,503) (19,414)
IAS 7.10 Financing activities
Proceeds from borrowings 26 1,441 –
Repayment of borrowings and leasing liabilities 26 (2,093) (2,147)
Proceeds from issue of share capital 18,365 –
IAS 7.31 Interest paid (3,380) (3,340)
IAS 7.31 Dividends paid 30 (3,000) –
Net cash from (used in) financing activities 11,333 (5,487)
IAS 7.45 Net change in cash and cash equivalents 23,450 1,189
Cash and cash equivalents, beginning of year 11,219 9,987
IAS 7.28 Exchange differences on cash and cash equivalents 60 43
Cash and cash equivalents, end of year 34,729 11,219
Cash and cash equivalents included in
disposal group
20 – (22)
IAS 7.45
Cash and cash equivalents for continuing
operations
19 34,729 11,19 7
Guidance note
IAS 7.18 allows an entity to prepare their cash flow
statement using either the direct method or the
indirect method. While IAS 7.19 encourages the use
of the direct method, practice varies, and an entity
might find it easier to apply the indirect method.
These Example Financial Statements present a cash
flow statement using the indirect method whereby
profit or loss is adjusted for the effects of transactions
of a non-cash nature, any deferrals or accruals of
past or future operating cash receipts or payments,
and items of income or expense associated with
investing or financing cash flows. If the direct method
was applied, an entity would disclose major classes
of gross cash receipts and gross cash payments.
Notes to the IFRS Example
Consolidated Financial
Statements
Illustrative Corporation Group
For the year ended 31 December 2021
(expressed in thousands of Euroland currency units,
except per share amounts)
Guidance note
IAS sets out the basic principles governing the form and content of financial statements and related notes. The notes
shall be presented in a systematic manner, and disclose information about the specific accounting policies used, the basis
of preparation of the financial statements, and any other information either required by other IFRS, or necessary to the
understanding of the statements (IAS . and IAS .).
An entity applies materiality when preparing the financial statements, and there is no need to disclose immaterial information
even when it is explicitly required by an IFRS (IAS .). An entity should apply judgement when determining the best way to
present the notes to the financial statements and should consider how decisions made will impact the understandability and
comparability of the financial statements (IAS .).
For convenience, these Example Financial Statements generally follow the order suggested by IAS .(c) although we
encourage an entity to consider alternatives that may enhance the understandability of the financial statements to readers.
For example, in recent years there has been a growing trend towards integrating information about accounting policies and
significant judgements and estimates with the related notes.
While a traditional narrative format has been adopted for use in these Example Financial Statements, an entity should consider
whether alternative presentation formats (such as presenting the information in a table) would enhance readers’ understanding.
Telling the COVID Story
For the purposes of these Example Financial Statements, commentary has been provided on the potential impacts of
COVID- on the different areas of the financial statements for balances and disclosures. The ordering of the notes could
potentially change if the impact of COVID- changes their significance or importance (for example, notes on going concern,
impairment or events after the reporting date). In these Example Financial Statements, no changes to the order of the notes
were made. When making disclosures in financial statements, the more uncertain the environment, the more detailed the
disclosures of the assumptions and assessments used to prepare the financial statements should be. (For example, useful
lives, discount rates as a result of changes in market conditions, government grants received etc.).
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
1. Nature of operations
The principal activities of Illustrative Corporation Ltd and subsidiaries (the Group) include selling
of telecommunications hardware and software, related after-sales service, consulting, and the
construction of telecommunications systems. These activities are grouped into the following
service lines:
• retail – focusing on the sale of the Group’s proprietary hardware and software products and
related customisation and integration services
• after-sales service – providing fixed-price maintenance of extended warranty agreements to the
Group’s retail customers
• consulting and outsourcing – advising companies on telecommunications systems strategies
and IT security, and providing IT outsourcing services including payroll and accounts payable
transaction processing
• construction – providing customers with complete telecommunications systems solutions from
design to development and installation.
Guidance note: The notes to these Example Financial Statements only include disclosures
relevant to the fictitious entity Illustrative Corporation Ltd and subsidiaries. IFRS may require
different or additional disclosures in other situations. Disclosures should always be tailored to
reflect an entity’s specific facts and circumstances.
2. General information, statement of compliance with IFRS and
going concern assumption
Telling the COVID Story
Overall assessment of impact of COVID-19 on the preparation and presentation
of the financial statements
We recommend updating the note describing the overall impact of COVID- on the entity.
This can then refer to specific disclosures within the notes to the financial statements. It may
be relevant to include all the quantitative information on the significant impact of COVID- in
this note. We remind entities the importance of providing entity specific disclosures of what is
particularly relevant in the context of COVID- for both the current and prior year.
Going concern
IAS contains guidance related to the going concern assumption and outlines when financial
statements are prepared on the assumption the entity will continue as a going concern. IAS
explicitly states at each reporting date, management is required to assess the entity’s ability
to continue as a going concern and consider all available information about the future, which
is at least, but is not limited to, twelve months from the annual reporting date. Management
should consider a wide range of factors, such as: current and expected profitability, debt
repayment schedules and potential sources of replacement financing, and the ability to
continue providing services. If management concludes the entity may be liquidated (either
by choice or because it has no realistic alternative but to do so) within months from the
end of the reporting period, the going concern assumption would not be appropriate and the
financial statements may have to be prepared on another basis, such as a liquidation basis
Refer to our IFRS Viewpoint ‘Preparing financial statements when the going concern basis
is not appropriate’. If there is material uncertainty about the entity’s ability to continue as a
going concern, the entity should include going concern disclosure in the notes to its financial
statements.
IAS 1.51(a)
IAS 1.138(b)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Telling the COVID Story (cont)
Because the assessment regarding an entity’s ability to continue as a going concern covers a
period no less than twelve months from the annual reporting date, all events that occur during
an entity’s subsequent events period should be considered when evaluating whether there
is significant doubt about the entity’s ability to continue as a going concern. In other words,
even if events during the subsequent events period are not considered adjusting subsequent
events, they should still be incorporated into the going concern assessment. Furthermore,
events or conditions that cast significant doubt on an entity’s ability to continue as a going
concern should be disclosed if there are material uncertainties or if a significant amount of
judgment is involved in reaching the conclusion about whether the going concern assumption
is appropriate. IFRIC agenda decisions from July and July should also be taken
into consideration here.
We recommend caution when considering the relevant period of assessment for going concern.
There has been modification to the auditing standards at a local level for some jurisdictions.
These include Australia, New Zealand and the UK. They stipulate the auditor must ensure that
management has considered a period of no less than months from the date of approval of
the financial statements.
For more details, refer to our article ‘COVID-: Going Concern Considerations’.
In January the IASB issued educational material to support entities in applying the going
concern requirements. Refer to the following link.
Illustrative Corporation Ltd (Illustrative Corporation), the Group’s ultimate parent company, is a
limited liability company incorporated and domiciled in Euroland. Its registered office and principal
place of business is Great Place, Greatville, Euroland. Illustrative Corporation’s shares
are listed on the Greatstocks Stock Exchange.
The consolidated financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). They have been prepared under the assumption the Group operates
on a going concern basis.
The consolidated financial statements for the year ended December (including
comparatives) were approved and authorised for issue by the board of directors on March
(see Note ). Under the Security Regulations Act of Euroland, amendments to the financial
statements are not permitted after approval.
3. New or revised Standards or Interpretations
Guidance note: The discussion of the initial application of IFRS only needs to be disclosed in
the first financial statements after the new or revised Standards have been adopted by
the entity.
3.1 New Standards adopted as at 1 January 2021
Guidance note: Included in this note are amendments that have a significant impact on
these Example Financial Statements, and therefore detailed disclosures have been made as
required by IAS .. For , there are none to be disclosed.
IAS 1.138(a)
IAS 1.138(c)
IAS 1.16
IAS 1.51(b)
IAS 1.25
IAS 1.51(c)
IAS 10.17
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Some accounting pronouncements which have become effective from January and have
therefore been adopted do not have a significant impact on the Group’s financial results or position.
w
Guidance note: As illustrated above, IAS . requires an entity to disclose detailed
information on certain Standards that have been applied for the first time in the current period.
Other Standards and amendments that are effective for the first time in (for an entity
with a December year-end) and could be applicable to the Group are:
• COVID--related rent concessions beyond June (Amendments to IFRS )
• Interest Rate Benchmark Reform Phase (Amendments to IFRS , IAS , IFRS , IFRS
and IFRS )
These amendments do not have a significant impact on these Example Financial Statements
and therefore the disclosures have not been made. However, whilst they do not affect these
Example Financial Statements they will impact some entities. An entity should assess the
impact of these new Standards on their financial statements based on their own facts and
circumstances and make appropriate disclosures.
3.2 Standards, amendments and Interpretations to existing Standards that are not yet
effective and have not been adopted early by the Group
Guidance note: IAS . requires an entity to disclose Standards issued but not yet effective that
they will apply in the future. As part of this disclosure an entity must provide known or reasonably
estimable information relevant to assessing the possible impact the new IFRS will have on their
financial statements in the period of initial application. For new or amended IFRS or Interpretations
that are expected to have a material impact, an entity should consider disclosing the title of the
new IFRS Standard, the nature of the expected change in accounting policy, the effective date of
the Standard, and the date at which the entity intends to first apply the Standard (IAS .). Where
there is not expected to be a material impact, it is not necessary to do this, and doing so may
actually contribute to disclosure overload. For example, IFRS ‘Insurance Contracts’ will have
a major impact on entities issuing insurance contracts, however, it will not affect this Group.
Other Standards and amendments that are not yet effective and have not been adopted early
by the Group include:
• IFRS Insurance Contracts
• Amendments to IFRS Insurance Contracts (Amendments to IFRS and IFRS )
• References to the Conceptual Framework
• Proceeds before Intended Use (Amendments to IAS )
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS )
• Annual Improvements to IFRS Standards - Cycle (Amendments to IFRS , IFRS ,
IFRS , IAS )
• Classification of Liabilities as Current or Non-current (Amendments to IAS )
• Deferred Tax related to Assets and Liabilities from a Single Transaction
These amendments are not expected to have a significant impact on the financial statements
in the period of initial application and therefore no disclosures have been made. However, whilst
they do not affect these Example Financial Statements, they will impact some entities. An entity
should assess the anticipated impact of these new Standards and amendments on their financial
statements based on their own facts and circumstances and make appropriate disclosures.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
1
For instance, entities with significant floating rate exposures (in the form of financial debt or investment, leases, insurance contracts or derivatives)
still indexed at year-end to indices (such as US LIBOR) that will soon be replaced by new interest rate references, should keep in mind the new
disclosure requirements introduced by the aforementioned amendments to IFRS . Among other things, entities are required to describe how they
are managing the transition to alternative benchmark rates, and to provide specific quantitative information about financial instruments that have
yet to transition.
At the date of authorisation of these consolidated financial statements, several new, but not
yet effective, Standards and amendments to existing Standards, and Interpretations have been
published by the IASB. None of these Standards or amendments to existing Standards have been
adopted early by the Group.
Management anticipates that all relevant pronouncements will be adopted for the first period
beginning on or after the effective date of the pronouncement. New Standards, amendments and
Interpretations not adopted in the current year have not been disclosed as they are not expected to
have a material impact on the Group’s consolidated financial statements.
4. Significant accounting policies
w
Telling the COVID Story
In most cases the accounting policies should not change as a result of COVID-. However, if
the entity is for example, adopting the practical expedient for lease modifications under IFRS
(see Leased assets Note .), then this change should be reflected in its accounting policies.
An entity that has historically not been eligible for government assistance may be entitled
to receive government assistance as a result of the COVID- pandemic. Management may
need to establish an accounting policy regarding government assistance which needs to be
appropriate and in line with the requirements in IAS ‘Accounting for Government Grants
and Disclosure of Government Assistance’. It is essential to distinguish between government
assistance and government grants and ensure that grants are recognised only when the
recognition criteria in IAS are met. Some of the government assistance may involve deferral
of tax payments or other tax allowances. The accounting treatment of tax allowances may
need to be accounted for under IAS ‘Income Taxes’ rather than IAS . We have more
information on this topic in our article ‘COVID-: Government Grants’.
Guidance note: An entity should disclose its significant accounting policies. However, IAS
gives only limited guidance about what a significant accounting policy could be. IAS .
states that significant accounting policies should comprise:
a the measurement basis (or bases) used in preparing the financial statements, and
b the other accounting policies used that are relevant to an understanding of the
financial statements.
Deciding which accounting policies are significant requires judgement. The nature of the
entity’s operations may cause an accounting policy to be significant even if the amounts
involved are not material. In accordance with IAS ., and IAS .–, an entity should
also consider:
• whether the policy was selected among alternatives provided by the relevant Standard
• the extent of judgement, estimation uncertainty or complexity involved in applying
the policy
• whether the policy was developed for a type of transaction not covered by IFRS, and
• whether disclosing the policy would assist users in understanding particular transactions
or events.
We recommend an entity makes their accounting policy disclosures clear and specific as these
will add value and insight to the users. Entity-specific accounting policy disclosures:
• explain how the entity applies the policy
• are written in plain English so are easy to understand, and
• are up-to-date in terms of IFRS requirements and the business state if an accounting policy
choice was made from the Standard and why this choice was made.
IAS 8.30
IAS 8.31
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
4.1 Basis of preparation
The Group’s financial statements have been prepared on an accruals basis and under the historical
cost convention except for the revaluation of properties, investments and derivatives. Monetary
amounts are expressed in Euroland currency (CU) and are rounded to the nearest thousands,
except for earnings per share.
4.2 Basis of consolidation
The Group’s financial statements consolidate those of the parent company and all of its
subsidiaries as of December . All subsidiaries have a reporting date of December.
All transactions and balances between Group companies are eliminated on consolidation, including
unrealised gains and losses on transactions between Group companies. Where unrealised losses
on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for
impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries
have been adjusted where necessary to ensure consistency with the accounting policies adopted
by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the
year are recognised from the effective date of acquisition, or up to the effective date of disposal,
as applicable.
The Group attributes total comprehensive income or loss of subsidiaries between the owners of the
parent and the non-controlling interests based on their respective ownership interests.
4.3 Business combinations
The Group applies the acquisition method in accounting for business combinations. The
consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum
of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests
issued by the Group, which includes the fair value of any asset or liability arising from a contingent
consideration arrangement. Acquisition costs are expensed as incurred.
Assets acquired and liabilities assumed are measured at their acquisition-date fair values.
4.4 Investments in associates and joint ventures
Investments in associates and joint ventures are accounted for using the equity method.
The carrying amount of the investment in associates and joint ventures is increased or decreased to
recognise the Group’s share of the profit or loss and other comprehensive income of the associate
and joint venture, adjusted where necessary to ensure consistency with the accounting policies of
the Group.
Unrealised gains and losses on transactions between the Group and its associates and joint
ventures are eliminated to the extent of the Group’s interest in those entities. Where unrealised
losses are eliminated, the underlying asset is also tested for impairment.
4.5 Foreign currency translation
Telling the COVID Story
An entity is required to translate foreign currency transactions into the reporting/functional
currency using the spot rate in effect on the date of the transaction. As a practical expedient,
an entity may translate revenue earned and expenses incurred in a foreign currency using an
average rate (eg a monthly or annual average). In years when exchange rates remain fairly
stable, the difference between using the spot rate vs the average rate will be insignificant.
However, some exchange rates are fluctuating significantly during this period of economic
uncertainty. As a result, an entity may need to revisit the way it translates foreign currency
transactions in its statement of profit or loss and assess whether its current accounting policy
remains appropriate.
IAS 1.27
IAS 1.51(d–e)
IAS 1.53
IFRS 10.B92
IAS 1.51(c)
IFRS 10.B86(c)
IFRS 10.B88
IFRS 10.22
IFRS 10.B94
IFRS 3.4
IFRS 3.37
IFRS 3.18
IAS 28.16
IFRS 11.24
IAS 28.10
IAS 28.28
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Functional and presentation currency
The consolidated financial statements are presented in currency units CU, which is also the
functional currency of the parent company.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of the respective Group
entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate).
Foreign exchange gains and losses resulting from the settlement of such transactions and from the
remeasurement of monetary items denominated in foreign currency at period-end exchange rates
are recognised in profit or loss.
Non-monetary items are not retranslated at the period-end. They are measured at historical cost
(translated using the exchange rates at the transaction date), except for non-monetary items
measured at fair value which are translated using the exchange rates at the date when fair value
was determined.
Foreign operations
In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a
functional currency other than the CU are translated into CU upon consolidation. The functional
currencies of entities within the Group have remained unchanged during the reporting period.
On consolidation, assets and liabilities have been translated into CU at the closing rate at the
reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity
have been treated as assets and liabilities of the foreign entity and translated into CU at the
closing rate. Income and expenses have been translated into CU at the average rate
over the
reporting period. Exchange differences are charged or credited to other comprehensive income
and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the
related cumulative translation differences recognised in equity are reclassified to profit or loss and
are recognised as part of the gain or loss on disposal.
4.6 Segment reporting
The Group has three operating segments: consulting, service and retail. In identifying these
operating segments, management generally follows the Group’s service lines representing its main
products and services (see Note ).
Each of these operating segments is managed separately as each requires different technologies,
marketing approaches and other resources. All inter-segment transfers are carried out at arm’s
length prices based on prices charged to unrelated customers in stand-alone sales of identical
goods or services.
For management purposes, the Group uses the same measurement policies as those used in its
financial statements, except for certain items not included in determining the operating profit of the
operating segments, as follows:
• post-employment benefit expenses
• share-based payment expenses
• research costs relating to new business activities, and
• revenue, costs and fair value gains from investment property.
In addition, corporate assets which are not directly attributable to the business activities of
any operating segment are not allocated to a segment. This primarily applies to the Group’s
headquarters and the Illustrative Research Lab in Greatville.
IAS 1.51(d)
IAS 21.53
IAS 21.21
IAS 21.28
IAS 21.23(a)
IAS 21.23(b)
IAS 21.23(c)
IAS 21.47
IAS 21.48
IFRS 8.22(a)
IFRS 8.22(b)
IFRS 8.27(a)
IFRS 8.27(b-d)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2
Note that the use of average rates is appropriate only if rates do not fluctuate significantly (IAS 21.40).
4.7 Revenue
Guidance note: Revenue is one of the most important line items for most entities, and
therefore a policy is almost always disclosed. Entities with multiple revenue streams should
always remember to address each significant revenue stream separately.
Overview
Revenue arises mainly from the sale of telecommunications hardware and non-customised software,
bespoke solutions, after-sales maintenance and extended warranty services, consulting and IT
services, and contracts for the construction of telecommunication systems.
To determine whether to recognise revenue, the Group follows a -step process:
Identifying the contract with a customer
Identifying the performance obligations
Determining the transaction price
Allocating the transaction price to the performance obligations
Recognising revenue when/as performance obligation(s) are satisfied.
The Group often enters into customer contracts to supply a bundle of products and services, for
example telecommunications hardware, software and related after-sales service. The contract
is then assessed to determine whether it contains a single combined performance obligation or
multiple performance obligations. If applicable the total transaction price is allocated amongst the
various performance obligations based on their relative stand-alone selling prices. The transaction
price for a contract excludes any amounts collected on behalf of third parties.
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies
performance obligations by transferring the promised goods or services to its customers.
The Group recognises contract liabilities for consideration received in respect of unsatisfied
performance obligations and reports these amounts as other liabilities in its consolidated statement
of financial position (see Note ). Similarly, if the Group satisfies a performance obligation before
it receives the consideration, the Group recognises either a contract asset or a receivable in its
consolidated statement of financial position, depending on whether something other than the
passage of time is required before the consideration is due.
Hardware and software sales
Revenue from the sale of telecommunications hardware and non-customised software is recognised
when or as the Group transfers control of the asset to the customer.
For stand-alone sales of telecommunications hardware and/or non-customised software without
installation services, control transfers when the customer takes delivery of the hardware or is
provided with a download key for the software. Non-customised software is supplied under licences
with a fixed term of between and years which convey a right to use software as it exists at the
start of the licence period. The Group does not modify the software during the licence period.
Bespoke solutions
The Group also supplies customers with bespoke telecommunication solutions that include
customised hardware and software and an installation service that enables the solution to interface
with the customer’s existing systems. The Group has determined that the hardware, software and
installation service are each capable of being distinct as, in theory, the customer could benefit from
them individually by acquiring the other elements elsewhere. However, the Group also provides a
significant service of integrating these items to deliver a working solution such that, in the context of
the actual contract, there is a single performance obligation to provide that solution.
IAS 1.117(b)
IFRS 15.9-12
IFRS 15.22
IFRS 15.47
IFRS 15.73
IFRS 15.31
IFRS 15.46
IFRS 15.47
IFRS 15.22
IFRS 15.74
IFRS 15.106
IFRS 15.107
IFRS 15.108
IFRS 15.31
IFRS 15.119(a)
IFRS 15.38
IFRS 15.B56
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The Group has assessed that control of these solutions transfers to the customer over time. This
is because each solution is unique to the customer (has no alternative use) and the terms of
the contract state the Group is entitled to a right to payment for the work completed to date.
Revenue for these performance obligations is recognised as the customisation or integration work
is performed, using the cost-to-cost method to estimate progress towards completion. Costs are
generally incurred are considered to be proportionate to the entity’s performance, so the cost-to-
cost method provides a faithful depiction of the transfer of goods and services to the customer. The
cost of uninstalled materials is excluded from the calculation because the Group assesses that
including these costs could overstate its progress towards delivering the solution.
Customer loyalty programme
The Group’s retail division operates a customer loyalty incentive programme. For each CU
spent, customers obtain one loyalty point which they can redeem to receive discounts on future
purchases. Loyalty points are considered to be a separate performance obligation as they provide
customers with a material right they would not have received otherwise. Unused points expire if not
used within two years. The Group allocates the transaction price between the material right and
other performance obligations identified in a contract on a relative stand-alone selling price basis.
The amount allocated to the material right is initially recorded as a contract liability and is later
recognised in revenue when the points are redeemed by the customer.
The Group’s experience is that a portion of the loyalty points will expire without being used
(‘breakage’). The Group recognises revenue from expected breakage in proportion to the points
redeemed and trues-up this estimate when points expire. The Group has assessed it is highly
improbable a significant reversal of revenue will arise if actual experience differs from expectations
and therefore no further revenue constraint is needed.
Warranty arrangements
The Group provides a basic one-year product warranty on its telecommunications hardware whether sold
on a stand-alone basis or as part of an integrated telecommunications system. Under the terms of this
warranty customers can return the product for repair or replacement if it fails to perform in accordance
with published specifications. These assurance-type warranties are not considered to be performance
obligations so revenue is not allocated to them. The estimated costs of serving these warranties are
recognised as provisions under IAS ’Provisions, Contingent Liabilities and Contingent Assets’.
After-sales Services
The Group enters into fixed price maintenance and extended warranty contracts with its customers
for non-cancellable terms between one and three years in length. Customers are required to pay
in advance for each twelve-month service period. Payments received in advance of performance
obligations being satisfied are recognised as contract liabilities.
• Maintenance contracts – these agreements provide customers with regularly scheduled
maintenance on telecommunications hardware purchased from the Group. The contracts
consist of a single performance obligation that is transferred over time (ie the contract period)
because they involve a series of services that are substantially the same and the benefit of each
service is received and consumed immediately. Revenue is recognised over time based on the
ratio between the number of hours of maintenance services provided in the current period and
the total number of such hours expected to be provided under each contract. This method best
depicts the transfer of services to the customer because: (a) details of the services to be provided
are specified by management in advance as part of its published maintenance program, and
(b) the Group has a long history of providing these services to its customers, allowing it to make
reliable estimates of the total number of hours involved in providing the service.
• Extended warranty program – these agreements cover repairs and after-sales support for
telecommunications hardware outside the Group’s standard warranty period. This service
involves an indeterminate number of acts as the Group is required to ‘stand ready’ to perform
whenever a request falling within the scope of the program is made by a customer. The benefits
of the Group standing ready are received and consumed immediately and the service has
therefore been assessed as a single performance obligation that is transferred over time (ie the
warranty period). Revenue is recognised on a straight-line basis over the term of the contract.
IFRS 15.35(c)
IFRS 15.B19
IFRS 15.119(e)
IFRS 15.B46
IFRS 15.B28
IFRS 15.35(a)
IFRS 15.124(a)
IFRS 15.124(b)
IFRS 15.35(a)
IFRS 15.124(a)
IFRS 15.B32
IFRS 15.B18
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
This method best depicts the transfer of services to the customer as (a) the company’s historical
experience demonstrates no statistically significant variation in the quantum of services provided
in each year of a multi-year contract, and (b) no reliable prediction can be made as to if and
when any individual customer will require service.
Guidance note: The Group provides both standard-type warranties accounted for under IAS
and extended-type warranties treated as separate performance obligations under IFRS .
When determining the nature of warranty-related promises, an entity considers:
• whether the customer has the option to separately purchase the warranty
• whether all or part of the warranty provides the customer with an additional service beyond
the basic assurance that it will perform in accordance with published specifications.
Consulting and IT outsourcing services
The Group provides consulting services relating to the design of telecommunications systems
strategies and IT security. These involve developing a customer-specific design (no alternative
use) with billings based on a specified payment schedule. Revenue is recognised over time if the
schedule ensures the Group is entitled to payment for its performance to date throughout the
contract period (including a profit margin that, in percentage terms, is equal to or more than the
final expected profit margin). In other cases the payment schedule enables the Group to recover at
least its costs at all times in the contract but not necessarily a full or proportionate profit margin. In
these cases, taking into consideration the applicable contract law, the Group does not have has an
enforceable right to payment for performance completed to date and recognises revenue only on
delivery and acceptance of the final design.
Revenue for over-time contracts is recognised on a time-and-materials basis as services are
provided and costs are expensed as incurred. Amounts remaining unbilled at the end of a reporting
period are presented in the consolidated statement of financial position as accounts receivable if
only the passage of time is required before payment of these amounts will be due or as contract
assets if payment is conditional on future performance. For the point-in-time contracts, materials
and supplies are recognised as inventory and other directly attributable costs are initially
recognised as contract fulfilment assets. These costs are expensed on delivery and acceptance
(ie when the related revenue is recognised).
The Group also provides IT outsourcing services including payroll and accounts payable trans-
action processing to customers in exchange for a fixed monthly fee. These contracts involve a
series of services that are substantially the same and the benefit of each service is received and
consumed immediately. These contracts therefore consist of a single performance obligation for
which control is transferred over time and revenue is recognised on a straight-line basis over the
term of each contract. This method provides a faithful depiction of the transfer of goods or services
because the work required does not vary significantly from month-to-month.
Construction of telecommunication systems
The Group enters into contracts for the design, development and installation of telecommunication
systems in exchange for a fixed fee. Due to the high degree of interdependence between the various
elements of these projects, they are accounted for as a single performance obligation. The Group
recognises the related revenue over time because the systems are constructed at the customer sites
and the customer controls the asset as it is constructed. When a contract also includes promises to
perform after-sales services, these services represent a second performance obligation that is also
satisfied over time (for the same reasons as the Group’s maintenance contracts) but over a different
period. The total transaction price is allocated between the two distinct performance obligations
based on relative stand-alone selling prices.
