Commission Regulation (EC) No 2238/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards IASs IFRS 1, IASs Nos 1 to 10, 12 to 17, 19 to 24, 27 to 38, 40 and 41 and SIC Nos 1 to 7, 11 to 14, 18 to 27 and 30 to 33Text with EEA relevance
Date: 2004-12-29
Institutions: European Commission
Subjects: accounting, balance sheet, balance-sheet analysis, international standard, standardised accounting system

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I

(Acts whose publication is obligatory)

COMMISSION REGULATION (EC) No 2238/2004

of 29 December 2004

amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in
accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as
regards IASs IFRS 1, IASs Nos 1 to 10, 12 to 17, 19 to 24, 27 to 38, 40 and 41 and SIC Nos 1 to 7, 11
to 14, 18 to 27 and 30 to 33

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Regulation (EC) No 1606/2002 of the European
Parliament and of the Council of 19 July 2002 on the application
of
international accounting standards (1), and in particular
Article 3(1) thereof,

Whereas:

(1)

(2)

(3)

By Commission Regulation (EC) No 1725/2003 (2), certain
international standards and interpretations that were
extant at 1 September 2002 were adopted.

On 18 December 2003, the International Accounting
Standard Board (IASB) published 13 revised International
Accounting Standards and gave notice of the withdrawal
of IAS 15 Information reflecting the effects of changing prices.
The purpose of the revision was the further improvement
of the quality and consistency of the body of existing Inter-
national Accounting Standards (IASs).

In general, the objectives of this improvement project were
to reduce or eliminate alternatives, redundancies and con-
flicts within the standards, to deal with some convergence
issues and to make improvements in the structure of exist-
ing IASs. Furthermore, IASB decided to incorporate exist-
ing interpretations into the improved standards in order to
increase transparency and consistency and make the stan-
dards more comprehensive.

(4)

(5)

(6)

(7)

The consultation with technical experts in the field con-
firms that the revised IASs meet the technical criteria for
adoption set out
in Article 3 of Regulation (EC)
No 1606/2002, and in particular the requirement of being
conducive to the European public good.

The adoption of
the ‘Improvement
the standards of
projects’ implies, by way of consequence, amendments to
other international accounting standards and interpreta-
tions in order to ensure consistency between international
accounting standards. Those consequential amendments
are affecting International Financial Reporting Standard
(IFRS) No 1, International Accounting Standards (IASs)
Nos 7, 12, 14, 19, 20, 22, 23, 29, 30, 34, 35, 36, 37, 38
and 41 and interpretation by the Standard Interpretation
Committee (SIC) Nos 7, 12, 13, 21, 22, 25, 27 and 32. By
adoption of those standards the interpretations by the
Standard Interpretation Committee (SIC) Nos 1, 2, 3, 6, 11,
14, 18, 19, 20, 23, 24, 30 and 33 are superseded.

Regulation (EC) 1725/2003 should therefore be amended
accordingly.

The measures provided for in this Regulation are in accor-
dance with the opinion of the Accounting Regulatory
Committee,

HAS ADOPTED THIS REGULATION:

Article 1

Annex to Regulation (EC) No 1725/2003 is amended as follows:

(1) OJ L 243, 11.9.2002, p. 1.
(2) OJ L 261, 13.10.2003, p. 1. Regulation as amended by Regulation (EC)

No 2237/2004 (OJ L 393, 31.12.2004, p. 1).

1.

the International Accounting Standards (IASs) Nos 1, 2, 8,
10, 16, 17, 21, 24, 27, 28, 31, 33 and 40 are replaced by the
text set out in the Annex to this Regulation;

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2.

3.

4.

5.

6.

7.

IAS 15 and SIC Nos 1, 2, 3, 6, 11, 14, 18, 19, 20, 23, 24, 30
and 33 are deleted;

the adoption of IAS 1 implies, by way of consequence,
amendments to IAS Nos 12, 19, 34, 35 and 41 in order to
accounting
ensure
standards;

consistency between international

8.

9.

the adoption of IAS 21 implies, by way of consequence,
amendments to IFRS1, IAS Nos 7, 12, 29, 34, 38 and 41 and
SIC 7 in order to ensure consistency between international
accounting standards;

the adoption of IAS 24 implies, by way of consequence,
amendments to IAS 30 in order to ensure consistency
between international accounting standards;

the adoption of IAS 2 implies, by way of consequence,
amendments to IAS 14 and IAS 34 in order to ensure con-
sistency between international accounting standards;

the adoption of IAS 8 implies, by way of consequence,
amendments to IFRS1, IAS Nos 7, 12, 14, 19, 20, 22, 23, 34,
35, 36, 37 and 38 and SIC Nos 12,13, 21, 22, 25, 27 and 31
in order
to ensure consistency between international
accounting standards;

the adoption of IAS 10 implies, by way of consequence,
amendments to IAS Nos 22, 35 and 37 in order to ensure
consistency between international accounting standards;

the adoption of IAS 16 implies, by way of consequence,
amendments to IFRS1, IAS Nos 14, 34, 36, 37 and 38 and
SIC Nos 13, 21 and 32 in order to ensure consistency
between international accounting standards;

10. the adoption of IAS 27 implies, by way of consequence,
amendments to IAS 22 and SIC 12 in order to ensure con-
sistency between international accounting standards;

11. the adoption of IAS 31 implies, by way of consequence,
amendments to SIC 13 in order to ensure consistency
between international accounting standards.

Article 2

This Regulation shall enter into force on the third day following
its publication in the Official Journal of the European Union.

It shall apply from 1 January 2005 at the latest.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 29 December 2004.

For the Commission
Charlie McCREEVY
Member of the Commission

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ANNEX

INTERNATIONAL ACCOUNTING STANDARDS

IAS No

IAS 1

IAS 2

IAS 8

Title

Presentation of Financial Statements

Inventories

Accounting policies, changes in accounting estimates and errors

IAS 10

Events after the balance sheet date

IAS 16

Property, plant and equipment

IAS 17

Leases

IAS 21

The effects of changes in foreign exchange rates

IAS 24

Related party disclosures

IAS 27

Consolidated and separate financial statements

IAS 28

Investments in associates

IAS 31

Interests in Joint Ventures

IAS 33

Earnings per share

IAS 40

Investment property

Reproduction allowed within the European Economic Area. All existing rights reserved outside the EEA with the
exception of the right to reproduce for the purposes of personal use or other fair dealing. Further information can
be obtained from the IASB at www.iasb.org.uk

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INTERNATIONAL ACCOUNTING STANDARD 1

Presentation of Financial Statements

SUMMARY

Objective

Scope

Purpose of Financial Statements

Components of Financial Statements

Definitions

Overall considerations

Fair Presentation and Compliance with IFRSS

Going Concern

Accrual Basis of Accounting

Consistency of Presentation

Materiality and Aggregation

Offsetting

Comparative Information

Structure and content

Introduction

Identification of the Financial Statements

Reporting Period

Balance Sheet

Current/Non-current Distinction

Current Assets

Current Liabilities

Information to be Presented on the Face of the Balance Sheet

Information to be Presented either on the Face of the Balance Sheet or in the Notes

Income Statement

Profit or Loss for the Period

Information to be Presented on the Face of the Income Statement

Information to be Presented either on the Face of the Income Statement or in the Notes

Statement of Changes in Equity

Cash Flow Statement

Paragraphs

1

2-6

7

8-10

11-12

13-41

13-22

23-24

25-26

27-28

29-31

32-35

36-41

42-126

42-43

44-48

49-50

51-77

51-56

57-59

60-67

68-73

74-77

78-95

78-80

81-85

86-95

96-101

102

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Notes

Structure

Disclosure of Accounting Policies

Key Sources of Estimation Uncertainty

Other Disclosures

Effective Date

Withdrawal of IAS 1 (revised 1997)

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Paragraphs

103-126

103-107

108-115

116-124

125-126

127

128

This revised Standard supersedes IAS 1 (revised 1997) Presentation of Financial Statements and should be applied for annual
periods beginning on or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe the basis for presentation of general purpose financial statements, to ensure
comparability both with the entity’s financial statements of previous periods and with the financial statements of other
entities. To achieve this objective, this Standard sets out overall requirements for the presentation of financial state-
ments, guidelines for their structure and minimum requirements for their content. The recognition, measurement and
disclosure of specific transactions and other events are dealt with in other Standards and in Interpretations.

SCOPE

2.

This Standard shall be applied to all general purpose financial statements prepared and presented in accordance with
International Financial Reporting Standards (IFRSs).

3. General purpose financial statements are those intended to meet the needs of users who are not in a position to demand
reports tailored to meet their particular information needs. General purpose financial statements include those that are
presented separately or within another public document such as an annual report or a prospectus. This Standard does
not apply to the structure and content of condensed interim financial statements prepared in accordance with IAS 34
Interim Financial Reporting. However, paragraphs 13-41 apply to such financial statements. This Standard applies equally
to all entities and whether or not they need to prepare consolidated financial statements or separate financial state-
ments, as defined in IAS 27 Consolidated and Separate Financial Statements.

4.

5.

6.

IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions specifies additional requirements
for banks and similar financial institutions that are consistent with the requirements of this Standard.

This Standard uses terminology that is suitable for profit-oriented entities, including public sector business entities. Enti-
ties with not-for-profit activities in the private sector, public sector or government seeking to apply this Standard may
need to amend the descriptions used for particular line items in the financial statements and for the financial state-
ments themselves.

Similarly, entities that do not have equity as defined in IAS 32 Financial Instruments: Disclosure and Presentation (eg some
mutual funds) and entities whose share capital is not equity (eg some co-operative entities) may need to adapt the pre-
sentation in the financial statements of members’ or unitholders’ interests.

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PURPOSE OF FINANCIAL STATEMENTS

7.

Financial statements are a structured representation of the financial position and financial performance of an entity.
The objective of general purpose financial statements is to provide information about the financial position, financial
performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial
statements also show the results of management’s stewardship of the resources entrusted to it. To meet this objective,
financial statements provide information about an entity’s:

(a)

assets;

(b)

liabilities;

(c)

equity;

(d)

income and expenses, including gains and losses;

(e)

other changes in equity;

and

(f)

cash flows.

This information, along with other information in the notes, assists users of financial statements in predicting the enti-
ty’s future cash flows and, in particular, their timing and certainty.

COMPONENTS OF FINANCIAL STATEMENTS

8. A complete set of financial statements comprises:

(a) a balance sheet;

(b) an income statement;

(c) a statement of changes in equity showing either:

(i)

all changes in equity,

or

(ii)

changes in equity other than those arising from transactions with equity holders acting in their capacity
as equity holders;

(d) a cash flow statement;

and

(e) notes, comprising a summary of significant accounting policies and other explanatory notes.

9. Many entities present, outside the financial statements, a financial review by management that describes and explains
the main features of the entity’s financial performance and financial position and the principal uncertainties it faces.
Such a report may include a review of:

(a)

the main factors and influences determining financial performance, including changes in the environment in which
the entity operates, the entity’s response to those changes and their effect, and the entity’s policy for investment to
maintain and enhance financial performance, including its dividend policy;

(b)

the entity’s sources of funding and its targeted ratio of liabilities to equity;

and

(c)

the entity’s resources not recognised in the balance sheet in accordance with IFRS.

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10. Many entities also present, outside the financial statements, reports and statements such as environmental reports and
value added statements, particularly in industries in which environmental factors are significant and when employees
are regarded as an important user group. Reports and statements presented outside financial statements are outside the
scope of IFRSs.

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DEFINITIONS

11. The following terms are used in this Standard with the meanings specified:

Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reason-
able effort to do so.

International Financial Reporting Standards (IFRSs) are Standards and Interpretations adopted by the Interna-
tional Accounting Standards Board (IASB). They comprise:

(a)

International Financial Reporting Standards;

(b)

International Accounting Standards;

and

(c)

Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the
former Standing Interpretations Committee (SIC).

Material Omissions or misstatements of items are material if they could, individually or collectively, influence the
economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and
nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or
a combination of both, could be the determining factor.

Notes contain information in addition to that presented in the balance sheet, income statement, statement of changes
in equity and cash flow statement. Notes provide narrative descriptions or disaggregations of items disclosed in those
statements and information about items that do not qualify for recognition in those statements.

12. Assessing whether an omission or misstatement could influence economic decisions of users, and so be material,
requires consideration of the characteristics of those users. The Framework for the Preparation and Presentation of Financial
Statements states in paragraph 25 that ‘users are assumed to have a reasonable knowledge of business and economic
activities and accounting and a willingness to study the information with reasonable diligence.’ Therefore, the assess-
ment needs to take into account how users with such attributes could reasonably be expected to be influenced in mak-
ing economic decisions.

OVERALL CONSIDERATIONS

Fair Presentation and Compliance with IFRSs

13. Financial statements shall present fairly the financial position, financial performance and cash flows of an entity.
Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the
Framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial
statements that achieve a fair presentation.

14. An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such
compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply
with all the requirements of IFRSs.

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15.

In virtually all circumstances, a fair presentation is achieved by compliance with applicable IFRSs. A fair presentation
also requires an entity:

(a)

to select and apply accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Esti-
mates and Errors. IAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of
a Standard or an Interpretation that specifically applies to an item.

(b)

to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information.

(c)

to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity’s financial posi-
tion and financial performance.

16.

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or
explanatory material.

17.

In the extremely rare circumstances in which management concludes that compliance with a requirement in a Stan-
dard or an Interpretation would be so misleading that it would conflict with the objective of financial statements
set out in the Framework, the entity shall depart from that requirement in the manner set out in paragraph 18 if
the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

18. When an entity departs from a requirement of a Standard or an Interpretation in accordance with paragraph 17, it

shall disclose:

(a)

that management has concluded that the financial statements present fairly the entity’s financial position,
financial performance and cash flows;

(b)

that it has complied with applicable Standards and Interpretations, except that it has departed from a particu-
lar requirement to achieve a fair presentation;

(c)

the title of the Standard or Interpretation from which the entity has departed, the nature of the departure,
including the treatment that the Standard or Interpretation would require, the reason why that treatment
would be so misleading in the circumstances that it would conflict with the objective of financial statements
set out in the Framework, and the treatment adopted;

and

(d)

for each period presented, the financial impact of the departure on each item in the financial statements that
would have been reported in complying with the requirement.

19. When an entity has departed from a requirement of a Standard or an Interpretation in a prior period, and that
departure affects the amounts recognised in the financial statements for the current period, it shall make the dis-
closures set out in paragraph 18(c) and (d).

20. Paragraph 19 applies, for example, when an entity departed in a prior period from a requirement in a Standard or an
Interpretation for the measurement of assets or liabilities and that departure affects the measurement of changes in
assets and liabilities recognised in the current period’s financial statements.

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21.

In the extremely rare circumstances in which management concludes that compliance with a requirement in a Stan-
dard or an Interpretation would be so misleading that it would conflict with the objective of financial statements
set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the
entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:

(a)

the title of the Standard or Interpretation in question, the nature of the requirement, and the reason why man-
agement has concluded that complying with that requirement is so misleading in the circumstances that it con-
flicts with the objective of financial statements set out in the Framework;

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and

(b)

for each period presented, the adjustments to each item in the financial statements that management has con-
cluded would be necessary to achieve a fair presentation.

