Revaluation Non-monetary items in foreign currency. Exchange rate.
If, due to the Application of IFRS 1 First Time Adoption of International Financial Reporting Standards, an entity chooses to measure the items of Property, Plant and Equipment at Attributable Cost and their valuation is made in foreign currency. On what date should the exchange rate of the revalued value be considered?
If the appraisals are expressed in U.S. dollars (i.e., a currency other than the functional currency of the entity presenting financial statements), they must be converted into pesos using the exchange rate set out in IAS 21:
23 At the end of each reporting period:
c. Non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates on the date on which this fair value is measured.
That is, they are converted at the exchange rate at the time the fair value was measured and are not subsequently modified by changes in the exchange rate.
Rules involved:
IAS 21 – Effects of Changes in Foreign Currency Exchange Rates.
Change in accounting policy to be applied for PPE measurement
If, at the transition date, an entity opts for the attributable cost model, by application of IFRS 1 First Adoption of International Financial Reporting Standards, and subsequently and prior to the date of presentation of the first IFRS Financial Statements, the entity changes to the revaluation model. Can the Financial Institution change its accounting policy before the presentation of the first annual balance sheet? How is the difference between the result generated as a result of the calculation of the attributed cost and the one calculated subsequently by application of the revaluation model recorded?
The entity may make the change of method before the presentation of the first IFRS Balance Sheet, however, it must take into account the following provision of IFRS 1:
27IAS 8 does not apply to changes in accounting policies made by an entity in the adoption of IFRS or to changes in such policies until after it presents its first financial statements in accordance with IFRS. Therefore, the requirements for changes in accounting policies contained in IAS 8 do not apply to an entity’s first financial statements under IFRS.
27A If, during the period covered by its first financial statements under IFRS, an entity changes its accounting policies or the use of exemptions contained in this IFRS, the changes between its first interim financial reports under IFRS and its first financial statements under IFRS shall be explained in accordance with paragraph 23, and update the reconciliations required by paragraph 24(a) and (b).
It is appropriate that all the difference resulting from the revaluation be recorded directly in the ORI, so the difference determined on the initial application date that has not been originally allocated in the ORI because the attributed cost method is used must be reclassified from RNA to ORI.
Rules involved:
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
IAS 16 – Property, Plant and Equipment
IFRS 1 – First-Time Adoption
Positive Business Key – First Time Application
How does an entity register a positive key, originating from a higher value paid at the time of acquisition of the share package of a controlled company, registered prior to the presentation of the first IFRS financial statements? How is depreciation posted in previous periods recorded? Which accounts in the chart of accounts should be involved in this operation in light of IFRS?
(1) With respect to the exposure of the investment in the separate financial statements, the provisions of IAS 27 – Separate Financial Statements may be taken into account:
When an entity prepares separate financial statements, it shall account for investments in subsidiaries, joint ventures and associates:
(a) at cost;
(b) in accordance with IFRS 9; or
(c) using the equity method as described in IAS 28.
As provided through Communication “A” 6114, in separate statements the value of the investment must be measured according to the equity method of IAS 28:
6 IAS 27 – Separate Financial Statements. Investments in subsidiaries, associates and joint ventures in the Separate Statement of Equity Position shall be measured using the equity method provided for in IAS 28, in line with the provisions of Technical Resolution No. 26.
And according to IAS 28 – Investments in Associates and Joint Ventures
32…
The goodwill related to an associate or joint venture will be included in the carrying amount of the investment. The amortization of this capital gain will not be allowed.
For all the above, it is considered that the value resulting from the business key is incorporated together with the rest of the value of the investment under the heading Shares in other companies. (2) The following paragraphs of IFRS 1 apply:
C1. An entity adopting IFRS for the first time may choose not to retroactively apply IFRS 3 to business combinations made in the past (business combinations prior to the date of transition to IFRS). However, if the entity that adopts IFRS for the first time restates any business combination to comply with IFRS 3, it shall restate all subsequent business combinations and also apply IFRS 10 from that same date.