IFRS 15.B28
IFRS 15.B29
IFRS 15.35(a)
IFRS 15.124(a)
IFRS 15.107
IFRS 15.B18
IFRS 15.35(b)
IFRS 15.74
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
To depict the Group’s progress in satisfying these performance obligations, and to establish when
and to what extent revenue can be recognised, the Group measures its progress by comparing
actual hours spent to date with the total estimated hours required to design, develop, and install
each system. The hours-to-hours basis provides the most faithful depiction of the transfer of goods
and services to each customer due to the Group’s ability to make reliable estimates of the total
number of hours required to perform, arising from its significant historical experience constructing
similar systems. In the early stage of some of these contracts the Group is unable to make a
reliable estimate of the outcome of the project but still expects to recover its costs. The Group then
recognises revenue equal to the costs incurred until it can make a reliable estimate.
Some contracts include bonus payments which the Group can earn by completing a project
in advance of a targeted delivery date. At the inception of each contract the Group begins by
estimating the amount of the bonus to be received using the “most likely amount” approach. The
bonus is included in the Group’s estimate of the transaction price if it is expected to be received but
the amount is constrained to the extent necessary to ensure it is highly probable that no significant
reversal of revenue will arise in future if the bonus is not actually received. In making this assessment
the Group considers its historical record of performance on similar contracts, whether the Group
has access to the labour and materials resources needed to exceed the agreed-upon completion
date, and the potential impact of other reasonably foreseen constraints. The Group updates its
estimates of the transaction price at each period end and adjusts revenue accordingly.
These arrangements include detailed customer payment schedules. When payments received from
customers exceed revenue recognised to date on a particular contract, any excess (a contract
liability) is reported in the consolidated statement of financial position under other liabilities (see
Note ).
The construction of telecommunication systems normally takes – months from commencement
of design through to completion of installation. As the period of time between customer payment
and performance will always be one year or less, the Group applies the practical expedient in IFRS
. and does not adjust the promised amount of consideration for the effects of financing.
In obtaining these contracts, the Group incurs a number of incremental costs, such as commissions
paid to sales staff. As the amortisation period of these costs, if capitalised, would be less than one
year, the Group makes use of the practical expedient in IFRS and expenses them as incurred.
4.8 Operating expenses
Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred.
Expenditure for warranties is recognised when the Group incurs an obligation, which is typically
when the related goods are sold.
4.9 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying
asset are capitalised during the period of time that is necessary to complete and prepare the asset
for its intended use or sale. Other borrowing costs are expensed in the period in which they are
incurred and reported in finance costs (see Note ).
IFRS 15.39
IFRS 15.41
IFRS 15.45
IFRS 15.53
IFRS 15.56
IFRS 15.91
IFRS 15.94
IAS 37.14
IAS 23.8
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
4.10 Profit or loss from discontinued operations
A discontinued operation is a component of the Group that either has been disposed of, or is
classified as held for sale. A discontinued operation represents a separate major line of the
business. Profit or loss from discontinued operations comprises the post-tax profit or loss of
discontinued operations and the post-tax gain or loss recognised on the measurement to fair value
less costs to sell or on the disposal group(s) constituting the discontinued operation (see also Note
. and Note ).
4.11 Goodwill
Goodwill represents the future economic benefits arising from a business combination that are
not individually identified and separately recognised. Goodwill is carried at cost less accumulated
impairment losses. Refer to Note . for a description of impairment testing procedures.
4.12 Other intangible assets
Initial recognition of other intangible assets
Brand names and customer lists
Brand names and customer lists acquired in a business combination that qualify for separate
recognition are recognised as intangible assets at their fair values.
Internally developed software
Expenditure on the research phase of projects to develop new customised software for IT and
telecommunication systems is recognised as an expense as incurred.
Costs that are directly attributable to a project’s development phase are recognised as intangible
assets, provided they meet all of the following recognition requirements:
• the development costs can be measured reliably
• the project is technically and commercially feasible
• the Group intends to and has sufficient resources to complete the project
• the Group has the ability to use or sell the software, and
• the software will generate probable future economic benefits.
Development costs not meeting these criteria for capitalisation are expensed as incurred.
Directly attributable costs include employee costs incurred on software development along with an
appropriate portion of relevant overheads and borrowing costs.
Subsequent measurement
All finite-lived intangible assets, including capitalised internally developed software, are accounted
for using the cost model whereby capitalised costs are amortised on a straight-line basis over
their estimated useful lives. Residual values and useful lives are reviewed at each reporting date. In
addition, they are subject to impairment testing as described in Note .. The following useful lives
are applied:
• software: - years
• brand names: - years
• customer lists: - years.
Any capitalised internally developed software that is not yet complete is not amortised but is
subject to impairment testing as described in Note ..
Amortisation has been included within depreciation, amortisation and impairment of
non-financial assets.
Subsequent expenditures on the maintenance of computer software and brand names are
expensed as incurred.
When an intangible asset is disposed of, the gain or loss on disposal is determined as the difference
between the proceeds and the carrying amount of the asset, and is recognised in profit or loss
within other income or other expenses.
IFRS 5 Appendix A
IFRS 5.33(a)
IFRS 5.32
IFRS 3 Appendix A
IFRS 3.18
IAS 38.27
IAS 38.54
IAS 38.57
IAS 38.72
IAS 38.74
IAS 38.118(a)
IAS 38.118(b)
IAS 38.118(d)
IAS 38.20
IAS 38.113
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
4.13 Property, plant and equipment
Land
Land owned is stated at revalued amounts. Revalued amounts are fair values based on appraisals
prepared by external professional valuers once every two years or more frequently if market factors
indicate a material change in fair value (see Note .). Any revaluation surplus is recognised in
other comprehensive income and credited to the revaluation reserve in equity. To the extent any
revaluation decrease or impairment loss (see Note .) has previously been recognised in profit
or loss, a revaluation increase is credited to profit or loss with the remaining part of the increase
recognised in other comprehensive income. Downward revaluations of land are recognised upon
appraisal or impairment testing, with the decrease being charged to other comprehensive income
to the extent of any revaluation surplus in equity relating to this asset and any remaining decrease
recognised in profit or loss. Any revaluation surplus remaining in equity on disposal of the asset is
transferred to retained earnings.
As no finite useful life for land can be determined, related carrying amounts are not depreciated.
Buildings, IT equipment and other equipment
Buildings, IT equipment and other equipment (comprising fittings and furniture) are initially
recognised at acquisition cost or manufacturing cost, including any costs directly attributable
to bringing the assets to the location and condition necessary for them to be capable of operating
in the manner intended by the Group’s management. Buildings and IT equipment also include
leasehold property held under a finance lease (see Note .). Buildings, IT equipment and
other equipment are subsequently measured at cost less accumulated depreciation and
impairment losses.
Depreciation is recognised on a straight-line basis to write down the cost less estimated residual
value of buildings, IT equipment and other equipment. The following useful lives are applied:
• buildings: – years
• IT equipment: – years
• other equipment: – years.
In the case of right-of-use assets, expected useful lives are determined by reference to comparable
owned assets or the lease term, if shorter. Material residual value estimates and estimates of useful
life are updated as required, but at least annually.
Gains or losses arising on the disposal of property, plant and equipment are determined as
the difference between the disposal proceeds and the carrying amount of the assets and are
recognised in profit or loss either within other income or other expenses.
4.14 Leased assets
The Group as a lessee
The Group makes the use of leasing arrangements principally for the provision of the main
warehouse and related facilities, office space, and IT equipment and motor vehicles (although the
Group currently has no motor vehicles). The rental contracts for offices are typically negotiated for
terms of between and years and some of these have extension terms. Lease terms for office
fixtures and equipment and motor vehicles have lease terms of between months and years
without any extension terms. The Group does not enter into sale and leaseback arrangements. All
the leases are negotiated on an individual basis and contain a wide variety of different terms and
conditions such as purchase options and escalation clauses.
The Group assesses whether a contract is or contains a lease at inception of the contract. A lease
conveys the right to direct the use and obtain substantially all of the economic benefits of an
identified asset for a period of time in exchange for consideration.
IAS 16.29
IAS 16.31
IAS 16.39–40
IAS 16.73(a)
IAS 16.58
IAS 16.15–16
IAS 16.73(a)
IAS 16.29
IAS 16.30
IAS 16.43
IAS 16.73(b)
IAS 16.73(c)
IFRS 16.31
IAS 16.68
IAS 16.71
IFRS 16.59(a)(c)
IFRS 16.9
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Some lease contracts contain both lease and non-lease components. These non-lease components
are usually associated with facilities management services at offices and servicing and repair
contracts in respect of motor vehicles. The Group has elected to not separate its leases for offices
into lease and non-lease components and instead accounts for these contracts as a single lease
component. For its other leases, the lease components are split into their lease and non-lease
components based on their relative stand-alone prices.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a lease liability in
its consolidated statement of financial position. The right-of-use asset is measured at cost, which
is made up of the initial measurement of the lease liability, any initial direct costs incurred by the
Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any
lease payments made in advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use asset on a straight-line basis from the lease commencement
date to the earlier of the end of the useful life of the right-of-use asset or the end
of the lease term. The Group also assesses the right-of-use asset for impairment when such
indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease
payments unpaid at that date, discounted using the Group’s incremental borrowing rate because
as the lease contracts are negotiated with third parties it is not possible to determine the interest
rate that is implicit in the lease. The incremental borrowing rate is the estimated rate that the Group
would have to pay to borrow the same amount over a similar term, and with similar security to
obtain an asset of equivalent value. This rate is adjusted should the lessee entity have a different
risk profile to that of the Group.
Lease payments included in the measurement of the lease liability are made up of fixed payments
(including in substance fixed), variable payments based on an index or rate, amounts expected
to be payable under a residual value guarantee and payments arising from options reasonably
certain to be exercised.
Subsequent to initial measurement, the liability will be reduced by lease payments that are
allocated between repayments of principal and finance costs. The finance cost is the amount that
produces a constant periodic rate of interest on the remaining balance of the lease liability.
The lease liability is reassessed when there is a change in the lease payments. Changes in lease
payments arising from a change in the lease term or a change in the assessment of an option to
purchase a leased asset. The revised lease payments are discounted using the Group’s incremental
borrowing rate at the date of reassessment when the rate implicit in the lease cannot be readily
determined. The amount of the remeasurement of the lease liability is reflected as an adjustment to
the carrying amount of the right-of-use asset. The exception being when the carrying amount of the
right-of-use asset has been reduced to zero then any excess is recognised in profit or loss.
Payments under leases can also change when there is either a change in the amounts expected to
be paid under residual value guarantees or when future payments change through an index or a
rate used to determine those payments, including changes in market rental rates following a market
rent review. The lease liability is remeasured only when the adjustment to lease payments takes
effect and the revised contractual payments for the remainder of the lease term are discounted
using an unchanged discount rate. Except for where the change in lease payments results from a
change in floating interest rates, in which case the discount rate is amended to reflect the change
in interest rates.
IFRS 16.15
IFRS 16.24
IFRS 16.32-33
IFRS 16.26
IFRS 16.27
IFRS 16.36(a)-(b)
IFRS 16.39-41
IFRS 16.42-43
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
To respond to business needs, particularly in the demand for office space, the Group will enter into
negotiations with landlords to either increase or decrease available office space or to renegotiate
amounts payable under the respective leases. In some instances, the Group is able to increase
office capacity by taking additional floors available and therefore agrees with the landlord to pay
an amount that is commensurate with the stand-alone pricing adjusted to reflect the particular
contract terms. In these situations, the contractual agreement is treated as a new lease and
accounted for accordingly.
In other instances, the Group is able to negotiate a change to a lease such as reducing the amount
of office space taken, reducing the lease term or by reducing the total amount payable under
the lease, both of which were not part of the original terms and conditions of the lease. In these
situations, the Group does not account for the changes as though there is a new lease. Instead,
the revised contractual payments are discounted using a revised discount rate at the date the
lease is effectively modified. For the reasons explained above, the discount rate used is the Group’s
incremental borrowing rate determined at the modification date, as the rate implicit in the lease is
not readily determinable.
The remeasurement of the lease liability is dealt with by a reduction in the carrying amount of the
right-of-use asset to reflect the full or partial termination of the lease for lease modifications that
reduce the scope of the lease. Any gain or loss relating to the partial or full termination of the lease
is recognised in profit or loss. The right-of-use asset is adjusted for all other lease modifications.
The Group has elected to account for short-term leases and leases of low-value assets using the
practical expedients. These leases relate to items of office equipment such as desks, chairs, and
certain IT equipment. Instead of recognising a right-of-use asset and lease liability, the payments
in relation to these are recognised as an expense in profit or loss on a straight-line basis over the
lease term.
The Group as a lessor
As a lessor the Group classifies its leases as either operating or finance leases.
The Group assessed whether it transfers substantially all the risks and rewards of ownership. Those
assets that do not transfer substantially all the risks and rewards are classified as operating leases.
Rental income is accounted for on a straight-line basis over the lease term and is included in
revenue due to its operating nature.
4.15 Impairment testing of goodwill, other intangible assets and property, plant and
equipment
For impairment assessment purposes, assets are grouped at the lowest levels for which there
are largely independent cash inflows (cash-generating units). As a result, some assets are
tested individually for impairment and some are tested at cash-generating unit level. Goodwill is
allocated to those cash-generating units that are expected to benefit from synergies of a related
business combination and represent the lowest level within the Group at which management
monitors goodwill.
Cash-generating units to which goodwill has been allocated (determined by the Group’s
management as equivalent to its operating segments) are tested for impairment at least annually.
All other individual assets or cash-generating units are tested for impairment whenever events or
changes in circumstances indicate the carrying amount may not be recoverable.
IFRS 16.44
IFRS 16.45
IFRS 16.46
IFRS 16.60
IFRS 16.61
IFRS 16.62
IAS 36.66
IAS 36.80
IAS 36.90
IAS 36.15
IAS 36.10(b)
IAS 36.9
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
An impairment loss is recognised for the amount by which the asset’s (or cash-generating unit’s)
carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of
disposal and value-in-use. To determine the value-in-use, management estimates expected future
cash flows from each cash-generating unit and determines a suitable discount rate in order to
calculate the present value of those cash flows. The data used for impairment testing procedures is
directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects
of future reorganisations and asset enhancements. Discount factors are determined individually for
each cash-generating unit and reflect current market assessments of the time value of money and
asset-specific risk factors.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill
allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the
other assets in the cash-generating unit.
With the exception of goodwill, all assets are subsequently reassessed for indications an
impairment loss previously recognised may no longer exist. An impairment loss is reversed if the
asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount.
4.16 Investment property
Investment properties are properties held to earn rentals or for capital appreciation, or both, and
are accounted for using the fair value model.
Investment properties are revalued annually with resulting gains and losses recognised in profit or
loss. These are included in the consoldiated statement of financial position at their fair values. See
Note ..
4.17 Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the
contractual provisions of the financial instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the financial
asset expire, or when the financial asset and substantially all the risks and rewards are transferred.
A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component and are
measured at the transaction price in accordance with IFRS , all financial assets are initially
measured at fair value adjusted for transaction costs (where applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified
into one of the following categories:
• amortised cost
• fair value through profit or loss (FVTPL), or
• fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial assets categorised as FVOCI.
The classification is determined by both:
• the entity’s business model for managing the financial asset, and
• the contractual cash flow characteristics of the financial asset.
All revenue and expenses relating to financial assets that are recognised in profit or loss are
presented within finance costs, finance income or other financial items, except for impairment of
trade receivables which is presented within other expenses.
IAS 36.59
IAS 36.18
IAS 36.30–31
IAS 36.104
IAS 36.110
IAS 36.124
IAS 40.5
IAS 40.75(a)
IAS 40.33
IAS 40.35
IFRS 7.21
IFRS 9.3.1.1
IFRS 9.3.2.3
IFRS 9.3.3.1
IFRS 9.5.1.1
IFRS 9.5.1.3
IFRS 9.5.2.1
IFRS 9.4.1.1
IFRS 7.20(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the following conditions (and
are not designated as FVTPL):
• they are held within a business model whose objective is to hold the financial assets and collect
its contractual cash flows, and
• the contractual terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets held within a different business model other than ‘hold to collect’ or ‘hold to collect
and sell’ are categorised at FVTPL. Further, irrespective of the business model used, financial assets
whose contractual cash flows are not solely payments of principal and interest are accounted for
at FVTPL. All derivative financial instruments fall into this category, except for those designated and
effective as hedging instruments, for which the hedge accounting requirements apply (see below).
The category also contains an equity investment. The Group accounts for the investment at FVTPL
and did not make the irrevocable election to account for the investment in XY Ltd and listed equity
securities at FVOCI. The fair value was determined in line with the requirements of IFRS ‘Fair
Value Measurement’.
Assets in this category are measured at fair value with gains or losses recognised in profit or loss.
The fair values of financial assets in this category are determined by reference to active market
transactions or using a valuation technique where no active market exists.
Guidance note: The reporting entity does not have any assets classified at FVOCI, and so
this section would not be required. However, it is included for those entities where it may be
relevant. The policy below refers to debt assets which have solely payment of principal and
interest cash flows in a business model which is held to collect and sell. A further potential
category exists of equity FVOCI where the policy would not include recycling.
Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon
derecognition of the asset – however there is an exception to this, which is an irrevocable option
to present subsequent changes in the fair value of an investment in equity, in which case there
is no recycling even at the time of derecognition, except for dividend income recognised in profit
or loss.
Financial assets at fair value through other comprehensive income (FVOCI)
The Group accounts for financial assets at FVOCI if the assets meet the following conditions:
• they are held under a business model whose objective it is “hold to collect” the associated cash
flows and sell, and
• the contractual terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Any gains or losses recognised in OCI will be recycled upon derecognition of the asset.
IFRS 9.4.1.2
IFRS 9.4.1.4
IFRS 9.4.1.4
IFRS 9.4.1.2A
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Impairment of financial assets
IFRS ’s impairment requirements use forward-looking information to recognise expected credit losses
– the ‘expected credit loss (ECL) model’. Instruments within the scope of the requirements included
loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables,
contract assets recognised and measured under IFRS and loan commitments and some financial
guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
The Group considers a broader range of information when assessing credit risk and measuring
expected credit losses, including past events, current conditions, reasonable and supportable
forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial
recognition or that have low credit risk (‘Stage ’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition
and whose credit risk is not low (‘Stage ’).
‘Stage ’ would cover financial assets that have objective evidence of impairment at the
reporting date.
‘-month expected credit losses’ are recognised for the first category (ie Stage ) while ‘lifetime
expected credit losses’ are recognised for the second category (ie Stage ).
Measurement of the expected credit losses is determined by a probability-weighted estimate of
credit losses over the expected life of the financial instrument.
Guidance note: Credit losses are defined as the difference between all the contractual
cash flows that are due to an entity and the cash flows it actually expects to receive (‘cash
shortfalls’). This difference is discounted at the original effective interest rate (or credit-
adjusted effective interest rate for purchased or originated credit-impaired financial assets).
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade and other receivables as
well as contract assets and records the loss allowance as lifetime expected credit losses. These are
the expected shortfalls in contractual cash flows, considering the potential for default at any point
during the life of the financial instrument. In calculating, the Group uses its historical experience,
external indicators and forward-looking information to calculate the expected credit losses using a
provision matrix.
The Group assesses impairment of trade receivables on a collective basis as they possess shared
credit risk characteristics they have been grouped based on the days past due. Refer to Note .
for a detailed analysis of how the impairment requirements of IFRS are applied.
Guidance note: The assessment of impairment for trade receivables can either be done
individually or collectively and that assessment should be based on how an entity manages its
credit risk. If an entity has a small number of receivables with large value and these receivables
are managed on an account basis (ie individually) it may not be appropriate in that case to
base the impairment on a provision matrix as such a matrix would unlikely be in line with the
expected credit loss of the individual receivable.
Classification and measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other payables and derivative
financial instruments.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction
costs unless the Group designated a financial liability at FVTPL.
IFRS 9.5.5.1
IFRS 9.5.5.15
IFRS 9.B5.5.35
IFRS 9.5.1.1
IFRS 9.4.2.2
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Subsequently, financial liabilities are measured at amortised cost using the effective interest
method except for derivatives and financial liabilities designated at FVTPL, which are carried
subsequently at fair value with gains or losses recognised in profit or loss (other than derivative
financial instruments that are designated and effective as hedging instruments).
All interest-related charges and, if applicable, changes in an instrument’s fair value that are
reported in profit or loss are included within finance costs or finance income.
Derivative financial instruments and hedge accounting
Derivative financial instruments are accounted for at FVTPL except for derivatives designated
as hedging instruments in cash flow hedge relationships, which require a specific accounting
treatment. To qualify for hedge accounting, the hedging relationship must meet all of the following
requirements:
• there is an economic relationship between the hedged item and the hedging instrument
• the effect of credit risk does not dominate the value changes that result from that
economic relationship, and
• the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the
hedged item that the entity actually hedges and the quantity of the hedging instrument that the
entity actually uses to hedge that quantity of hedged item.
For the reporting periods under review, the Group has designated certain forward currency
contracts as hedging instruments in cash flow hedge relationships. These arrangements have been
entered into to mitigate foreign currency exchange risk arising from certain highly probable sales
transactions denominated in foreign currency.
All derivative financial instruments used for hedge accounting are recognised initially at fair value
and reported subsequently at fair value in the consolidated statement of financial position.
To the extent that the hedge is effective, changes in the fair value of derivatives designated as
hedging instruments in cash flow hedges are recognised in other comprehensive income and
included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship
is recognised immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in
other comprehensive income is reclassified from equity to profit or loss and presented as a
reclassification adjustment within other comprehensive income. However, if a non-financial asset
or liability is recognised as a result of the hedged transaction, the gains and losses previously
recognised in other comprehensive income are included in the initial measurement of the
hedged item.
If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other
comprehensive income is transferred immediately to profit or loss. If the hedging relationship ceases
to meet the effectiveness conditions, hedge accounting is discontinued and the related gain or loss
is held in the equity reserve until the forecast transaction occurs.
4.18 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses
directly attributable to the manufacturing process as well as suitable portions of related production
overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are
assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in
the ordinary course of business less any directly attributable selling expenses.
IFRS 9.5.3.1
IFRS 9.4.2.1
IFRS 9.5.3.2
IFRS 9.6.4.1
IFRS 7.21A
IFRS 9.6.5.11
IFRS 9.6.5.11(d)
IFRS 9.6.5.12
IAS 2.36(a)
IAS 2.9
IAS 2.10–15
IAS 2.25
IAS 2.6
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
4.19 Income taxes
Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not
recognised in other comprehensive income or directly in equity.
The calculation of current and deferred tax is based on tax rates and tax laws that have been
enacted or substantively enacted by the end of the reporting period. Deferred income taxes are
calculated using the liability method. The carrying amounts of deferred tax are reviewed at the end
of each reporting period and adjusted if needed.
Deferred tax assets are recognised to the extent it is probable that the underlying tax loss or
deductible temporary difference will be utilised against future taxable income. This is assessed
based on the Group’s forecast of future operating results, adjusted for significant non-taxable
income and expenses and specific limits on the use of any unused tax loss or credit.
Deferred tax liabilities are generally recognised in full, although IAS specifies limited exemptions.
As a result of these exemptions the Group does not recognise deferred tax on temporary differences
relating to goodwill, or to its investments in subsidiaries. The Group does not offset deferred tax
assets and liabilities unless it has a legally enforceable right to do so and intends to settle on a
net basis.
4.20 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other
short-term, highly liquid investments maturing within days from the date of acquisition that are
readily convertible into known amounts of cash and which are subject to an insignificant risk of
changes in value. Bank overdrafts are included in liabilities.
4.21 Non-current assets and liabilities classified as held for sale and discontinued
operations
Non-current assets classified as held for sale are presented separately and measured at the lower
of their carrying amounts immediately prior to their classification as held for sale and their fair
value less costs to sell. However, some held for sale assets such as financial assets or deferred tax
assets, continue to be measured in accordance with the Group’s relevant accounting policy for
those assets. Once classified as held for sale, the assets are not subject to depreciation
or amortisation.
Any profit or loss arising from the sale of a discontinued operation or its remeasurement to fair value
less costs to sell is presented as part of a single line item, profit or loss from discontinued operations
(see Note .).
4.22 Equity, reserves and dividend payments
Share capital represents the nominal (par) value of shares that have been issued.
Share premium includes any premiums received on the issue of share capital. Any transaction costs
associated with the issuing of shares are deducted from share premium, net of any related income
tax benefits.
Other components of equity include the following:
• revaluation reserve – comprises gains and losses from the revaluation of land (see Note .)
• remeasurement of net defined benefit liability – comprises the actuarial losses from changes in
demographic and financial assumptions and the return on plan assets (see Note .)
• translation reserve – comprises foreign currency translation differences arising from the
translation of financial statements of the Group’s foreign entities into CU (see Note .)
• reserves for cash flow hedges – comprises gains and losses relating to these types of financial
instruments (see Note .).
Retained earnings includes all current and prior period retained profits and share-based employee
remuneration (see Note .).
IAS 12.5
IAS 12.46
IAS 12.24
IAS 7.46
IFRS 5.15
IFRS 5.5
IFRS 5.33(a)
IAS 1.79(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
All transactions with owners of the parent are recorded separately within equity.
Dividend distributions payable to equity shareholders are included in other liabilities when the
dividends have been approved in a general meeting prior to the reporting date.
4.23 Post-employment benefits and short-term employee benefits
Post-employment benefit plans
The Group provides post-employment benefits through various defined contribution and defined
benefit plans.
Defined contribution plans
The Group pays fixed contributions into independent entities in relation to several retirement plans
and insurances for individual employees. The Group has no legal or constructive obligations to pay
contributions in addition to its fixed contributions, which are recognised as an expense in the period
that related employee services are received.
Defined benefit plans
Under the Group’s defined benefit plans, the amount of pension benefit that an employee will
receive on retirement is defined by reference to the employee’s length of service and final salary.
The legal obligation for any benefits remains with the Group, even if plan assets for funding the
defined benefit plan have been set aside. Plan assets may include assets specifically designated to
a long-term benefit fund as well as qualifying insurance policies.
The liability recognised in the consolidated statement of financial position for defined benefit plans
is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value
of plan assets.
Management estimates the DBO annually with the assistance of independent actuaries. This
is based on standard rates of inflation, salary growth rate and mortality. Discount factors are
determined close to the end of each annual reporting period by reference to high quality corporate
bonds that are denominated in the currency in which the benefits will be paid and have terms to
maturity approximating the terms of the related pension liability.
Service cost on the Group’s defined benefit plan is included in employee benefits expense.
Employee contributions, all of which are independent of the number of years of service, are treated
as a reduction of service cost. Net interest expense on the net defined benefit liability is included
in finance costs. Gains and losses resulting from remeasurements of the net defined benefit
liability are included in other comprehensive income and are not reclassified to profit or loss in
subsequent periods.
Short-term employee benefits
Short-term employee benefits, including holiday entitlement, are current liabilities included in
pension and other employee obligations, measured at the undiscounted amount the Group expects
to pay as a result of the unused entitlement.
4.24 Share-based employee remuneration
The Group operates equity-settled share-based remuneration plans for its employees. None of the
Group’s plans are cash-settled.
All goods and services received in exchange for the grant of any share-based payment are
measured at their fair values.