22. For the purpose of paragraphs 17-21, an item of information would conflict with the objective of financial statements
when it does not represent faithfully the transactions, other events and conditions that it either purports to represent
or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions
made by users of financial statements. When assessing whether complying with a specific requirement in a Standard or
an Interpretation would be so misleading that it would conflict with the objective of financial statements set out in the
Framework, management considers:

(a) why the objective of financial statements is not achieved in the particular circumstances;

and

(b) how the entity’s circumstances differ from those of other entities that comply with the requirement. If other enti-
ties in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s com-
pliance with the requirement would not be so misleading that it would conflict with the objective of financial state-
ments set out in the Framework.

Going Concern

23. When preparing financial statements, management shall make an assessment of an entity’s ability to continue as
a going concern. Financial statements shall be prepared on a going concern basis unless management either intends
to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware,
in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt
upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial state-
ments are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the
financial statements are prepared and the reason why the entity is not regarded as a going concern.

24.

In assessing whether the going concern assumption is appropriate, management takes into account all available infor-
mation about the future, which is at least, but is not limited to, twelve months from the balance sheet date. The degree
of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready
access to financial resources, a conclusion that the going concern basis of accounting is appropriate may be reached
without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current
and expected profitability, debt repayment schedules and potential sources of replacement financing before it can sat-
isfy itself that the going concern basis is appropriate.

Accrual Basis of Accounting

25. An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of

accounting.

26. When the accrual basis of accounting is used, items are recognised as assets, liabilities, equity, income and expenses
(the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in
the Framework.

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IAS 1

Consistency of Presentation

27. The presentation and classification of items in the financial statements shall be retained from one period to the next

unless:

(a)

it is apparent, following a significant change in the nature of the entity’s operations or a review of its finan-
cial statements, that another presentation or classification would be more appropriate having regard to the cri-
teria for the selection and application of accounting policies in IAS 8;

or

(b) a Standard or an Interpretation requires a change in presentation.

28. A significant acquisition or disposal, or a review of the presentation of the financial statements, might suggest that the
financial statements need to be presented differently. An entity changes the presentation of its financial statements only
if the changed presentation provides information that is reliable and is more relevant to users of the financial state-
ments and the revised structure is likely to continue, so that comparability is not impaired. When making such changes
in presentation, an entity reclassifies its comparative information in accordance with paragraphs 38 and 39.

Materiality and Aggregation

29. Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar

nature or function shall be presented separately unless they are immaterial.

30. Financial statements result from processing large numbers of transactions or other events that are aggregated into
classes according to their nature or function. The final stage in the process of aggregation and classification is the pre-
sentation of condensed and classified data, which form line items on the face of the balance sheet, income statement,
statement of changes in equity and cash flow statement, or in the notes. If a line item is not individually material, it is
aggregated with other items either on the face of those statements or in the notes. An item that is not sufficiently mate-
rial to warrant separate presentation on the face of those statements may nevertheless be sufficiently material for it to
be presented separately in the notes.

31. Applying the concept of materiality means that a specific disclosure requirement in a Standard or an Interpretation need

not be satisfied if the information is not material.

Offsetting

32. Assets and liabilities, and income and expenses, shall not be offset unless required or permitted by a Standard or an

Interpretation.

33.

34.

It is important that assets and liabilities, and income and expenses, are reported separately. Offsetting in the income
statement or the balance sheet, except when offsetting reflects the substance of the transaction or other event, detracts
from the ability of users both to understand the transactions, other events and conditions that have occurred and to
assess the entity’s future cash flows. Measuring assets net of valuation allowances — for example, obsolescence allow-
ances on inventories and doubtful debts allowances on receivables — is not offsetting.

IAS 18 Revenue defines revenue and requires it to be measured at the fair value of the consideration received or receiv-
able, taking into account the amount of any trade discounts and volume rebates allowed by the entity. An entity under-
takes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the
main revenue-generating activities. The results of such transactions are presented, when this presentation reflects the
substance of the transaction or other event, by netting any income with related expenses arising on the same transac-
tion. For example:

(a)

gains and losses on the disposal of non-current assets, including investments and operating assets, are reported by
deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses;

and

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(b)

expenditure related to a provision that is recognised in accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets and reimbursed under a contractual arrangement with a third party (for example, a supplier’s war-
ranty agreement) may be netted against the related reimbursement.

35.

In addition, gains and losses arising from a group of similar transactions are reported on a net basis, for example, for-
eign exchange gains and losses or gains and losses arising on financial instruments held for trading. Such gains and
losses are, however, reported separately if they are material.

Comparative Information

36. Except when a Standard or an Interpretation permits or requires otherwise, comparative information shall be dis-
closed in respect of the previous period for all amounts reported in the financial statements. Comparative informa-
tion shall be included for narrative and descriptive information when it is relevant to an understanding of the cur-
rent period’s financial statements.

37.

In some cases, narrative information provided in the financial statements for the previous period(s) continues to be rel-
evant in the current period. For example, details of a legal dispute, the outcome of which was uncertain at the last bal-
ance sheet date and is yet to be resolved, are disclosed in the current period. Users benefit from information that the
uncertainty existed at the last balance sheet date, and about the steps that have been taken during the period to resolve
the uncertainty.

38. When the presentation or classification of items in the financial statements is amended, comparative amounts shall
be reclassified unless the reclassification is impracticable. When comparative amounts are reclassified, an entity
shall disclose:

(a)

the nature of the reclassification;

(b)

the amount of each item or class of items that is reclassified;

and

(c)

the reason for the reclassification.

39. When it is impracticable to reclassify comparative amounts, an entity shall disclose:

(a)

the reason for not reclassifying the amounts;

and

(b)

the nature of the adjustments that would have been made if the amounts had been reclassified.

40. Enhancing the inter-period comparability of information assists users in making economic decisions, especially by
allowing the assessment of trends in financial information for predictive purposes. In some circumstances, it is imprac-
ticable to reclassify comparative information for a particular prior period to achieve comparability with the current
period. For example, data may not have been collected in the prior period(s) in a way that allows reclassification, and
it may not be practicable to recreate the information.

41.

IAS 8 deals with the adjustments to comparative information required when an entity changes an accounting policy or
corrects an error.

STRUCTURE AND CONTENT

Introduction

42. This Standard requires particular disclosures on the face of the balance sheet, income statement and statement of
changes in equity and requires disclosure of other line items either on the face of those statements or in the notes. IAS 7
sets out requirements for the presentation of a cash flow statement.

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IAS 1

43. This Standard sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented on the face of the
balance sheet, income statement, statement of changes in equity and cash flow statement, as well as in the notes. Dis-
closures are also required by other Standards and Interpretations. Unless specified to the contrary elsewhere in this Stan-
dard, or in another Standard or Interpretation, such disclosures are made either on the face of the balance sheet, income
statement, statement of changes in equity or cash flow statement (whichever is relevant), or in the notes.

Identification of the Financial Statements

44. The financial statements shall be identified clearly and distinguished from other information in the same published

document.

45.

IFRSs apply only to financial statements, and not to other information presented in an annual report or other docu-
ment. Therefore, it is important that users can distinguish information that is prepared using IFRSs from other infor-
mation that may be useful to users but is not the subject of those requirements.

46. Each component of the financial statements shall be identified clearly. In addition, the following information shall
be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented:

(a)

the name of the reporting entity or other means of identification, and any change in that information from the
preceding balance sheet date;

(b) whether the financial statements cover the individual entity or a group of entities;

(c)

the balance sheet date or the period covered by the financial statements, whichever is appropriate to that com-
ponent of the financial statements;

(d)

the presentation currency, as defined in IAS 21 The Effects of Changes in Foreign Exchange Rates;

and

(e)

the level of rounding used in presenting amounts in the financial statements.

47. The requirements in paragraph 46 are normally met by presenting page headings and abbreviated column headings on
each page of the financial statements. Judgement is required in determining the best way of presenting such informa-
tion. For example, when the financial statements are presented electronically, separate pages are not always used; the
above items are then presented frequently enough to ensure a proper understanding of the information included in the
financial statements.

48. Financial statements are often made more understandable by presenting information in thousands or millions of units
of the presentation currency. This is acceptable as long as the level of rounding in presentation is disclosed and mate-
rial information is not omitted.

Reporting Period

49. Financial statements shall be presented at least annually. When an entity’s balance sheet date changes and the
annual financial statements are presented for a period longer or shorter than one year, an entity shall disclose, in
addition to the period covered by the financial statements:

(a)

the reason for using a longer or shorter period;

and

(b)

the fact that comparative amounts for the income statement, statement of changes in equity, cash flow state-
ment and related notes are not entirely comparable.

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50. Normally, financial statements are consistently prepared covering a one-year period. However, for practical reasons,
some entities prefer to report, for example, for a 52-week period. This Standard does not preclude this practice, because
the resulting financial statements are unlikely to be materially different from those that would be presented for one
year.

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Balance Sheet

C u r r e n t / N o n - c u r r e n t D i s t i n c t i o n

51. An entity shall present current and non-current assets, and current and non-current liabilities, as separate classi-
fications on the face of its balance sheet in accordance with paragraphs 57-67 except when a presentation based on
liquidity provides information that is reliable and is more relevant. When that exception applies, all assets and
liabilities shall be presented broadly in order of liquidity.

52. Whichever method of presentation is adopted, for each asset and liability line item that combines amounts expected
to be recovered or settled within (a) no more than twelve months after the balance sheet date and (b) more than
twelve months after the balance sheet date, an entity shall disclose the amount expected to be recovered or settled
after more than twelve months.

53. When an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of cur-
rent and non-current assets and liabilities on the face of the balance sheet provides useful information by distinguish-
ing the net assets that are continuously circulating as working capital from those used in the entity’s long-term opera-
tions. It also highlights assets that are expected to be realised within the current operating cycle, and liabilities that are
due for settlement within the same period.

54.

For some entities, such as financial institutions, a presentation of assets and liabilities in increasing or decreasing order
of liquidity provides information that is reliable and is more relevant than a current/non-current presentation because
the entity does not supply goods or services within a clearly identifiable operating cycle.

55.

In applying paragraph 51, an entity is permitted to present some of its assets and liabilities using a current/non-current
classification and others in order of liquidity when this provides information that is reliable and is more relevant. The
need for a mixed basis of presentation might arise when an entity has diverse operations.

56.

Information about expected dates of realisation of assets and liabilities is useful in assessing the liquidity and solvency
of an entity. IAS 32 requires disclosure of the maturity dates of financial assets and financial liabilities. Financial assets
include trade and other receivables, and financial liabilities include trade and other payables. Information on the
expected date of recovery and settlement of non-monetary assets and liabilities such as inventories and provisions is
also useful, whether or not assets and liabilities are classified as current or non-current. For example, an entity dis-
closes the amount of inventories that are expected to be recovered more than twelve months after the balance sheet
date.

C u r r e n t A s s e t s

57. An asset shall be classified as current when it satisfies any of the following criteria:

(a)

it is expected to be realised in, or is intended for sale or consumption in, the entity’s normal operating cycle;

(b)

it is held primarily for the purpose of being traded;

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(c)

it is expected to be realised within twelve months after the balance sheet date;

or

(d)

it is cash or a cash equivalent (as defined in IAS 7 Cash Flow Statements) unless it is restricted from being
exchanged or used to settle a liability for at least twelve months after the balance sheet date.

All other assets shall be classified as non-current.

58. This Standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a long-term nature. It

does not prohibit the use of alternative descriptions as long as the meaning is clear.

59. The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in
cash or cash equivalents. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to
be twelve months. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or
realised as part of the normal operating cycle even when they are not expected to be realised within twelve months
after the balance sheet date. Current assets also include assets held primarily for the purpose of being traded (financial
assets within this category are classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition
and Measurement) and the current portion of non-current financial assets.

C u r r e n t L i a b i l i t i e s

60. A liability shall be classified as current when it satisfies any of the following criteria:

(a)

it is expected to be settled in the entity’s normal operating cycle;

(b)

it is held primarily for the purpose of being traded;

(c)

it is due to be settled within twelve months after the balance sheet date;

or

(d)

the entity does not have an unconditional right to defer settlement of the liability for at least twelve months
after the balance sheet date.

All other liabilities shall be classified as non-current.

61.

Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of
the working capital used in the entity’s normal operating cycle. Such operating items are classified as current liabilities
even if they are due to be settled more than twelve months after the balance sheet date. The same normal operating
cycle applies to the classification of an entity’s assets and liabilities. When the entity’s normal operating cycle is not
clearly identifiable, its duration is assumed to be twelve months.

62. Other current liabilities are not settled as part of the normal operating cycle, but are due for settlement within twelve
months after the balance sheet date or held primarily for the purpose of being traded. Examples are financial liabilities
classified as held for trading in accordance with IAS 39, bank overdrafts, and the current portion of non-current finan-
cial liabilities, dividends payable, income taxes and other non-trade payables. Financial liabilities that provide financ-
ing on a long-term basis (ie are not part of the working capital used in the entity’s normal operating cycle) and are not
due for settlement within twelve months after the balance sheet date are non-current liabilities, subject to para-
graphs 65 and 66.

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63. An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the

balance sheet date, even if:

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(a)

the original term was for a period longer than twelve months;

and

(b)

an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet
date and before the financial statements are authorised for issue.

64.

If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the
balance sheet date under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise
be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the
entity (for example, there is no agreement to refinance), the potential to refinance is not considered and the obligation
is classified as current.

65. When an entity breaches an undertaking under a long-term loan agreement on or before the balance sheet date with
the effect that the liability becomes payable on demand, the liability is classified as current, even if the lender has agreed,
after the balance sheet date and before the authorisation of the financial statements for issue, not to demand payment
as a consequence of the breach. The liability is classified as current because, at the balance sheet date, the entity does
not have an unconditional right to defer its settlement for at least twelve months after that date.

66. However, the liability is classified as non-current if the lender agreed by the balance sheet date to provide a period of
grace ending at least twelve months after the balance sheet date, within which the entity can rectify the breach and
during which the lender cannot demand immediate repayment.

67.

In respect of loans classified as current liabilities, if the following events occur between the balance sheet date and the
date the financial statements are authorised for issue, those events qualify for disclosure as non-adjusting events in
accordance with IAS 10 Events after the Balance Sheet Date:

(a)

refinancing on a long-term basis;

(b)

rectification of a breach of a long-term loan agreement;

and

(c)

the receipt from the lender of a period of grace to rectify a breach of a long-term loan agreement ending at least
twelve months after the balance sheet date.

I n f o r m a t i o n t o b e P r e s e n t e d o n t h e F a c e o f

t h e B a l a n c e S h e e t

68. As a minimum, the face of the balance sheet shall include line items that present the following amounts:

(a) property, plant and equipment;

(b)

investment property;

(c)

intangible assets;

(d)

financial assets (excluding amounts shown under (e), (h) and (i));

(e)

investments accounted for using the equity method;

(f) biological assets;

(g)

inventories;

(h)

trade and other receivables;

(i)

cash and cash equivalents;

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(j)

trade and other payables;

(k) provisions;

(l)

financial liabilities (excluding amounts shown under (j) and (k));

(m) liabilities and assets for current tax, as defined in IAS 12 Income Taxes;

(n) deferred tax liabilities and deferred tax assets, as defined in IAS 12;

(o) minority interest, presented within equity;

and

(p)

issued capital and reserves attributable to equity holders of the parent.

69. Additional line items, headings and subtotals shall be presented on the face of the balance sheet when such pre-

sentation is relevant to an understanding of the entity’s financial position.

70. When an entity presents current and non-current assets, and current and non-current liabilities, as separate clas-
sifications on the face of its balance sheet, it shall not classify deferred tax assets (liabilities) as current assets
(liabilities).

