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Annual Improvements to IFRS

Annual Improvements to IFRS

Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23


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As part of its process to make non-urgent but necessary amendments to IFRS, the IASB has issued the Annual Improvements to IFRS Standards 2015–2017 Cycle.

The amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted.

The amendments... KPMG Insight
IFRS 3 Business Combinations and IFRS 11 Joint Arrangements
  • Clarify how a company accounts for increasing its interest (PDF 71 KB) in a joint operation that meets the definition of a business. 
    • If a party maintains (or obtains) joint control, then the previously held interest is not remeasured.  
    • If a party obtains control, then the transaction is a business combination achieved in stages and the acquiring party remeasures the previously held interest at fair value.
In addition to clarifying when a previously held interest in a joint operation is remeasured, the amendments also provide further guidance on what constitutes the previously held interest. This is the entire previously held interest in the joint operation.
IAS 12 Income Taxes  
  • Clarify that all income tax consequences of dividends (including payments on financial instruments classified as equity) are recognised consistently with the transactions that generated the distributable profits – i.e. in profit or loss, OCI or equity.
Although the amendments provide some clarifications, they don’t attempt to address the underlying question – i.e. how to determine if a payment represents a distribution of profits. Therefore, challenges are likely to remain when determining whether to recognise the income tax on some instruments in profit or loss or in equity.
IAS 23 Borrowing Costs     
  • Clarify that the general borrowings pool used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Borrowings that were intended to specifically finance qualifying assets that are now ready for their intended use or sale – or any non-qualifying assets – are included in that general pool.
  • As the costs of retrospective application might outweigh the benefits, the changes are applied prospectively to borrowing costs incurred on or after the date an entity adopts the amendments.

Depending on an entity’s current policy, the proposed amendments may result in more borrowings being included in the general borrowings pool. 

Whether it will result in more or less borrowings being capitalised during a period will depend on: 

  • whether the weighted-average interest cost of any additional borrowings included in the pool as a result of the amendments is higher or lower than that of those that would be included under the entity’s current approach; and 
  • the relative amounts of qualifying assets under development and general borrowings outstanding during the period. 

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