Where employees are rewarded using share-based payments, the fair value of employees’ services
is determined indirectly by reference to the fair value of the equity instruments granted. This fair
value is appraised at the grant date and excludes the impact of non-market vesting conditions (for
example, profitability and sales growth targets and performance conditions).
IAS 24.3
IFRIC 17.10
IAS 19.135(a)
IAS 19.135(b)
IAS 19.76
IAS 19.120
IAS 19.87
IAS 19.122
IFRS 2.10
IFRS 2.11
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
All share-based remuneration is ultimately recognised as an expense in profit or loss with a
corresponding credit to retained earnings
. If vesting periods or other vesting conditions apply, the
expense is allocated over the vesting period, based on the best available estimate of the number of
share options expected to vest.
Non-market vesting conditions are included in assumptions about the number of options that are
expected to become exercisable. Estimates are subsequently revised if there is any indication
the number of share options expected to vest differs from previous estimates. Any adjustment to
cumulative share-based compensation resulting from a revision is recognised in the current period.
The number of vested options ultimately exercised by holders does not impact the expense recorded
in any period.
Upon exercise of share options, the proceeds received, net of any directly attributable transaction
costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any
excess being recorded as share premium.
4.25 Provisions, contingent assets and contingent liabilities
Telling the COVID Story
An entity may have an insurance policy that covers losses from business interruption. If the
entity was forced to temporarily cease operations as a result of COVID- during the reporting
period it may be entitled to recover some or all of its losses from its insurance provider. Such
claims would be contingent assets in the financial statements if the entity has a clear right
to reimbursement. While contingent gains/assets are not recognised in an entity’s financial
statements unless they are virtually certain, in accordance with IAS , they would be disclosed
in the notes to the financial statements when their existence is likely. They can be recognised
as income in the financial statements only when virtually certain, for example on acceptance
of the claim by the insurer. When considering insurance claims, the insurers ability to settle the
claim on a timely basis should be assessed.
Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised
when the Group has a present legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic resources will be required from the Group and amounts can
be estimated reliably. The timing or amount of the outflow may still be uncertain.
Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists
and management has either communicated the plan’s main features to those affected or started
implementation. Provisions are not recognised for future operating losses.
Provisions are measured at the estimated expenditure required to settle the present obligation,
based on the most reliable evidence available at the reporting date, including the risks and
uncertainties associated with the present obligation. Where there are a number of similar
obligations, the likelihood that an outflow will be required in settlement is determined by considering
the class of obligations as a whole. Provisions are discounted to their present values, where the time
value of money is material.
Any reimbursement that the Group is virtually certain to collect from a third party with respect to
the obligation is recognised as a separate asset. However, this asset may not exceed the amount of
the related provision.
IFRS 2.8
IFRS 2.20
IFRS 2.19
IFRS 2.20
IFRS 2.23
IAS 37.14
IAS 37.72
IAS 37.36
IAS 37.45
IAS 37.33
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
3
IFRS 2 does not stipulate where in equity the credit entry in an equity-settled transaction should be recognised. It is acceptable for the credit to
be taken to retained earnings, however, this is subject to national law. Alternatively, it could be taken to a separate equity reserve. The accounting
upon the exercise of the share options may also depend on applicable national law relating to share capital.
No liability is recognised if an outflow of economic resources as a result of present obligations is not
probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.
4.26 Significant management judgement in applying accounting policies and
estimation uncertainty
When preparing the Group’s consolidated financial statements, management makes a number
of judgements, estimates and assumptions about the recognition and measurement of assets,
liabilities, revenue and expenses.
Significant management judgements
Telling the COVID Story
The financial statements need to provide enough transparency to enable users to understand
the key assumptions that have been adopted so they can make their own assessment of
their reasonableness. Therefore, it is reasonable to provide more detail in those judgements
that may have been impacted by COVID- or additional judgements made in relation to
areas impacted by COVID-. In addition, there may be additional judgements made in this
year’s financial statements that now need to be disclosed, for example going concern, if the
going concern decision was a ‘close call’. Furthermore, as a result of COVID-, the range
of reasonably possible assumptions underlying judgements and estimates in other areas of
financial statements may be wide.
Guidance note: IAS provides general guidance on disclosures about judgements. Other
Standards, such as IFRS , IFRS ‘Disclosure of Interests in Other Entities’ and IFRS
supplement IAS by requiring disclosure about particular judgements.
The following are examples of disclosures for management judgements under IAS ..
An entity should disclose judgements that have the most significant effect on the amounts
recognised in the financial statements. These can be disclosed in either the accounting policies
or the other notes to the financial statements.
The following are the judgements made by management in applying the accounting policies of the
Group that have the most significant effect on these consolidated financial statements.
Recognition of contract revenue over time or at a point in time
For some of the Group’s contracts with customers significant judgement is required to assess
whether control of the related performance obligation(s) transfers to the customer over time or at
a point in time in accordance with IFRS . Specifically, for contracts that involve developing a
customer-specific asset with no alternative use to the Group, judgement is needed to determine
whether the Group is entitled to payment for its performance throughout the contract period if
the customer sought to cancel the contract. This relates mainly to consulting contracts for design
services which represent CU , (: CU ,) of the Group’s revenue. In making this
assessment the Group compares the amount it is entitled to collect based on the agreed payment
schedule to the estimated level of costs at all stages in the contract in order to estimate the
percentage margin it would retain on cancellation. The Group then compares the lowest margin
percentage through the contract period to the expected margin percentage on completion. If
the lowest expected margin percentage is at least equal to the final percentage margin, within a
tolerance of %, the Group assesses it has a right to payment for its performance throughout the
contract period and recognises revenue over time. In the majority of cases the payment schedule
is sufficiently front-loaded to meet this condition. If the condition is not met the Group recognises
revenue on only completion. In making this judgement the Group has considered the applicable
contract law in the event of a customer seeking to cancel a contact without having the right to
do so and has concluded that the court of law would not necessarily enforce specific contract
performance.
IAS 37.27–28
IAS 1.122
IAS 1.122
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Capitalisation of internally developed software
Distinguishing the research and development phases of a new customised software project and
determining whether the recognition requirements for the capitalisation of development costs
are met requires judgement. After capitalisation, management monitors whether the recognition
requirements continue to be met and whether there are any indicators that capitalised costs may
be impaired (see Note .).
Recognition of deferred tax assets
The extent to which deferred tax assets can be recognised is based on an assessment of the
probability that future taxable income will be available against which the deductible temporary
differences and tax loss carry-forwards can be utilised. In addition, significant judgement is
required in assessing the impact of any legal or economic limits or uncertainties in various tax
jurisdictions (see Note .).
Control assessment
See Note ..
Estimation uncertainty
Telling the COVID Story
Similar to judgements made in the financial statements, there will be areas of estimation that
may have been made in relation to the impact of COVID-. Specific areas are discussed with
their appropriate notes.
Guidance note: Guidance note: IAS explains the overall requirements for disclosures about
estimates. The focus is on assumptions the entity makes about the future, and other major
sources of estimation uncertainty at the end of the reporting period, when there is a significant
risk of a material adjustment within the next financial year.
IAS requires disclosure about the assumptions made and the nature and carrying amounts
of the assets and liabilities affected. It does not prescribe the exact information an entity
should disclose about these assumptions but gives examples including:
• the nature of the assumptions
• sensitivity of carrying amounts
• expected resolution/range of reasonably possible outcomes, and
• changes made to past assumptions.
Some Standards also include disclosure requirements about particular estimates. For example:
• IAS ‘Impairment of Assets’ specifies disclosures about impairment testing
• IAS ‘Provisions, Contingent Liabilities and Contingent Assets’ requires disclosures about
uncertainties and major assumptions affecting provisions
• IFRS ‘Fair Value Measurement’ requires information about how fair values have
been estimated.
IAS 1.125
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Information about estimates and assumptions that may have the most significant effect on
recognition and measurement of assets, liabilities, income and expenses is provided below. Actual
results may be substantially different.
Impairment of non-financial assets and goodwill
In assessing impairment, management estimates the recoverable amount of each asset or cash-
generating unit based on expected future cash flows and uses an interest rate to discount them.
Estimation uncertainty relates to assumptions about future operating results and the determination
of a suitable discount rate (see Note .). In , the Group recognised an impairment loss on
goodwill (see Note ) and internally generated software (see Note ).
Useful lives and residual values of depreciable assets
Management reviews its estimate of the useful lives and residual values of depreciable assets at
each reporting date, based on the expected utility of the assets. Uncertainties in these estimates
relate to technological obsolescence that may change the utility of certain software and IT equipment.
Inventories
Management estimates the net realisable values of inventories, taking into account the most reliable
evidence available at each reporting date. The future realisation of these inventories may be
affected by future technology or other market-driven changes that may reduce future selling prices.
Business combinations
Management uses various valuation techniques when determining the fair values of certain assets
and liabilities acquired in a business combination (see Note .). In particular, the fair value of
contingent consideration is dependent on the outcome of many variables including the acquirees’
future profitability (see Note .).
Construction contract revenue
Recognised amounts of construction contract revenues and related receivables reflect
management’s best estimate of each contract’s outcome and stage of completion. For more
complex contracts in particular, costs to complete and contract profitability are subject to
significant estimation uncertainty (see Note .).
Defined benefit obligation (DBO)
Management’s estimate of the DBO is based on a number of critical underlying assumptions such
as standard rates of inflation, mortality, discount rate and anticipation of future salary increases.
Variation in these assumptions may significantly impact the DBO amount and the annual defined
benefit expenses amount (as analysed in Note .).
Fair value measurement
Management uses various valuation techniques to determine the fair value of financial
instruments (where active market quotes are not available) and non-financial assets. This involves
developing estimates and assumptions consistent with how market participants would price the
instrument. Management bases its assumptions on observable data as far as possible but this is
not always available. In that case, management uses the best information available. Estimated
fair values may vary from the actual prices that would be achieved in an arm’s length transaction
at the reporting date (see Note ).
IAS 1.125
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Leases – determination of the appropriate discount rate to measure lease liabilities
As noted above, the Group enters into leases with third-party landlords and as a consequence the
rate implicit in the relevant lease is not readily determinable. Therefore, the Group uses its incremental
borrowing rate as the discount rate for determining its lease liabilities at the lease commencement
date. The incremental borrowing rate is the rate of interest that the Group would have to pay to
borrow over similar terms which requires estimations when no observable rates are available.
The Group consults with its main bankers to determine what interest rate they would expect to charge
the Group to borrow money to purchase a similar asset to that which is being leased. These rates are,
where necessary, then adjusted to reflect the credit worthiness of the entity entering into the lease
and the specific condition of the underlying leased asset. The estimated incremental borrowing rate
is higher than the parent company for leases entered into by its subsidiary undertakings.
Effect of estimation uncertainty:
The effect of a change in the incremental borrowing rate for leases entered into during the reporting
period is shown in the table below:
This estimate is not revised in future periods and the disclosure is provided for useful information.
5. Acquisitions and disposals
5.1 Acquisition of Goodtech GmbH in 2021
On March , the Group acquired % of the equity instruments of Goodtech GmbH
(Goodtech), a Hamburg (Euroland) based business, thereby obtaining control. The acquisition was
made to enhance the Group’s position in the online retail market for computer and telecommunications
hardware in Euroland. Goodtech is a significant business in Euroland in the Group’s targeted market.
Guidance note: Cross-referencing to external information is a way an entity can refer readers
to complementary data outside the financial statements, for example on the company’s
website. This information is not necessary to comply with its statutory requirements; it is there
as additional information which complements the financial statements. An entity does not
need to state this when providing the cross-reference, it should be obvious from the nature of
the information.
Signposting to information outside the financial statements can include:
• standing data (eg share option terms)
• additional information supporting financial statement disclosures, and
• other connected but not financial data.
IFRS 3.B64 (a-d)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Estimate Change in estimate Eect on right-of-use
asset
Eect on lease liability
Incremental borrowing rate 1% increase in the rate Reduces by CU 1,100 Reduces by CU 1,100
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The details of the business combination as follows:
Consideration transferred
The acquisition of Goodtech was settled in cash amounting to CU ,.
The purchase agreement included an additional consideration of CU ,, payable only if the
average profits of Goodtech for and exceed a target level agreed by both parties. The
additional consideration will be paid on April . The CU of contingent consideration
liability recognised represents the present value of the Group’s probability-weighted estimate of
the cash outflow. It reflects management’s estimate of a % probability that the targets will be
achieved and is discounted using an interest rate of .%
. As at December , there have
been no changes in the estimate of the probable cash outflow but the liability has increased to
CU due to the change in fair value.
IFRS 3.B64 (f)(i)
IFRS 3.B64 (g)(i-iii)
IFRS 3.B64(j)
IFRS 3.B64(m)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 3.B64(f) Fair value of consideration transferred
IFRS 3.B64(f)(i) Amount settled in cash 16,058
IFRS 3.B64(f)(iii) Fair value of contingent consideration 600
IAS 7.40(a) Total 16,658
IFRS 3.B64(i) Recognised amounts of identifiable net assets
IAS 7.40(d) Property, plant and equipment (Note 12) 4,622
Intangible assets (Note 11) 5,255
Investment property (Note 14) 75
Total non-current assets 9,952
Inventories 8,995
Trade and other receivables 7,792
IAS 7.40(c) Cash and cash equivalents 567
Total current assets 17,354
Borrowings (3,478)
Deferred tax liabilities (632)
Total non-current liabilities (4,110)
Provisions (1,320)
Other liabilities (2,312)
Trade and other payables (5,344)
Total current liabilities (8,976)
Identifiable net assets 14,220
Goodwill on acquisition (Note 10) 2,438
IAS 7.40(b) Consideration transferred settled in cash 16,058
IAS 7.40(c) Cash and cash equivalents acquired (567)
IAS 7.42 Net cash outflow on acquisition 15,491
Acquisition costs charged to expenses 223
4
The determination of the acquisition-date fair value of the contingent consideration should consider the expected outcome of the contingency.
This example illustrates one possible approach in estimating the fair value of the contingent consideration.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Acquisition-related costs amounting to CU are not included as part of consideration transferred
and have been recognised as an expense in the consolidated statement of profit or loss, as part of
other expenses.
Identifiable net assets
The fair value of the trade and other receivables acquired as part of the business combination
amounted to CU ,, with a gross contractual amount of CU ,. As of the acquisition date,
the Group’s best estimate of the contractual cash flow not expected to be collected amounted
to CU .
Goodwill
Goodwill of CU , is primarily growth expectations, expected future profitability, the substantial
skill and expertise of Goodtech’s workforce and expected cost synergies. Goodwill has been
allocated to the retail segment and is not expected to be deductible for tax purposes.
Guidance note: If goodwill arising from a business combination has not been fully allocated
to a cash-generating-unit or group of units, an entity shall disclose that fact together with the
reason why that amount remains unallocated.
Goodtech’s contribution to the Group results
Goodtech incurred a loss of CU for the nine months from March to the reporting
date, primarily due to integration costs. Revenue for the nine months to December
was CU ,.
If Goodtech had been acquired on January , revenue of the Group for would have
been CU ,, and profit for the year would have increased by CU ,.
5.2 Acquisition of Good Buy Inc. in 2020
On June , the Group acquired % of the equity instruments of Good Buy Inc. (Good
Buy), a Delaware (USA) based business, thereby obtaining control. The acquisition of Good Buy was
made to enhance the Group’s position as an online retailer for computer and telecommunications
hardware in the US market.
IFRS 3.B64 (h)(i-iii)
IFRS 3.B64(e)
IFRS 3.B64(k)
IFRS 3.B64 (q)(i-ii)
IFRS 3.B64 (a-d)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The details of the business combination are as follows:
Consideration transferred
The acquisition of Good Buy was settled in cash amounting to CU ,.
Acquisition-related costs amounting to CU are not included as part of consideration transferred
and have been recognised as an expense in the consolidated statement of profit or loss, as part of
other expenses.
Identifiable net assets
The fair value of the trade and other receivables acquired as part of the business combination
amounted to CU ,, with a gross contractual amount of CU ,. As of the acquisition date,
the Group’s best estimate of the contractual cash flow not expected to be collected amounted
to CU .
Goodwill
Goodwill of CU , is primarily the sales force and the sales know-how of key personnel. Goodwill
has been allocated to the retail segment and is not expected to be deductible for tax purposes.
IFRS 3.B64(f)(i)
IFRS 3.B64(m)
IFRS 3.B64 (h)(i-iii)
IFRS 3.B64(e)
IFRS 3.B64(k)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 3.B64(f) Fair value of consideration transferred
IFRS 3.B64(f)(i)
IAS 7.40(a)
Amount settled in cash 12,420
IFRS 3.B64(i) Recognised amounts of identifiable net assets
IAS 7.40(d) Property, plant and equipment (Note 12) 3,148
Intangible assets (Note 11) 3,005
Total non-current assets 6,153
Inventories 5,469
Trade and other receivables 5,200
IAS 7.40(c) Cash and cash equivalents 345
Total current assets 11,014
Deferred tax liabilities (435)
Total non-current liabilities (435)
Provisions (1,234)
Other liabilities (657)
Trade and other payables (4,990)
Total current liabilities (6,881)
Identifiable net assets 9,851
Goodwill on acquisition (Note 10) 2,569
IAS 7.40(b) Consideration transferred settled in cash 12,420
IAS 7.40(c) Cash and cash equivalents acquired (345)
IAS 7.42 Net cash outflow on acquisition 12,075
Acquisition costs charged to expenses 76
Good Buy’s contribution to the Group results
Good Buy contributed CU , of revenue and CU to the consolidated profit for the six months
from July to December . If Good Buy had been acquired on January ,
revenue of the Group for would have been CU ,. However, due to lack of IFRS-specific
data prior to the acquisition of Good Buy, pro-forma profit or loss of the combined entity for the
complete reporting period cannot be determined reliably.
5.3 Disposal of Highstreet Ltd in 2021
See Note . below.
6. Interests in subsidiaries
6.1 Composition of the Group
Set out below are the details of the subsidiaries held directly by the Group:
Significant judgements and assumptions
The Group holds % of the ordinary shares and voting rights in Equipe Consultants S.A. (Equipe).
Two other investors each hold %. The remaining % is held by several other unrelated
investors, none of whom own more than % individually. There are no arrangements for the other
shareholders to consult one another or act collectively and past experience indicates that few of the
other owners actually exercise their voting rights at all. The Group has appointed four of Equipe’s
Board of Directors out of a total of eleven.
Management has reassessed its involvement in Equipe in accordance with IFRS ’s control
definition and guidance. It has concluded it has significant influence but not outright control. In
making its judgement, management considered the Group’s voting rights, the relative size and
dispersion of the voting rights held by other shareholders and the extent of recent participation by
those shareholders in general meetings. Recent experience demonstrates that a sufficient number
of the smaller shareholders participate in such a way that they, along with the two other main
shareholders, have prevented the Group from having the practical ability to direct the relevant
activities of Equipe unilaterally.
IFRS 3.B64 (q)(i-ii)
IFRS 12.10(a)(i)
IFRS 12.12
IFRS 12.7
IFRS 12.9
IFRS 10.5–7
IFRS 10.B41-B46
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Name of the
Subsidiary
Country of
incorporation
and principal
place of business
Principal activity Proportion of
ownership interests
held by the Group at
period-end
2021 2020
Goodtech GmbH Euroland
On-line retailer of computer and
telecommunications hardware
100% –
Good Buy Inc. USA
On-line retailer of computer and
telecommunications hardware
100% 100%
Tech Squad Ltd Euroland
Design and sale of phone and intranet
applications
80% 80%
Data Corp UK
On-line sales of hardware and software
products
100% 100%
Highstreet Ltd UK
Design and sale of phone and intranet
applications
– 100%
6.2 Subsidiary with material non-controlling interests
The Group includes one subsidiary, Tech Squad Ltd, with material
non-controlling interests (NCI):
No dividends were paid to the NCI during the years ended December and .
Summarised financial information for Tech Squad Ltd, before intragroup eliminations, is set
out below:
IFRS 12.12(a)
IFRS 12.B10(a)
IFRS 12.12(g)
IFRS 12.B10(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Name Proportion of ownership
interests and voting rights
held by the NCI
Total comprehensive
income allocated to NCI
Accumulated NCI
2021 2020 2021 2020 2021 2020
Tech Squad Ltd 20% 20% 121 116 713 592
5
For the purposes of Illustrative Corporation Group it is assumed that the NCI are material to the Group. The thresholds are not intended to indicate
what could be material to other entities.
2021 2020
IFRS 12.B10(b) Non-current assets 5,019 5,182
Current assets 3,924 3,452
Total assets 8,943 8,634
Non-current liabilities (3,806) (3,402)
Current liabilities (1,561) (2,268)
Total liabilities (5,367) (5,670)
Equity attributable to owners of the parent 2,863 2,372
Non-controlling interests 713 592
2021 2020
Revenue 7,658 7,116
Profit for the year attributable to owners of the parent 479 464
Profit for the year attributable to NCI 121 116
Profit for the year 600 580
Other comprehensive income for the year
(all attributable to owners of the parent)
6 4
Total comprehensive income for the year attributable to owners
of the parent
485 468
Total comprehensive income for the year attributable to NCI 121 116
Total comprehensive income for the year 606 584
2021 2020
Net cash from operating activities 957 779
Net cash used in investing activities (531) (673)
Net cash from (used in) financing activities 446 (61)
Net cash inflow 872 45
6.3 Losing control over a subsidiary during the reporting period
On September , the Group disposed of its % equity interest in its subsidiary, Highstreet
Ltd (Highstreet). The subsidiary was classified as held for sale in the consolidated financial
statements (see Note ).
The consideration was received fully in cash in . At the date of disposal, the carrying amounts
of Highstreet’s net assets were as follows:
The loss on disposal is included in the loss for the year from discontinued operations in the
consolidated statement of profit or loss. See Note .
6.4 Interests in unconsolidated structured entities
The Group has no interests in unconsolidated structured entities.
IAS 7.40(b)
IFRS 12.19(b)
IFRS 12.24
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IAS 7.40(d)
Property, plant and equipment 2,475
Total non-current assets 2,475
Inventories 1,121
IAS 7.40(c) Cash and cash equivalents –
Total current assets 1,121
Provisions (232)
Borrowings (8)
Trade and other payables (210)
Total current liabilities (450)
Total net assets 3,146
IAS 7.40(a) Total consideration received in cash 3,117
Cash and cash equivalents disposed of –
IAS 7.42 Net cash received 3,117
IFRS 10.25 Loss on disposal (29)
7. Investments accounted for using the equity method
Telling the COVID Story
An entity needs to determine whether there is any objective evidence that indicates there is
an impairment in either investments in associates or joint ventures in accordance with IAS
‘Investments in Associates and Joint Ventures’. This could be a result of the effects of COVID-
and could impact the estimated future cash flows from the net investment. Anticipated future
losses are not recognised, no matter how likely. Objective evidence the net investment in the
joint venture or the associate is impaired includes data the entity might have observed about
the following loss events:
• significant financial difficulty of the associate or joint venture
• a breach of contract, (eg failing to pay) by the associate or joint venture
• the entity granting to the associate or joint venture a concession that the entity would not
otherwise consider
• its probable the associate or joint venture will become bankrupt or undergo a financial
reorganisation, or
• the active market for the net investment disappears because of financial difficulties of the
associate or joint venture.
7.1 Investment in joint venture
The Group has one material joint venture, Halftime Ltd (Halftime):
The investment in Halftime is accounted for using the equity method in accordance with IAS .
IFRS 12.21(a)
IFRS 12.21(b)(i)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Name of the joint
venture
Country of
incorporation
and principal
place of business
Principal activity Proportion of
ownership interests
held by the Group
at year end
2021 2020
Halftime Ltd UK
On-line sales of hardware and software
products
50% 50%
Summarised financial information for Halftime is set out below:
A reconciliation of the above summarised financial information to the carrying amount of the
investment in Halftime is set out below:
No dividends were received from Halftime during the years ended December and .
Halftime is a private company; therefore no quoted market prices are available for its shares.
The Group has no additional commitments relating to Halftime.
7.2 Investments in associates
The Group has a % equity interest in Equipe and a % equity interest in Shopmore GmbH.
Neither associate is individually material to the Group.
Summarised aggregated financial information of the Group’s share in these associates is as follows:
IFRS 12.21(b)(ii)
IFRS 12.B12-B13
IFRS 12.B14
IFRS 12.B12(a)
IFRS 12.21(b)(iii)
IFRS 12.23
IFRS 12.21(c)
IFRS 12.B16
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IFRS 12.B12(b)(ii) Non-current assets 838 500
IFRS 12.B12(b)(i) Current assets
(a)
528 380
Total assets 1,366 880
IFRS 12.B12(b)(iv) Non-current liabilities
(b)
(240) (298)
IFRS 12.B12(b)(iii) Current liabilities
(c)
(160) (138)
Total liabilities (400) (436)
IFRS 12.B14 Net assets 966 444
IFRS 12.B13(a) (a) Includes cash and cash equivalents 60 80
IFRS 12.B13(c) (b) Includes financial liabilities (excluding trade and other payables and provisions) (100) –
IFRS 12.B13(b) (c) Includes financial liabilities (excluding trade and other payables and provisions) (80) –
2021 2020
IFRS 12.B12(b)(v) Revenue 1,200 730
IFRS 12.B12(b)(vi)
IFRS 12.B12(b)(ix)
Profit and total comprehensive income for the year 522 258
IFRS 12.B13(d) Depreciation and amortisation 30 20
IFRS 12.B13(g) Tax expense 68 58
2021 2020
Total net assets of Halftime 966 444
Proportion of ownership interests held by the Group 50% 50%
Carrying amount of the investment in Halftime 483 222
2021 2020
IFRS 12.B16(a) Profit from continuing operations 130 12
IFRS 12.B16(c) Other comprehensive income 2 –
Total comprehensive income 132 12
IFRS 12.B16 Aggregate carrying amount of the Group’s interests in these associates 377 245
8. Revenue
Telling the COVID Story
The revenue of an entity might have declined as a result of the spread of the virus and the
economic impact. By contrast, in some instances, revenue might have increased.
If an entity’s contracts with its customers include variable components (eg discounts), the
entity must consider whether its previous estimates in this regard continue to be appropriate.
IFRS ‘Revenue from Contracts with Customers’ provides extensive guidance around
variable consideration and the related constraint. It may be necessary for an entity to begin
constraining its variable revenue even if this was not considered necessary prior to the COVID-
pandemic.
As a result of COVID-, an entity might:
• run a promotion in order to help maintain cash flows during temporary closure (eg some
service-based businesses, like gyms, are offering customers a discount if they prepay for
future services)
• offer refunds or credits to its customers for goods or services that cannot be used during
this period of crisis (eg hotels or event venues, travel agencies, gyms), and/or
• increase the sales of gift cards that can be used at a later date when the crisis is over.
An entity should review its revenue accounting policies and estimates to make sure they are still
applicable given the current circumstances.
Where goods and services have been or are being rendered to customers who are either
based in regions impacted by COVID- or industries significantly impacted by the virus, an
entity will need to assess whether collection is probable while evaluating new contracts. In the
absence of such probability, an entity may not be able to recognise revenue until or unless
payment is received and becomes non-refundable, because such contracts are unlikely to
meet the criteria to apply the normal IFRS approach.