71. This Standard does not prescribe the order or format in which items are to be presented. Paragraph 68 simply pro-
vides a list of items that are sufficiently different in nature or function to warrant separate presentation on the face of
the balance sheet. In addition:

(a)

line items are included when the size, nature or function of an item or aggregation of similar items is such that
separate presentation is relevant to an understanding of the entity’s financial position; and

(b)

the descriptions used and the ordering of items or aggregation of similar items may be amended according to the
nature of the entity and its transactions, to provide information that is relevant to an understanding of the enti-
ty’s financial position. For example, a bank amends the above descriptions to apply the more specific require-
ments in IAS 30.

72. The judgement on whether additional items are presented separately is based on an assessment of:

(a)

the nature and liquidity of assets;

(b)

the function of assets within the entity;

and

(c)

the amounts, nature and timing of liabilities.

73. The use of different measurement bases for different classes of assets suggests that their nature or function differs and,
therefore, that they should be presented as separate line items. For example, different classes of property, plant and
equipment can be carried at cost or revalued amounts in accordance with IAS 16 Property, Plant and Equipment.

I n f o r m a t i o n t o b e P r e s e n t e d e i t h e r o n t h e F a c e o f

t h e B a l a n c e S h e e t o r i n t h e N o t e s

74. An entity shall disclose, either on the face of the balance sheet or in the notes, further subclassifications of the line

items presented, classified in a manner appropriate to the entity’s operations.

75. The detail provided in subclassifications depends on the requirements of IFRSs and on the size, nature and function of
the amounts involved. The factors set out in paragraph 72 also are used to decide the basis of subclassification. The
disclosures vary for each item, for example:

(a)

items of property, plant and equipment are disaggregated into classes in accordance with IAS 16;

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(b)

receivables are disaggregated into amounts receivable from trade customers, receivables from related parties, pre-
payments and other amounts;

(c)

inventories are subclassified, in accordance with IAS 2 Inventories, into classifications such as merchandise, pro-
duction supplies, materials, work in progress and finished goods;

(d) provisions are disaggregated into provisions for employee benefits and other items;

and

(e)

equity capital and reserves are disaggregated into various classes, such as paid-in capital, share premium and
reserves.

76. An entity shall disclose the following, either on the face of the balance sheet or in the notes:

(a)

for each class of share capital:

(i)

the number of shares authorised;

(ii)

the number of shares issued and fully paid, and issued but not fully paid;

(iii) par value per share, or that the shares have no par value;

(iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the period;

(v)

the rights, preferences and restrictions attaching to that class including restrictions on the distribution
of dividends and the repayment of capital;

(vi) shares in the entity held by the entity or by its subsidiaries or associates;

and

(vii) shares reserved for issue under options and contracts for the sale of shares, including the terms and

amounts;

and

(b) a description of the nature and purpose of each reserve within equity.

77. An entity without share capital, such as a partnership or trust, shall disclose information equivalent to that required
by paragraph 76(a), showing changes during the period in each category of equity interest, and the rights, prefer-
ences and restrictions attaching to each category of equity interest.

Income Statement

P r o f i t o r L o s s f o r t h e P e r i o d

78. All items of income and expense recognised in a period shall be included in profit or loss unless a Standard or an

Interpretation requires otherwise.

79. Normally, all items of income and expense recognised in a period are included in profit or loss. This includes the effects
of changes in accounting estimates. However, circumstances may exist when particular items may be excluded from
profit or loss for the current period. IAS 8 deals with two such circumstances: the correction of errors and the effect
of changes in accounting policies.

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80. Other Standards deal with items that may meet the Framework definitions of income or expense but are usually excluded
from profit or loss. Examples include revaluation surpluses (see IAS 16), particular gains and losses arising on trans-
lating the financial statements of a foreign operation (see IAS 21) and gains or losses on remeasuring available-for-sale
financial assets (see IAS 39).

I n f o r m a t i o n t o b e P r e s e n t e d o n t h e F a c e o f

t h e I n c o m e S t a t e m e n t

81. As a minimum, the face of the income statement shall include line items that present the following amounts for the

period:

(a)

revenue;

(b)

finance costs;

(c)

share of the profit or loss of associates and joint ventures accounted for using the equity method;

(d) pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to discontinu-

ing operations;

(e)

tax expense;

and

(f) profit or loss.

82. The following items shall be disclosed on the face of the income statement as allocations of profit or loss for the

period:

(a) profit or loss attributable to minority interest;

and

(b) profit or loss attributable to equity holders of the parent.

83. Additional line items, headings and subtotals shall be presented on the face of the income statement when such

presentation is relevant to an understanding of the entity’s financial performance.

84. Because the effects of an entity’s various activities, transactions and other events differ in frequency, potential for gain
or loss and predictability, disclosing the components of financial performance assists in an understanding of the finan-
cial performance achieved and in making projections of future results. Additional line items are included on the face
of the income statement, and the descriptions used and the ordering of items are amended when this is necessary to
explain the elements of financial performance. Factors to be considered include materiality and the nature and func-
tion of the components of income and expenses. For example, a bank amends the descriptions to apply the more spe-
cific requirements in IAS 30. Income and expense items are not offset unless the criteria in paragraph 32 are met.

85. An entity shall not present any items of income and expense as extraordinary items, either on the face of the income

statement or in the notes.

I n f o r m a t i o n t o b e P r e s e n t e d e i t h e r o n t h e F a c e o f

t h e I n c o m e S t a t e m e n t o r i n t h e N o t e s

86. When items of income and expense are material, their nature and amount shall be disclosed separately.

87. Circumstances that would give rise to the separate disclosure of items of income and expense include:

(a) 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;

(b)

restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;

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(c)

disposals of items of property, plant and equipment;

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(d) disposals of investments;

(e)

discontinuing operations;

(f)

litigation settlements;

and

(g) other reversals of provisions.

88. An entity shall present an analysis of expenses using a classification based on either the nature of expenses or their

function within the entity, whichever provides information that is reliable and more relevant.

89. Entities are encouraged to present the analysis in paragraph 88 on the face of the income statement.

90. Expenses are subclassified to highlight components of financial performance that may differ in terms of frequency,

potential for gain or loss and predictability. This analysis is provided in one of two forms.

91. The first form of analysis is the nature of expense method. Expenses are aggregated in the income statement according
to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising
costs), and are not reallocated among various functions within the entity. This method may be simple to apply because
no allocations of expenses to functional classifications are necessary. An example of a classification using the nature of
expense method is as follows:

Revenue

Other income

Changes in inventories of finished goods and work in progress

Raw materials and consumables used

Employee benefits costs

Depreciation and amortisation expense

Other expenses

Total expenses

Profit

X

X

X

X

X

X

X

(X)

X

92. The second form of analysis is the function of expense or ‘cost of sales’ method and classifies expenses according to
their function as part of cost of sales or, for example, the costs of distribution or administrative activities. At a mini-
mum, an entity discloses its cost of sales under this method separately from other expenses. This method can provide
more relevant information to users than the classification of expenses by nature, but allocating costs to functions may
require arbitrary allocations and involve considerable judgement. An example of a classification using the function of
expense method is as follows:

Revenue

Cost of sales

Gross profit

Other income

Distribution costs

Administrative expenses

Other expenses

Profit

X

(X)

X

X

(X)

(X)

(X)

X

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93. Entities classifying expenses by function shall disclose additional information on the nature of expenses, including

depreciation and amortisation expense and employee benefits expense.

94. The choice between the function of expense method and the nature of expense method depends on historical and
industry factors and the nature of the entity. Both methods provide an indication of those costs that might vary, directly
or indirectly, with the level of sales or production of the entity. Because each method of presentation has merit for
different types of entities, this Standard requires management to select the most relevant and reliable presentation.
However, because information on the nature of expenses is useful in predicting future cash flows, additional disclo-
sure is required when the function of expense classification is used. In paragraph 93, ‘employee benefits’ has the same
meaning as in IAS 19 Employee Benefits.

95. An entity shall disclose, either on the face of the income statement or the statement of changes in equity, or in the
notes, the amount of dividends recognised as distributions to equity holders during the period, and the related
amount per share.

Statement of Changes in Equity

96. An entity shall present a statement of changes in equity showing on the face of the statement:

(a) profit or loss for the period;

(b)

each item of income and expense for the period that, as required by other Standards or by Interpretations, is
recognised directly in equity, and the total of these items;

(c)

total income and expense for the period (calculated as the sum of (a) and (b)), showing separately the total
amounts attributable to equity holders of the parent and to minority interest;

and

(d)

for each component of equity, the effects of changes in accounting policies and corrections of errors recogn-
ised in accordance with IAS 8.

97. An entity shall also present, either on the face of the statement of changes in equity or in the notes:

(a)

the amounts of transactions with equity holders acting in their capacity as equity holders, showing separately
distributions to equity holders;

(b)

the balance of retained earnings (ie accumulated profit or loss) at the beginning of the period and at the bal-
ance sheet date, and the changes during the period;

and

(c) a reconciliation between the carrying amount of each class of contributed equity and each reserve at the begin-

ning and the end of the period, separately disclosing each change.

98. Changes in an entity’s equity between two balance sheet dates reflect the increase or decrease in its net assets during
the period. Except for changes resulting from transactions with equity holders acting in their capacity as equity hold-
ers (such as equity contributions, reacquisitions of the entity’s own equity instruments and dividends) and transaction
costs directly related to such transactions, the overall change in equity during a period represents the total amount of
income and expenses, including gains and losses, generated by the entity’s activities during that period (whether those
items of income and expenses are recognised in profit or loss or directly as changes in equity).

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99. This Standard requires all items of income and expense recognised in a period to be included in profit or loss unless
another Standard or an Interpretation requires otherwise. Other Standards require some gains and losses (such as
revaluation increases and decreases, particular foreign exchange differences, gains or losses on remeasuring available-
for-sale financial assets, and related amounts of current tax and deferred tax) to be recognised directly as changes in
equity. Because it is important to consider all items of income and expense in assessing changes in an entity’s financial
position between two balance sheet dates, this Standard requires the presentation of a statement of changes in equity
that highlights an entity’s total income and expenses, including those that are recognised directly in equity.

100. IAS 8 requires retrospective adjustments to effect changes in accounting policies, to the extent practicable, except when
the transitional provisions in another Standard or an Interpretation require otherwise. IAS 8 also requires that restate-
ments to correct errors are made retrospectively, to the extent practicable. Retrospective adjustments and retrospec-
tive restatements are made to the balance of retained earnings, except when a Standard or an Interpretation requires
retrospective adjustment of another component of equity. Paragraph 96(d) requires disclosure in the statement of
changes in equity of the total adjustment to each component of equity resulting, separately, from changes in account-
ing policies and from corrections of errors. These adjustments are disclosed for each prior period and the beginning of
the period.

101. The requirements in paragraphs 96 and 97 may be met in various ways. One example is a columnar format that rec-
onciles the opening and closing balances of each element within equity. An alternative is to present only the items set
out in paragraph 96 in the statement of changes in equity. Under this approach, the items described in paragraph 97
are shown in the notes.

Cash Flow Statement

102. Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate
cash and cash equivalents and the needs of the entity to utilise those cash flows. IAS 7 Cash Flow Statements sets out
requirements for the presentation of the cash flow statement and related disclosures.

Notes

S t r u c t u r e

103. The notes shall:

(a) present information about the basis of preparation of the financial statements and the specific accounting

policies used in accordance with paragraphs 108-115;

(b) disclose the information required by IFRSs that is not presented on the face of the balance sheet, income

statement, statement of changes in equity or cash flow statement;

and

(c) provide additional information that is not presented on the face of the balance sheet, income statement, state-
ment of changes in equity or cash flow statement, but is relevant to an understanding of any of them.

104. Notes shall, as far as practicable, be presented in a systematic manner. Each item on the face of the balance sheet,
income statement, statement of changes in equity and cash flow statement shall be cross-referenced to any related
information in the notes.

105. Notes are normally presented in the following order, which assists users in understanding the financial statements

and comparing them with financial statements of other entities:

(a)

a statement of compliance with IFRSs (see paragraph 14);

(b)

a summary of significant accounting policies applied (see paragraph 108);

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(c)

supporting information for items presented on the face of the balance sheet, income statement, statement of
changes in equity and cash flow statement, in the order in which each statement and each line item is presented;

and

(d) other disclosures, including:

(i)

contingent liabilities (see IAS 37) and unrecognised contractual commitments;

and

(ii) non-financial disclosures, eg the entity’s financial risk management objectives and policies (see IAS 32).

106.

In some circumstances, it may be necessary or desirable to vary the ordering of specific items within the notes. For
example, information on changes in fair value recognised in profit or loss may be combined with information on
maturities of financial instruments, although the former disclosures relate to the income statement and the latter
relate to the balance sheet. Nevertheless, a systematic structure for the notes is retained as far as practicable.

107. Notes providing information about the basis of preparation of the financial statements and specific accounting poli-

cies may be presented as a separate component of the financial statements.

D i s c l o s u r e o f A c c o u n t i n g P o l i c i e s

108. An entity shall disclose in the summary of significant accounting policies:

(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.

109.

110.

It is important for users to be informed of the measurement basis or bases used in the financial statements (for
example, historical cost, current cost, net realisable value, fair value or recoverable amount) because the basis on
which the financial statements are prepared significantly affects their analysis. When more than one measurement
basis is used in the financial statements, for example when particular classes of assets are revalued, it is sufficient to
provide an indication of the categories of assets and liabilities to which each measurement basis is applied.

In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure
would assist users in understanding how transactions, other events and conditions are reflected in the reported finan-
cial performance and financial position. Disclosure of particular accounting policies is especially useful to users when
those policies are selected from alternatives allowed in Standards and Interpretations. An example is disclosure of
whether a venturer recognises its interest in a jointly controlled entity using proportionate consolidation or the equity
method (see IAS 31 Interests in Joint Ventures). Some Standards specifically require disclosure of particular accounting
policies, including choices made by management between different policies they allow. For example, IAS 16 requires
disclosure of the measurement bases used for classes of property, plant and equipment. IAS 23 Borrowing Costs
requires disclosure of whether borrowing costs are recognised immediately as an expense or capitalised as part of
the cost of qualifying assets.

111.

Each entity considers the nature of its operations and the policies that the users of its financial statements would
expect to be disclosed for that type of entity. For example, an entity subject to income taxes would be expected to
disclose its accounting policies for income taxes, including those applicable to deferred tax liabilities and assets. When
an entity has significant foreign operations or transactions in foreign currencies, disclosure of accounting policies
for the recognition of foreign exchange gains and losses would be expected. When business combinations have
occurred, the policies used for measuring goodwill and minority interest are disclosed.

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112. An accounting policy may be significant because of the nature of the entity’s operations even if amounts for current
and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not spe-
cifically required by IFRSs, but is selected and applied in accordance with IAS 8.

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113. An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart
from those involving estimations (see paragraph 116), management has made in the process of applying the enti-
ty’s accounting policies that have the most significant effect on the amounts recognised in the financial
statements.

114.

In the process of applying the entity’s accounting policies, management makes various judgements, apart from those
involving estimations, that can significantly affect the amounts recognised in the financial statements. For example,
management makes judgements in determining:

(a) whether financial assets are held-to-maturity investments;

(b) when substantially all the significant risks and rewards of ownership of financial assets and lease assets are trans-

ferred to other entities;

(c) whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to

revenue;

and

(d) whether the substance of the relationship between the entity and a special purpose entity indicates that the spe-

cial purpose entity is controlled by the entity.

115.