C4. If an entity that adopts IFRS for the first time does not apply IFRS 3 retroactively to a previous business combination, this will have the following consequences for that combination:
g. The carrying amount of goodwill in the opening statement of financial position in accordance with IFRS shall be its carrying amount at the date of transition to IFRS under previous GAAP, after making the following two adjustments:
(i)If required by paragraph (c)(i) above, the first-time adopter of IFRS shall increase the carrying amount of goodwill when it reclassifies an item that it recognized as an intangible asset under previous GAAP. Similarly, if paragraph (f) above requires the first-time adopter of IFRS to recognize an intangible asset that was included in the goodwill recognized under previous GAAP, it will reduce the carrying amount of the goodwill accordingly (and, if applicable, adjust for non-controlling interests and deferred taxes).
(ii) irrespective of whether there is any indication of impairment of goodwill, the first-time adopter of IFRS shall apply IAS 36 to check, on the date of transition to IFRS, whether the goodwill has been impaired, and to recognise, where appropriate, the resulting impairment loss, through an adjustment to retained earnings (or, if required by IAS 36, in the revaluation surplus). The impairment check shall be based on the conditions existing at the date of transition to IFRS.
h. No further adjustment to the carrying amount of the goodwill shall be made on the date of transition to IFRS. For example, the entity that adopts IFRS for the first time will not restate the carrying amount of the goodwill:
(i)to exclude an in-process research and development item acquired in that business combination (unless the relevant intangible asset was eligible for recognition under IAS 38 in the statement of financial position of the acquired company);
(ii) to adjust the amortization of the capital gain previously realized;
(iii) to reverse goodwill adjustments not permitted by IFRS 3, but practiced in accordance with previous GAAP, arising from adjustments to assets and liabilities between the date of the business combination and the date of transition to IFRS.
Considering that the acquiring entity, in its first application of IFRS, made use of the exception in Appendix C for business combinations, it is correct for the entity to take the carrying amount of goodwill at the transition date (31.12.16) and make the adjustments provided for in point C4.g (i.e.: + intangible assets recognised under the previous accounting standard that do not meet the recognition requirements under IFRS; – intangibles that are embodied in that value and must be recognized separately according to IFRS; – deterioration according to conditions existing at the transition date).
Rules involved:
IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
IAS 16 – Property, Plant and Equipment
IFRS 1 – First-Time Adoption
Positive Business Key – First Time Application
Rules involved:
IFRS 1 – First-Time Adoption
IAS 27 – Separate Financial Statements
IAS 28 – Investments in Associates
What items are included in accounts 440.014 – Special for application of IFRS for the first time and 450016 – Reclassification of Other Comprehensive Income from Unallocated Income?
440.014 – Special for Application of IFRS for the First Time:
This account was created based on the BCRA’s resolution in point 26. of Communication “A” 6327, subsequently incorporated as the last paragraph of Section 2. in the Ordered Text on “Distribution of results” and taken into account in turn in point 4.2.3. of the “Supplementary provisions to the chart of accounts” of Communication “A” 6618:
“26. Establish that financial institutions may not make distributions of results with the gain that arises from the application for the first time of International Financial Reporting Standards (IFRS), and must constitute a special reserve that may only be set aside for their capitalization or to absorb possible negative balances of the item “Unallocated results”.
That is, the reserve that is constituted with the balance that the 450015 account shows at the end of the 2018 fiscal year should be recorded in the 440014 account, to the extent that it is profit (credit balance) and in the first meeting held after said closing.
450.016 – Reclassification from Other Comprehensive Income to Unallocated Results:
The account must be used to allocate the results referred to in the last paragraph of point 3.6.3. of the “Complementary Provisions to the Chart of Accounts” (Communication “A” 6618), and corresponds to those coming from components of the ORI for which the international standard provides that when the sale or derecognition of the asset or liability in question occurs, they will not be reclassified to the Profit or Loss of the Year (i.e., they do not “pass” through the income statement or, Speaking in terms of the chart of accounts of the Balance Sheet, they are not reclassified from the reserve of ORI 460000 to some income statement of 500000), but the balance is transferred directly to accumulated gains within the Unallocated Profit or Loss (450000).
Rules involved:
IFRS 1 – First Adoption of IFRS
IAS 1 – Presentation of Financial Statements
Communication A6618
Communication A6629
“The responses on the application of IFRS are not interpretations of these standards, which must be applied as they are issued by the IASB and adopted by the BCRA regulations. They represent solutions to specific cases analyzed in accordance with the available information and the accounting framework established by the BCRA through the Chart of Accounts, Complementary Provisions and other related regulations.”