Certain revenue contracts may also become less profitable, or even loss-making. For example,
an entity might face penalties as a result of delays or incur increased costs that cannot be
recovered due to replacing employees or finding alternative suppliers. Management needs to
consider whether any contracts are in an ‘onerous’ position and whether a liability needs to be
recognised.
For more information of accounting for revenue during the pandemic refer to our article ‘Five
accounting considerations relating to COVID-’.
For , revenue includes CU , (: CU ,) included in the contract liability balance at
the beginning of the reporting period, and CU (: CU ) from performance obligations
satisfied (or partially satisfied) in previous periods due to changes in transaction price.
Guidance note: As the Group does not enter into contracts with its customers where, once
performance has occurred, the Group’s right to consideration is dependent on anything other
than the passage of time, the Group does not presently have any contract assets.
For purposes of these Example Financial Statements, it is assumed that changes to the
Group’s contract liabilities (ie deferred revenue) are attributable solely to the satisfaction of
performance obligations. For other entities, where contract liability balances are affected by
other significant factors, IFRS . requires these changes to be explained. For example,
changes due to business combinations or a change in the time frame required for
a performance obligation to be satisfied.
IFRS 15.116
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The Group’s revenue disaggregated by primary geographical markets is as follows:
The Group’s revenue disaggregated by pattern of revenue recognition is as follows:
The following aggregated amounts of transaction prices relate to the performance obligations from
existing contracts that are unsatisfied or partially unsatisfied as at December :
Prepayments and other assets contain both deferred IT set-up costs and prepayment. IT set-up
costs comprise between % and % of the total labour and materials costs incurred.
IFRS 15.115
IFRS 15.120
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 15.115 For the year ended 31 December 2021
Consulting Service Retail Other Total
Euroland (domicile) 88,648 14,512 57, 678 2,943 163,781
United Kingdom 11,081 1,814 7,210 368 20,473
USA 9,973 1,633 6,489 331 18,426
Other countries 1,108 181 721 37 2,047
Total 110,810 18,140 72,098 3,679 204,727
IFRS 15.115 For the year ended 31 December 2020
Consulting Service Retail Other Total
Euroland (domicile) 87,442 14,266 46,143 3,004 150,855
United Kingdom 10,930 1,783 5,768 376 18,857
USA 9,837 1,605 5,191 338 16,971
Other countries 1,093 178 2,208 38 3,517
Total 109,302 17,832 59,310 3,756 190,200
IFRS 15.115 For the year ended 31 December 2021
Consulting Service Retail Other Total
Goods transferred
at a point in time
24,378 3,991 15,862 809 45,040
Services transferred
over time
86,432 14,149 56,236 2,870 159,687
Total 110,810 18,140 72,098 3,679 204,727
IFRS 15.115 For the year ended 31 December 2020
Consulting Service Retail Other Total
Goods transferred
at a point in time
24,047 3,923 13,048 826 41,844
Services transferred
over time
85,255 13,909 46,262 2,930 148,356
Total 109,302 17,832 59,310 3,756 190,200
2022 2023 Total
Revenue expected to be recognised 1,575 788 2,363
31 December
2021
31 December
2020
Current
Deferred customer set-up costs 109 107
Prepayments 297 315
Other current assets 406 422
Non-current
Deferred customer set-up costs 185 160
Total 591 582
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
9. Segment reporting
Management currently identifies the Group’s three service lines as its operating segments (see Note
.). The Group’s Chief Operating Decision Maker (CODM) is its chief executive and she monitors
the performance of these operating segments as well as deciding on the allocation of resources to
them. Segmental performance is monitored using adjusted segment operating results.
In addition, two minor operating segments are combined below under other segments. The main
sources of revenue for this segment is the sale and disposal of used IT equipment the Group collects
from its customers.
Guidance note: IFRS ‘Operating Segments’ requires the amount of each operating segment
item to be disclosed using the measures reported to the chief operating decision maker (ie
based on internal management information). The disclosures in these Example Financial
Statements are therefore based on substantial assumptions, and so cannot be viewed
as the only acceptable way of providing segment disclosures. It is therefore important to
emphasise that segment reporting should be tailored to reflect the basis of the entity’s internal
management reporting.
Segment information for the reporting period is as follows:
IFRS 8.22(a)
IFRS 8.16
For the year ended 31 December 2021
Consulting Service Retail Other Total
Revenue
IFRS 8.23(a)
From external
customers
110,810 18,140 72,098 3,679 204,727
Discontinued operations – – 9,803 – 9,803
IFRS 8.23(b) From other segments 231 – – – 231
Segment revenues 111,041 18,140 81,901 3,679 214,761
Changes in inventories (4,794) (3,129) (7,923)
IFRS 8.23(f) Costs of materials (17,368) (5,442) (22,040) (1,398) (46,248)
IFRS 8.23(f)
Employee benefits
expense
(58,164) (9,694) (43,799) (2,154) (113,811)
IFRS 8.23(e)
Depreciation and
amortisation of
non-financial assets
(3,922) (1,104) (3,273) (125) (8,424)
IAS 36.129(a)
Impairment of
non-financial assets
(1,669) – – – (1,669)
IFRS 8.23(f) Other expenses (5,911) (30) (1,333) (10) (7,284)
IFRS 8.23
Segment operating
profit
19,213 1,870 8,327 (8) 29,402
IFRS 8.23 Segment assets 75,057 18,326 56,107 2,521 152,011
IFRS 8.23 Segment liabilities 32,494 16,316 28,673 1,185 78,668
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The Group’s non-current assets (other than financial instruments, investments accounted for using
the equity method, deferred tax assets and post-employment benefit assets) are located into the
following geographic regions:
Non-current assets are allocated based on their physical location. The above table does not
include discontinued operations (disposal groups), for which revenue and assets can be attributed
to Euroland.
Revenues from external customers in the Group’s domicile, Euroland, as well as its major markets,
the United Kingdom and the USA, have been identified on the basis of the customer’s geographical
location and are disclosed in Note .
During , CU , or % (: CU , or %) of the Group’s revenues depended on a
single customer in the consulting segment.
IFRS 8.33(a)
IFRS 8.34
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
For the year ended 31 December 2020
Consulting Service Retail Other Total
Revenue
IFRS 8.23(a)
From external
customers
109,302 17,832 59,310 3,756 190,200
Discontinued operations – – 11,015 – 11,015
IFRS 8.23(b) From other segments 110 – – – 110
Segment revenues 109,412 17,832 70,325 3,756 201,325
Changes in inventories (4,123) – (2,692) – (6,815)
IFRS 8.23(f) Costs of materials (17,737) (5,350) (18,734) (1,315) (43,136)
IFRS 8.23(f)
Employee benefits
expense
(58,487) (9,542) (38,148) (2,010) (108,187)
IFRS 8.23(e)
Depreciation and
amortisation of
non-financial assets
(3,578) (596) (3,084) (133) (7,391)
IAS 36.129(a)
Impairment of
non-financial assets
(190) – – – (190)
IFRS 8.23(f) Other expenses (9,213) (100) (1,761) (20) (11,094)
IFRS 8.23
Segment operating
profit
16,084 2,244 5,906 278 24,512
IFRS 8.23 Segment assets 58,097 15,100 48,442 1,911 123,550
IFRS 8.23 Segment liabilities 29,763 14,994 29,110 1,095 74,962
IFRS 8.33(b) 31 December 2021 31 December 2020
Euroland (domicile) 45,991 40,170
United Kingdom 5,749 5,021
USA 5,174 4,519
Other countries 575 502
Total 57,489 50,212
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The totals presented for the Group’s operating segments reconcile to the key financial figures as
presented in its consolidated financial statements as follows:
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IFRS 8.28(a) Revenues
Total reportable segment revenues 211,082 197,569
Other segment revenues 3,679 3,756
Discontinued operations (9,803) (11,015)
Elimination of intersegment revenues (231) (110)
204,727 190,200
Rental income from investment property 1,066 1,028
Group revenues 205,793 191,228
IFRS 8.28(b) Profit or loss
Total reportable segment operating profit 29,410 25,637
Other segment profit (8) 278
Rental income from investment property 1,066 1,028
Change in fair value of investment property 310 175
Share-based payment expenses
(298) (466)
Post-employment benefit expenses (5,799) (7,273)
Research and development costs (1,690) (1,015)
Other income not allocated 676 341
Other expenses not allocated (304) (263)
Operating profit of discontinued operations (73) (106)
Elimination of intersegment profits (58) (27)
Group operating profit 23,232 18,309
Share of profits from equity accounted investments 391 141
Finance costs (3,869) (3,993)
Finance income 964 885
Other financial items 943 1,182
Group profit before tax 21,661 16,524
31 December
2021
31 December
2020
IFRS 8.28(c) Assets
Total reportable segment assets 149,490 121,639
Other segment assets 2,521 1,911
Group headquarters 3,925 2,127
Investment property 12,662 12,277
Illustrative Research Lab 5,046
2,735
Other assets 3,364 2,080
Consolidation (1,018) (378)
Group assets 175,990 142,391
31 December
2021
31 December
2020
IFRS 8.28(d) Liabilities
Total reportable segment liabilities 77,483 73,867
Other segment liabilities 1,185 1,095
Pension and employee obligations 11,853 15,138
Group liabilities 90,521 90,100
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Unallocated operating income and expense mainly consist of research expenditure as well as
post-employment benefits expenses. The Group’s corporate assets, consisting of its headquarters,
investment properties and research facility, are not allocated to any segment’s assets.
An analysis of the Group’s revenue from external customers for each major product and service
category (excluding revenue from discontinued operations) is as follows:
10. Goodwill
Telling the COVID Story
Goodwill is required to be tested at least annually for impairment. COVID- could impact
goodwill through:
• a loss of key personnel that is other than temporary (eg death)
• the testing for write-down or impairment of a significant asset group
• the recognition of a goodwill impairment loss in an investee’s separate financial
statements, or
• a significant decline in the entity’s share price which could result in the carrying amount of
the entity’s net assets exceeding its market capitalisation
In addition, the factors noted in Note Other intangible assets may also be relevant when
considering whether there is any impairment in goodwill.
Whilst IFRS requires a best estimate to be made, multiple scenarios around the best
estimate should be evaluated and information about them should be disclosed. In addition,
the interaction of the discount rate needs to be carefully assessed, in light of the level of
uncertainty involved.
Accounting for impairment of goodwill is discussed further in our article ‘Impairment of
intangible assets and goodwill’.
It is also important to note, if an entity provides for impairment of goodwill in an interim period
as a result of COVID-, this amount cannot be reversed at the end of the reporting period,
in accordance with IFRIC ‘Interim Financial Reporting and Impairment’. Additionally, if an
entity performed impairment testing in the interim report, it could be relevant and useful to
explain any changes in the key assumptions.
IFRS 8.28
IFRS 8.32
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
Sale of hardware 47,585 39,145
Sale of software 24,513 20,165
Other 3,679 3,756
Sale of goods 75,777 63,066
After-sales service and maintenance 18,140 17,832
Consulting 59,837 60,116
Construction contracts for telecommunication systems 50,973 49,186
IAS 40.75(f) Investment property rental 1,066 1,028
Rendering of services 130,016 128,162
Group revenue 205,793 191,228
IFRS 3.B67(d)
IAS 36.80
IAS 36.134(c-d)
IAS 36.130(e)
The movements in the net carrying amount of goodwill are as follows:
Impairment testing
For the purpose of annual impairment testing, goodwill is allocated to the operating segments
expected to benefit from the synergies of the business combinations in which the goodwill arises as
set out below, and is compared to its recoverable value:
The recoverable amount of each segment was determined based on value-in-use calculations,
covering a detailed three-year forecast, followed by an extrapolation of expected cash flows for the
remaining useful lives using a declining growth rate determined by management. The present value
of the expected cash flows of each segment is determined by applying a suitable discount rate
reflecting current market assessments of the time value of money and risks specific to the segment.
Growth rates
The growth rates reflect the long-term average growth rates for the product lines and industries of
the segments (all publicly available). The growth rate for online retailing exceeds the overall long-
term average growth rates for Euroland because this sector is expected to continue to grow at
above-average rates for the foreseeable future.
Discount rates
The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of
each segment.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Goodwill allocated to operating segments 31 December
2021
31 December
2020
IAS 36.134(a) Retail 4,796 2,493
Consulting 245 1,044
5,041 3,537
Recoverable amount of each operating segment 31 December
2021
31 December
2020
Retail 41,835 30,679
Consulting 62,562 48,354
Growth rates Discount rates
2021 2020 2021 2020
Retail 3.0% 3.0% 9.3% 9.5%
Consulting 0.1% 0.5% 10.9% 10.1%
2021 2020
Gross carrying amount
IFRS 3.B67(d)(i) Balance 1 January 3,727 1,234
IFRS 3.B67(d)(ii) Acquired through business combination 2,438 2,569
IFRS 3.B67(d)(vi) Net exchange dierence (135) (76)
IFRS 3.B67(d)(viii) Balance 31 December 6,030 3,727
Accumulated impairment
IFRS 3.B67(d)(i) Balance 1 January (190) –
IFRS 3.B67(d)(v) Impairment loss recognised (799) (190)
IFRS 3.B67(d)(vi) New exchange dierence – –
IFRS 3.B67(d)(viii) Balance 31 December (989) (190)
Carrying amount at 31 December 5,041 3,537
Cash flow assumptions
Retail segment
Management’s key assumptions include stable profit margins, based on past experience in this
market. The Group’s management believes this is the best available input for forecasting this mature
market. Cash flow projections reflect stable profit margins achieved immediately before the most
recent budget period. No expected efficiency improvements have been taken into account and
prices and wages reflect publicly available forecasts of inflation for the industry.
Consulting segment
The forecast was adjusted in for the decline in consulting services related to conventional
telecommunication solutions. The market shifted considerably towards inter- and intranet based
solutions during and continued in . As a result, management expects lower growth and
moderately declining profit margins for this segment.
Impairment testing, taking into account these latest developments, resulted in the further
reduction of goodwill in to its recoverable amount. See Note for the impairment of other
intangible assets.
The related goodwill impairment loss of CU in (: CU ) was included within
depreciation, amortisation and impairment of non-financial assets.
The estimate of recoverable amount for the consulting segment is particularly sensitive to the
discount rate. If the discount rate used is increased by %, a further impairment loss of CU
would have to be recognised, of which CU would be written off against goodwill and
CU against property, plant and equipment. Management is not currently aware of any other
reasonably possible changes to key assumptions that would cause the carrying amount of the
consulting segment to exceed its recoverable amount.
11. Other intangible assets
Telling the COVID Story
An entity is required to test its assets for impairment when indicators of impairment are
present, and at least annually for indefinite-lived intangibles, and a test should be performed
in response to these indicators. Although some indicators of impairment are based on internal
information (eg damage to a tangible capital asset, plans to remove the asset from use), others
are triggered by events and circumstances external to the entity. Below are some examples of
indicators of impairment that may exist as a result of the economic conditions caused by the
spread of COVID-:
• significant changes in the extent or manner in which the asset is used or is expected to be
used (eg idling of a machine such that its future productive capacity may be affected, a
machine being used in a manner different from its intended purpose—such as to produce
items to support the battle against COVID-—which may reduce its future productive
capacity)
• significant changes in the legal factors or business climate that could affect the value of
the asset (eg an entity expects a decrease in its exports to a particular foreign market as a
result of lengthy border closings)
• an increase in market interest rates which would cause a decrease in the asset’s value in
use, or
• a decline in, or cessation of, the need for the services provided by the asset.
Accounting for impairment of intangible assets is discussed further in our article ‘Impairment
of intangible assets and goodwill’
IAS 36.134(d)(i)
IAS 36.134(d)(ii)
IAS 36.130(a)
IAS 36.130(d)
IAS 36.134(d)(i)
IAS 36.134(d)(ii)
IAS 38.118(d)
IAS 36.134(f)
IAS 1.125
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Details of the Group’s other intangible assets and their carrying amounts are as follows:
Additions to internally developed software include capitalised borrowing costs of CU (:
CU ). In addition, research and development costs of CU , (: CU ,) were recognised
as other expenses.
An impairment loss of CU (: Nil) was recognised for internally developed software used
to provide certain after-sales and maintenance services within the consulting segment (see
Note ). The recoverable amount of the asset is its value-in-use, determined using management’s
expectation the market will shift considerably towards other alternative software products and will
significantly reduce future revenues and profits in the next two to three years (see Note for the
growth and discount rates used). Should the shift in the market to other software products occur
more rapidly, the carrying amount of the software of CU (: CU ) would be reduced
to CU Nil.
IAS 23.8
IAS 38.126
IAS 36.130(b)
IAS 36.130(c)(i)
IAS 36.130(c)(ii)
IAS 36.130(a)
IAS 36.130(e)
IAS 36.130(g)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Acquired
software
licenses
Internally
developed
software
Brand
names
Customer
lists
Total
IAS 38.118 Gross carrying amount
IAS 38.118(c) Balance at 1 January 2021 13,608 14,794 760 374 29,536
IAS 38.118(e)(i) Additions, separately acquired 440 – – – 440
IAS 38.118(e)(i) Additions, internally developed – 3,306 – – 3,306
IAS 38.118(e)(i) Acquisition through business combination 3,653 – 215 1,387 5,255
IAS 38.118(e)(ii) Disposals (1,159) – – – (1,159)
IAS 38.118(e)(vii) Net exchange dierences (73) (54) – – (127)
IAS 38.118(c) Balance at 31 December 2021 16,469 18,046 975 1,761 3 7, 2 51
Amortisation and impairment
IAS 38.118(c) Balance at 1 January 2021 (6,063) (9,381) (162) (89) (15,695)
IAS 38.118(e)(vi) Amortisation (1,978) (1,315) (125) (110) (3,528)
IAS 38.118(e)(iv) Impairment losses – (870) – – (870)
IAS 38.118(e)(ii) Disposals 350 – – – 350
IAS 38.118(e)(vii) Net exchange dierences (48) (36) – – (84)
IAS 38.118(c) Balance at 31 December 2021 (7,739) (11,602) (287) (199) (19,827)
Carrying amount 31 December 2021 8,730 6,444 688 1,562 17,424
Acquired
software
licenses
Internally
developed
software
Brand
names
Customer
lists
Total
IAS 38.118 Gross carrying amount
IAS 38.118(c) Balance at 1 January 2020 8,672 14,600 – – 23,272
IAS 38.118(e)(i) Additions, separately acquired 3,097 – – – 3,097
IAS 38.118(e)(i) Additions, internally developed – 216 – – 216
IAS 38.118(e)(i) Acquisition through business combination 1,859 – 768 378 3,005
IAS 38.118(e)(vii) Net exchange dierences (20) (22) (8) (4) (54)
IAS 38.118(c) Balance at 31 December 2020 13,608 14,794 760 374 29,536
Amortisation and impairment
IAS 38.118(c) Balance at 1 January 2020 (4,442) (8,166) – – (12,608)
IAS 38.118(e)(vi) Amortisation (1,607) (1,201) (156) (87) (3,051)
IAS 38.118(e)(vii) Net exchange dierences (14) (14) (6) (2) (36)
IAS 38.118(c) Balance at 31 December 2020 (6,063) (9,381) (162) (89) (15,695)
Carrying amount 31 December 2020 7,545 5,413 598 285 13,841
All amortisation and impairment charges are included within depreciation, amortisation and
impairment of non-financial assets.
During the year ended December , the Group entered into an agreement to acquire enterprise
resource planning software, to support the planning and administration of the Group’s operations.
Minimum contractual commitments resulting from this agreement are CU payable during .
There are no other material contractual commitments at December (: None).
12. Property, plant and equipment
Telling the COVID Story
The factors noted in ‘Note Other intangible assets’ also apply to this component of the
financial statements.
Details of the Group’s property, plant and equipment and their carrying amounts are as follows:
IAS 38.118(d)
IAS 38.122(e)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Land Buildings IT
equipment
Other
equipment
Total
Gross carrying amount
IAS 16.73(d) Balance 1 January 2021 7,697 14,499 4,379 2,334 28,909
IAS 16.73(e)(i) Additions – 76 – – 76
IAS 16.73(e)(iii) Acquisition through business combination 730 1,221 2,306 365 4,622
IAS 16.73(e)(ii) Disposals – (401) – – (401)
IAS 16.73(e)(iv) Revaluation increase 303 – – – 303
IAS 16.73(e)(viii) Net exchange dierences (21) (81) (79) (54) (235)
IAS 16.73(d) Balance at 31 December 2021 8,709 15,314 6,606 2,645 33,274
Depreciation and impairment
IAS 16.73(d) Balance at 1 January 2021 – (11,019) (783) (913) (12,715)
IAS 16.73(e)(ii) Disposals – 315 – – 315
IAS 16.73(e)(viii) Net exchange dierences – (54) (53) (36) (143)
IAS 16.73(e)(vii) Depreciation – (954) (641) (530) (2,125)
IAS 16.73(d) Balance 31 December 2021 – (11,712) (1,477) (1,479) (14,668)
Carrying amount 31 December 2021 8,709 3,602 5,129 1,166 18,606
All depreciation and impairment charges are included within depreciation, amortisation and
impairment of non-financial assets.
Land and buildings have been pledged as security for the Group’s other bank borrowings (see
Note .).
The Group has a contractual commitment to acquire IT equipment of CU , payable in .
There were no other material contractual commitments to acquire property, plant and equipment at
December (: None).
The Group has no capital work in progress at December . (: Nil)
If the cost model had been used, the carrying amounts of the revalued land, including the fair value
adjustment upon acquisition of Goodtech, would be CU , (: CU ,). The revalued
amounts include a revaluation surplus of CU , before tax (: CU ), which is not
available for distribution to the shareholders of Illustrative Corporation.
Fair value measurement of the land
See Note ..
IAS 36.126(a)
IAS 16.74(a)
IFRS 7.14(a)
IAS 16.74(c)
IAS 16.77(e)
IAS 16.77(f)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Land Buildings IT
equipment
Other
equipment
Total
Gross carrying amount
IAS 16.73(d) Balance 1 January 2020 7,697 18,204 3,116 966 29,983
IAS 16.73(e)(i) Additions – 1,001 1,390 890 3,281
IAS 16.73(e)(iii) Acquisition through business combination – – 2,310 838 3,148
IAS 16.73(e)(ii) Held for sale or included in disposal group – (4,598) (2,422) (348) (7,368)
IAS 16.73(e)(viii) Net exchange dierences – (108) (15) (12) (135)
IAS 16.73(d) Balance at 31 December 2020 7,697 14,499 4,379 2,334 28,909
Depreciation and impairment
IAS 16.73(d) Balance 1 January 2020 – (12,164) (1,334) (551) (14,049)
IAS 16.73(e)(viii) Net exchange dierences – (72) (10) (8) (90)
IAS 16.73(e)(ii) Held for sale or included in disposal group – 3,200 990 200 4,390
IAS 16.73(e)(vii) Depreciation – (1,983) (429) (554) (2,966)
IAS 16.73(d) Balance 31 December 2020 – (11,019) (1,783) (913) (12,715)
Carrying amount 31 December 2020 7,697 3,480 3,596 1,421 16,194
13. Leases
Telling the COVID Story
Lessee accounting
• Lease modifications – If the entity meets the criteria and chooses to adopt the practical
expedient, the amendments require the entity to disclose:
– The fact it has applied the practical expedient to all its rent concessions, or if only some
of them, a description of the nature of the contract it has applied the practical expedient
to, and
– The amount in profit or loss for the reporting period that reflects the change in lease
payments arising from rent concessions (as a result of applying the practical expedient)
if that amount is material. The Group did not have any leases impacted by the
amendment.
• Determining the incremental borrowing rate (IBR) – It is often necessary for a lessee to
calculate an IBR in order to account for most leases under IFRS. Due to the impact of the
COVID- pandemic, including changes to interest rates and to the entity’s own credit risk,
this rate may need to be reconsidered.
• Government concessions – In many jurisdictions, government concessions have been
provided on leases. Consideration needs to be given as to whether these are lease
modifications or government grants.
• Impairment of right-of-use assets – If any of the right-of-use assets have indicators of
impairment (for example, if the entity decided not to utilise the space it had leased) then the
entity should test them for impairment.
Lessor accounting
• Lease modifications – There are likely be significant lease modifications for lessors but
there is no practical expedient in place. For operating leases, IFRS provides only limited
guidance on the modification of operating leases from a lessor’s perspective. It requires that
any modification be considered a new lease, and that any remaining prepayments and
accruals are included in the accounting for this new lease. IFRS does not state whether
balances arising from the lessor’s straight-lining calculation are considered to be accruals
or prepayments but our view, consistent with the approach when applying IAS ‘Leases’,
is that they are.
• In such an instance, if the new lease continues to be classified as operating, the future
cash flows are recognised on a straight line (or other systematic) basis, adjusted for any
prepayments or accruals. The expense recognition pattern should ensure the balance is
written down to zero at the end of the lease.
For more information, refer to our article COVID- Accounting for lease modifications.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 16.47(a)(ii) Buildings IT
equipment
Total
Gross carrying amount
Balance 1 January 2021 33,163 2,967 36,130
Additions – – –
Disposals – – –
Balance at 31 December 2021 33,163 2,967 36,130
Depreciation and impairment
Balance at 1 January 2021 (3,015) (910) (3,925)
Disposals – – –
IFRS 16.53(a) Depreciation (2,236) (435) (2,671)
Balance 31 December 2021 (5,251) (1,345) (6,596)
IFRS 16.53(j) Carrying amount 31 December 2021 27,912 1,622 29,534
Buildings IT
equipment
Total
Gross carrying amount
Balance 1 January 2020 33,163 2,967 36,130
Additions – – –
Disposals – – –
Balance at 31 December 2020 33,163 2,967 36,130
Depreciation and impairment
Balance at 1 January 2020 (780) (471) (1,251)
IFRS 16.53(a) Depreciation (2,235) (439) (2,674)
Balance 31 December 2020 (3,015) (910) (3,925)
IFRS 16.53(j) Carrying amount 31 December 2020 30,148 2,057 32,205
Right-of-use assets
Lease liabilities
Lease liabilities are presented in the consolidated statement of financial position as follows:
The Group has leases for the main warehouse and related facilities, an office and production
building, and some IT equipment. With the exception of short-term leases and leases of low-value
underlying assets, each lease is reflected in the consolidated statement of financial position as a
right-of-use asset and a lease liability. Variable lease payments which do not depend on an index
or a rate (such as lease payments based on a percentage of Group sales) are excluded from the
initial measurement of the lease liability and asset. The Group classifies its right-of-use assets in a
consistent manner to its property, plant and equipment (see Note ).
IFRS 16.47(b)
IFRS 16.52
IFRS 16.59(a)
31 Dec 2021 31 Dec 2020
Current 2,522 2,506
Non-current 31,194 33,003
33,716 35,509
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Each lease generally imposes a restriction that, unless there is a contractual right for the Group
to sublet the asset to another party, the right-of-use asset can only be used by the Group. Leases
are either non-cancellable or may only be cancelled by incurring a substantive termination fee.
Some leases contain an option to purchase the underlying leased asset outright at the end of the
lease, or to extend the lease for a further term. The Group is prohibited from selling or pledging
the underlying leased assets as security. For leases over office buildings and factory premises the
Group must keep those properties in a good state of repair and return the properties in their original
condition at the end of the lease. Further, the Group must insure right-of-use assets and incur
maintenance fees on such items in accordance with the lease contracts.