Some of the disclosures made in accordance with paragraph 113 are required by other Standards. For example,
IAS 27 requires an entity to disclose the reasons why the entity’s ownership interest does not constitute control, in
respect of an investee that is not a subsidiary even though more than half of its voting or potential voting power is
owned directly or indirectly through subsidiaries. IAS 40 requires disclosure of the criteria developed by the entity to
distinguish investment property from owner-occupied property and from property held for sale in the ordinary
course of business, when classification of the property is difficult.

K e y S o u r c e s o f E s t i m a t i o n U n c e r t a i n t y

116. An entity shall disclose in the notes information about the key assumptions concerning the future, and other key
sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those
assets and liabilities, the notes shall include details of:

(a)

their nature;

and

(b)

their carrying amount as at the balance sheet date.

117. Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future
events on those assets and liabilities at the balance sheet date. For example, in the absence of recently observed mar-
ket prices used to measure the following assets and liabilities, future-oriented estimates are necessary to measure the
recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inven-
tories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities
such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash
flows or discount rates used, future changes in salaries and future changes in prices affecting other costs.

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IAS 1

118.

The key assumptions and other key sources of estimation uncertainty disclosed in accordance with paragraph 116
relate to the estimates that require management’s most difficult, subjective or complex judgements. As the number
of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgements
become more subjective and complex, and the potential for a consequential material adjustment to the carrying
amounts of assets and liabilities normally increases accordingly.

119.

The disclosures in paragraph 116 are not required for assets and liabilities with a significant risk that their carrying
amounts might change materially within the next financial year if, at the balance sheet date, they are measured at fair
value based on recently observed market prices (their fair values might change materially within the next financial
year but these changes would not arise from assumptions or other sources of estimation uncertainty at the balance
sheet date).

120.

The disclosures in paragraph 116 are presented in a manner that helps users of financial statements to understand
the judgements management makes about the future and about other key sources of estimation uncertainty. The
nature and extent of the information provided vary according to the nature of the assumption and other circum-
stances. Examples of the types of disclosures made are:

(a)

the nature of the assumption or other estimation uncertainty;

(b)

the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation,
including the reasons for the sensitivity;

(c)

the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next finan-
cial year in respect of the carrying amounts of the assets and liabilities affected;

and

(d)

an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty
remains unresolved.

121.

It is not necessary to disclose budget information or forecasts in making the disclosures in paragraph 116.

122. When it is impracticable to disclose the extent of the possible effects of a key assumption or another key source of
estimation uncertainty at the balance sheet date, the entity discloses that it is reasonably possible, based on existing
knowledge, that outcomes within the next financial year that are different from assumptions could require a material
adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and
carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption.

123.

The disclosures in paragraph 113 of particular judgements management made in the process of applying the entity’s
accounting policies do not relate to the disclosures of key sources of estimation uncertainty in paragraph 116.

124.

The disclosure of some of the key assumptions that would otherwise be required in accordance with paragraph 116
is required by other Standards. For example, IAS 37 requires disclosure, in specified circumstances, of major assump-
tions concerning future events affecting classes of provisions. IAS 32 requires disclosure of significant assumptions
applied in estimating fair values of financial assets and financial liabilities that are carried at fair value. IAS 16 requires
disclosure of significant assumptions applied in estimating fair values of revalued items of property, plant and
equipment.

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O t h e r D i s c l o s u r e s

125. An entity shall disclose in the notes:

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(a)

the amount of dividends proposed or declared before the financial statements were authorised for issue but
not recognised as a distribution to equity holders during the period, and the related amount per share;

and

(b)

the amount of any cumulative preference dividends not recognised.

126. An entity shall disclose the following, if not disclosed elsewhere in information published with the financial

statements:

(a)

the domicile and legal form of the entity, its country of incorporation and the address of its registered office
(or principal place of business, if different from the registered office);

(b) a description of the nature of the entity’s operations and its principal activities;

and

(c)

the name of the parent and the ultimate parent of the group.

EFFECTIVE DATE

127. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application
is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF IAS 1 (REVISED 1997)

128. This Standard supersedes IAS 1 Presentation of Financial Statements revised in 1997.

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IAS 1

APPENDIX

Amendments to Other Pronouncements

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations,
applicable at December 2003:

(a)

references to ‘net profit or loss’ are amended to ‘profit or loss’;

(b)

references to ‘notes to the financial statements’ are amended to ‘notes’;

and

(c)

references to ‘equity capital’ are amended to ‘contributed equity’.

A2.

[Amendment not applicable to bare Standards]

A3.

Paragraphs 69 and 70 of IAS 12 Income Taxes are deleted.

A4.

In IAS 19 Employee Benefits, paragraph 23 is amended to read as follows:

23. Although this Standard does not require specific disclosures about short-term employee benefits, other Stan-
dards may require disclosures. For example, IAS 24 Related Party Disclosures requires disclosures about employee
benefits for key management personnel. IAS 1 Presentation of Financial Statements requires disclosure of employee
benefits expense.

A5.

[Amendment not applicable to bare Standards]

A6.

IAS 34 Interim Financial Reporting is amended as described below.

Paragraph 5 is amended to read as follows:

5.

IAS 1 defines a complete set of financial statements as including the following components:

(a)

a balance sheet;

(b)

an income statement;

(c)

a statement of changes in equity showing either:

(i)

all changes in equity, or

(ii)

changes in equity other than those arising from transactions with equity holders acting in their capac-
ity as equity holders;

(d)

a cash flow statement;

and

(e)

notes, comprising a summary of significant accounting policies and other explanatory notes.

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Paragraph 12 is amended to read as follows:

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12.

IAS 1 provides guidance on the structure of financial statements. The Implementation Guidance for IAS 1
illustrates ways in which the balance sheet, income statement and statement of changes in equity may be
presented.

Paragraph 13 is amended to read as follows:

13.

IAS 1 requires a statement of changes in equity to be presented as a separate component of an entity’s finan-
cial statements, and permits information about changes in equity arising from transactions with equity hold-
ers acting in their capacity as equity holders (including distributions to equity holders) to be shown either
on the face of the statement or in the notes. An entity follows the same format in its interim statement of
changes in equity as it did in its most recent annual statement.

A7.

Paragraphs 39 and 40 of IAS 35 Discontinuing Operations are amended to read as follows:

39. The disclosures required by paragraphs 27-37, except for the disclosure of the amount of the pre-tax gain or loss
recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation in accor-
dance with paragraph 31(a), may be presented either in the notes or on the face of the balance sheet, income
statement or statement of changes in equity.

40.

IAS 1 Presentation of Financial Statements requires the pre-tax gain or loss recognised on the disposal of assets or
settlement of liabilities attributable to discontinuing operations to be presented on the face of the income state-
ment. The disclosures required by paragraph 27(f) and (g) are encouraged to be presented on the face of the
income statement and cash flow statement, respectively.

A8.

[Amendment not applicable to bare Standards]

A9.

IAS 41 Agriculture is amended as described below.

Paragraph 39 is deleted.

Paragraph 53 is amended to read as follows:

53. Agricultural activity is often exposed to climatic, disease and other natural risks. If an event occurs that gives rise
to a material item of income or expense, the nature and amount of that item are disclosed in accordance with
IAS 1 Presentation of Financial Statements. Examples of such an event include an outbreak of a virulent disease, a
flood, a severe drought or frost, and a plague of insects.

A10. [Amendment not applicable to bare Standards]

A11. In SIC-32 Intangible Assets – Web site Costs, paragraph 5 is amended to read as follows:

5.

This Interpretation does not apply to expenditure on purchasing, developing, and operating hardware (eg web
servers, staging servers, production servers and Internet connections) of a web site. Such expenditure is accounted
for under IAS 16. Additionally, when an entity incurs expenditure on an Internet service provider hosting the
entity’s web site, the expenditure is recognised as an expense under IAS 1.78 and the Framework when the ser-
vices are received.

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IAS 2

INTERNATIONAL ACCOUNTING STANDARD 2

Inventories

SUMMARY

Objective

Scope

Definitions

Measurement of Inventories

Cost of Inventories

Costs of Purchase

Costs of Conversion

Other Costs

Cost of Inventories of a Service Provider

Cost of Agricultural Produce Harvested from Biological Assets

Techniques for the Measurement of Cost

Cost Formulas

Net Realisable Value

Recognition as an expense

Disclosure

Effective date

Withdrawal of other pronouncements

Paragraphs

1

2-5

6-8

9-33

10-22

11

12-14

15-18

19

20

21-22

23-27

28-33

34-35

36-39

40

41-42

This revised Standard supersedes IAS 2 (revised 1993) Inventories and should be applied for annual periods beginning on or
after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting
for inventories is the amount of cost to be recognised as an asset and carried forward until the related revenues are
recognised. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense,
including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign
costs to inventories.

2.

This Standard applies to all inventories, except:

SCOPE

(a) work in progress arising under construction contracts, including directly related service contracts (see IAS 11

Construction Contracts);

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(b)

financial instruments;

and

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(c) biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41

Agriculture).

3.

This Standard does not apply to the measurement of inventories held by:

(a) producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral
products, to the extent that they are measured at net realisable value in accordance with well-established prac-
tices in those industries. When such inventories are measured at net realisable value, changes in that value are
recognised in profit or loss in the period of the change.

(b)

commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories
are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or
loss in the period of the change.

The inventories referred to in paragraph 3(a) are measured at net realisable value at certain stages of production. This
occurs, for example, when agricultural crops have been harvested or minerals have been extracted and sale is assured
under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of
failure to sell. These inventories are excluded from only the measurement requirements of this Standard.

Broker-traders are those who buy or sell commodities for others or on their own account. The inventories referred to
in paragraph 3(b) are principally acquired with the purpose of selling in the near future and generating a profit from
fluctuations in price or broker-traders’ margin. When these inventories are measured at fair value less costs to sell, they
are excluded from only the measurement requirements of this Standard.

4.

5.

DEFINITIONS

6.

The following terms are used in this Standard with the meanings specified:

Inventories are assets:

(a) held for sale in the ordinary course of business;

(b)

in the process of production for such sale;

or

(c)

in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, will-
ing parties in an arm’s length transaction.

7. Net realisable value refers to the net amount that an entity expects to realise from the sale of inventory in the ordinary
course of business. Fair value reflects the amount for which the same inventory could be exchanged between knowl-
edgeable and willing buyers and sellers in the marketplace. The former is an entity-specific value; the latter is not. Net
realisable value for inventories may not equal fair value less costs to sell.

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IAS 2

8.

Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer
and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or
work in progress being produced, by the entity and include materials and supplies awaiting use in the production pro-
cess. In the case of a service provider, inventories include the costs of the service, as described in paragraph 19, for
which the entity has not yet recognised the related revenue (see IAS 18 Revenue).

MEASUREMENT OF INVENTORIES

9.

Inventories shall be measured at the lower of cost and net realisable value.

Cost of Inventories

10. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing

the inventories to their present location and condition.

C o s t s o f P u r c h a s e

11. The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those sub-
sequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attrib-
utable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are
deducted in determining the costs of purchase.

C o s t s o f C o n v e r s i o n

12. The costs of conversion of inventories include costs directly related to the units of production, such as direct
labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in con-
verting materials into finished goods. Fixed production overheads are those indirect costs of production that remain
relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings
and equipment, and the cost of factory management and administration. Variable production overheads are those indi-
rect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials
and indirect labour.

13. The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the pro-
duction facilities. Normal capacity is the production expected to be achieved on average over a number of periods or
seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The
actual level of production may be used if it approximates normal capacity. The amount of fixed overhead allocated to
each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are
recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the
amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above
cost. Variable production overheads are allocated to each unit of production on the basis of the actual use of the pro-
duction facilities.

14. A production process may result in more than one product being produced simultaneously. This is the case, for
example, when joint products are produced or when there is a main product and a by-product. When the costs of con-
version of each product are not separately identifiable, they are allocated between the products on a rational and con-
sistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage
in the production process when the products become separately identifiable, or at the completion of production. Most
by-products, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and
this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not
materially different from its cost.

O t h e r C o s t s

15. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories
to their present location and condition. For example, it may be appropriate to include non-production overheads or
the costs of designing products for specific customers in the cost of inventories.

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16. Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are

incurred are:

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(a)

abnormal amounts of wasted materials, labour or other production costs;

(b)

storage costs, unless those costs are necessary in the production process before a further production stage;

(c)

administrative overheads that do not contribute to bringing inventories to their present location and condition;

and

(d)

selling costs.

17.

IAS 23 Borrowing Costs identifies limited circumstances where borrowing costs are included in the cost of inventories.

18. An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financ-
ing element, that element, for example a difference between the purchase price for normal credit terms and the amount
paid, is recognised as interest expense over the period of the financing.

C o s t o f

I n v e n t o r i e s o f a S e r v i c e P r o v i d e r

19. To the extent that service providers have inventories, they measure them at the costs of their production. These costs
consist primarily of the labour and other costs of personnel directly engaged in providing the service, including super-
visory personnel, and attributable overheads. Labour and other costs relating to sales and general administrative per-
sonnel are not included but are recognised as expenses in the period in which they are incurred. The cost of invento-
ries of a service provider does not include profit margins or non-attributable overheads that are often factored into
prices charged by service providers.

C o s t o f A g r i c u l t u r a l P r o d u c e H a r v e s t e d f r o m B i o l o g i c a l A s s e t s

20.

In accordance with IAS 41 Agriculture, inventories comprising agricultural produce that an entity has harvested from
its biological assets are measured on initial recognition at their fair value less estimated point-of-sale costs at the point
of harvest. This is the cost of the inventories at that date for application of this Standard.

T e c h n i q u e s f o r t h e M e a s u r e m e n t o f C o s t

21. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method,
may be used for convenience if the results approximate cost. Standard costs take into account normal levels of mate-
rials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in
the light of current conditions.

22. The retail method is often used in the retail industry for measuring inventories of large numbers of rapidly changing
items with similar margins for which it is impracticable to use other costing methods. The cost of the inventory is deter-
mined by reducing the sales value of the inventory by the appropriate percentage gross margin. The percentage used
takes into consideration inventory that has been marked down to below its original selling price. An average percent-
age for each retail department is often used.

Cost Formulas

23. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segre-

gated for specific projects shall be assigned by using specific identification of their individual costs.

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IAS 2

24. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is the appro-
priate treatment for items that are segregated for a specific project, regardless of whether they have been bought or
produced. However, specific identification of costs is inappropriate when there are large numbers of items of inventory
that are ordinarily interchangeable. In such circumstances, the method of selecting those items that remain in inven-
tories could be used to obtain predetermined effects on profit or loss.

25. The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using the first-in, first-
out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having
a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be
justified.

26. For example, inventories used in one business segment may have a use to the entity different from the same type of
inventories used in another business segment. However, a difference in geographical location of inventories (or in the
respective tax rules), by itself, is not sufficient to justify the use of different cost formulas.

27. The FIFO formula assumes that the items of inventory that were purchased or produced first are sold first, and conse-
quently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under
the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar
items at the beginning of a period and the cost of similar items purchased or produced during the period. The average
may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of
the entity.

Net Realisable Value

28. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or par-
tially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the esti-
mated costs of completion or the estimated costs to be incurred to make the sale have increased. The practice of writ-
ing inventories down below cost to net realisable value is consistent with the view that assets should not be carried in
excess of amounts expected to be realised from their sale or use.

29.

Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be
appropriate to group similar or related items. This may be the case with items of inventory relating to the same prod-
uct line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot
be practicably evaluated separately from other items in that product line. It is not appropriate to write inventories down
on the basis of a classification of inventory, for example, finished goods, or all the inventories in a particular industry
or geographical segment. Service providers generally accumulate costs in respect of each service for which a separate
selling price is charged. Therefore, each such service is treated as a separate item.

30. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of
the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost
directly relating to events occurring after the end of the period to the extent that such events confirm conditions exist-
ing at the end of the period.

31. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example,
the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the con-
tract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess is
based on general selling prices. Provisions may arise from firm sales contracts in excess of inventory quantities held or
from firm purchase contracts. Such provisions are dealt with under IAS 37 Provisions, Contingent Liabilities and Contin-
gent Assets.

32. Materials and other supplies held for use in the production of inventories are not written down below cost if the fin-
ished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in
the price of materials indicates that the cost of the finished products exceeds net realisable value, the materials are writ-
ten down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available
measure of their net realisable value.

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33. A new assessment is made of net realisable value in each subsequent period. When the circumstances that previously
caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net
realisable value because of changed economic circumstances, the amount of the write-down is reversed (ie the reversal
is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the
revised net realisable value. This occurs, for example, when an item of inventory that is carried at net realisable value,
because its selling price has declined, is still on hand in a subsequent period and its selling price has increased.

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RECOGNITION AS AN EXPENSE

34. When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period
in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and
all losses of inventories shall be recognised as an expense in the period the write-down or loss occurs. The amount
of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recogn-
ised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

35. Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-
constructed property, plant or equipment. Inventories allocated to another asset in this way are recognised as an
expense during the useful life of that asset.

DISCLOSURE

36. The financial statements shalldisclose:

(a)

the accounting policies adopted in measuring inventories, including the cost formula used;

(b)

the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;

(c)

the carrying amount of inventories carried at fair value less costs to sell;

(d)

the amount of inventories recognised as an expense during the period;

(e)

the amount of any write-down of inventories recognised as an expense in the period in accordance with para-
graph 34;

(f)

the amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories
recognised as expense in the period in accordance with paragraph 34;

(g)

the circumstances or events that led to the reversal of a write-down of inventories in accordance with para-
graph 34;

and

(h)

the carrying amount of inventories pledged as security for liabilities.

37.

Information about the carrying amounts held in different classifications of inventories and the extent of the changes in
these assets is useful to financial statement users. Common classifications of inventories are merchandise, production
supplies, materials, work in progress and finished goods. The inventories of a service provider may be described as work
in progress.

38. The amount of inventories recognised as an expense during the period, which is often referred to as cost of sales, con-
sists of those costs previously included in the measurement of inventory that has now been sold and unallocated pro-
duction overheads and abnormal amounts of production costs of inventories. The circumstances of the entity may also
warrant the inclusion of other amounts, such as distribution costs.

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IAS 2

39. Some entities adopt a format for profit or loss that results in amounts being disclosed other than the cost of invento-
ries recognised as an expense during the period. Under this format, an entity presents an analysis of expenses using a
classification based on the nature of expenses. In this case, the entity discloses the costs recognised as an expense for
raw materials and consumables, labour costs and other costs together with the amount of the net change in inventories
for the period.

EFFECTIVE DATE

40. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose
that fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

41. This Standard supersedes IAS 2 Inventories (revised in 1993).

42. This Standard supersedes SIC-1 Consistency — Different Cost Formulas for Inventories.

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APPENDIX

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In IAS 14 Segment Reporting, paragraph 22 is amended to read as follows:

22. Some guidance for cost allocation can be found in other Standards. For example, paragraphs 11-20 of IAS 2 Inven-
tories (as revised in 2003) provide guidance on attributing and allocating costs to inventories, and para-
graphs 16-21 of IAS 11 Construction Contracts provide guidance on attributing and allocating costs to con-
tracts. That guidance may be useful in attributing or allocating costs to segments.

A2. [Amendment not applicable to bare Standards]

A3. [Amendment not applicable to bare Standards]

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IAS 8

INTERNATIONAL ACCOUNTING STANDARD 8

Accounting Policies, Changes in Accounting Estimates and Errors

SUMMARY

Objective

Scope

Definitions

Accounting Policies

Selection and Application of Accounting Policies

Consistency of Accounting Policies

Changes in Accounting Policies

Applying Changes in Accounting Policies

Retrospective application

Limitations on retrospective application

Disclosure

Changes in accounting estimates

Disclosure

Errors

Limitations on Retrospective Restatement

Disclosure of Prior Period Errors

Impracticability in respect of retrospective application and retrospective restatement

Effective date

Withdrawal of other pronouncements

Paragraphs

1-2

3-4

5-6

7-31

7-12

13

14-31

19-27

22

23-27

28-31

32-40

39-40

41-49

43-48

49

50-53

54

55-56

This revised Standard supersedes IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies
and should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with
the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and cor-
rections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements,
and the comparability of those financial statements over time and with the financial statements of other entities.

2. Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in IAS 1

Presentation of Financial Statements.

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3.

4.

This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in account-
ing policies, changes in accounting estimates and corrections of prior period errors.

The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in account-
ing policies are accounted for and disclosed in accordance with IAS 12 Income Taxes.

DEFINITIONS

5.

The following terms are used in this Standard with the meanings specified:

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in pre-
paring and presenting financial statements.

A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount
of the periodic consumption of an asset, that results from the assessment of the present status of, and expected
future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from
new information or new developments and, accordingly, are not corrections of errors.

International Financial Reporting Standards (IFRSs) are Standards and Interpretations adopted by the Interna-
tional Accounting Standards Board (IASB). They comprise:

(a)

International Financial Reporting Standards;

(b)

International Accounting Standards;

and

(c)

Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the
former Standing Interpretations Committee (SIC).

Material Omissions or misstatements of items are material if they could, individually or collectively, influence the
economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and
nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or
a combination of both, could be the determining factor.

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior
periods arising from a failure to use, or misuse of, reliable information that:

(a) was available when financial statements for those periods were authorised for issue;

and

(b)

could reasonably be expected to have been obtained and taken into account in the preparation and presenta-
tion of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or
misinterpretations of facts, and fraud.

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Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that
policy had always been applied.

Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of
financial statements as if a prior period error had never occurred.

Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reason-
able effort to do so. For a particular prior period, it is impracticable to apply a change in an accounting policy ret-
rospectively or to make a retrospective restatement to correct an error if:

(a)

the effects of the retrospective application or retrospective restatement are not determinable;

(b)

the retrospective application or retrospective restatement requires assumptions about what management’s
intent would have been in that period;

or

(c)

the retrospective application or retrospective restatement requires significant estimates of amounts and it is
impossible to distinguish objectively information about those estimates that:

(i)

provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recog-
nised, measured or disclosed;

and

(ii) would have been available when the financial statements for that prior period were authorised for issue

from other information.

Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting
estimate, respectively, are:

(a) applying the new accounting policy to transactions, other events and conditions occurring after the date as at

which the policy is changed;

and

(b)

recognising the effect of the change in the accounting estimate in the current and future periods affected by
the change.

6. Assessing whether an omission or misstatement could influence economic decisions of users, and so be material,
requires consideration of the characteristics of those users. The Framework for the Preparation and Presentation of Financial
Statements states in paragraph 25 that ‘users are assumed to have a reasonable knowledge of business and economic
activities and accounting and a willingness to study the information with reasonable diligence.’ Therefore, the assess-
ment needs to take into account how users with such attributes could reasonably be expected to be influenced in mak-
ing economic decisions.

ACCOUNTING POLICIES

Selection and Application of Accounting Policies

7. When a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting
policy or policies applied to that item shall be determined by applying the Standard or Interpretation and consid-
ering any relevant Implementation Guidance issued by the IASB for the Standard or Interpretation.

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8.

IFRSs set out accounting policies that the IASB has concluded result in financial statements containing relevant and
reliable information about the transactions, other events and conditions to which they apply. Those policies need not
be applied when the effect of applying them is immaterial. However, it is inappropriate to make, or leave uncorrected,
immaterial departures from IFRSs to achieve a particular presentation of an entity’s financial position, financial per-
formance or cash flows.

9.

Implementation Guidance for Standards issued by the IASB does not form part of those Standards, and therefore does
not contain requirements for financial statements.

10.

In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition,
management shall use its judgement in developing and applying an accounting policy that results in information
that is:

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(a)

relevant to the economic decision-making needs of users;

and

(b)

reliable, in that the financial statements:

(i)

represent faithfully the financial position, financial performance and cash flows of the entity;

(ii)

reflect the economic substance of transactions, other events and conditions, and not merely the legal form;

(iii) are neutral, ie free from bias;

(iv) are prudent;

and

(v) are complete in all material respects.

11.

In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of,
the following sources in descending order:

(a)

the requirements and guidance in Standards and Interpretations dealing with similar and related issues;

and

(b)

the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in
the Framework.

12.

In making the judgement described in paragraph 10, management may also consider the most recent pronounce-
ments of other standard-setting bodies that use a similar conceptual framework to develop accounting standards,
other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources
in paragraph 11.

Consistency of Accounting Policies

13. An entity shall select and apply its accounting policies consistently for similar transactions, other events and con-
ditions, unless a Standard or an Interpretation specifically requires or permits categorisation of items for which dif-
ferent policies may be appropriate. If a Standard or an Interpretation requires or permits such categorisation, an
appropriate accounting policy shall be selected and applied consistently to each category.

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Changes in Accounting Policies

14. An entity shall change an accounting policy only if the change:

(a)

is required by a Standard or an Interpretation;

or

(b)

results in the financial statements providing reliable and more relevant information about the effects of trans-
actions, other events or conditions on the entity’s financial position, financial performance or cash flows.

15. Users of financial statements need to be able to compare the financial statements of an entity over time to identify trends
in its financial position, financial performance and cash flows. Therefore, the same accounting policies are applied
within each period and from one period to the next unless a change in accounting policy meets one of the criteria in
paragraph 14.

16. The following are not changes in accounting policies:

(a)

the application of an accounting policy for transactions, other events or conditions that differ in substance from
those previously occurring;

and

(b)

the application of a new accounting policy for transactions, other events or conditions that did not occur pre-
viously or were immaterial.

17. The initial application of a policy to revalue assets in accordance with IAS 16 Property, Plant and Equipment or
IAS 38 Intangible Assetsis a change in an accounting policy to be dealt with as a revaluation in accordance with
IAS 16 or IAS 38, rather than in accordance with this Standard.

18. Paragraphs 19-31 do not apply to the change in accounting policy described in paragraph 17.

Applying Changes in Accounting Policies

19. Subject to paragraph 23:

(a) an entity shall account for a change in accounting policy resulting from the initial application of a Standard
or an Interpretation in accordance with the specific transitional provisions, if any, in that Standard or
Interpretation;

and

(b) when an entity changes an accounting policy upon initial application of a Standard or an Interpretation that
does not include specific transitional provisions applying to that change, or changes an accounting policy vol-
untarily, it shall apply the change retrospectively.

20. For the purpose of this Standard, early application of a Standard or an Interpretation is not a voluntary change in

accounting policy.

21.

In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition,
management may, in accordance with paragraph 12, apply an accounting policy from the most recent pronounce-
ments of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. If,
following an amendment of such a pronouncement, the entity chooses to change an accounting policy, that change is
accounted for and disclosed as a voluntary change in accounting policy.

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22. Subject to paragraph 23, when a change in accounting policy is applied retrospectively in accordance with para-
graph 19(a) or (b), the entity shall adjust the opening balance of each affected component of equity for the earliest
prior period presented and the other comparative amounts disclosed for each prior period presented as if the new
accounting policy had always been applied.

L i m i t a t i o n s o n r e t r o s p e c t i v e a p p l i c a t i o n

23. When retrospective application is required by paragraph 19(a) or (b), a change in accounting policy shall be applied
retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the
cumulative effect of the change.

24. When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative
information for one or more prior periods presented, the entity shall apply the new accounting policy to the carry-
ing amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is
practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of
each affected component of equity for that period.

25. When it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a
new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new
accounting policy prospectively from the earliest date practicable.

26. When an entity applies a new accounting policy retrospectively, it applies the new accounting policy to comparative
information for prior periods as far back as is practicable. Retrospective application to a prior period is not practicable
unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing balance
sheets for that period. The amount of the resulting adjustment relating to periods before those presented in the finan-
cial statements is made to the opening balance of each affected component of equity of the earliest prior period pre-
sented. Usually the adjustment is made to retained earnings. However, the adjustment may be made to another com-
ponent of equity (for example, to comply with a Standard or an Interpretation). Any other information about prior
periods, such as historical summaries of financial data, is also adjusted as far back as is practicable.

27. When it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannot determine
the cumulative effect of applying the policy to all prior periods, the entity, in accordance with paragraph 25, applies
the new policy prospectively from the start of the earliest period practicable. It therefore disregards the portion of the
cumulative adjustment to assets, liabilities and equity arising before that date. Changing an accounting policy is per-
mitted even if it is impracticable to apply the policy prospectively for any prior period. Paragraphs 50-53 provide guid-
ance on when it is impracticable to apply a new accounting policy to one or more prior periods.

Disclosure

28. When initial application of a Standard or an Interpretation has an effect on the current period or any prior period,
would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have
an effect on future periods, an entity shall disclose:

(a)

the title of the Standard or Interpretation;

(b) when applicable, that the change in accounting policy is made in accordance with its transitional provisions;

(c)

the nature of the change in accounting policy;

(d) when applicable, a description of the transitional provisions;

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(e) when applicable, the transitional provisions that might have an effect on future periods;

(f)

for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

(i)

for each financial statement line item affected;

and

(ii)

if IAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share;

(g)

the amount of the adjustment relating to periods before those presented, to the extent practicable;

and

(h)

if retrospective application required by paragraph 19(a) or (b) is impracticable for a particular prior period, or
for periods before those presented, the circumstances that led to the existence of that condition and a descrip-
tion of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

29. When a voluntary change in accounting policy has an effect on the current period or any prior period, would have
an effect on that period except that it is impracticable to determine the amount of the adjustment, or might have an
effect on future periods, an entity shall disclose:

(a)

the nature of the change in accounting policy;

(b)

the reasons why applying the new accounting policy provides reliable and more relevant information;

(c)

for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

(i)

for each financial statement line item affected;

and

(ii)

if IAS 33 applies to the entity, for basic and diluted earnings per share;

(d)

the amount of the adjustment relating to periods before those presented, to the extent practicable;

and

(e)

if retrospective application is impracticable for a particular prior period, or for periods before those presented,
the circumstances that led to the existence of that condition and a description of how and from when the change
in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

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30. When an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the

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entity shall disclose:

(a)

this fact;

and

(b) known or reasonably estimable information relevant to assessing the possible impact that application of the
new Standard or Interpretation will have on the entity’s financial statements in the period of initial application.

31.

In complying with paragraph 30, an entity considers disclosing:

(a)

the title of the new Standard or Interpretation;

(b)

the nature of the impending change or changes in accounting policy;

(c)

the date by which application of the Standard or Interpretation is required;

(d)

the date as at which it plans to apply the Standard or Interpretation initially;

and

(e)

either:

(i)

a discussion of the impact that initial application of the Standard or Interpretation is expected to have on the
entity’s financial statements;

or

(ii)

if that impact is not known or reasonably estimable, a statement to that effect.

CHANGES IN ACCOUNTING ESTIMATES

32. As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured
with precision but can only be estimated. Estimation involves judgements based on the latest available, reliable infor-
mation. For example, estimates may be required of:

(a)

bad debts;

(b)

inventory obsolescence;

(c)

the fair value of financial assets or financial liabilities;

(d)

the useful lives of, or expected pattern of consumption of the future economic benefits embodied in, depreciable
assets;

and

(e) warranty obligations.