The table below describes the nature of the Group’s leasing activities by type of right-of-use asset
recognised in the consolidated statement of financial position:
The lease liabilities are secured by the related underlying assets. Future lease payments at
December were as follows:
Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short term leases (leases with an
expected term of months or less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis. In addition, certain variable lease payments are not
permitted to be recognised as lease liabilities and are expensed as incurred.
The expense relating to payments not included in the measurement of the lease liability is as follows:
IFRS 16.59(c)
IFRS 16.59
IFRS 16.54
IFRS 16.58 Lease payments due
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
After
5 years
Total
31 December 2021
Lease payments 2,979 2,960 2,960 2,942 2,935 21,702 36,478
Finance charges (457) (360) (340) (272) (260) (1,073) (2,762)
Net present values 2,522 2,600 2,620 2,670 2,675 20,629 33,716
31 December 2020
Lease payments 2,966 2,960 2,942 2,935 2,957 23,858 38,618
Finance charges (460) (311) (282) (387) (189) (1,480) (3,109)
Net present values 2,506 2,649 2,660 2,548 2,768 22,378 35,509
IFRS 16.59(b)(ii) Right-of-
use asset
No of
right-of-
use assets
leased
Range of
remaining
term
Average
remaining
lease term
No of
leases with
extension
options
No of leases
with options
to purchase
No of leases
with variable
payments
linked to an
index
No of
leases with
termination
options
Oce
building
2
10-20
years
15 years 2 1 1 0
Warehouse
and related
facilities
3
14-16
years
15 years 2 0 3 0
IT
equipment
35
2-6
years
3 years 0 20 0 0
31 Dec 2021 31 Dec 2020
IFRS 16.53(c) Short-term leases 1,324 1,560
IFRS 16.53(d) Leases of low value assets 160 195
IFRS.16.53(e) Variable lease payments 475 534
1,959 2,289
At December the Group was committed to short-term leases and the total commitment at
that date was CU , (: ,).
Variable lease payments expensed on the basis that they are not recognised as a lease liability
include rentals based on revenue from the use of the underlying asset and excess use charges on
office equipment. Variable payment terms are used for a variety of reasons, including minimising
costs for IT equipment with infrequent use. Variable lease payments are expensed in the period they
are incurred. Potential future variable lease payments the Group are exposed to at December
are estimated to be:
The potential additional future cashflows to which the Group are exposed if extension options are
exercised are as follows:
At December the Group had committed to leases which had not yet commenced. The total
future cash outflows for leases that had not yet commenced were as follows:
Total cash outflow for leases for the year ended December was CU , (: CU ,).
Operating leases as lessor
The Group leases out investment properties under operating leases (see Note ).
14. Investment property
Telling the COVID Story
The fair value of an investment property must reflect market participant views and market data
at the measurement date under current market conditions. As a result of COVID- there may
be an increase in the amount of subjectivity involved in fair value measurements, especially
those based on unobservable inputs. In some cases, greater use of unobservable inputs will be
required because relevant observable inputs are no longer available.
Investment property includes real estate properties in Euroland and in the United States, which are
owned to earn rentals and for capital appreciation.
IFRS 16.55
IFRS 16.59(b)(i)
IFRS 16.59(b)(iv)
IFRS 16.53(g)
IFRS 16.92(a)
IAS 40.5
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Type of asset 31 Dec 2021 31 Dec 2020
IT equipment 4,900 –
4,900 –
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
After 5
years
Total
31 December 2021
Variable lease payments 452 436 412 401 401 0 2,102
31 December 2020
Variable lease payments 470 450 435 415 400 400 2,570
Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
After 5
years
Total
31 December 2021
Extension options 51 36 42 40 0 0 169
31 December 2020
Extension options 68 52 36 45 40 0 241
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
Carrying amount 1 January 12,277 12,102
IAS 40.76(a) Additions:
IAS 40.76(b) – Through business combination 75 –
Change in fair value:
IAS 40.76(d) – Net gain 288 150
IAS 40.76(e) – Net exchange dierences 22 25
Total change in fair value 310 175
Carrying amount 31 December 12,662 12,277
Note . sets out how the fair value of the investment properties has been determined.
Changes to the carrying amounts are as follows:
Investment properties valued at CU , are pledged as security for related borrowings
(: CU ,).
Investment properties are either leased to third parties on operating leases or are vacant. Rental
income of CU , (: CU ,) is shown within revenue and includes CU (: CU )
from variable lease payments not dependent on an index or rate. Direct operating expenses of CU
(: CU ) are reported within other expenses, of which CU (: CU ) is incurred
on vacant properties that did not generate rental income.
Although the risks associated with rights the Group retains in underlying assets are not considered
to be significant, the Group employs strategies to further minimise these risks. For example,
ensuring all contracts include clauses requiring the lessee to compensate the Group when a
property has been subjected to excess wear-and-tear during the lease term.
The lease contracts are all non-cancellable for eight years from the commencement of the lease.
Future lease rentals are as follows:
15. Financial assets and liabilities
15.1 Categories of financial assets and financial liabilities
Note . provides a description of each category of financial assets and financial liabilities and
the related accounting policies. The carrying amounts of financial assets and financial liabilities in
each category are as follows:
IFRS 13.93(a)
IAS 40.76
IAS 40.75(g)
IAS 40.75(f)
IFRS 16.92(a)
IFRS 16.90(b)
IFRS 16.92(b)
IFRS 16.92
IFRS 16.97
Lease payments due
IFRS 16.97 Within
1 year
1-2
years
2-3
years
3-4
years
4-5
years
After 5
years
Total
31 December 2021 1,030 1,124 1,227 1,339 1,460 1,978 8,158
31 December 2020 1,075 1,173 1,280 1,397 1,525 2,090 8,540
A description of the Group’s financial instrument risks, including risk management objectives and
policies is given in Note .
The methods used to measure financial assets and liabilities reported at fair value are described
in Note ..
IFRS 7.33
IFRS 13.91(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December 2020 Amortised
Cost
FVTPL Derivatives
used for
hedging (FV)
Total
Financial assets
Bonds and debentures 3,074 – – 3,074
Other investments – 1,063 – 1,063
Other long-term financial assets 3,074 1,063 – 4,137
Other short-term financial assets – 649 – 649
Derivative financial instruments – 212 230 442
Trade and other receivables
a
23,441 – – 23,441
Cash and cash equivalents 11,197 – – 11,197
Total financial assets 37,712 1,924 230 39,866
a
these amounts only represent trade receivables that are financial assets (see Note 18)
31 December 2020 Derivatives (FV)
used for hedging
Other liabilities
(amortised cost)
Total
Financial liabilities
Non-current borrowings – 21,265 21,265
Current borrowings – 3,379 3,379
Trade and other payables – 6,550 6,550
Derivative financial instruments 160 – 160
Total financial liabilities 160 31,194 31,354
IFRS 7.8 31 December 2021 Amortised
cost
FVTPL Derivatives
used for
hedging (FV)
Total
Financial assets
Bonds and debentures 2,878 – – 2,878
Other investments – 1,173 – 1,173
Other long-term financial assets 2,878 1,173 – 4,051
Other short-term financial assets – 655 – 655
Derivative financial instruments – 115 601 716
Trade and other receivables
a
30,606 – – 30,606
Cash and cash equivalents 34,729 – – 34,729
Total financial assets 68,213 1,943 601 70,757
a
these amounts only represent trade receivables that are financial assets (see Note 18)
31 December 2021 Other liabilities
at FVTPL
Other liabilities
(amortised cost)
Total
Financial liabilities
Non-current borrowings – 21,070 21,070
Current borrowings – 4,815 4,815
Trade and other payables – 8,497 8,497
Contingent consideration 620 – 620
Total financial liabilities 620 34,382 35,002
15.2 Financial assets at amortised cost
Telling the COVID Story
The factors noted in Note Fair Value Measurement also apply to this component of the
financial statements.
Financial assets at amortised cost include publicly traded zero coupon and US straight bonds with
fixed interest rates between .% and .%. They mature in and . The carrying amounts
(measured at amortised cost) and fair values of these bonds are as follows:
Fair values of these bonds and debentures have been estimated by reference to quoted bid prices
in active markets at the reporting date and are categorised within Level of the fair value hierarchy.
The fair value of the US straight bonds also reflects the US-dollar spot rate as at the reporting date.
15.3 Financial assets at fair value through profit or loss (FVTPL)
Telling the COVID Story
An entity is required to test its assets for impairment when indicators of impairment are present
and a test must be performed in response to these indicators. Although some indicators of
impairment are based on internal information (eg damage to a tangible capital asset, plans to
remove the asset from use), others are triggered by events and circumstances external to the
entity. Below are some examples of indicators of impairment that may exist as a result of the
economic conditions caused by the spread of COVID-:
• investments other than portfolio investments (eg subsidiary that is not consolidated)
• significant financial difficulty of the investee
• a breach of contract (eg default or delinquency in debt payments)
• it is probable that the investee will enter bankruptcy or other financial reorganisation
• a significant adverse change in the economic or legal environment in which the investee
operates (eg recession), or
• the disappearance of an active market for the investment because of financial difficulties of
the investee.
Financial assets at FVTPL include the equity investment in XY Ltd together with listed equity
securities. The Group accounts for the investment at FVTPL and did not make the irrevocable
election to account for it at FVOCI.
IFRS 7.7
IFRS 7.25
IFRS 13.93
IFRS 7.8(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
IFRS 7.8(f) Carrying amount at amortised cost:
– Zero coupon bonds 1,077 1,159
– US straight bonds 1,704 1,803
– Debentures 97 112
2,878 3,074
IFRS 7.8(a) Fair value:
– Zero coupon bonds 1,101 1,156
– US straight bonds 1,705 1,809
– Debentures 99 114
2,905 3,079
15.4 Derivative financial instruments and hedge accounting
Telling the COVID Story
Hedge accounting and the assessment of highly probable cash flows are important
considerations when applying IFRS in light of the COVID- global pandemic and its impact
on reporting entities.
Under IFRS , if an entity has adopted hedge accounting as part of its risk management
strategy, it is required to follow all the hedging requirements in IFRS . In some rare
circumstances, the requirements in IAS ‘Financial Instruments: Recognition and
Measurement’ might still apply, so great care should be taken to assess which accounting
standard should be used. In both cases, a key criterion relating to cash flow hedges over
forecast transactions is the requirement for the hedged cash flows to be assessed as being
highly probable. This requirement is set out in IFRS ... and IAS ..
As the COVID- pandemic continues to influence market behaviour, an entity may need to
reconsider:
• if the hedged cash flows still meet the highly probable assessment
• if the cash flow hedge reserve includes amounts that should now be moved to profit or loss, or
• if there is any hedge ineffectiveness that should now be recognised in profit or loss.
The highly probable assessment must always be based on the facts and circumstances that
exist at the end of the reporting period.
Entities which hedge forecast transactions based on volumes are the ones most likely to be
impacted by COVID-. It may be that derivatives were taken out at earlier times where the hedged
levels were considered highly probable at the time of hedge inception, but due to COVID- in
the intervening period the highly probable cash flows will now be significantly reduced.
This can also be relevant to cash flow hedges put in place to mitigate interest rate risk.
While the hedged item in many cases will relate to interest cash flows on debt which is from
committed facilities, projected covenant failure due to COVID- could impact the hedge
accounting assessment. Similarly, if the hedged cash flows included a forecast issuance of
debt, the highly probable assessment may also have been impacted by COVID-.
The Group’s derivative financial instruments are measured at fair value and are summarised below:
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
IAS 1.77
IFRS 7.24A(a)
US-dollar forward contracts – cash flow hedge 467 –
IAS 1.77
IFRS 7.24A(a)
GBP forward contracts – cash flow hedge 134 230
IAS 1. 77 Other forward exchange contracts – held-for-trading 115 212
Derivative financial assets 716 442
IAS 1.77
IFRS 7.24A(a)
US-dollar forward contracts – cash flow hedge – (160)
Derivative financial liabilities – (160)
31 December
2021
31 December
2020
Investment in XY Ltd 752 720
Listed equity securities 421 343
1,173 1,063
The Group uses forward foreign exchange contracts to mitigate exchange rate exposure arising
from forecast sales in US dollars (USD) and British pounds (GBP). The Group’s policy is to hedge up to
% of all highly probable forecast non-CU sales in the United States and the United Kingdom a
quarter in advance of the forecast sales transaction. During the year ended December ,
% of the non-CU denominated sales were hedged in respect of foreign currency risk using foreign
currency forwards.
Hedge effectiveness is determined at inception of the hedge relationship and at every reporting
period end through the assessment of the hedged items and hedging instrument to determine
whether there is still an economic relationship between the two.
The critical terms of the foreign currency forwards entered into exactly match the terms of the
hedged item. As such the economic relationship and hedge effectiveness are based on the
qualitative factors and the use of a hypothetical derivative where appropriate.
Hedge ineffectiveness may arise where the critical terms of the forecast transaction no longer meet
those of the hedging instrument, for example if there was a change in the timing of the forecast
sales transactions from what was initially estimated or if the volume of currency in the hedged item
was below expectations leading to over-hedging.
The hedged items and the hedging instrument are denominated in the same currency and as a
result the hedging ratio is always one to one.
All derivative financial instruments used for hedge accounting are recognised initially at fair value
and reported subsequently at fair value in the consolidated statement of financial position.
To the extent the hedge is effective, changes in the fair value of derivatives designated as hedging
instruments in cash flow hedges are recognised in other comprehensive income and included within
the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognised
immediately in profit or loss.
At the time the hedged item affects profit or loss, any gain or loss previously recognised in
other comprehensive income is reclassified from equity to profit or loss and presented as a
reclassification adjustment within other comprehensive income.
If a forecast transaction is no longer expected to occur, any related gain or loss recognised in other
comprehensive income is transferred immediately to profit or loss. If the hedging relationship ceases
to meet the effectiveness conditions, hedge accounting is discontinued, and the related gain or loss
is held in the equity reserve until the forecast transaction occurs.
Other forward exchange contracts are considered by management to be part of economic hedge
arrangements but have not been formally designated.
During the year ended December a gain of CU (: CU ) was recognised in
other comprehensive income.
During the year ended December a gain of CU (: CU ) was reclassified from
equity into profit or loss.
The cumulative gain recorded in equity is CU (: CU ).
Guidance note: The requirements in IFRS ‘Financial Instruments Disclosures’ are to provide
the hedge accounting disclosure by risk category. We have provided the disclosure below
showing the difference between the USD and GBP forwards. This is because some required
disclosure would not be appropriately disclosed without separating the two forwards. IFRS
does not prescribe risk categories. IFRS .BCO says an entity should apply judgement and
categories of risks on the basis of how it manages its risks through hedging.
IFRS 7.21A
IFRS 7.22B
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The following movements in the cash flow hedge reserve relate to one risk category being hedges
relating to cash flows arising from foreign currency sales.
The amounts reclassified to profit or loss have been included in revenue.
No ineffectiveness arose during the year ended December ( – Nil).
The hedging instrument relates to the forward contracts in their entirety, with hedging on a forward
to forward basis.
The effect of hedge accounting on the Group’s consolidated financial position and performance is
as follows, including the outline timing and profile of the hedging instruments:
IFRS 7.24C(b)(v)
IFRS 7.24C(b)(ii)
and (iii)
IFRS 7.24E
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
IFRS.7.24A(a) Carrying amount
– USD forward contracts 467 (160)
– GBP forward contracts 134 230
IFRS.7.24A(d) Notional amount
– USD forward contracts (in USD) 2,880 2,546
– GBP forward contracts (in GBP) 2,952 2,526
IFRS 7.22B(c) Hedge ratio 1:1 1:1
IFRS 7.23B(a) Maturity date
January to
March 2022
January to
March 2022
IFRS 7.23B(b) Average forward rate
– USD forward contracts 1.196 1.247
– GBP forward contracts 1.205 1.382
IFRS 7.24A(c)
Change in the fair value of the currency forward (excluding
amounts reclassified)
– USD forward contracts 275 (40)
– GBP forward contracts 115 180
IFRS 7.24B(b)(i)
Change in the fair value of the hedged item used to determine
hedge eectiveness
– USD highly probable sales 275 (40)
– GBP highly probable sales 115 180
IFRS 7.24B(b)(ii) Amounts in the cash flow hedge reserve:
– USD foreign exchange hedges over highly probable sales 264 (40)
– GBP foreign exchange hedges over highly probable sales 126 180
390 140
Cash flow
hedge reserve
– USD hedges
Cash flow
hedge reserve
– GBP hedges
Total
IFRS 7.24B(b)(ii) Opening balance 1 January 2020 196 116 312
IFRS 7.24E(b),(c)
Change in fair value of hedging instrument recognised
in other comprehensive income (OCI)
199 341 540
Reclassified from OCI to profit or loss (435) (277) (712)
IFRS 7.24C(b)(iv) Deferred tax – – –
Closing balance 31 December 2020 (40) 180 140
IFRS 7.24B(b)(ii)
Change in fair value of hedging instrument recognised
in OCI
385 505 890
IFRS.7.24C(b)(iv) Reclassified from OCI to profit or loss (81) (559) (640)
Deferred tax – – –
Closing balance 31 December 2021 264 126 390
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The hedge relationships relate to the foreign exchange risk arising from the highly probable sales
and the resulting receivable. Reclassification to profit or loss occurs at the time of the associated
sale being recognised and then further movements to profit or loss to match the retranslation of the
associated receivable. The above movements relating to the hedging instrument and hedged item
exclude those elements reclassified by the reporting date.
The potential sources of ineffectiveness result from either (a) differences between the timing of the
cash flows of the hedged item and hedging instrument, (b) changes in credit risk of the hedging
instrument, or (c) potential overhedging should volumes of highly probable sales fall below hedged
amounts.
Due to the low interest rate environment, the small differences in timing are not considered to give
rise to any significant ineffectiveness. At the current time, no significant ineffectiveness has arisen
from credit risk or from over-hedging although this is monitored on an ongoing basis.
15.5 Borrowings
Telling the COVID Story
Some financial institutions (and other creditors) are providing holders of debt with an option
to defer principal payments for a period of time. Management will need to assess whether the
change in terms represent a modification or extinguishment of the debt obligation and revisit
the portion of the debt that is considered current versus non-current.
As a result of the difficult economic conditions, an entity normally able to comply with its debt
covenants may find it is now in violation of contractual obligations. In some instances, creditors
may not be willing to waive their right to demand repayment. Unless the entity meets certain
conditions, it may need to present the entire amount owing as a current liability. If an entity
intends to obtain a waiver, this needs to be done before the end of the reporting period in order
to prevent a current liability presentation.
If a creditor forgives an amount owing by an entity, the entity needs to carefully consider the
point in time when the liability is discharged and can be derecognised in light of what is set out
in IFRS .
Borrowings include the following financial liabilities:
Other than the US-dollar loans, all borrowings are denominated in CU.
IFRS 7.23D
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Current Non-current
31 Dec
2021
31 Dec
2020
31 Dec
2021
31 Dec
2020
IFRS 7.8(g)
At amortised cost:
US-dollar loans
250 255 7,770 7,965
Other bank borrowings
4,565 3,124 – –
Non-convertible bond
– – 8,300 8,300
Subordinated shareholder loan
– – 5,000 5,000
4,815 3,379 21,070 21,265
IFRS 7.8(e)
Fair value:
US-dollar loans
251 256 7,801 7,997
Other bank borrowings
4,565 3,124 – –
Non-convertible bond
– – 8,259 8,383
Subordinated shareholder loan
– – 4,975 5,050
4,816 3,380 21,035 21,430
Borrowings at amortised cost
US-dollar loans are secured over investment properties owned by the Group (see Note ). The
interest rate on the loan is fixed at %.
Other bank borrowings are secured by land and buildings owned by the Group (see Note ).
Current interest rates are variable and average . % (: .%). The carrying amount of the
other bank borrowings is considered to be a reasonable approximation of the fair value.
The Group’s non-convertible bond with a fixed interest rate of .% matures on May
and is therefore classified as non-current. The estimated fair value of the non-convertible bond is
categorised within Level of the fair value hierarchy. The fair value estimate has been determined
from the perspective of a market participant that holds these non-convertible bonds as assets
at December . The fair value CU , is estimated using a present value technique, by
discounting the contractual cash flows using implied yields of non-convertible bonds of an entity
with a similar standing and marketability.
The most significant input being the discount rate that reflects the credit risk of issuer entity.
The subordinated shareholder loan was provided by Illustrative Corporation Ltd’s main shareholder,
SRC Investment Trust, in . It is perpetual and carries a fixed coupon of .%. It is repayable
only upon liquidation of Illustrative Corporation Ltd. The estimated fair value of the subordinated
shareholder loan is categorised within Level of the fair value hierarchy. The fair value estimate has
been determined using a present value technique. The CU , (: CU ,) is estimated by
discounting the contractual cash flows at .% (: .%). The discount rate has been determined
using the interest rate that the entity would pay to unrelated party, at the reporting date, adjusted to
reflect the subordination feature.
The most significant input in both reporting periods is the discount rate of .%.
15.6 Other financial instruments
The carrying amounts of the following financial assets and liabilities are considered a reasonable
approximation of fair value:
• trade and other receivables
• cash and cash equivalents, and
• trade and other payables.
16. Deferred tax assets and liabilities
Telling the COVID Story
• Deferred Tax Asset (DTA) – An entity that has historically recognised a deferred tax asset in
its statement of financial position may need to revisit its assumptions about the likelihood
that it will be realised in the future. Management may determine it is no longer appropriate
under IAS for the entity to recognise the deferred tax asset on the entity’s statement of
financial position because it is no longer recoverable in the future.
• Deferred Tax Liability (DTL) on outside basis differences – An entity may assert that earnings
in foreign jurisdictions are indefinitely reinvested and therefore does not recognise a DTL for
these accumulated earnings and other taxable outside-basis differences. Such assertions
may need to be revisited to determine if they remain appropriate given the entity’s current
cash flow projections.
• In some jurisdictions, an entity may also be granted tax waivers or deferrals, which need
careful assessment of eligibility and the consequential impact on tax provisioning.
• Any income tax reliefs provided by governments have to be assessed for scope in light of not
only IAS , but also IAS .
Refer to our article ‘ Deferred Tax Provision’ for more information.
IFRS 7.31
IAS 16.74(a)
IFRS 7.29
IFRS 7.31
IFRS 13.93(d)
IFRS 13.97
IAS 24.18
IFRS 13.93(d)
IFRS 13.97
IFRS 7.29
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Deferred taxes arising from temporary differences and unused tax losses are summarised as
follows:
The amounts recognised in other comprehensive income relate to revaluation of land, exchange
differences on translating foreign operations and the remeasurement of the defined benefit liability.
See Note . for the income tax relating to these components of other comprehensive income.
A deferred tax liability of CU ( December : CU ) associated with an investment in a
domestic subsidiary has not been recognised, as the Group controls the timing of the reversal and it
is not probable that the temporary difference will not reverse in the foreseeable future. The tax value
is equivalent to a temporary difference of CU ( December : CU ).
All deferred tax assets (including tax losses and other tax credits) have been recognised in the
consolidated statement of financial position.
IAS 12.81(f)
IAS 12.81(e)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IAS 12.81(g) Deferred tax liabilities
(assets)
1 January
2021
Recognised
in other
comprehensive
income
Recognised
in business
combination
Recognised
in profit or
loss
31
December
2021
Non-current assets
Other intangible assets 847 (63) 444 30 1,258
Property, plant and equipment 2,130 (22) 188 406 2,702
Other long-term financial assets (95) – – 19 (76)
Investment property 1,914 – – 93 2,007
Current assets
Trade and other receivables (168) – – 38 (130)
Current liabilities
Provisions (1,007) – – 639 (368)
Pension and other employee
obligations
(4,451) 1,149 – (188) (3,490)
Unused tax losses (75) – – 75 –
(905) 1,064 632 1,112 1,903
IAS 12.81(g) Deferred tax liabilities
(assets)
1 January
2020
Recognised
in other
comprehensive
income
Recognised
in disposal
group
Recognised
in business
combination
Recognised
in profit or
loss
31
December
2020
Non-current assets
Other intangible assets 409 (27) – 210 255 847
Property, plant and
equipment
1,528 (68) – 225 445 2,130
Other long-term
financial assets
– – – – (95) (95)
Investment property 1,861 – – – 53 1,914
Current assets
Trade and other
receivables
(34) – – – (134) (168)
Current liabilities
Provisions (1,320) – 70 – 243 (1,007)
Pension and other
employee obligations
(2,996) (1,062) – – (393) (4,451)
Unused tax losses (300) – – – 225 (75)
(852) (1,157) 70 435 599 (905)
17. Inventories
Telling the COVID Story
Some entities may be experiencing supply chain disruptions. Real estate companies with
inventories of under construction properties could be impacted by a fall in property prices.
Seasonal inventories and perishable products might be exposed to the risk of loss due to
damage, contamination, physical deterioration, obsolescence, changes in price levels or other
causes. A reporting entity needs to assess whether, on the reporting date, an adjustment is
required to the carrying value of their inventory to bring them to their net realisable value in
accordance with the principles of IAS ‘Inventories’. Estimating net realisable value in such
volatile market conditions may also be a challenge on account of the uncertainties presented
by the pandemic.
If an entity’s production level is abnormally low (eg due to a temporary shutdown of
production), it may need to review its inventory costing to ensure that unallocated fixed
overheads are recognised in profit or loss in the period in which they are incurred (ie “excess
capacity” should be expensed rather than being added to the cost of inventory).
Inventories consist of the following:
In , a total of CU , (: CU ,) of inventories was included in profit or loss
as an expense. This includes an amount of CU (: CU ) resulting from write-down
of inventories.
18. Trade and other receivables
Telling the COVID Story
A negative economic outlook and cash flow difficulties experienced by customers as a result of
COVID- must be factored into an entity’s forecasts of future conditions, which may result in
an increase in its allowance for ECLs of trade and other receivables. This is to reflect:
a a greater probability of default across many borrowers, even those that currently do not
exhibit significant increases in credit risk but may in the future, and
b a higher magnitude of loss given default, due to possible decreases in the value of collateral
and other assets.
Alternatively, if a positive economic outlook now exists and cash flows are likely to be
better than previously assessed, previously determined ECLs amounts should be reduced
accordingly.
IAS 2.36(d)
IAS 2.36(e)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
IAS 2.36(b) Raw materials and consumables 7, 73 7 7,907
IAS 2.36(b) Merchandise 10,561 9,319
18,298 17,226
Trade and other receivables consist of the following:
All amounts are short-term. The net carrying value of trade receivables is considered a reasonable
approximation of fair value.
The receivable due from ABC Ltd relates to the remaining consideration due on the sale of a
former subsidiary in . The carrying amount of the receivable is considered a reasonable
approximation of fair value as this financial asset (which is measured at amortised cost) is expected
to be paid within six months, such that the effect of any difference between the effective interest
rate applied and the estimated current market rate is not significant.
Note . includes disclosures relating to the credit risk exposures and analysis relating to the
allowance for expected credit losses. Both the current and comparative impairment provisions apply
the IFRS expected loss model.
19. Cash and cash equivalents
Guidance note: Cash and bank overdrafts should not be offset when presenting them in the
financial statements. This is in accordance with IAS ..