33. The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine

their reliability.

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34. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of
new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is
not the correction of an error.

35. A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting
estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate,
the change is treated as a change in an accounting estimate.

36. The effect of a change in an accounting estimate, other than a change to which paragraph 37 applies, shall be rec-

ognised prospectively by including it in profit or loss in:

(a)

the period of the change, if the change affects that period only;

or

(b)

the period of the change and future periods, if the change affects both.

37. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an
item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item
in the period of the change.

38. Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to trans-
actions, other events and conditions from the date of the change in estimate. A change in an accounting estimate may
affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. For
example, a change in the estimate of the amount of bad debts affects only the current period’s profit or loss and there-
fore is recognised in the current period. However, a change in the estimated useful life of, or the expected pattern of
consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the cur-
rent period and for each future period during the asset’s remaining useful life. In both cases, the effect of the change
relating to the current period is recognised as income or expense in the current period. The effect, if any, on future
periods is recognised as income or expense in those future periods.

Disclosure

39. An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the cur-
rent period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods
when it is impracticable to estimate that effect.

40.

If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall
disclose that fact.

Errors

41. Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial state-
ments. Financial statements do not comply with IFRSs if they contain either material errors or immaterial errors made
intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash flows.
Potential current period errors discovered in that period are corrected before the financial statements are authorised for
issue. However, material errors are sometimes not discovered until a subsequent period, and these prior period errors
are corrected in the comparative information presented in the financial statements for that subsequent period (see para-
graphs 42-47).

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42. Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of finan-

cial statements authorised for issue after their discovery by:

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(a)

restating the comparative amounts for the prior period(s) presented in which the error occurred;

or

(b)

if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabili-
ties and equity for the earliest prior period presented.

Limitations on Retrospective Restatement

43. A prior period error shall be corrected by retrospective restatement except to the extent that it is impracticable to

determine either the period-specific effects or the cumulative effect of the error.

44. When it is impracticable to determine the period-specific effects of an error on comparative information for one or
more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the
earliest period for which retrospective restatement is practicable (which may be the current period).

45. When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on
all prior periods, the entity shall restate the comparative information to correct the error prospectively from the ear-
liest date practicable.

46. The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered.
Any information presented about prior periods, including any historical summaries of financial data, is restated as far
back as is practicable.

47. When it is impracticable to determine the amount of an error (eg a mistake in applying an accounting policy) for all
prior periods, the entity, in accordance with paragraph 45, restates the comparative information prospectively from
the earliest date practicable. It therefore disregards the portion of the cumulative restatement of assets, liabilities and
equity arising before that date. Paragraphs 50-53 provide guidance on when it is impracticable to correct an error for
one or more prior periods.

48. Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are
approximations that may need revision as additional information becomes known. For example, the gain or loss rec-
ognised on the outcome of a contingency is not the correction of an error.

Disclosure of Prior Period Errors

49.

In applying paragraph 42, an entity shall disclose the following:

(a)

the nature of the prior period error;

(b)

for each prior period presented, to the extent practicable, the amount of the correction:

(i)

for each financial statement line item affected;

and

(ii)

if IAS 33 applies to the entity, for basic and diluted earnings per share;

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(c)

the amount of the correction at the beginning of the earliest prior period presented;

and

(d)

if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the exist-
ence of that condition and a description of how and from when the error has been corrected.

Financial statements of subsequent periods need not repeat these disclosures.

IMPRACTICABILITY IN RESPECT OF RETROSPECTIVE APPLICATION AND RETROSPECTIVE RESTATEMENT

50.

In some circumstances, it is impracticable to adjust comparative information for one or more prior periods to achieve
comparability with the current period. For example, data may not have been collected in the prior period(s) in a way
that allows either retrospective application of a new accounting policy (including, for the purpose of paragraphs 51-53,
its prospective application to prior periods) or retrospective restatement to correct a prior period error, and it may be
impracticable to recreate the information.

51.

It is frequently necessary to make estimates in applying an accounting policy to elements of financial statements rec-
ognised or disclosed in respect of transactions, other events or conditions. Estimation is inherently subjective, and esti-
mates may be developed after the balance sheet date. Developing estimates is potentially more difficult when retro-
spectively applying an accounting policy or making a retrospective restatement to correct a prior period error, because
of the longer period of time that might have passed since the affected transaction, other event or condition
occurred. However, the objective of estimates related to prior periods remains the same as for estimates made in the
current period, namely, for the estimate to reflect the circumstances that existed when the transaction, other event or
condition occurred.

52. Therefore, retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing

information that

(a)

provides evidence of circumstances that existed on the date(s) as at which the transaction, other event or condi-
tion occurred,

and

(b) would have been available when the financial statements for that prior period were authorised for issue

from other information. For some types of estimates (eg an estimate of fair value not based on an observable price or
observable inputs), it is impracticable to distinguish these types of information. When retrospective application or ret-
rospective restatement would require making a significant estimate for which it is impossible to distinguish these two
types of information, it is impracticable to apply the new accounting policy or correct the prior period error
retrospectively.

53. Hindsight should not be used when applying a new accounting policy to, or correcting amounts for, a prior period,
either in making assumptions about what management’s intentions would have been in a prior period or estimating
the amounts recognised, measured or disclosed in a prior period. For example, when an entity corrects a prior period
error in measuring financial assets previously classified as held-to-maturity investments in accordance with IAS 39
Financial Instruments: Recognition and Measurement, it does not change their basis of measurement for that period if man-
agement decided later not to hold them to maturity. In addition, when an entity corrects a prior period error in cal-
culating its liability for employees’ accumulated sick leave in accordance with IAS 19 Employee Benefits, it disregards
information about an unusually severe influenza season during the next period that became available after the financial
statements for the prior period were authorised for issue. The fact that significant estimates are frequently required when
amending comparative information presented for prior periods does not prevent reliable adjustment or correction of
the comparative information.

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54. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

55. This Standard supersedes IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies,

revised in 1993.

56. This Standard supersedes the following Interpretations:

(a)

SIC-2 Consistency — Capitalisation of Borrowing Costs;

and

(b)

SIC-18 Consistency — Alternative Methods.

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APPENDIX

Amendments to Other Pronouncements

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

IAS 7 Cash Flow Statements is amended as follows:

Paragraphs 29 and 30 on extraordinary items are deleted.

A2.

IAS 12 Income Taxes is amended as described below.

Paragraph 62(b) is amended to read as follows:

(b)

an adjustment to the opening balance of retained earnings resulting from either a change in accounting policy
that is applied retrospectively or the correction of an error (see IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors).

Paragraph 80(h) is amended to read as follows:

(h)

the amount of tax expense (income) relating to those changes in accounting policies and errors that are included
in profit or loss in accordance with IAS 8, because they cannot be accounted for retrospectively.

Paragraphs 81(b) and 83 are deleted.

A3.

IAS 14 Segment Reporting is amended as described below.

The definition of accounting policies in paragraph 8 is amended to read as follows:

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in pre-
paring and presenting financial statements.

Paragraph 60 is amended to read as follows:

60.

IAS 1 requires that when items of income and expense are material, their nature and amount shall be disclosed
separately. IAS 1 offers a number of examples, including write-downs of inventories and property, plant, and
equipment, provisions for restructurings, disposals of property, plant, and equipment and long-term investments,
discontinuing operations, litigation settlements, and reversals of provisions. Paragraph 59 is not intended to
change the classification of any such items or to change the measurement of such items. The disclosure encour-
aged by that paragraph, however, does change the level at which the significance of such items is evaluated for
disclosure purposes from the entity level to the segment level.

Paragraphs 77 and 78 are amended to read as follows:

77. Changes in accounting policies applied by the entity are dealt with in IAS 8. IAS 8 requires that changes in
accounting policy shall be made only if required by a Standard or Interpretation, or if the change will result in
reliable and more relevant information about transactions, other events or conditions in the financial statements
of the entity.

78. Changes in accounting policies applied at the entity level that affect segment information are dealt with in accor-

dance with IAS 8. Unless a new Standard or Interpretation specifies otherwise, IAS 8 requires that:

(a)

a change in accounting policy shall be applied retrospectively and prior period information restated unless
it is impracticable to determine either the cumulative effect or the period-specific effects of the change;

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(b)

if retrospective application is not practicable for all periods presented, the new accounting policy shall be
applied retrospectively from the earliest practicable date;

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and

(c)

if it is impracticable to determine the cumulative effect of applying the new accounting policy at the start of
the current period, the policy shall be applied prospectively from the earliest date practicable.

The following changes are made to remove references to extraordinary items:

(a)

in paragraph 16, in the definition of segment revenue, subparagraph (a) is deleted.

(b)

in paragraph 16, in the definition of segment expense, subparagraph (a) is deleted.

A4.

IAS 19 Employee Benefits is amended as described below.

Paragraph 131 is amended to read as follows:

131. Although this Standard does not require specific disclosures about other long-term employee benefits, other
Standards may require disclosures, for example, when the expense resulting from such benefits is material and
so would require disclosure in accordance with IAS 1 Presentation of Financial Statements. When required by
IAS 24 Related Party Disclosures, an entity discloses information about other long-term employee benefits for key
management personnel.

Paragraph 142 is amended to read as follows:

142. As required by IAS 1, an entity discloses the nature and amount of an expense if it is material. Termination ben-

efits may result in an expense needing disclosure in order to comply with this requirement.

Paragraph 160 is amended to read as follows:

160. IAS 8 applies when an entity changes its accounting policies to reflect the changes specified in paragraphs 159
and 159A. In applying those changes retrospectively, as required by IAS 8, the entity treats those changes as if
they had been applied at the same time as the rest of this Standard.

A5.

In IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, paragraphs 20-22 are amended to
read as follows:

20. A government grant that becomes receivable as compensation for expenses or losses already incurred or for
the purpose of giving immediate financial support to the entity with no future related costs shall be recogn-
ised as income of the period in which it becomes receivable.

21.

In some circumstances, a government grant may be awarded for the purpose of giving immediate financial sup-
port to an entity rather than as an incentive to undertake specific expenditures. Such grants may be confined to
an individual entity and may not be available to a whole class of beneficiaries. These circumstances may warrant
recognising a grant as income in the period in which the entity qualifies to receive it, with disclosure to ensure
that its effect is clearly understood.

22. A government grant may become receivable by an entity as compensation for expenses or losses incurred in a
previous period. Such a grant is recognised as income of the period in which it becomes receivable, with disclo-
sure to ensure that its effect is clearly understood.

A6.

In IAS 22 Business Combinations, paragraph 100 is deleted.

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IAS 8

A7.

In IAS 23 Borrowing Costs, paragraph 30 is amended to read as follows:

30. When the adoption of this Standard constitutes a change in accounting policy, an entity is encouraged to
adjust its financial statements in accordance with IAS 8 Accounting Policies, Changes in Accounting Esti-
mates and Errors. Alternatively, entities shall capitalise only those borrowing costs incurred after the effec-
tive date of the Standard that meet the criteria for capitalisation.

A8.

IAS 34 Interim Financial Reporting is amended as described below.

Paragraph 17 is amended to read as follows:

17. Examples of the kinds of disclosures that are required by paragraph 16 are set out below. Individual Standards

and Interpretations provide guidance regarding disclosures for many of these items:

(a)

the write-down of inventories to net realisable value and the reversal of such a write-down;

(b)

recognition of a loss from the impairment of property, plant and equipment, intangible assets, or other
assets, and the reversal of such an impairment loss;

(c)

the reversal of any provisions for the costs of restructuring;

(d)

acquisitions and disposals of items of property, plant and equipment;

(e)

commitments for the purchase of property, plant and equipment;

(f)

litigation settlements;

(g)

corrections of prior period errors;

(h)

[deleted];

(i)

any loan default or breach of a loan agreement that has not been remedied on or before the balance sheet
date;

and

(j)

related party transactions.

Paragraphs 24, 25 and 27 are amended to read as follows:

24.

IAS 1 Presentation of Financial Statements and IAS8 Accounting Policies, Changes in Accounting Estimates and Errors
define an item as material if its omission or misstatement could influence the economic decisions of users of the
financial statements. IAS 1 requires separate disclosure of material items, including (for example) discontinuing
operations, and IAS 8 requires disclosure of changes in accounting estimates, errors and changes in accounting
policies. The two Standards do not contain quantified guidance as to materiality.

25. While judgement is always required in assessing materiality, this Standard bases the recognition and disclosure
decision on data for the interim period by itself for reasons of understandability of the interim figures. Thus, for
example, unusual items, changes in accounting policies or estimates, and errors are recognised and disclosed on
the basis of materiality in relation to interim period data to avoid misleading inferences that might result from
non-disclosure. The overriding goal is to ensure that an interim financial report includes all information that is
relevant to understanding an entity’s financial position and performance during the interim period.

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27.

IAS 8 requires disclosure of the nature and (if practicable) the amount of a change in estimate that either has a
material effect in the current period or is expected to have a material effect in subsequent periods. Paragraph 16(d)
of this Standard requires similar disclosure in an interim financial report. Examples include changes in estimate
in the final interim period relating to inventory write-downs, restructurings, or impairment losses that were
reported in an earlier interim period of the financial year. The disclosure required by the preceding paragraph is
consistent with the IAS 8 requirement and is intended to be narrow in scope — relating only to the change in
estimate. An entity is not required to include additional interim period financial information in its annual finan-
cial statements.

Paragraphs 43 and 44 are amended to read as follows:

43. A change in accounting policy, other than one for which the transition is specified by a new Standard or Inter-

pretation, shall be reflected by:

(a)

restating the financial statements of prior interim periods of the current financial year and the compa-
rable interim periods of any prior financial years that will be restated in the annual financial statements
in accordance with IAS 8;

or

(b) when it is impracticable to determine the cumulative effect at the beginning of the financial year of
applying a new accounting policy to all prior periods, adjusting the financial statements of prior interim
periods of the current financial year, and comparable interim periods of prior financial years to apply
the new accounting policy prospectively from the earliest date practicable.

44. One objective of the preceding principle is to ensure that a single accounting policy is applied to a particular class
of transactions throughout an entire financial year. Under IAS 8, a change in accounting policy is reflected by
retrospective application, with restatement of prior period financial data as far back as is practicable. However,
if the cumulative amount of the adjustment relating to prior financial years is impracticable to determine, then
under IAS 8 the new policy is applied prospectively from the earliest date practicable. The effect of the principle
in paragraph 43 is to require that within the current financial year any change in accounting policy is applied
either retrospectively or, if that is not practicable, prospectively, from no later than the beginning of the financial
year.

A9.

In IAS 35 Discontinuing Operations, paragraphs 41, 42 and 50 are deleted.

A10. In IAS 36 Impairment of Assets, paragraph 13 of the Introduction is deleted, and paragraphs 120 and 121 are deleted.

A11. In IAS 37 Provisions, Contingent Liabilities and Contingent Assets, paragraph 94 is deleted.

A12. In IAS 38 Intangible Assets, paragraph 120 is deleted.

A13. In SIC-12 Consolidation — Special Purpose Entities, the effective date paragraph is amended to read as follows:

Effective Date: This Interpretation becomes effective for annual financial periods beginning on or after 1 July 1999;
earlier application is encouraged. Changes in accounting policies shall be accounted for in accordance with IAS 8.

A14. In SIC-13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers, the effective date paragraph is amended

to read as follows:

Effective Date: This Interpretation becomes effective for annual financial periods beginning on or after 1 January
1999; earlier application is encouraged. Changes in accounting policies shall be accounted for in accordance with
IAS 8.

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IAS 8

A15. In SIC-21 Income Taxes — Recovery of Revalued Non-Depreciable Assets, the effective date paragraph is amended to read

as follows:

Effective Date: This consensus becomes effective on 15 July 2000. Changes in accounting policies shall be accounted
for in accordance with IAS 8.

A16. [Amendment not applicable to bare Standards]

A17. In SIC-25 Income Taxes—Changes in the Tax Status of an Entity or its Shareholders, the effective date paragraph is amended

to read as follows:

Effective Date: This consensus becomes effective on 15 July 2000. Changes in accounting policies shall be accounted
for in accordance with IAS 8.

A18. In SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease, the effective date paragraph is

amended to read as follows:

Effective Date: This Interpretation becomes effective on 31 December 2001. Changes in accounting policies shall be
accounted for in accordance with IAS 8.

A19. In SIC-31 Revenue — Barter Transactions Involving Advertising Services, the effective date paragraph is amended to read as

follows:

Effective Date: This Interpretation becomes effective on 31 December 2001. Changes in accounting policies shall be
accounted for in accordance with IAS 8.

A20. In IFRS 1 First-time Adoption of International Financial Reporting Standards, the definition of International Financial

Reporting Standards in Appendix A is amended to read as follows:

International Financial Reporting Standards (IFRSs)

Standards and Interpretations adopted by the International Accounting Standards Board (IASB). They comprise:

(a)

International Financial Reporting Standards;

(b)

International Accounting Standards;

and

(c)

Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the
former Standing Interpretations Committee (SIC).

A21. The rubric of IFRS 1 First-time Adoption of International Financial Reporting Standards is amended to read as follows:

International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards (IFRS 1) is
set out in paragraphs 1-47 and Appendices A-C. All the paragraphs have equal authority. Paragraphs in bold type
state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Defi-
nitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 1 should be read
in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and
the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

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A22. The rubrics of all other International Accounting Standards are replaced by a new rubric in the following form:

International Accounting Standard X Title in Words (IAS X) is set out in paragraphs 1-000 [and Appendices A-C](*).
All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB.
IAS X should be read in the context of [its objective and the Basis for Conclusions,](**) the Preface to International Finan-
cial Reporting Standards and the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the
absence of explicit guidance.

(*)

used only for those appendices that are part of the Standard.

(**) used only where the Standard contains an objective or is accompanied by a Basis for Conclusions.

A23. In International Financial Reporting Standards, including International Accounting Standards and Interpretations,
applicable at December 2003, references to the current version of IAS 8 Net Profit or Loss for the Period, Fundamental
Errors and Changes in Accounting Policies are amended to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.

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INTERNATIONAL ACCOUNTING STANDARD 10

Events after the Balance Sheet Date

SUMMARY

Objective

Scope

Definitions

Recognition and measurement

Adjusting Events after the Balance Sheet Date

Non-adjusting Events after the Balance Sheet Date

Dividends

Going concern

Disclosure

Date of Authorisation for Issue

Updating Disclosure about Conditions at the Balance Sheet Date

Non-adjusting Events after the Balance Sheet Date

Effective date

Withdrawal of IAS 10 (revised 1999)

Paragraphs

1

2

3-7

8-13

8-9

10-11

12-13

14-16

17-22

17-18

19-20

21-22

23

24

This revised Standard supersedes IAS 10 (revised 1999) Events After the Balance Sheet Date and should be applied for annual
periods beginning on or after 1 January 2005. Earlier application is encouraged.

1.

The objective of this Standard is to prescribe:

OBJECTIVE

(a) when an entity should adjust its financial statements for events after the balance sheet date;

and

(b)

the disclosures that an entity should give about the date when the financial statements were authorised for issue
and about events after the balance sheet date.

The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events
after the balance sheet date indicate that the going concern assumption is not appropriate.

2.

This Standard shall be applied in the accounting for, and disclosure of, events after the balance sheet date.

SCOPE

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3.

The following terms are used in this Standard with the meanings specified:

DEFINITIONS

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Events after the balance sheet date are those events, favourable and unfavourable, that occur between the balance
sheet date and the date when the financial statements are authorised for issue. Two types of events can be identified:

(a)

those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the bal-
ance sheet date);

and

(b)

those that are indicative of conditions that arose after the balance sheet date (non-adjusting events after the
balance sheet date).

4.

5.

The process involved in authorising the financial statements for issue will vary depending upon the management struc-
ture, statutory requirements and procedures followed in preparing and finalising the financial statements.

In some cases, an entity is required to submit its financial statements to its shareholders for approval after the financial
statements have been issued. In such cases, the financial statements are authorised for issue on the date of issue, not the
date when shareholders approve the financial statements.

Example

The management of an entity completes draft financial statements for the year to 31 December 20X1 on 28 February
20X2. On 18 March 20X2, the board of directors reviews the financial statements and authorises them for issue. The
entity announces its profit and selected other financial information on 19 March 20X2. The financial statements are
made available to shareholders and others on 1 April 20X2. The shareholders approve the financial statements at their
annual meeting on 15 May 20X2 and the approved financial statements are then filed with a regulatory body on 17 May
20X2.

The financial statements are authorised for issue on 18 March 20X2 (date of board authorisation for issue).

6.

In some cases, the management of an entity is required to issue its financial statements to a supervisory board (made
up solely of non–executives) for approval. In such cases, the financial statements are authorised for issue when the man-
agement authorises them for issue to the supervisory board.

Example

On 18 March 20X2, the management of an entity authorises financial statements for issue to its supervisory board. The
supervisory board is made up solely of non-executives and may include representatives of employees and other outside
interests. The supervisory board approves the financial statements on 26 March 20X2. The financial statements are made
available to shareholders and others on 1 April 20X2. The shareholders approve the financial statements at their annual
meeting on 15 May 20X2 and the financial statements are then filed with a regulatory body on 17 May 20X2.

The financial statements are authorised for issue on 18 March 20X2 (date of management authorisation for issue to the supervisory
board).

7.

Events after the balance sheet date include all events up to the date when the financial statements are authorised for
issue, even if those events occur after the public announcement of profit or of other selected financial information.

RECOGNITION AND MEASUREMENT

Adjusting Events after the Balance Sheet Date

8. An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the bal-

ance sheet date.

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9.

The following are examples of adjusting events after the balance sheet date that require an entity to adjust the amounts
recognised in its financial statements, or to recognise items that were not previously recognised:

(a)

the settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at
the balance sheet date. The entity adjusts any previously recognised provision related to this court case in accor-
dance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets or recognises a new provision. The entity
does not merely disclose a contingent liability because the settlement provides additional evidence that would be
considered in accordance with paragraph 16 of IAS 37.

(b)

the receipt of information after the balance sheet date indicating that an asset was impaired at the balance sheet
date, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted. For
example:

(i)

the bankruptcy of a customer that occurs after the balance sheet date usually confirms that a loss existed at
the balance sheet date on a trade receivable and that the entity needs to adjust the carrying amount of the
trade receivable;

and

(ii)

the sale of inventories after the balance sheet date may give evidence about their net realisable value at the
balance sheet date.

(c)

the determination after the balance sheet date of the cost of assets purchased, or the proceeds from assets sold,
before the balance sheet date.

(d)

the determination after the balance sheet date of the amount of profit–sharing or bonus payments, if the entity
had a present legal or constructive obligation at the balance sheet date to make such payments as a result of events
before that date (see IAS 19 Employee Benefits).

(e)

the discovery of fraud or errors that show that the financial statements are incorrect.

Non-adjusting Events after the Balance Sheet Date

10. An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after

the balance sheet date.

11. An example of a non-adjusting event after the balance sheet date is a decline in market value of investments between
the balance sheet date and the date when the financial statements are authorised for issue. The decline in market value
does not normally relate to the condition of the investments at the balance sheet date, but reflects circumstances that
have arisen subsequently. Therefore, an entity does not adjust the amounts recognised in its financial statements for
the investments. Similarly, the entity does not update the amounts disclosed for the investments as at the balance sheet
date, although it may need to give additional disclosure under paragraph 21.

Dividends

12.

If an entity declares dividends to holders of equity instruments (as defined in IAS 32 Financial Instruments: Dis-
closure and Presentation) after the balance sheet date, the entity shall not recognise those dividends as a liability
at the balance sheet date.

13.

If dividends are declared (ie the dividends are appropriately authorised and no longer at the discretion of the entity)
after the balance sheet date but before the financial statements are authorised for issue, the dividends are not recogn-
ised as a liability at the balance sheet date because they do not meet the criteria of a present obligation in IAS 37. Such
dividends are disclosed in the notes to the financial statements in accordance with IAS 1 Presentation of Financial
Statements.

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GOING CONCERN

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14. An entity shall not prepare its financial statements on a going concern basis if management determines after the
balance sheet date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alter-
native but to do so.

15. Deterioration in operating results and financial position after the balance sheet date may indicate a need to consider
whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate,
the effect is so pervasive that this Standard requires a fundamental change in the basis of accounting, rather than an
adjustment to the amounts recognised within the original basis of accounting.

16.

IAS 1 specifies required disclosures if:

(a)

the financial statements are not prepared on a going concern basis;

or

(b) management is aware of material uncertainties related to events or conditions that may cast significant doubt upon
the entity’s ability to continue as a going concern. The events or conditions requiring disclosure may arise after
the balance sheet date.

DISCLOSURE

Date of Authorisation for Issue

17. An entity shall disclose the date when the financial statements were authorised for issue and who gave that autho-
risation. If the entity’s owners or others have the power to amend the financial statements after issue, the entity
shall disclose that fact.

18.

It is important for users to know when the financial statements were authorised for issue, because the financial state-
ments do not reflect events after this date.

Updating Disclosure about Conditions at the Balance Sheet Date

19.

If an entity receives information after the balance sheet date about conditions that existed at the balance sheet date,
it shall update disclosures that relate to those conditions, in the light of the new information.

20.

In some cases, an entity needs to update the disclosures in its financial statements to reflect information received after
the balance sheet date, even when the information does not affect the amounts that it recognises in its financial state-
ments. One example of the need to update disclosures is when evidence becomes available after the balance sheet date
about a contingent liability that existed at the balance sheet date. In addition to considering whether it should recog-
nise or change a provision under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an entity updates its dis-
closures about the contingent liability in the light of that evidence.

Non-adjusting Events after the Balance Sheet Date

21.

If non-adjusting events after the balance sheet date are material, non–disclosure could influence the economic deci-
sions of users taken on the basis of the financial statements. Accordingly, an entity shall disclose the following for
each material category of non-adjusting event after the balance sheet date:

(a)

the nature of the event;

and

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(b) an estimate of its financial effect, or a statement that such an estimate cannot be made.

22. The following are examples of non-adjusting events after the balance sheet date that would generally result in disclosure:

(a)

(b)

a major business combination after the balance sheet date (IAS 22 Business Combinations requires specific disclo-
sures in such cases) or disposing of a major subsidiary;

announcing a plan to discontinue an operation, disposing of assets or settling liabilities attributable to a discon-
tinuing operation or entering into binding agreements to sell such assets or settle such liabilities (see IAS 35 Dis-
continuing Operations);

(c) major purchases and disposals of assets, or expropriation of major assets by government;

(d)

the destruction of a major production plant by a fire after the balance sheet date;

(e)

announcing, or commencing the implementation of, a major restructuring (see IAS 37);

(f) major ordinary share transactions and potential ordinary share transactions after the balance sheet date (IAS 33
Earnings per Share requires an entity to disclose a description of such transactions, other than when such transac-
tions involve capitalisation or bonus issues, share splits or reverse share splits all of which are required to be
adjusted under IAS 33);

(g)

abnormally large changes after the balance sheet date in asset prices or foreign exchange rates;

(h)

changes in tax rates or tax laws enacted or announced after the balance sheet date that have a significant effect on
current and deferred tax assets and liabilities (see IAS 12 Income Taxes);

(i)

entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees;

and

(j)

commencing major litigation arising solely out of events that occurred after the balance sheet date.

EFFECTIVE DATE

23. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF IAS 10 (REVISED 1999)

24. This Standard supersedes IAS 10 Events After the Balance Sheet Date (revised in 1999).

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APPENDIX

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In IAS 22 Business Combinations, paragraph 97 is amended to read as follows:

97. Business combinations effected after the balance sheet date and before the date on which the financial statements
of one of the combining entities are authorised for issue are disclosed if they are material and non-disclosure could
influence the economic decisions of users taken on the basis of the financial statements (see IAS 10 Events after the
Balance Sheet Date).

A2.

In IAS 35 Discontinuing Operations, paragraph 32 is amended to read as follows:

32. The asset disposals, liability settlements and binding sale agreements referred to in the preceding paragraph may
occur concurrently with the initial disclosure event, or in the period in which the initial disclosure event occurs,
or in a later period. In accordance with IAS 10 Events after the Balance Sheet Date, if some of the assets attributable
to a discontinuing operation have actually been sold or are the subject of one or more binding sale agreements
entered into after the balance sheet date but before the board approves the financial statements for issue, the finan-
cial statements include the disclosures required by paragraph 31 if the effects are material and non-disclosure could
influence the economic decisions of users taken on the basis of the financial statements.

A3.

In IAS 37 Provisions, Contingent Liabilities and Contingent Assets, paragraph 18 of the Introduction and paragraph 75 are
amended to read as follows and paragraph 96 is deleted:

18. The Standard defines a contingent liability as:

(a) …

75. A management or board decision to restructure taken before the balance sheet date does not give rise to a con-

structive obligation at the balance sheet date unless the entity has, before the balance sheet date:

(a)

started to implement the restructuring plan;

or

(b)

announced the main features of the restructuring plan to those affected by it in a sufficiently specific manner
to raise a valid expectation in them that the entity will carry out the restructuring.

If an entity starts to implement a restructuring plan, or announces its main features to those affected, only after
the balance sheet date, disclosure is required under IAS 10 Events after the Balance Sheet Date, if the restructuring is
material and non-disclosure could influence the economic decisions of users taken on the basis of the financial
statements.

96.

[Deleted]

A4.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations, appli-
cable at December 2003, references to the current version of IAS 10 Events After the Balance Sheet Date are amended to
IAS 10 Events after the Balance Sheet Date.

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INTERNATIONAL ACCOUNTING STANDARD 16

Property, Plant and Equipment

SUMMARY

Objective

Scope

Definitions

Recognition

Initial Costs

Subsequent Costs

Measurement at recognition

Elements of Cost

Measurement of Cost

Measurement after recognition

Cost Model

Revaluation Model

Depreciation

Depreciable Amount and Depreciation Period

Depreciation Method

Impairment

Compensation for Impairment

Derecognition

Disclosure

Transitional provisions

Effective Date

Withdrawal of other pronouncements

Paragraphs

1

2-5

6

7-14

11

12-14

15-28

16-22

23-28

29-66

30

31-42

43-62

50-59

60-62

63-64

65-66

67-72

73-79

80

81

82-83

This revised Standard supersedes IAS 16 (1998) Property, Plant and Equipment and should be applied for annual periods begin-
ning on or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users
of the financial statements can discern information about an entity’s investment in its property, plant and equipment
and the changes in such investment. The principal issues in accounting for property, plant and equipment are the rec-
ognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses
to be recognised in relation to them.

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SCOPE

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2.

This Standard shall be applied in accounting for property, plant and equipment except when another Standard
requires or permits a different accounting treatment.

3.