Cash and cash equivalents consist of the following:
Following the acquisition of Goodtech, some bank deposits of the acquiree were temporarily not
available for general use by the Group because of legal restrictions. The amount of cash and cash
equivalents inaccessible to the Group as at December amounts to CU ( December :
CU Nil). All the restrictions on bank deposits were removed by the time of the approval of the
consolidated financial statements on March .
IFRS 7.29(a)
IAS 7.45
IAS 7.48
IAS 10.19
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IAS 1.77 31 December
2021
31 December
2020
IAS 1.78(b) Trade receivables, gross 31,265 23,889
Allowance for credit losses (767) (556)
Trade receivables 30,498 23,333
Receivable due from ABC Ltd 112 112
Allowance for expected credit losses (4) (4)
Financial assets 30,606 23,441
Social security and other taxes 740 409
Construction contracts for telecommunication systems 1,374 974
Non-financial assets 2,114 1,383
Trade and other receivables 32,720 24,824
31 December
2021
31 December
2020
Cash at bank and in hand:
– CU 24,292 7,827
– GBP 2,087 674
– USD 1,392 449
Short-term deposits (CU) 6,958 2,247
34,729 11,197
20. Disposal group classified as held for sale and discontinued
operations
Telling the COVID Story
As a result of the difficult economic environment, an entity may be considering or
implementing restructuring plans such as the sale or closure of part of its business or the
downsizing of operations (either temporary or permanent). Management should consider
whether any long-lived assets need to be classified as held for sale or if any portion of
its business qualifies for presentation as a discontinued operation. An entity may also be
impacted when its previously probable plan to sell a subsidiary or division is no longer
probable due to economic conditions. Preparers of financial statements need to be mindful
that IFRS ‘Non-current Assets Held for Sale and Discontinued Operations’ has specific
conditions to be held for sale.
At the end of , management decided to discontinue in-store sale of IT and telecommunications
hardware in line with the Group’s strategy to focus on its on-line retail business. Consequently,
assets and liabilities allocable to Highstreet (included in the retail segment) were classified as a
disposal group. Revenue and expenses, gains and losses relating to the discontinuation of this
subgroup have been eliminated from profit or loss from the Group’s continuing operations and are
shown as a single line item in the consolidated statement of profit or loss.
On September , Highstreet was sold for a total of CU , in cash resulting in a loss of
CU before tax primarily due to related selling costs (see Note .).
Most of the assets and all of the liabilities have been disposed of in this transaction, however, the
Group continues to own some former Highstreet storage facilities. Management expects to sell these
remaining assets during .
5.41(a)-(d)
IFRS 5.41(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IFRS 5.33(b)(i) Revenue 9,803 11,015
Costs of materials (3,540) (3,633)
Employee benefits expense (6,100) (6,411)
Depreciation and amortisation – (765)
Other expenses (90) (100)
Operating profit 73 106
Finance costs (56) (60)
IFRS 5.33(b)(i) Profit from discontinued operations before tax 17 46
IFRS 5.33(b)(ii)
IAS 12.81(h)
Tax expense (5) (14)
Profit for year 12 32
Loss on remeasurement and disposal
IFRS 5.33(b)(iii) Loss before tax on remeasurement to fair value less costs to sell – (510)
Loss before tax on disposal (Note 6.3) (29) –
IFRS 5.33(b)(iv)
IAS 12.81(h)
Tax recovery 8 153
Total loss on remeasurement and disposal (21) (357)
Loss for the year from discontinued operations (9) (325)
The carrying amounts of assets and liabilities in this disposal group are summarised as follows:
Cash flows generated by Highstreet for the reporting periods under review until its disposal are as
follows:
Cash flows from investing activities relate solely to the proceeds from the sale of Highstreet.
21. Equity
21.1 Share capital
The share capital of Illustrative Corporation Ltd consists only of fully paid ordinary shares with a
nominal (par) value of CU per share. All shares are equally eligible to receive dividends and the
repayment of capital and represent one vote at shareholders’ meetings of Illustrative Corporation Ltd.
Additional shares were issued during relating to share-based payments (see Note . for
details on the Group’s share-based employee remuneration programmes).
The Group issued ,, shares on October , corresponding to .% of total shares
issued. Each share has the same right to receive dividends and the repayment of capital and
represents one vote at shareholders’ meetings of Illustrative Corporation Ltd.
The authorised shares that have not yet been issued have been authorised solely for use in the
Group’s share-based remuneration programmes (see Note .).
IFRS 5.38
IAS 1.79(a)(iii)
IAS 1.79(a)(v)
IAS 1.79(a)(vii)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
Non-current assets
Property, plant and equipment 103 2,578
Deferred tax – 227
Current assets
Inventories – 1,081
Cash and cash equivalents – 22
Assets classified as held for sale 103 3,908
Current liabilities
Provisions – (245)
Trade and other payables – (190)
Current tax liabilities – (14)
Liabilities classified as held for sale – (449)
2021 2020
Operating activities (22) 811
Investing activities (Note 6.3) 3,117 –
Cash flows from discontinued operations 3,095 811
IAS 1.79(a)(iv) 2021 2020
IAS 1.79(a)(ii) Shares issued and fully paid:
– Beginning of the year 12,000,000 12,000,000
– Issued on exercise of employee share options 270,000 –
– Share issue, private placement 1,500,000 –
Shares issued and fully paid 13,770,000 12,000,000
Shares authorised for share based payments 600,000 600,000
IAS 1.79(a)(i) Total shares authorised at 31 December 14,370,000 12,600,00
21.2 Share premium
Proceeds received in addition to the nominal value of the shares issued during the year have
been included in share premium, less registration and other regulatory fees and net of related tax
benefits. Costs of new shares charged to equity amounted to CU (: CU Nil).
Share premium has also been recorded in respect of the issue of share capital related to employee
share-based payment (see Note .).
21.3 Other components of equity
The details of other components of equity are as follows:
IAS 1.106A
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Translation
reserve
Revaluation
reserve
Cash-flow
hedges
Net defined
benefit
liability
Total
Balance at 1 January 2020 (113) 689 312 1,617 2,505
IAS 19.120(c)
Remeasurement of net defined
benefit liability
– – – (3,541) (3,541)
Cash flow hedges
IFRS 7.24C(b)(ii) – current year gains – – 540 – 540
IFRS 7.24C(b)(iv)
IAS 1.92
– reclassification to profit or loss – – (712) – (712)
IAS 21.52(b)
Exchange dierences on
translating foreign operations
(341) – – – (341)
IAS 1.91(b) Before tax (341) – (172) (3,541) (4,054)
IAS 12.81(ab)
IAS 1.90
Tax benefit (expense) 95 – – 1,062 1,157
Net of tax (246) – (172) (2,479) (2,897)
Balance at 31 December 2020 (359) 689 140 (862) (392)
Translation
reserve
Revaluation
reserve
Cash-flow
hedges
Net defined
benefit
liability
Total
Balance at 1 January 2021 (359) 689 140 (862) (392)
IAS 19.120(c)
Remeasurement of net defined
benefit liability
– – – 3,830 3,830
Cash flow hedges
IFRS 7.24C(b)(ii) – current year gains – – 890 – 890
IFRS 7.24C(b)(iv)
IAS 1.92
– reclassification to profit or loss – – (640) – (640)
Financial assets FVOCI
IFRS 7.20(a)(viii) – current year gains – – – – –
IFRS 7.20(a)(viii)
IAS 1.92
– reclassification to profit or loss – – – – –
IAS 16.77(f) Revaluation of land – 303 – – 303
IAS 21.52(b)
Exchange dierences on
translating foreign operations
(664) – – – (664)
Equity accounted investments – – 5 – 5
IAS 1.92 – reclassification to profit or loss – – (3) – (3)
IAS 1.91(b) Before tax (664) 303 252 3,830 3,721
IAS 12.81(ab)
IAS 1.90
Tax benefit (expense) 176 (91) – (1,149) (1,064)
Net of tax (488) 212 252 2,681 2,657
Balance at 31 December 2021 (847) 901 392 1,819 2,265
22. Employee remuneration
Telling the COVID Story
In response to the COVID- pandemic, some entities are providing additional benefits to their
employees such as:
• paying them during a temporary shutdown of their operations, or while they are sick or in
mandatory quarantine, and/or
• providing other compensation to assist employees with working remotely.
If an entity decides to provide new benefits to its employees (ie those that were not previously
offered), it must determine how to account for the benefits. The financial support or benefits
offered to employees will likely meet the definition of a liability; therefore, an entity will need to
consider when to recognise the liability/expense and how it should be measured.
An entity should first determine whether the benefits provided are a result of past service or
if they will be provided as services are rendered because that will impact when the liability is
recognised. The guidance in IAS ‘Employee Benefits’ must be considered when making this
determination. Generally, a liability is incurred once a past transaction has occurred and the
entity has lost the discretion to avoid the obligation.
Furthermore, as a result of difficult economic conditions, some entities have or will downsize
their workforce. If the entity offers or is required to pay termination benefits to the affected
employee(s), management must consider how and when to account for the liability/expense in
accordance with IAS .
22.1 Employee benefits expense
Expenses recognised for employee benefits are analysed below:
22.2 Share-based employee remuneration
Telling the COVID Story
If an entity is negatively impacted by COVID-, the probability it will meet the performance
vesting conditions outlined in its share-based compensation arrangements might change.
Furthermore, the entity might have chosen to modify or cancel its share-based compensation
arrangements. Management should consider whether the accounting for such plans needs to
be revised based on the guidance in IFRS .
As at December , the Group maintained two share-based payment schemes for employee
remuneration, the Star Programme and the Stay Programme. Both programmes will be settled
in equity.
IFRS 2.44
IFRS 2.45(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
Wages, salaries 97,808 91,318
Social security costs 11,229 10,608
IFRS 2.51(a) Share-based payments 298 466
Pensions – defined benefit plans 1,308 1,930
IAS 19.53 Pensions – defined contribution plans 4,491 5,343
Less: capitalised as development costs (1,325) (150)
113,809 109,515
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The Star Programme is part of the remuneration package of the Group’s senior management.
Options under this programme will vest if certain conditions, as defined in the programme, are
met. It is based on the performance of the Illustrative Corporation’s shares compared to other
companies in the Greatstocks Stock Exchange within a specified period. In addition, participants in
this programme have to be employed until the end of the agreed vesting period. Upon vesting, each
option allows the holder to purchase one ordinary share at a discount of -% of the market
price determined at grant date.
The Stay Programme is part of the remuneration package of the Group’s research and development
and sales personnel. Options under this programme will vest if the participant remains employed
for the agreed vesting period. The maximum term of the options granted under the Stay Programme
(ie the vesting period) ends on January . Upon vesting, each option allows the holder to
purchase one ordinary share at a discount of -% of the market price determined at grant date.
Share options and weighted average exercise prices are as follows for the reporting
periods presented:
The weighted average share price per share at the date of exercise was CU . (no options were
exercised in ).
The fair values of options granted were determined using a variation of the binomial option pricing
model that takes into account factors specific to the share incentive plans, such as the vesting
period. The performance condition related to the Star Programme, being a market condition, has
been incorporated into the measurement by means of actuarial modelling. The following principal
assumptions were used in the valuation:
IFRS 2.45(a)
IFRS 2.45(a)
IFRS 2.45(c)
IFRS 2.47(a)(i)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 2.45(b) Star Programme Stay Programme
Number of
shares
Weighted
average
exercise price
per share
Number of
shares
Weighted
average
exercise price
per share
IFRS 2.45(b)(i) Outstanding at 31 December 2020 300,000 6.24 95,250 5.81
IFRS 2.45(b)(ii) Granted – – – –
IFRS 2.45(b)(iii) Forfeited (513) 6.24 (1,012) 5.81
IFRS 2.45(b)(iv) Exercised – – – –
IFRS 2.45(b)(vi) Outstanding at 31 December 2020 299,487 6.24 94,238 5.81
IFRS 2.45(b)(ii) Granted 100,000 7.81 – –
IFRS 2.45(b)(iii) Forfeited (312) 6.24 (3,489) 5.81
IFRS 2.45(b)(iv) Exercised (270,000) 6.24 – –
IFRS 2.45(b)(vi) Outstanding at 31 December 2021 129,175 7.45 90,749 5.81
IFRS 2.45(b)(vii) Exercisable at 31 December 2020 – – – –
IFRS 2.45(b)(vii) Exercisable at 31 December 2021 29,175 6.24 – –
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
The underlying expected volatility was determined by reference to historical data of Illustrative
Corporation Ltd’s shares over a period of time since its flotation on the Greatstocks Stock Exchange.
No special features inherent to the options granted were incorporated into measurement of fair value.
In total, CU (: CU ) of employee remuneration expense (all of which related to equity-
settled share-based payment transactions) has been included in profit or loss and credited to
retained earnings.
22.3 Pensions and other employee obligations
Telling the COVID Story
Measuring a defined benefit obligation involves making estimates and the use of assumptions
(eg the appropriate interest rate, future salary increases and employee turnover). Given the
sudden fall in markets and the decline in high quality corporate bond rates that have occurred
as a result of COVID-, an entity should consider the impact on its defined benefit obligation(s).
Most entities obtain full actuarial valuations approximately once every three years (depending
on the jurisdiction) or as required by their regulator. In between, their actuary may do a more
limited update to roll forward the figures for financial reporting purposes, although an up-
to-date valuation of plan assets is normally required at each reporting date. Management
should consider whether the estimate needs to be adjusted, or a more comprehensive valuation
obtained, as a result of the impact of COVID-.
An entity should have discussions with their actuaries, to ascertain whether COVID- has
impacted any assumptions in their reports such that their estimates may need to be revisited.
The guidance related to subsequent events on whether there may be an adjusting or non-
adjusting event should also be considered.
The liabilities recognised for pensions and other employee remuneration consist of the
following amounts:
IFRS 2.47(a)(ii)
IFRS 2.47(a)(iii)
IFRS 2.51(a)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The Star Programme The Stay
Programme
IFRS 2.47(a)(i) Grant date 1 Jan 2018 1 Feb 2021 5 Jan 2017
Vesting period ends 31 Dec 2020 31 Jan 2024 31 Jan 2022
Share price at date of grant CU 8.00 CU 10.01 CU 7.00
Volatility 50% 50% 50%
Option life 5 years 5 years 7 years
Dividend yield 1% 1% 1%
Risk-free investment rate 4% 4% 4%
Fair value per option at grant date CU 4.00 CU 6.70 CU 5.30
Exercise price at date of grant CU 6.08 CU 7.61 CU 5.81
Exercisable from / to
1 Jan 2021/
31 Dec 2022
1 Feb 2024/
31 Dec 2026
1 Feb 2022/
4 Jan 2024
IFRS 2.45(d) Weighted average remaining contractual life 1.0 years 4.1 years 2.0 years
31 December
2021
31 December
2020
Non-current:
IAS 19.131 – Defined benefit liability (net) 10,386 13,642
Current:
IAS 19.131 – Defined benefit liability (net) 1,246 1,193
– Other short term employee obligations 221 303
1,467 1,496
Guidance note: In the statement of financial position, the current and non-current portion
of the defined benefit obligation (DBO) are presented separately to comply with IAS ..
However, paragraph of IAS does not specify whether this disaggregation is needed.
Therefore, an entity is also allowed to present the obligation as non-current in its entirety.
The current portion of these liabilities represents the Group’s obligations to its current and former
employees that are expected to be settled during . Other short-term employee obligations
arise mainly from accrued holiday entitlement at the reporting date and expected pension
payments in the next months (without deduction of plan assets). As none of the employees are
eligible for early settlement of pension arrangements, the remaining part of pension obligations
for defined benefit plans is considered non-current. The non-current portion of the defined benefit
liability is presented net of plan assets.
Defined benefit plan
The Group has set up a partly funded pension scheme for mid to senior management, mainly in
Euroland, the UK and the US. The scheme is available to certain senior workers after completing five
years of service.
According to the plan, a certain percentage of the current salary is converted into a pension
component each year until retirement. Pensions under this scheme are paid out when a beneficiary
has reached the age of . The pensionable salary is limited to CU for a year. Eligible
employees are required to contribute a stated percentage of pensionable salary.
In Euroland and the UK, the pension payments are linked to the consumer price index (CPI),
although certain limitations apply.
The plan assets are managed by a pension fund that is legally separated from the Group. The
board of trustees of the pension fund is required by its articles of association to act in the best
interest of the fund and it is responsible for setting the investment policies. The Group has no
representation on the board of the fund.
The plan exposes the Group to actuarial risks such as interest rate risk, investment risk, longevity risk
and inflation risk:
• Interest rate risk – The present value of the defined benefit liability is calculated using a discount
rate determined by reference to market yields of high quality corporate bonds. The estimated
term of the bonds is consistent with the estimated term of the DBO and it is denominated in CU.
A decrease in market yield on high quality corporate bonds will increase the Group’s defined
benefit liability, although it is expected that this would be offset partially by an increase in the
fair value of certain of the plan assets.
• Investment risk – The plan assets at December are predominantly real estate, equity
and debt instruments. The fair value of the plan assets is exposed to the real estate market (in
Euroland and the US). The equity instruments are significantly weighted towards the finance and
pharmaceuticals sectors in Euroland.
• Longevity risk – The Group is required to provide benefits for life for the members of the defined
benefit liability. Increase in the life expectancy of the members, particularly in Euroland and in
the UK where the pension payments are linked to CPI, will increase the defined benefit liability.
• Inflation risk – A significant proportion of the defined benefit liability is linked to inflation. An
increase in the inflation rate will increase the Group’s liability. A portion of the plan assets are
inflation-linked debt securities which will mitigate some of the effects of inflation.
Employees of the Group are required to contribute a fixed % of the pensionable salary. The
remaining contribution is partly funded by the Group’s subsidiaries. The funding requirements are
based on the pension fund’s actuarial measurement framework as set out in the funding policies.
Based on historical data, the Group expects contributions of CU , to be paid for .
IAS 1.69(c)
IAS 19.131
IAS 19.139(a)
IAS 19.139(a)
IAS 19.139(b)
IAS 19.147(a)
IAS 19.147(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The liability recognised for the Group’s DBO is represented net of plan assets in accordance with
IAS .(a) and (b). It consists of the following amounts:
The defined benefit obligation and plan assets are composed by geographical locations as follows:
A reconciliation of the Group’s DBO and plan assets to the amounts presented in the consolidated
statement of financial position for each of the reporting periods is presented below:
Defined benefit obligation
Plan assets
IAS 19.131
IAS 19.135(b)
IAS 19.138(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IAS 19.140(a)(ii) 2021 2020
Defined benefit obligation 1 January 47,410 38,889
IAS 19.141(a) Current service cost before deduction of beneficiary contributions 1,966 2,180
IAS 19.141(b) Interest expense 2,488 2,267
IAS 19.141(c)(ii) Remeasurement – actuarial losses from changes in demographic assumptions 916 1,091
IAS 19.141(c)(iii) Remeasurement – actuarial losses from changes in financial assumptions 2,345 2,670
IAS 19.141(g) Benefits paid (1,251) (1,187)
IAS 19.141(d) Past service cost – 1,500
IAS 19.140(a)(ii) Defined benefit obligation 31 December 53,874 47,410
IAS 19.138(e) Unfunded – –
Partly or wholly funded 53,874 47,410
IAS 19.140(a)(i) 2021 2020
Fair value of plan assets 1 January 32,575 28,801
IAS 19.141(b) Interest income 1,983 1,718
IAS 19.141(c)(i) Return on plan assets (excluding amounts included in interest) 7,091 220
IAS 19.141(f) Contributions by the Group 1,186 1,273
IAS 19.141(f) Contributions by beneficiaries 658 1,750
IAS 19.141(g) Benefits paid (1,251) (1,187)
19.140(a)(i) Fair value of plan assets 31 December 42,242 32,575
31 December
2021
31 December
2020
Defined benefit obligation 53,874 47,410
Fair value of plan assets (42,242) (32,575)
IAS 19.131 Pension liability 11,632 14,835
Classified as:
– Non-current liability 10,386 13,642
– Current liability 1,246 1,193
11,632 14,835
31 December 2021 Euroland UK US Others Total
Defined benefit obligation 24,482 17,321 11,529 542 53,874
Fair value of plan assets (18,586) (13,057) (10,427) (172) (42,242)
5,896 4,264 1,102 370 11,632
31 December 2020
Euroland UK US Others Total
Defined benefit obligation 21,594 15,063 10,256 497 47,410
Fair value of plan assets (14,123) (9,748) (8,553) (151) (32,575)
7, 47 1 5,315 1,703 346 14,835
The actual return on plan assets (including interest income) was CU , in (: CU ,).
Plan assets can be broken down into the following categories of investments:
Estimates and assumptions
Defined benefit obligation
The significant actuarial assumptions for the determination of the defined benefit obligation are the
discount rate, the salary growth rate and the average life expectancy. The assumptions used for the
valuation of the defined benefit obligation are as follows
:
These assumptions were developed by management with the assistance of independent actuaries.
Discount factors are determined close to each period-end by reference to market yields of high
quality corporate bonds that are denominated in the currency in which the benefits will be paid
and that have terms to maturity approximating to the terms of the related pension obligation. Other
assumptions are based on current actuarial benchmarks and management’s historical experience.
The present value of the DBO was measured using the projected unit credit method.
The weighted average duration of the defined benefit obligation at December is . years
(: . years).
IAS 19.142
IAS 1.125(a)
IAS 19.67
IAS 19.147(c)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
IAS 19.142(a) Cash and cash equivalents 3,442 2,075
IAS 19.142(b) Equity instruments:
– Financial institutions 9,800 7,600
– Pharmaceuticals 8,100 4,300
– Oil and gas industry 1,600 1,700
– Manufacturing industry 1,500 1,200
21,000 14,800
IAS 19.142(c) Debt instruments:
– Euroland government bonds 4,800 5,800
– Corporate bonds (rated AA and above) 3,100 5,600
7,900 11,400
IAS 19.142(d) Real estate:
– in Euroland 6,700 2,500
– in the US 3,200 1,800
9,900 4,300
Total 42,242 32,575
6
For the purposes of these Example Financial Statements, it is assumed that the significant actuarial assumptions for the dierent geographical
locations are the same. In practice, it is likely that there will be dierences in the significant actuarial assumptions in dierent geographical
locations, which will require their disclosure.
31 December
2021
31 December
2020
Discount rate at date shown 5.3% 5.5%
Salary growth rate 3.0% 3.2%
Average life expectancies:
– Male, 45 years of age at reporting date 84.5 84.5
– Female, 45 years of age at reporting date 87.5 87.5
– Male, 65 years of age at reporting date 82.5 82.5
– Female, 65 years of age at reporting date 84.5 84.5
Plan assets
Plan assets do not comprise any of the Group’s own financial instruments or any assets used by
Group companies.
All equity and debt instruments have quoted prices in active markets (Level ). Fair values of real
estate investments do not have quoted prices and have been determined based on professional
appraisals that would be classified as Level of the fair value hierarchy as defined in IFRS .
Defined benefit plan expenses
Amounts recognised in profit or loss related to the Group’s defined benefit plans are as follows:
The current service cost and the past service cost are included in employee benefits expense. The
net interest expense is included in finance costs.
Amounts recognised in other comprehensive income related to the Group’s defined benefit plans
are as follows:
The income of CU , (: expense of CU ,) resulting from the remeasurement of the
defined benefit liability/asset is included in the consolidated statement of other comprehensive
income within items that will not be reclassified subsequently to profit or loss.
Changes in the significant actuarial assumptions
The calculation of the net defined benefit liability is sensitive to the significant actuarial
assumptions mentioned above. The following table summarises the effects of changes in these
actuarial assumptions on the defined benefit liability at December:
IAS 19.134
IAS 19.120(c)
IAS 19.122
IAS 19.144
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IAS 19.127(a) Actuarial losses from changes in demographic assumptions (916) (1,091)
IAS 19.127(a) Actuarial losses from changes in financial assumptions (2,345) (2,670)
IAS 19.127(b) Return on plan assets (excluding amounts included in net interest) 7,091 220
Total income (expenses) recognised in other comprehensive income 3,830 (3,541)
2021 2020
IAS 19.145(a) Discount rate Increase to
6.3%
Decrease to
4.3%
Increase to
6.5%
Decrease to
4.5%
Increase (decrease) in the defined
benefit liability
(2,000) 2,100 (1,900) 2,000
Salary Growth rate Increase to
4%
Decrease to
2%
Increase to
4.2%
Decrease to
2.2%
Increase (decrease) in the defined
benefit liability
950 (780) 900 (730)
Average life expectancies
of males
Increase of one
year
Decrease of
one year
Increase of one
year
Decrease of
one year
Increase (decrease) in the defined
benefit liability
1,140 (930) 1,120 (910)
Average life expectancies
of females
Increase of one
year
Decrease of
one year
Increase of one
year
Decrease of
one year
Increase (decrease) in the defined
benefit liability
1,280 (1,090) 1,250 (1,060)
2021 2020
IAS 19.120(a) Current service cost 1,308 430
IAS 19.120(a) Past service cost – 1,500
IAS 19.120(b) Net interest expense 505 549
Total expenses recognised in profit or loss 1,813 2,479
The present value of the defined benefit obligation has been calculated with the same method
(project unit credit) as the defined benefit obligation recognised in the consolidated statement
of financial position. The sensitivity analyses are based on a change in one assumption while not
changing all other assumptions. This analysis may not be representative of the actual change in
the defined benefit obligation as it is unlikely the change in any of the assumptions would occur in
isolation of one another as some of the assumptions are correlated.
23. Provisions
Telling the COVID Story
If the entity has to make additional provisions in relation to COVID- then these should be
explained here. However, it is important to remember provisions should only be made if there
is a legal or constructive obligation in place at the reporting date. For example, the entity may
need to restructure parts of their business. Provisions for these costs should only be made
when legal or constructive obligations exist, and full details should be disclosed in accordance
with IAS .
All provisions are considered current. The carrying amounts and the movements in the provision
account are as follows:
Provisions recognised at acquisition date in a business combination are included in additions (see
Note .). Provisions classified as held for sale are included within amount utilised (see Note ).
The provision for restructuring relates to the Phoenix programme, which was initiated in late
and carried out predominantly in and . The restructuring provision as at
December was reduced following the outcome of several lawsuits brought against the Group
during by former employees. Out of court settlements based on the outcome of earlier
settlements are expected for most of the remaining claims. The Group’s management expects to
settle the remaining termination remuneration for former employees and legal fees relating to the
restructuring programme in . The Group is not eligible for any reimbursement by third parties
in this regard.
Other provisions relate to various legal and other claims by customers, such as warranties for which
customers are covered for the cost of repairs.
Usually, these claims are settled between and months from initiation, depending on the
procedures used for negotiating the claims. As the timing of settlement of these claims is to a large
extent dependent on the pace of negotiation with various counterparties and legal authorities, the
Group cannot reliably estimate the amounts that will eventually be paid in settlement after more
than twelve months from the reporting date. Therefore, the amount is classified as current.
The majority of the other provisions recognised at December related to claims initiated in
that were settled during . Management, on the advice of counsel, does not expect that
the outcome of any of the remaining cases will give rise to any significant loss beyond the amounts
recognised at December . None of the provisions will be discussed here in further detail so
as to not seriously prejudice the Group’s position in the related disputes.
IAS 19.145(b)
IAS 1.69
IAS 37.85(a)
IAS 1.125(a)
IAS 37.85(b)
IAS 37.85(c)
IAS 37.85(a)
IAS 37.85(b)
IAS 1.61
IAS 1.125
IAS 37.92
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Restructuring Other Total
IAS 37.84(a) Carrying amount 1 January 2021 2,110 1,235 3,345
IAS 37.84(b) Additional provisions – 1,570 1,570
IAS 37.84(c) Amount utilised (876) (2,211) (3,087)
IAS 37.84(d) Reversals (510) (103) (613)
IAS 37.84(a) Carrying amount 31 December 2021 724 491 1,215
24. Trade and other payables
Telling the COVID Story
Trade and other payables may be impacted if the entity is adjusting (ie delaying) their terms of
trade with suppliers. In addition, short-term bank overdrafts could increase if limits have been
exceeded. Ensuring disclosures of such situations are made if these liabilities have changed
significantly will help the users of the financial statements better understand the liquidity and
cash flow position of the entity.
Trade and other payables consist of the following:
All amounts are short-term. The carrying values of trade payables and short-term bank overdrafts
are considered to be a reasonable approximation of fair value.
25. Contract and other liabilities
Telling the COVID Story
Contract liabilities are unlikely to change significantly, unless customers have reduced what
they are paying in advance. However, some contract liabilities may need to be non-current
rather than current if contracts have been put on hold or delayed for an extended period.
Because of the pandemic, milestones in contracts may no longer be met in the timeframes
originally predicted. This could result in having to change the carrying amounts of the liabilities
due to a need for them to be discounted.
Contract and other liabilities consist of the following:
IFRS 7.25
IFRS 7.29(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December
2021
31 December
2020
Advances received for construction contract work 513 427
Deferred service revenue 2,123 2,291
Other 22 657
Other liabilities – current 2,658 3,375
Contingent consideration for the acquisition
of Goodtech
620 –
Other liabilities – non-current 620 –
31 December
2021
31 December
2020
Current:
– Trade payables 7,843 6,472
– Short-term bank overdrafts 654 78
8,497 6,550
Advances received for construction contract work and deferred service revenue represent customer
payments received in advance of performance (contract liabilities) that are expected to be
recognised as revenue in . As described in Note .:
• the construction of telecommunication systems normally takes – months from
commencement of design through to completion of installation, and
• maintenance and extended warranty contracts very from – months in length, however,
customers are only required to pay in advance for each successive twelve-month period.
The amounts recognised as a contract liability will generally be utilised within the next annual
reporting period.
26. Reconciliation of liabilities arising from financing activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
IAS 1.69
IAS 1.61
IAS 7.44A
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Long-term
borrowings
Short-term
borrowings
Lease
liabilities
Total
1 January 2021 21,265 3,379 35,509 60,153
Cash-flows:
– Repayment – (300) (1,793) (2,093)
– Proceeds – 1,441 – 1,441
Non-cash:
– Fair value 70 30 – 100
– Reclassification (265) 265 – –
31 December 2021 21,070 4,815 33,716 59,601
Long-term
borrowings
Short-term
borrowings
Lease
liabilities
Total
1 January 2020 21,405 3,818 37,007 62,230
Cash-flows:
– Repayment – (649) (1,498) (2,147)
Non-cash:
– Fair value – 70 – 70
– Reclassification (140) 140 – –
31 December 2020 21,265 3,379 35,509 60,153
27. Finance costs and finance income
Finance costs for the reporting periods consist of the following:
The average capitalisation rate for interest expense included in the cost of intangible assets was
.% (: .%).
Finance income for the reporting periods consists of the following:
28. Other financial items
Other financial items consist of the following:
IAS 23.26(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IFRS 7.20(b) Interest expense for borrowings at amortised cost:
– Subordinated shareholder loan 200 200
– Other borrowings at amortised cost 806 587
1,006 787
IFRS 16.49
IFRS 16.53(b)
Interest expense for leasing arrangements 2,388 2,575
IFRS 7.20(b) Total interest expense 3,394 3,362
IAS 23.26(a) Interest expense capitalised into intangible assets (80) (78)
3,314 3,284
Net interest expense on defined benefit liability 505 549
Change in fair value relating to contingent consideration liability 20 –
IFRS 7.20(a)(i) Loss on foreign currency financial liabilities 30 70
Change in fair value of equity investments – 90
Total finance costs 3,869 3,993
2021 2020
IFRS 7.20(b) Interest from cash and cash equivalents 484 357
IFRS 7.20(b) Interest on financial assets carried at amortised cost 171 182
IFRS 7.20(b) Total interest for financial assets not at FVTPL 655 539
Dividends from XY Ltd 40 –
Change in fair value of equity investments 110 –
Dividends from listed equity securities 29 21
IFRS 7.20(a)(i) Fair value gains on forward exchange contracts held for trading 130 325
Total finance income 964 885
2021 2020
IFRS 7.20(a)(i) Gain from financial assets classified as FVTPL 6 18
IAS 21.52(a)
IFRS 7.20(a)(iv)
Gain from exchange dierences on loans and receivables 937 1,164
943 1,182
29. Tax expense
Telling the COVID Story
Certain governments have adopted tax reforms as a means of supporting business in
and potentially affecting substantially enacted tax rates and/or realisation of deductible
temporary differences. This could impact the tax disclosures as follows:
• Tax losses carry forward period may be extended and potentially may not expire when
originally expected. Situations such as this should be disclosed, or
• The effective tax rate may be significantly different to the prior year and this should
be explained.
An entity may be engaging in global tax planning arrangements to take advantage of the
various government tax reforms and incentives arising from COVID-. Those tax planning
strategies may need to be reconsidered when preparing the financial statements.
The major components of tax expense
and the reconciliation of the expected tax expense based on
the domestic effective tax rate of Illustrative Corporation Ltd at % (: %) and the reported
tax expense in profit or loss is as follows:
Note provides information on deferred tax assets and liabilities. Note . provides information
on deferred income tax recognised directly in each component of other comprehensive income.
IAS 12.79
IAS 12.81(c)
IAS 12.81(ab)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IAS 12.81(c)(i) Profit before tax 21,661 17,466
IAS 12.85 Domestic tax rate for Illustrative Corporation 30% 28%
Expected tax expense 6,498 4,890
IAS 12.84 Adjustment for tax rate dierences in foreign jurisdictions 16 18
IAS 12.84 Adjustment for tax-exempt income:
– Relating to equity accounted investments (24) (41)
– Other tax-exempt income (69) (100)
– Gain on disposal of non-financial assets (33) –
IAS 12.84 Adjustment for non-deductible expenses:
– Relating to goodwill impairment 232 53
– Impairment of financial assets 48 63
– Other non-deductible expenses 126 5
Actual tax expense 6,794 4,888
IAS 12.80 Tax expense comprises:
– Current tax expense 5,682 4,289
– Deferred tax expense: – –
IAS 12.80(c) – Origination and reversal of temporary dierences 1,037 374
– Utilisation of previously recognised tax loss carryforwards 75 225
Tax expense 6,794 4,888
Deferred tax expense (income), recognised directly in other
comprehensive income
1,064 (1,157)
7
Examples of major components of tax expense are included in IAS 12.80.
30. Earnings per share and dividends
Earnings per share
Both the basic and diluted earnings per share have been calculated using the profit attributable
to shareholders of the parent company (Illustrative Corporation Ltd) as the numerator, ie no
adjustments to profit were necessary in or .
The reconciliation of the weighted average number of shares for the purposes of diluted earnings
per share to the weighted average number of ordinary shares used in the calculation of basic
earnings per share is as follows:
Dividends
During , Illustrative Corporation paid dividends of CU , (: CU Nil) to its equity
shareholders. This represents a payment of CU . per share (: CU Nil per share).
Also during , the directors proposed the payment of a dividend of CU , (CU .
per share). As the distribution of dividends by Illustrative Corporation requires approval at the
shareholders’ meeting, no liability in this respect is recognised in the consolidated financial
statements. No income tax consequences are expected to arise as a result of this transaction at the
level of Illustrative Corporation.
IAS 33.70(a)
IAS 33.70(b)
IAS 1.137(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Amounts in thousand shares: 2021 2020
Weighted average number of shares used in basic earnings per share 12,520 12,000
Shares deemed to be issued for no consideration in respect of
share-based payments
17 21
Weighted average number of shares used in diluted earnings per share 12,537 12,021
31. Non-cash adjustments and changes in working capital
The following non-cash flow adjustments and adjustments for changes in working capital have been
made to profit before tax to arrive at operating cash flow:
In , the consideration transferred for the Group’s acquisition of Goodtech (see Note .)
included a contingent payment arrangement amounting to CU as of the acquisition date. The
initial recognition of this liability and the subsequent change in fair value of CU (: Nil) are
non-cash transactions excluded from the consolidated statement of cash flows.
IAS 7.43
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Adjustments: 2021 2020
Depreciation, amortisation and impairment of non-financial assets 10,093 8,881
Foreign exchange gains (937) (1,164)
Interest and dividend income (724) (560)
Fair value gains on financial assets recognised in profit or loss (186) (343)
Cash flow hedges reclassified from equity (640) (712)
Interest expense 3,314 3,284
Impairment of financial assets 364 581
Fair value loss on financial liabilities recognised in profit or loss 30 70
Change in fair value of equity investments (110) 90
Gain on disposal of non-financial assets (115) –
Share-based payment expenses 298 466
Net interest on defined benefit liability 505 549
Current and past service costs 1,308 1,930
Result from equity accounted investments (391) (141)
Change in fair value of investment property (310) (175)
Change in fair value of contingent consideration 20 –
Other (577) (404)
Total adjustments 11,942 12,352
Net changes in working capital: 2021 2020
Change in inventories 2,454 6,814
Change in trade and other receivables (5,304) 545
Change in trade and other payables (1,688) (5,637)
Change in other liabilities (1,852) (114)
Change in other employee obligations (3,285) 4,870
Change in provisions (2,216) (2,289)
Total changes in working capital (11,891) 4,189
32. Related party transactions
Telling the COVID Story
• Economic dependence – An entity that is otherwise not economically dependent on another
entity or individual may find that its circumstances have changed during the course of
the pandemic. Transactions involving related parties cannot be presumed to be carried
out on an arm’s-length basis, and any representations about transactions with related
parties should not imply those transactions were made on terms equivalent to those that
prevail in an arm’s-length transaction unless such representations can be substantiated.
Management should consider whether disclosure regarding economic dependence should
be added to the financial statements.
• Guarantees – An entity that has provided guarantees to related parties as a result of COVID-,
will need to consider whether a liability should be recognised in the financial statements.
The Group’s related parties include its associates and joint venture, key management, post-
employment benefit plans for the Group’s employees and others as described below. In addition,
Illustrative Corporation has a subordinated loan from its main shareholder, the SRC Investment
Trust (see Note . for information on terms and conditions), on which interest of CU
(: CU ) is paid.
Unless otherwise stated, none of the transactions incorporate special terms and conditions and no
guarantees were given or received. Outstanding balances are usually settled in cash.
32.1 Transactions with associates
In order to meet peak demands by its customers, some of the Group’s consulting services are
sub-contracted to its associate, Equipe. During , Equipe provided services valued at CU
(: CU ). The outstanding balance of CU ( December : CU ) due to Equipe is
included in trade payables.
32.2 Transactions with joint ventures
During , Halftime provided services valued at CU (: CU ). There is no outstanding
balance as at December ( December : Nil).
32.3 Transactions with key management personnel
Key management of the Group are the executive members of Illustrative Corporation Ltd’s board
of directors, members of the executive council and non-executive directors. Key management
personnel remuneration includes the following expenses:
During , certain key management personnel exercised share options with total exercise price of
CU , (: Nil) granted in the Group’s Star Programme.
IAS 24.18(b)(i)
IAS 24.18(b)(ii)
IAS 24.18(b)(i)
IAS 24.18(b)(ii)
IAS 24.19(d)
IAS 24.18(a)
IAS 24.18(b)
IAS 24.19(e)
IAS 24.18(a)
IAS 24.18(b)
IAS 24.19(f)
IAS 24.18(a)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
2021 2020
IAS 24.17(a) Short-term employee benefits:
– Salaries including bonuses 2,420 2,210
– Social security costs 70 34
– Car allowance 220 190
2,710 2,434
IAS 24.17(b) Post-employment benefits:
– Defined benefit pension plans 312 299
– Defined contribution pension plans 25 12
337 311
IAS 24.17(d) Termination benefits 100 –
IAS 24.17(e) Share-based payments 103 175
Total remuneration 3,250 2,920
The Group allows its employees to take up limited short-term loans to fund merchandise and other
purchases through the Group’s business contacts. This facility is also available to the Group’s key
management personnel. During , the Group’s key management received short term loans
totalling CU (: CU ). The outstanding balance of CU ( December : CU ) has
been included in trade and other receivables.
During , the Group obtained legal services from a law firm over which one of the directors
exercises significant influence. The amount billed related to this legal service amounted to CU
(: Nil), based on normal market rates and was fully repaid at the reporting date.
32.4 Transactions with the defined benefit plan
The defined benefit plan is a related party. The defined benefit plan does not hold shares in
Illustrative Corporation Ltd. The Group’s only transaction with the defined benefit plan relate to
contributions paid to the plan (see Note .).
33. Contingent liabilities
Telling the COVID Story
An entity may anticipate losses on account of reduction in demand, supply chain disruptions or
losses due to an overall decline in economic output. However, future operating losses on existing
contracts do not meet the definition of a liability unless they fall in the category of onerous
contracts, and hence, should not be provided for in accordance with IAS , however (if it meets
the definition) should be disclosed as a contingent liability.
Various warranty and legal claims were brought against the Group during both reporting periods.
Unless recognised as a provision (see Note ), management considers these claims to be
unjustified and the probability they will require settlement at the Group’s expense to be remote. This
evaluation is consistent with external independent legal advice.
34. Financial instruments risk
Telling the COVID Story
Due to the rapidly changing economic environment, an entity may find it is subject to new or
increasing risk (eg credit, liquidity, or market risk) or concentrations of risk. In addition, an entity
may find its risks have changed from the prior period. Management should evaluate whether
additional risk disclosures are required.
IFRS requires an entity to disclose a sensitivity analysis (including quantitative disclosures)
pertaining to changes in the relevant risk variable that are “reasonably possible” at the
reporting date. Management may need to perform sensitivity calculations using a larger range
for the risk variables or consider a direction of change that reflects expectations resulting from
the COVID- pandemic.
IAS 24.18(a)
IAS 24.18(b)
IAS 24.9(b)(v)
IAS 37.86
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Risk management objectives and policies
The Group is exposed to various risks in relation to financial instruments. The Group’s financial
assets and liabilities by category are summarised in Note .. The main types of risks are market
risk, credit risk and liquidity risk.
The Group’s risk management is coordinated at its headquarters, in close cooperation with the
board of directors, and focuses on actively securing the Group’s short to medium-term cash flows
by minimising the exposure to volatile financial markets. Long-term financial investments are
managed to generate lasting returns.
The Group does not actively engage in the trading of financial assets for speculative purposes
nor does it write options. The most significant financial risks to which the Group is exposed are
described below.
The Group enters into derivatives, principally for hedging foreign exchange risk. Associated
disclosures relating to hedge accounting are included in Note ..
Guidance note: IFRS amended IFRS to allow disclosures of financial instruments
risks arising from the entity’s hedge accounting activities and associated risk managing
strategies to be placed outside the financial statements. Although paragraph IFRS .B
requires an entity to present the required disclosures in a single note or separate section in
its financial statements, an entity need not duplicate information that is already presented
elsewhere, provided that the information is incorporated by cross-reference from the financial
statements to some other statement. For example, reference could be made to a management
commentary or risk report, so long as those reports are made available to users of the financial
statements on the same terms and at the same time as the financial statements. Without the
information incorporated by cross-reference, the financial statements would be incomplete.
34.1 Market risk analysis
The Group is exposed to market risk through its use of financial instruments and specifically to
currency risk, interest rate risk and certain other price risks, which result from both its operating and
investing activities.
Foreign currency sensitivity
Most of the Group’s transactions are carried out in CU. Exposures to currency exchange rates arise
from the Group’s overseas sales and purchases, which are primarily denominated in US dollars
(USD) and Pounds Sterling (GBP). The Group also holds an investment in a USD bond. Further, the
Group has a USD loan, which has been used to fund the purchase of investment property in the
United States.
To mitigate the Group’s exposure to foreign currency risk, non-CU cash flows are monitored and
forward exchange contracts are entered into in accordance with the Group’s risk management
policies. Generally, the Group’s risk management procedures distinguish short-term foreign
currency cash flows (due within six months) from longer-term cash flows (due after six months).
Where the amounts to be paid and received in a specific currency are expected to largely offset
one another, no further hedging activity is undertaken. Forward exchange contracts are mainly
entered into for significant long-term foreign currency exposures that are not expected to be offset
by other same-currency transactions. Hedge accounting disclosures are included in Note ..
IFRS 7.33
IFRS 7.IG15
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7.IG15
IFRS 7.22A
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Foreign currency denominated financial assets and liabilities which expose the Group to currency
risk are disclosed below. The amounts shown are those reported to key management translated into
CU at the closing rate:
The following table illustrates the sensitivity of profit and equity in relating to the Group’s financial
assets and financial liabilities and the USD/CU exchange rate and GBP/CU exchange rate ‘all other
things being equal’. It assumes a +/- % change of the CU/USD exchange rate for the year ended
at December (: %). A +/- % change is considered for the CU/GBP exchange
rate (: %). Both of these percentages have been determined based on the average market
volatility in exchange rates in the previous twelve months. The sensitivity analysis is based on the
Group’s foreign currency financial instruments held at each reporting date and also takes into
account forward exchange contracts that offset effects from changes in currency exchange rates.
If the CU had strengthened against the USD by % (: %) and GBP by % (: %)
respectively then this would have had the following impact:
If the CU had weakened against the USD by % (: %) and GBP by % (: %)
respectively then this would have had the following impact:
The higher foreign currency exchange rate sensitivity in profit in compared with is
attributable to an increase in foreign currency denominated debt. Equity is more sensitive in
than in because of an increase in use of foreign currency forwards.
IFRS 7.40(a)
IFRS 7.40(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 7.34(a)
IFRS 7.34(c)
Short-term exposure Long-term
exposure
USD GBP Other USD
31 December 2021
Financial assets 4,518 3,629 308 1,363
Financial liabilities (710) (1,658) – (7,770)
Total exposure 3,808 1,971 308 (6,407)
31 December 2020
Financial assets 2,920 1,840 233 1,442
Financial liabilities (586) (1,368) – (7,965)
Total exposure 2,334 472 233 (6,523)
Profit for the year Equity
USD GBP Total USD GBP Total
31 December 2021 97 97 194 37 97 134
31 December 2020 53 20 73 13 20 33
Profit for the year Equity
USD GBP Total USD GBP Total
31 December 2021 (97) (99) (196) (47) (99) (146)
31 December 2020 (53) (24) (77) (3) (24) (27)
Interest rate sensitivity
The Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing.
Longer-term borrowings are therefore usually at fixed rates. At December , the Group is
exposed to changes in market interest rates through bank borrowings at variable interest rates.
Other borrowings are at fixed interest rates. The Group’s investments in bonds and debentures
all pay fixed interest rates. The exposure to interest rates for the Group’s money market funds is
considered immaterial.
The following table illustrates the sensitivity of profit and equity to a reasonably possible change
in interest rates of +/- % (: +/- %). These changes are considered to be reasonably possible
based on observation of current market conditions. The calculations are based on a change in the
average market interest rate for each period, and the financial instruments held at each reporting
date that are sensitive to changes in interest rates. All other variables are held constant.
Other price sensitivity
The Group is exposed to other price risk in respect of its listed equity securities and the investment
in XY Ltd (see Note .).
For the listed equity securities, an average volatility of % has been observed during (:
%). This volatility figure is considered to be a suitable basis for estimating how profit or loss and
equity would have been affected by changes in market risk that were reasonably possible at the
reporting date. If the quoted stock price for these securities increased or decreased by that amount,
profit or loss and equity would have changed by CU (: CU ).
The investments in listed equity securities and in XY Ltd are considered long-term, strategic
investments. In accordance with the Group’s policies, no specific hedging activities are undertaken
in relation to these investments. The investments are continuously monitored and voting rights
arising from these equity instruments are utilised in the Group’s favour.
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7.IG15
IFRS 7.40(a)
IFRS 7.40(b)
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7.IG15
IFRS 7.40(a)
IFRS 7.40(b)
IFRS 7.33(b)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Profit for the year Equity
+ 1% - 1% + 1% - 1%
31 December 2021 36 (36) 26 (16)
31 December 2020 32 (32) 23 (14)
34.2 Credit risk analysis
Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group
is exposed to credit risk from financial assets including cash and cash equivalents held at banks,
trade and other receivables.
Credit risk management
The credit risk is managed on a group basis based on the Group’s credit risk management policies
and procedures.
The credit risk in respect of cash balances held with banks and deposits with banks are managed
via diversification of bank deposits, and are only with major reputable financial institutions.
The Group continuously monitors the credit quality of customers based on a credit rating
scorecard. Where available, external credit ratings and/or reports on customers are obtained and
used. The Group’s policy is to deal only with credit worthy counterparties. The credit terms range
between and days. The credit terms for customers as negotiated with customers are subject
to an internal approval process which considers the credit rating scorecard. The ongoing credit risk
is managed through regular review of ageing analysis, together with credit limits per customer.
Service customers are required to pay the annual amount of the service upfront, mitigating the
credit risk.
Trade receivables consist of a large number of customers in various industries and
geographical areas.
Security
Trade receivables consist of a large number of customers in various industries and geographical
areas. The Group does not hold any security on any trade receivables balance at each annual
reporting date.
In addition, the Group does not hold any collateral relating to other financial assets (eg derivative
assets, cash and cash equivalents held with banks) at each annual reporting date.
Trade receivables
The Group applies the IFRS simplified model of recognising lifetime expected credit losses for all
trade receivables as these items do not have a significant financing component.
In measuring the expected credit losses, the trade receivables have been assessed on a collective
basis as they possess shared credit risk characteristics. They have been grouped based on the days
past due and also according to the geographical location of customers.
The expected loss rates are based on the payment profile for sales over the past months before
December and December respectively as well as the corresponding historical
credit losses during that period. The historical rates are adjusted to reflect current and forwarding
looking macroeconomic factors affecting the customer’s ability to settle the amount outstanding.
The Group has identified gross domestic product (GDP) and unemployment rates of the countries
in which the customers are domiciled to be the most relevant factors and according adjusts
historical loss rates for expected changes in these factors. However, given the short period exposed
to credit risk, the impact of these macroeconomic factors has not been considered significant within
each annual reporting period.
Trade receivables are written off (ie derecognised) when there is no reasonable expectation of
recovery. Failure to make payments within days from the invoice date and failure to engage
with the Group on alternative payment arrangement amongst other is considered indicators of
no reasonable expectation of recovery.
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7.21
IFRS 7.35F(c)
IFRS 7.35G
IFRS 7.35F(e)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
On the above basis the expected credit loss for trade receivables as at December and
December was determined as follows:
Guidance note: The credit risk disclosure as illustrated in the financial statements does not
include all the required disclosure in IFRS for each class of financial asset, this is because
such disclosure was immaterial for that class of financial asset. In practice it is a challenge in
determining how much detail to provide to satisfy the requirements of IFRS .
Much of the challenge is when determining how much detail to include in the financial
statements or how much emphasis to place on different aspects of the requirements and
the level of aggregation. It is necessary to strike a balance between overburdening financial
statements with excessive detail that may not assist the users of the financial statements and
obscuring important information as a result of too much aggregation.
Detailed credit risk disclosure on the following items has not been included as they
were immaterial:
• amounts due from banks (material in value but short term and assumed the omitted
disclosures are not material due to their nature. However, this could be challenging in a
number of cases, depending on credit worthiness of the banks and also depending on the
period the entity is exposed to credit risk)
• listed bonds and other debentures, and
• derivative financial assets (not subject to the impairment model as carried at fair value).
Particular challenge will apply where there are material long-term financial assets, particularly
where these are carried at amortised cost or FVOCI and hence are within the scope of the
IFRS impairment model. While many groups will not have these there will be a number of
exceptions to this.
For instance, for this note in particular, in different circumstances an entity may have to
include:
• enhanced disclosures in areas such as credit risk management practices where
IFRS .F-G has specific requirements relating to various judgements made in applying
the IFRS expected credit loss model, and
• quantitative and qualitative information about amounts arising from expected credit losses
in accordance with IFRS .H -L. These disclosures require quantitative information
about changes in the credit loss provisions within the three buckets along with other
information relating to changes in the equivalent gross amounts.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
The closing balance of the of the trade receivables loss allowance as at December
reconciles with the trade receivables loss allowance opening balance as follows:
Guidance note: In these Example Financial Statements, the trade receivables have all been
assessed collectively for credit risk. There may be situations in practice where it would not
be appropriate to assess all the receivables collectively either due to the receivables having
different subcategories which do not share the same credit risk or the size of receivable is
such that is managed and assessed on an individual basis. As such it is required that an entity
disclosure information about how an entity has grouped financial instruments if they are
assessed or measured on a collective basis.
The matrix used to disclose the credit risk exposure for trade receivables above is different
from the impairment provision matrix used under IAS . The disclosure of credit risk disclosure
under IFRS is provided by credit risk grades and in this case the aging is a proxy of the credit
risk grades (IFRS .M, N). For the reasons expressed above, the entity has not included
IFRS .M disclosures relating to other financial assets such as amounts due from banks.
Debt investments
All the Group’s investments in bonds and debentures measured at amortised cost are considered
to have low credit risk and the loss allowance recognised is based on the months expected
loss. Management consider “low credit risk” for listed bonds and debentures to be those with high
quality external credit ratings (investment grade).
IFRS 7.35H(b)(iii)
IFRS 7.35F
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 7.35N 31 December 2021 Trade receivables days past due
IFRS 7.IG20D Current More than
30 days
More than
60 days
More than
90 days
Total
IFRS 7.35G(a) Expected credit loss rate 1.7% 6.5% 18% 60% –
IFRS 7.35G(a) Gross carrying amount 29,620 827 671 147 31,265
Lifetime expected credit loss 504 54 121 88 767
IFRS 7.35N 31 December 2020 Trade receivables days past due
IFRS 7.42P Current More than
30 days
More than
60 days
More than
90 days
Total
IFRS 7.35G(a) Expected credit loss rate 1.5% 6% 16% 55% –
IFRS 7.35G(a) Gross carrying amount 22,032 925 828 104 23,889
Lifetime expected credit loss 331 56 135 57 579
Opening loss allowance as at 1 January 2020 331
Loss allowance recognised during the year 225
Loss allowance as at 31 December 2020 556
IFRS 7.35I(c) Loss allowance recognised during the year 221
Loss allowance unused and reversed during the year (10)
Loss allowance as at 31 December 2021 767
Other receivables
Other financial assets at amortised cost include amounts due from ABC limited.
The closing balance of the of the other receivables and debt investments at amortised costs loss
allowance as at December reconciles with the other receivables and debt investments at
amortised cost loss allowance opening balance as follows:
The Group is also exposed to credit risk relating to derivative assets that are measured at fair value
through profit or loss. The maximum exposure as at December is the carrying amount of
these instruments CU (: CU ).
34.3 Liquidity risk analysis
Liquidity risk is that the Group might be unable to meet its obligations. The Group manages its
liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities
as well as forecast cash inflows and outflows due in day-to-day business. The data used for
analysing these cash flows is consistent with that used in the contractual maturity analysis below.
Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as
well as on the basis of a rolling -day projection. Long-term liquidity needs for a -day and a
-day lookout period are identified monthly. Net cash requirements are compared to available
borrowing facilities in order to determine headroom or any shortfalls. This analysis shows that
available borrowing facilities are expected to be sufficient over both the lookout periods.
The Group’s objective is to maintain cash and marketable securities to meet its liquidity
requirements for -day periods at a minimum. This objective was met for the reporting period.
Funding for long-term liquidity needs is additionally secured by an adequate amount of committed
credit facilities and the ability to sell long-term financial assets.
The Group considers expected cash flows from financial assets in assessing and managing liquidity
risk, in particular its cash resources and trade receivables. The Group’s existing cash resources and
trade receivables (see Note ) significantly exceed the current cash outflow requirements. Cash
flows from trade and other receivables are all contractually due within six months.
As at December , the Group’s non-derivative financial liabilities have contractual maturities
(including interest payments where applicable) as summarised below:
IFRS 7.35F
IFRS 7.36
IFRS 7.33(a)
IFRS 7.33(b)
IFRS 7.39(c)
IFRS 7.39(c)
IFRS 7.B11F
IFRS 7.39(a)
IFRS 7.B11
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Other
receivables
Debt
investments
IFRS 7.42P Opening loss allowance as at 1 January 2020 3 30
Loss allowance recognised during the year 1 2
Loss allowance as at 31 December 2020 4 32
IFRS 7.35I(c) Receivables written of during the year – 1
Loss allowance as at 31 December 2021 4 33
31 December 2021 Current Non-current
within 6
months
6 to 12
months
1 to 5
years
later than 5
years
US-dollar loans 280 280 1,761 8,215
Other bank borrowings 4,565 – – –
Non-convertible bond 208 208 8,888 –
Trade and other payables 8,497 – – –
Total 13,550 488 10,649 8,215
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
This compares to the maturity of the Group’s non-derivative financial liabilities in the previous
reporting period as follows:
The above amounts reflect the contractual undiscounted cash flows, which may differ to the
carrying values of the liabilities at the reporting date. The subordinated shareholder loan
amounting to CU , throughout all reporting periods is not included as this is only repayable
upon liquidation of Illustrative Corporation Ltd. Annual interest payments amount to CU .
In assessing and managing liquidity risks of its derivative financial instruments, the Group considers
both contractual inflows and outflows. The contractual cash flows of the Group’s derivative
financial assets and liabilities are as follows:
Derivative financial instruments reflect forward exchange contracts (see Note .) that will be
settled on a gross basis.
35. Fair value measurement
Telling the COVID Story
The fair value of an item (such as certain financial instruments, investment properties, and
items of property, plant and equipment that are subject to systematic revaluation due to
an accounting policy choice) must reflect market participant views and market data at the
measurement date under current market conditions. There may be an increase in the amount of
subjectivity involved in fair value measurements as a result of COVID-, especially those based
on unobservable inputs. In some cases, greater use of unobservable inputs will be required
because relevant observable inputs are no longer available.
Changes to existing valuation techniques and inputs may be required in response to the current
market conditions and depending on the significant of the amounts involved, management
should consider obtaining assistance from external valuation specialists who possess the
necessary expertise, experience and market knowledge required to properly apply IFRS .
Providing transparency over the valuation techniques used and key assumptions and inputs
used in determining fair value, including the sensitivities by providing disclosures required
by IFRS , is an integral part of determining fair value and they are key to enhancing the
usefulness of financial reporting to the users of financial statements.
IFRS 7.39(a)
IFRS 7.B11
IFRS 7.39(b)
IFRS 7.B11
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December 2020 Current Non-current
within 6
months
6 to 12
months
1 to 5
years
later than 5
years
US-dollar loans 289 289 1,781 8,508
Other bank borrowings 3,124 – – –
Non-convertible bond 208 208 9,303 –
Trade and other payables 6,550 – – –
Total 10,171 497 11,084 8,508
31 December 2021 31 December 2020
within 6
months
6 to 12
months
within 6
months
6 to 12
months
Gross-settled forward contracts:
– Cash outflow (212) (6,978) (190) (7,100)
– Cash inflow 300 7,509 203 7,050
Total 88 531 13 (50)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
35.1 Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value in the consolidated statement of
financial position are grouped into three levels of a fair value hierarchy. The three levels are defined
based on the observability of significant inputs to the measurement, as follows:
• Level : quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level : inputs other than quoted prices included within Level that are observable for the asset
or liability, either directly or indirectly
• Level : unobservable inputs for the asset or liability.
The following table shows the levels within the hierarchy of financial assets and liabilities measured
at fair value on a recurring basis:
There were no transfers between Level and Level during the year ended December
or .
Measurement of fair value of financial instruments
The Group’s finance team performs valuations of financial items for financial reporting purposes,
including Level fair values, in consultation with third party valuation specialists for complex
valuations. Valuation techniques are selected based on the characteristics of each instrument, with
the overall objective of maximising the use of market-based information. The finance team reports
directly to the chief financial officer (CFO) and to the audit committee. Valuation processes and
fair value changes are discussed among the audit committee and the valuation team at least every
year, in line with the Group’s annual reporting dates.
IFRS 13.76
IFRS 13.81
IFRS 13.86
IFRS 13.93(c)
IFRS 13.93(d)
IFRS 13.93(g)
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December 2021 Level 1 Level 2 Level 3 Total
Financial assets
Listed securities 421 – – 421
Investment in XY Ltd – – 752 752
Other short-term financial assets 655 – – 655
US-dollar forward contracts – cash flow hedge – 467 – 467
GBP forward contracts – cash flow hedge – 134 – 134
Other forward exchange contracts – held-for-trading – 115 – 115
Total assets 1,076 716 752 2,544
Financial liabilities
Contingent consideration (Note 25) – – (620) (620)
Net fair value 1,076 716 132 1,924
31 December 2020 Level 1 Level 2 Level 3 Total
Financial assets
Listed securities 343 – – 343
Investment in XY Ltd – – 720 720
GBP forward contracts – cash flow hedge – 230 – 230
Other short-term financial assets 649 – – 649
Other forward exchange contracts – held-for-trading – 212 – 212
Total assets 992 442 – 1,434
Financial liabilities
US-dollar forward contracts – cash flow hedge – (160) – (160)
Net fair value 992 282 720 1,994
The following valuation techniques are used for instruments categorised in Levels and :
• Foreign currency forward contracts (Level ) – The Group’s foreign currency forward contracts
are not traded in active markets. These contracts have been fair valued using observable forward
exchange rates and interest rates corresponding to the maturity of the contract. The effects of
non-observable inputs are not significant for foreign currency forward contracts.
• Contingent consideration (Level ) – The fair value of contingent consideration related to the
acquisition of Goodtech (see Note .) is estimated using a present value technique. The CU
fair value is estimated by probability-weighting the estimated future cash outflows, adjusting
for risk and discounting at .%. The probability-weighted cash outflows before discounting are
CU and reflect management’s estimate of a % probability that the contract’s target level
will be achieved. The discount rate used is .%, based on the Group’s estimated incremental
borrowing rate for unsecured liabilities at the reporting date, and therefore reflects the Group’s
credit position. The effects on the fair value of risk and uncertainty in the future cash flows are
dealt with by adjusting the estimated cash flows rather than adjusting the discount rate.
• Investment in XY Ltd (Level ) – The fair value of this investment was determined based on an
appropriate equity pricing model that takes into account the investee’s dividends policy and its
historical and expected future performance and based on an appropriate growth factor for a
similar listed entity and a risk adjusted discount rate.
The following table provides information about the sensitivity of the fair value measurement to
changes in the most significant inputs:
There are no major interrelationships between the significant input (management’s estimate of the
probability that the contract’s target level will be achieved) and the unobservable inputs.
Level 3 fair value measurements
The reconciliation of the carrying amounts of financial instruments classified within Level is
as follows:
IFRS 13.93(d)
IFRS 13.93(h)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
IFRS 13.93(h) Description Significant
unobservable input
Estimate of
the input
Sensitivity of the fair value
measurement to input
Contingent
consideration
Probability of
meeting target
50%
An increase to 60% (decrease to 40%) would
increase (decrease) fair value by CU 125.
Investment in
XY Ltd
Earnings multiple 5%
An increase of the growth factor by
100 basis points and a lower discount rate
of 100 basis points would increase the fair
value by CU 65. Lowering the growth
factor by 100 basis points and increasing
the discount factor by 100 basis point
would decrease fair value by CU 85
Investment in
XY Ltd
Risk adjusted
discount rate
15%
Contingent
consideration
Investment in
XY Ltd
Balance at 1 January 2020 – 460
Amount recognised in profit or loss – 260
IFRS 13.93(e) Balance at 31 December 2020 – 720
IFRS 13.93(e)(iii) Acquired through business combination (600) –
IFRS 13.93(e)(i) Amount recognised in profit or loss (20) 32
Balance at 31 December 2021 (620) 752
IFRS 13.93(f) Total amount included in profit or loss for unrealised losses on Level 3 instruments
2020
Finance income – 260
2021
Finance costs (20) –
Finance income – 32
Financial instruments measured at amortised cost for which the fair value is disclosed
See Note ..
35.2 Fair value measurement of non-financial assets
The following table shows the levels within the hierarchy of non-financial assets measured at fair
value on a recurring basis:
The fair value of the Group’s main property assets is estimated based on appraisals performed by
independent, professionally qualified property valuers. The significant inputs and assumptions are
developed in close consultation with management. The valuation processes and fair value changes
are reviewed by the board of directors and audit committee at each reporting date.
Land owned in Euroland (Level 3)
The appraisal was carried out using a market approach that reflects observed prices for recent
market transactions for similar properties and incorporates adjustments for factors specific to the
land in question, including plot size, location, encumbrances and current use. In , a negative
adjustment of .% was incorporated for these factors. The land was revalued on November
. The land was previously revalued in November .
The significant unobservable input is the adjustment for factors specific to the land in question.
The extent and direction of this adjustment depends on the number and characteristics of the
observable market transactions in similar properties that are used as the starting point for
valuation. Although this input is a subjective judgement, management considers that the overall
valuation would not be materially affected by reasonably possible alternative assumptions.
Land with a fair value of CU , recognised upon the acquisition of Goodtech in March
(see Note .), was not revalued at the reporting date. Management determined that the effect of
changes in fair values between the acquisition and reporting date is immaterial.
IFRS 13.93(d)
IAS 40.75(e)
IAS 16.77(b)
IFRS 13.93(d)
IFRS 13.93(g)
IAS 16.77(a)
IFRS 13.93(h)
IFRS 13.93(d)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
31 December 2021 Level 1 Level 2 Level 3 Total
Property, plant and equipment:
– land owned in Euroland – – 7,697 7,697
– Goodtech land – – 730 730
Investment property:
– oce building in Euroland – – 4,552 4,552
– Goodtech investment property – – 75 75
– oce building in the US – – 8,035 8,035
31 December 2020 Level 1 Level 2 Level 3 Total
Property, plant and equipment:
– land owned in Euroland – – 7,697 7,697
– Goodtech land – – – –
Investment property:
– oce building in Euroland – – 4,366 4,366
– oce building in the US – – 7,911 7,911
Office buildings in Euroland and the US (Level 3)
The fair values of the office buildings are estimated using an income approach which capitalises
the estimated rental income stream, net of projected operating costs, using a discount rate derived
from market yields implied by recent transactions in similar properties. When the actual rent differs
materially from the estimated rent, adjustments have been made to the estimated rental value.
The estimated rental stream takes into account current occupancy level, estimates of future
vacancy levels, the terms of in-place leases and expectations for rentals from future leases over
the remaining economic life of the buildings. The office buildings are revalued annually on
December.
The most significant inputs, all of which are unobservable, are the estimated rental value,
assumptions about vacancy levels, and the discount rate. The estimated fair value increases if
the estimated rental increases, vacancy levels decline or if discount rate (market yields) decline.
The overall valuations are sensitive to all three assumptions. Management considers the range of
reasonably possible alternative assumptions is greatest for rental values and vacancy levels and
that there is also an interrelationship between these inputs. The inputs used in the valuations at
December were:
An investment property with a fair value of CU , recognised upon the acquisition of Goodtech
(see Note .) in March , was not revalued at the reporting date. Management has determined
the effect of changes in fair values between the acquisition and reporting date is immaterial.
The reconciliation of the carrying amounts of non-financial assets classified within Level is
as follows:
IFRS 13.93(d)
IFRS 13.93(h)
IFRS 13.93(d)
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
Euroland US
Rental value CU 108/sqm USD 65/sqm
Vacancy levels 9% 11%
Discount rate (market yield) 4.4% 3.7%
PP&E Investment properties
Land held Euroland US
IFRS 13.93(e) Balance at 1 January 2020 7,697 4,293 7,809
IFRS 13.93(e)(i) Gains recognised in profit or loss:
– increase in fair value of investment property – 73 102
IFRS 13.93(e)(ii) Gains recognised in other comprehensive income:
– revaluation of land – – –
– exchange dierences on translating foreign
operations
– – –
Balance at 31 December 2020 7,697 4,366 7,911
IFRS 13.93(f)
Total amount included in profit or loss for unrealised
gains on Level 3 assets
– 73 102
PP&E Investment properties
Land held Euroland US
IFRS 13.93(e) Balance at 1 January 2021 7,697 4,366 7,911
IFRS 13.93(e)(i) Gains recognised in profit or loss:
– increase in fair value of investment property – 186 124
IFRS 13.93(e)(ii) Gains recognised in other comprehensive income:
– revaluation of land 303 – –
– exchange dierences on translating foreign operations (21) – –
IFRS 13.93(e)(iii) Acquired in business combination 730 75 –
Balance at 31 December 2021 8,709 4,627 8,035
IFRS 13.93(f)
Total amount included in profit or loss for unrealised
gains on Level 3 assets
– 186 124
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
36. Capital management policies and procedures
Telling the COVID Story
During the global pandemic the entity may need to revise its capital management policies or
objectives. For example, they may no longer be able to maintain the capital-to-financing ratios
previously set or covenants may need to be renegotiated with lenders on borrowings. Any
significant changes should be disclosed here, including plans to return to original objectives
and how that might happen.
The Group’s capital management objectives are:
• to ensure the Group’s ability to continue as a going concern, and
• to provide an adequate return to shareholders by pricing products and services in a way that
reflects the level of risk involved in providing those goods and services.
The Group monitors capital on the basis of the carrying amount of equity plus its subordinated
loan, less cash and cash equivalents as presented in the consolidated statement of financial
position and cash flow hedges recognised in other comprehensive income.
The Group’s goal in capital management is to maintain a capital-to-overall financing ratio of : to
:. This is in line with the Group’s covenants included in the terms of the subordinated loan from its
main shareholder advanced in (see Note .).
Management assesses the Group’s capital requirements in order to maintain an efficient overall
financing structure while avoiding excessive leverage. This takes into account the subordination
levels of the Group’s various classes of debt. The Group manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell
assets to reduce debt.
The amounts managed as capital by the Group for the reporting periods under review are
summarised as follows:
The Group has honoured its covenant obligations, including maintaining capital ratios, since the
subordinated loan was taken out in . The ratio-reduction during is primarily a result of
financing the acquisition of Goodtech (see Note .).
IAS 1.134
IAS 1.135(a)(i)
IAS 1.135(a)(ii)
IAS 1.135(a)(iii)
IAS 1.135(d)
IAS 1.135(b) 2021 2020
Total equity 87,140 52,746
Subordinated loan 5,000 5,000
Cash flow hedges (467) 160
Cash and cash equivalents (34,729) (11,197)
Capital 56,944 46,709
Total equity 87,140 52,746
Borrowings 25,815 24,644
Leasing liabilities 33,716 35,509
Overall financing 146,671 112,899
Capital-to-overall financing ratio 0.39 0.41
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Notes to the consolidated financial statements
For the year ended 31 December 2021 (expressed in thousands of Euroland currency units, except per share amounts)
37. Events after the reporting date
Telling the COVID Story
COVID- related consequences have to be factored into any adjusting event determinations
and disclosures that are made. Every reporting entity has to carefully consider the conditions
and how they impact the reporting entity, because the same condition could impact entities
differently for the same reporting date. IAS makes it clear management should consider
all relevant circumstances that relate to the entity’s operations until the financial statements
are authorised and approved for issue by those charged with the governance of the reporting
entity. It is appropriate for management to consider the following information which potentially
became apparent subsequent to period-end when assessing the accuracy of their estimates
and judgements made prior to the information becoming available:
• Restrictions on domestic and international travel
• The economic consequences of social distancing resulting on capacity restrictions at events
and hospitality locations
• Forecasts potentially not being achieved due to market conditions
• Cessation of non-essential services
• Interruptions in supply of either good or services
• Customers entering administration, or
• Government support.
For more details refer to our article on ‘Events after the reporting period’.
No adjusting or significant non-adjusting events have occurred between the December reporting
date and the date of authorisation.
Guidance note: IAS . and . require the financial statements to consider events,
occurring before the financial statements are authorised for issue. Events occurring after this
date are not reflected.
38. Authorisation of financial statements
Telling the COVID Story
If your regulator has delayed the reporting deadlines as a result of COVID-, and the
authorisation of the financial statements has been delayed because of this, it would be helpful
to disclose to the users of the financial statements what has caused the delay.
The consolidated financial statements for the year ended December (including
comparatives) were approved by the board of directors on March .
C Executive C Finance
(Board member 1) (Board member 2)
Guidance note: IAS . emphasises that it is important for users to know when the financial
statements were authorised for issue as they do not reflect events after that date.
IAS 10.8
IAS 10.21
IAS 10.17
Appendices to the
IFRS Example Consolidated
Financial Statements
Illustrative Corporation Group
31 December 2021
Appendix A
Organising the statement of profit or loss by function
of expenses
IAS . allows a statement of profit or loss format analysing expenses using a classification based
on either the nature of expenses (NOE) or based on the function of expenses (FOE) within the entity.
This depends on management’s assessment of which format provides information that is reliable
and more relevant.
The NOE format is illustrated in the main body of the Example Financial Statements. The FOE format
is illustrated in this appendix. This appendix presents a separate statement of profit or loss, ie other
comprehensive income is presented in a separate statement of comprehensive income (see the
main body of the Example Financial Statements).
If the entity presents a single statement of comprehensive income (see Appendix B), the FOE format
included in this appendix may replace the NOE format presented in in Appendix B.
The FOE or NOE formats only affect the statement of profit or loss but do not affect the
presentation requirements for other comprehensive income.
Presenting the statement of profit or loss in the FOE format requires additional considerations:
• additional disclosures of the nature of certain expenses are required, including employee benefit
expenses and depreciation, amortisation and impairment of non-financial assets
• the disclosures of the specific line items in the statement of profit or loss where certain
transactions or amounts are recognised (for example, see Note , Note and Note of
the Example Financial Statements) should reflect the actual line items presented in the FOE
statement of profit or loss.
In addition, when an entity includes the analysis of profit or loss from a discontinued operation
in the notes to the financial statements (see Note ), such information should be presented in
the same format as the main consolidated statement of profit or loss. This will facilitate a better
understanding of the financial effects of the discontinued operations.
IAS 1.99
IAS 1.104
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of profit or loss
IAS 1.51(c) Notes 2021 2020
IAS 1.82(a) Revenue 8, 9 205,793 191,228
IAS 1.85 Costs of sales (110,526) (103,918)
IAS 1.85 Gross profit 95,267 87,310
IAS 1.85 Other income 299 708
IAS 1.85 Distribution costs (12,014) (11,537)
IAS 1.85 Administrative expenses (46,670) (46,147)
IAS 1.85 Research and development costs (1,690) (1,015)
IAS 1.85 Change in fair value of investment property 14 310 175
IAS 1.85 Other expenses (12,270) (11,131)
Operating profit 23,232 18,309
IAS 1.82(c) Share of profit from equity accounted investments 7 391 141
IAS 1.82(b) Finance costs 27 (3,869) (3,993)
IAS 1.85 Finance income 27 964 885
IAS 1.85 Other financial items 28 943 1,182
Profit before tax 21,661 16,524
IAS 1.82(d) Tax expense 29 (6,794) (4,888)
Profit for the year from continuing operations 14,867 11,636
IAS 1.82(ea) Loss for the year from discontinued operations 20 (9) (325)
IAS 1.81A(a) Profit for the year 14,858 11,311
Profit for the year attributable to:
IAS 1.81B(a)(i) – Non-controlling interest 121 116
IAS 1.81B(a)(ii) – Owners of the parent 14,737 11,195
14,858 11,311
Earnings per share Notes 2021 2020
IAS 33.67A Basic earnings (loss) per share:
IAS 33.66 – Earnings from continuing operations 30 1.19 0.93
IAS 33.68A – Loss from discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
IAS 33.67A Diluted earnings (loss) per share:
IAS 33.66 – Earnings from continuing operations 1.19 0.93
IAS 33.68A – Loss from discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
Appendix B
Statement of comprehensive income presented in a
single statement
The main body in these Example Financial Statements presents the statement of comprehensive
income in two statements (see guidance note to the consolidated statement of profit or loss).
This appendix presents the alternative of a single statement of comprehensive income (using the
NOE format).
Disclosure requirements, however, remain unchanged (see guidance note to the consolidated
statement of comprehensive income).
In general, notes to the financial statements will need to be tailored so that they refer to the
statement of comprehensive income and not the statement of profit or loss, where appropriate. For
example, tailoring is necessary to reflect that discontinued operations are shown as a separate line
item in the statement of comprehensive income (see Note .). However, it should be noted the term
profit or loss continues to apply.
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of comprehensive income
IAS 1.51(c) Notes 2021 2020
IAS 1.82(a) Revenue 8, 9 205,793 191,228
IAS 1.85 Other income 299 708
IAS 1.85 Changes in inventories (7,923) (6,815)
IAS 1.85 Costs of materials (42,535) (39,420)
IAS 1.85 Employee benefits expense 22 (113,809) (109,515)
IAS 1.85 Change in fair value of investment property 14 310 175
IAS 1.85
Depreciation, amortisation and impairment of
non-financial assets
(10,093) (8,881)
IAS 1.85 Impairment losses of financial assets 34.2 (212) (228)
IAS 1.85 Other expenses (8,598) (8,943)
Operating profit 23,232 18,309
IAS 1.82(c) Share of profit from equity accounted investments 7 391 141
IAS 1.82(b) Finance costs 27 (3,869) (3,993)
IAS 1.85 Finance income 27 964 885
IAS 1.85 Other financial items 28 943 1,182
Profit before tax 21,661 16,524
IAS 1.82(d) Tax expense 29 (6,794) (4,888)
Profit for the year from continuing operations 14,867 11,636
IAS 1.82(ea) Loss for the year from discontinued operations 20 (9) (325)
IAS 1.81A(a) Profit for the year 14,858 11,311
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Consolidated statement of comprehensive income
Notes 2021 2020
Other comprehensive income:
IAS 1.82A(a)(i) Items that will not be reclassified subsequently to profit or loss
IAS 16.77(f) Revaluation of land 12 303 –
IAS 19.120(c) Remeasurement of net defined benefit liability 22 3,830 (3,541)
IAS 1.90
IAS 1.91(b)
Income tax relating to items not reclassified 21.3 (1,240) 1,062
IAS 1.82A(a)(ii) Items that will be reclassified subsequently to profit or loss
Cash flow hedging:
IFRS 7.24C(b)(i) – current year gains (losses) 21.3 890 540
IFRS 7.24C(b)(iv)
IAS 1.92
– reclassification to profit or loss 21.3 (640) (712)
IAS 21.52(b) Exchange dierences on translating foreign operations (664) (341)
IAS 1.82A(b)
Share of other comprehensive income of equity
accounted investments:
7 5
IAS 1.92 – reclassification to profit or loss (3) –
IAS 1.90
IAS 1.91(b)
Income tax relating to items that will be reclassified 21.3 176 95
IAS 1.81A(b) Other comprehensive income for the year, net of tax 2,657 (2,897)
IAS 1.81A(c) Total comprehensive income for the year 17,515 8,414
Profit for the year attributable to:
IAS 1.81B(a)(i) Non-controlling interest 121 116
IAS 1.81B(a)(ii) Owners of the parent 14,737 11,195
14,858 11,311
Total comprehensive income attributable to:
IAS 1.81B(b)(i) Non-controlling interest 121 116
IAS 1.81B(b)(ii) Owners of the parent 17,394 8,298
17,515 8,414
Earnings per share Notes 2021 2020
IAS 33.67A Basic earnings (loss) per share: 30
IAS 33.66 – Earnings from continuing operations 1.19 0.93
IAS 33.68A – Loss from discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
IAS 33.67A Diluted earnings (loss) per share:
IAS 33.66 – Earnings from continuing operations 1.19 0.93
IAS 33.68A – Loss from discontinued operations (0.00) (0.03)
IAS 33.66 Total 1.19 0.90
Appendix C
Illustrative Corporation Group: IFRS Example Consolidated Financial Statements – December
Effective dates of new IFRS Standards
Based on IFRS Standards issued at 31 October 2021
Standard Title of Standard or Interpretation Eective for
annual reporting
periods beginning
on or after
Considered
for
preparation
of EFS?
Early
application?
various
Amendments to References to the Conceptual Framework
in IFRS Standards
1 January 2020
✓ ✓
IFRS 3 Definition of a Business (Amendments to IFRS 3) 1 January 2020
✓ ✓
IAS 1, IAS 8 Definition of Material (Amendments to IAS 1 and IAS 8) 1 January 2020
✓ ✓
IFRS 9, IAS 39
and IFRS 7
Interest Rate Benchmark Reform 1 January 2020
✓ ✓
IFRS 16 COVID-19-Related Rent Concessions 1 June 2020
✓ ✓
IFRS 9, IAS 39, IFRS 7,
IFRS 4, and IFRS 16
Interest Rate Benchmark Reform Phase 2 1 January 2021 no
✓
IFRS 16 COVID-19-Related Rent Concessions beyond 30 June 2021
IFRS 3 References to the Conceptual Framework 1 January 2022 no
✓
IAS 16 Proceeds before Intended Use 1 January 2022 no
✓
IAS 37 Onerous Contracts – Cost of Fulfilling a Contract 1 January 2022 no
✓
IFRS 1, IFRS 9,
IFRS 16, IAS 41
Annual Improvements to IFRS Standards 2018-2020 Cycle 1 January 2022 no
✓
IFRS 17 Insurance Contracts 1 January 2023 no
✓*
IFRS 17 and IFRS 4 Amendments to IFRS 17 Insurance Contracts 1 January 2023 no
✓
IAS 1 Classification of Liabilities as Current or Non-current 1 January 2023 no
✓
IAS 12
Deferred Tax related to Assets and Liabilities arising
from a Single Transaction’ (Amendments to IAS 12)
1 January 2023 no
✓
Not necessarily all Standards listed above are applicable to these Example Financial Statements but have
been considered in the preparation of those.
* Entities adopting IFRS early have to apply IFRS and IFRS before or on the same date.
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