This Standard does not apply to:

(a)

biological assets related to agricultural activity (see IAS 41 Agriculture);

or

(b) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in
(a) and (b).

4. Other Standards may require recognition of an item of property, plant and equipment based on an approach different
from that in this Standard. For example, IAS 17 Leases requires an entity to evaluate its recognition of an item of leased
property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects
of the accounting treatment for these assets, including depreciation, are prescribed by this Standard.

5. An entity shall apply this Standard to property that is being constructed or developed for future use as investment prop-
erty but does not yet satisfy the definition of ‘investment property’ in IAS 40 Investment Property. Once the construction
or development is complete, the property becomes investment property and the entity is required to apply
IAS 40. IAS 40 also applies to investment property that is being redeveloped for continued future use as investment
property. An entity using the cost model for investment property in accordance with IAS 40 shall use the cost model
in this Standard.

DEFINITIONS

6.

The following terms are used in this Standard with the meanings specified:

Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and
accumulated impairment losses.

Cost is the amount of cash or cash equivalents paid and the fair value of the other consideration given to acquire an
asset at the time of its acquisition or construction.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s
length transaction.

An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

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Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative

purposes;

and

(b) are expected to be used during more than one period.

Recoverable amount is the higher of an asset’s net selling price and its value in use.

The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the
asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition
expected at the end of its useful life.

Useful life is:

(a)

the period over which an asset is expected to be available for use by an entity; or

(b)

the number of production or similar units expected to be obtained from the asset by an entity.

RECOGNITION

7.

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

(a)

it is probable that future economic benefits associated with the item will flow to the entity;

and

(b)

the cost of the item can be measured reliably.

8.

9.

Spare parts and servicing equipment are usually carried as inventory and recognised in profit or loss as consumed. How-
ever, major spare parts and stand-by equipment qualify as property, plant and equipment when an entity expects to
use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in con-
nection with an item of property, plant and equipment, they are accounted for as property, plant and equipment.

This Standard does not prescribe the unit of measure for recognition, ie what constitutes an item of property, plant and
equipment. Thus, judgement is required in applying the recognition criteria to an entity’s specific circumstances. It may
be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to
the aggregate value.

10. An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are
incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment
and costs incurred subsequently to add to, replace part of, or service it.

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11.

Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such
property, plant and equipment, although not directly increasing the future economic benefits of any particular existing
item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its
other assets. Such items of property, plant and equipment qualify for recognition as assets because they enable an entity
to derive future economic benefits from related assets in excess of what could be derived had those items not been
acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with envi-
ronmental requirements for the production and storage of dangerous chemicals; related plant enhancements are rec-
ognised as an asset because without them the entity is unable to manufacture and sell chemicals. However, the result-
ing carrying amount of such an asset and related assets is reviewed for impairment in accordance with IAS 36 Impairment
of Assets.

Subsequent Costs

12. Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of prop-
erty, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in profit
or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include
the cost of small parts. The purpose of these expenditures is often described as for the ‘repairs and maintenance’ of the
item of property, plant and equipment.

13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a fur-
nace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may
require replacement several times during the life of the airframe. Items of property, plant and equipment may also be
acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make
a non-recurring replacement. Under the recognition principle in paragraph 7, an entity recognises in the carrying
amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is
incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in
accordance with the derecognition provisions of this Standard (see paragraphs 67-72).

14. A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be per-
forming regular major inspections for faults regardless of whether parts of the item are replaced. When each major
inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as
a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspec-
tion (as distinct from physical parts) is derecognised. This occurs regardless of whether the cost of the previous inspec-
tion was identified in the transaction in which the item was acquired or constructed. If necessary, the estimated cost of
a future similar inspection may be used as an indication of what the cost of the existing inspection component was
when the item was acquired or constructed.

MEASUREMENT AT RECOGNITION

15. An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

Elements of Cost

16. The cost of an item of property, plant and equipment comprises:

(a)

its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and
rebates.

(b)

any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of
operating in the manner intended by management.

(c)

the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located,
the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the
item during a particular period for purposes other than to produce inventories during that period.

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17. Examples of directly attributable costs are:

(a)

costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from the construction or acqui-
sition of the item of property, plant and equipment;

(b)

costs of site preparation;

(c)

initial delivery and handling costs;

(d)

installation and assembly costs;

(e)

costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items
produced while bringing the asset to that location and condition (such as samples produced when testing
equipment);

and

(f)

professional fees.

18. An entity applies IAS 2 Inventories to the costs of obligations for dismantling, removing and restoring the site on which
an item is located that are incurred during a particular period as a consequence of having used the item to produce
inventories during that period. The obligations for costs accounted for in accordance with IAS 2 or IAS 16 are recog-
nised and measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

19. Examples of costs that are not costs of an item of property, plant and equipment are:

(a)

costs of opening a new facility;

(b)

costs of introducing a new product or service (including costs of advertising and promotional activities);

(c)

costs of conducting business in a new location or with a new class of customer (including costs of staff training);

and

(d)

administration and other general overhead costs.

20. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the
location and condition necessary for it to be capable of operating in the manner intended by management. Therefore,
costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the
following costs are not included in the carrying amount of an item of property, plant and equipment:

(a)

costs incurred while an item capable of operating in the manner intended by management has yet to be brought
into use or is operated at less than full capacity;

(b)

initial operating losses, such as those incurred while demand for the item’s output builds up;

and

(c)

costs of relocating or reorganising part or all of an entity’s operations.

21. Some operations occur in connection with the construction or development of an item of property, plant and equip-
ment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating
in the manner intended by management. These incidental operations may occur before or during the construction or
development activities. For example, income may be earned through using a building site as a car park until construc-
tion starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for
it to be capable of operating in the manner intended by management, the income and related expenses of incidental
operations are recognised in profit or loss and included in their respective classifications of income and expense.

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22. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an entity makes
similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of con-
structing an asset for sale (see IAS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly,
the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is
not included in the cost of the asset. IAS 23 Borrowing Costs establishes criteria for the recognition of interest as a com-
ponent of the carrying amount of a self-constructed item of property, plant and equipment.

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Measurement of Cost

23. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is
deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recog-
nised as interest over the period of credit unless such interest is recognised in the carrying amount of the item in accor-
dance with the allowed alternative treatment in IAS 23.

24. One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets,
or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one
non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of
such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks com-
mercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The
acquired item is measured in this way even if an entity cannot immediately derecognise the asset given up. If the
acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

25. An entity determines whether an exchange transaction has commercial substance by considering the extent to which
its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial
substance if:

(a)

the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration
of the cash flows of the asset transferred;

or

(b)

the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of
the exchange;

and

(c)

the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value
of the portion of the entity’s operations affected by the transaction shall reflect post-tax cash flows. The result of these
analyses may be clear without an entity having to perform detailed calculations.

26. The fair value of an asset for which comparable market transactions do not exist is reliably measurable if (a) the vari-
ability in the range of reasonable fair value estimates is not significant for that asset or (b) the probabilities of the vari-
ous estimates within the range can be reasonably assessed and used in estimating fair value. If an entity is able to deter-
mine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is
used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

27. The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance

with IAS 17 Leases.

28. The carrying amount of an item of property, plant and equipment may be reduced by government grants in accor-

dance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

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MEASUREMENT AFTER RECOGNITION

29. An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its

accounting policy and shall apply that policy to an entire class of property, plant and equipment.

Cost Model

30. After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accu-

mulated depreciation and any accumulated impairment losses.

Revaluation Model

31. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably
shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accu-
mulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient
regularity to ensure that the carrying amount does not differ materially from that which would be determined using
fair value at the balance sheet date.

32. The fair value of land and buildings is usually determined from market-based evidence by appraisal that is normally
undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market
value determined by appraisal.

33.

If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and
equipment and the item is rarely sold, except as part of a continuing business, an entity may need to estimate fair value
using an income or a depreciated replacement cost approach.

34. The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment
being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revalua-
tion is required. Some items of property, plant and equipment experience significant and volatile changes in fair value,
thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and
equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three
or five years.

35. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revalua-

tion is treated in one of the following ways:

(a)

restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of
the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by
means of applying an index to its depreciated replacement cost.

(b)

eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of
the asset. This method is often used for buildings.

The amount of the adjustment arising on the restatement or elimination of accumulated depreciation forms part of the
increase or decrease in carrying amount that is accounted for in accordance with paragraphs 39 and 40.

36.

If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which
that asset belongs shall be revalued.

37. A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity’s operations. The

following are examples of separate classes:

(a)

land;

(b)

land and buildings;

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(c) machinery;

(d)

ships;

(e)

aircraft;

(f) motor vehicles;

(g)

furniture and fixtures;

and

(h) office equipment.

38. The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of
assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different
dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is com-
pleted within a short period and provided the revaluations are kept up to date.

39.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to equity
under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent
that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.

40.

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or
loss. However, the decrease shall be debited directly to equity under the heading of revaluation surplus to the extent
of any credit balance existing in the revaluation surplus in respect of that asset.

41. The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred
directly to retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus
when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an
entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the
revalued carrying amount of the asset and depreciation based on the asset’s original cost. Transfers from revaluation
surplus to retained earnings are not made through profit or loss.

42. The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognised

and disclosed in accordance with IAS 12 Income Taxes.

Depreciation

43. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of

the item shall be depreciated separately.

44. An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its sig-
nificant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the
airframe and engines of an aircraft, whether owned or subject to a finance lease.

45. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that
are the same as the useful life and the depreciation method of another significant part of that same item. Such parts
may be grouped in determining the depreciation charge.

46. To the extent that an entity depreciates separately some parts of an item of property, plant and equipment, it also depre-
ciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not
significant. If an entity has varying expectations for these parts, approximation techniques may be necessary to depre-
ciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts.

47. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation

to the total cost of the item.

48. The depreciation charge for each period shall be recognised in profit or loss unless it is included in the carrying

amount of another asset.

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49. The depreciation charge for a period is usually recognised in profit or loss. However, sometimes, the future economic
benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes
part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufac-
turing plant and equipment is included in the costs of conversion of inventories (see IAS 2). Similarly, depreciation of
property, plant and equipment used for development activities may be included in the cost of an intangible asset rec-
ognised in accordance with IAS 38 Intangible Assets.

D e p r e c i a b l e A m o u n t a n d D e p r e c i a t i o n P e r i o d

50. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.

51. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expec-
tations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

52. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual
value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it.

53. The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an

asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.

54. The residual value of an asset may increase to an amount equal to or greater than the asset’s carrying amount. If it
does, the asset’s depreciation charge is zero unless and until its residual value subsequently decreases to an amount
below the asset’s carrying amount.

55. Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it
to be capable of operating in the manner intended by management. Depreciation of an asset ceases when the asset is
derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use and held
for disposal unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge
can be zero while there is no production.

56. The future economic benefits embodied in an asset are consumed by an entity principally through its use. However,
other factors, such as technical or commercial obsolescence and wear and tear while an asset remains idle, often result
in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the fol-
lowing factors are considered in determining the useful life of an asset:

(a)

expected usage of the asset. Usage is assessed by reference to the asset’s expected capacity or physical output.

(b)

expected physical wear and tear, which depends on operational factors such as the number of shifts for which
the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset
while idle.

(c)

technical or commercial obsolescence arising from changes or improvements in production, or from a change in
the market demand for the product or service output of the asset.

(d)

legal or similar limits on the use of the asset, such as the expiry dates of related leases.

57. The useful life of an asset is defined in terms of the asset’s expected utility to the entity. The asset management policy
of the entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of
the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its eco-
nomic life. The estimation of the useful life of the asset is a matter of judgement based on the experience of the entity
with similar assets.

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58.

Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With
some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depre-
ciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on
which a building stands does not affect the determination of the depreciable amount of the building.

59.

If the cost of land includes the costs of site dismantlement, removal and restoration, that cost portion of the land asset
is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a
limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it.

D e p r e c i a t i o n M e t h o d

60. The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to

be consumed by the entity.

61. The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has
been a significant change in the expected pattern of consumption of the future economic benefits embodied in the
asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change
in an accounting estimate in accordance with IAS 8.

62. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis
over its useful life. These methods include the straight-line method, the diminishing balance method and the units of
production method. Straight-line depreciation results in a constant charge over the useful life if the asset’s residual value
does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of pro-
duction method results in a charge based on the expected use or output. The entity selects the method that most closely
reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is
applied consistently from period to period unless there is a change in the expected pattern of consumption of those
future economic benefits.

Impairment

63. To determine whether an item of property, plant and equipment is impaired, an entity applies IAS 36 Impairment of
Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recover-
able amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

64.

IAS 22 Business Combinations explains how to account for an impairment loss recognised before the end of the first
annual accounting period beginning after a business combination that is an acquisition.

Compensation for Impairment

65. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up

shall be included in profit or loss when the compensation becomes receivable.

66.

Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from
third parties and any subsequent purchase or construction of replacement assets are separate economic events and are
accounted for separately as follows:

(a)

impairments of items of property, plant and equipment are recognised in accordance with IAS 36;

(b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with

this Standard;

(c)

compensation from third parties for items of property, plant and equipment that were impaired, lost or given up
is included in determining profit or loss when it becomes receivable;

and

(d)

the cost of items of property, plant and equipment restored, purchased or constructed as replacements is deter-
mined in accordance with this Standard.

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67. The carrying amount of an item of property, plant and equipment shall be derecognised:

DERECOGNITION

(a) on disposal;

or

(b) when no future economic benefits are expected from its use or disposal.

68. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be included in
profit or loss when the item is derecognised (unless IAS 17 requires otherwise on a sale and leaseback). Gains shall
not be classified as revenue.

69. The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into
a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in IAS 18
Revenue for recognising revenue from the sale of goods. IAS 17 applies to disposal by a sale and leaseback.

70.

If, under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property,
plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the
replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity
to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what
the cost of the replaced part was at the time it was acquired or constructed.

71. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as

the difference between the net disposal proceeds, if any, and the carrying amount of the item.

72. The consideration receivable on disposal of an item of property, plant and equipment is recognised initially at its fair
value. If payment for the item is deferred, the consideration received is recognised initially at the cash price equiva-
lent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as
interest revenue in accordance with IAS 18 reflecting the effective yield on the receivable.

DISCLOSURE

73. The financial statements shall disclose, for each class of property, plant and equipment:

(a)

the measurement bases used for determining the gross carrying amount;

(b)

the depreciation methods used;

(c)

the useful lives or the depreciation rates used;

(d)

the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses)
at the beginning and end of the period;

and

(e) a reconciliation of the carrying amount at the beginning and end of the period showing:

(i)

additions;

(ii)

disposals;

(iii) acquisitions through business combinations;

(iv)

increases or decreases resulting from revaluations under paragraphs 31, 39 and 40 and from impair-
ment losses recognised or reversed directly in equity in accordance with IAS 36;

(v)

impairment losses recognised in profit or loss in accordance with IAS 36;

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(vi)

impairment losses reversed in profit or loss in accordance with IAS 36;

(vii) depreciation;

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(viii) the net exchange differences arising on the translation of the financial statements from the functional
currency into a different presentation currency, including the translation of a foreign operation into the
presentation currency of the reporting entity;

and

(ix) other changes.

74. The financial statements shall also disclose:

(a)

the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for
liabilities;

(b)

the amount of expenditures recognised in the carrying amount of an item of property, plant and equipment in
the course of its construction;

(c)

the amount of contractual commitments for the acquisition of property, plant and equipment;

and

(d)

if it is not disclosed separately on the face of the income statement, the amount of compensation from third
parties for items of property, plant and equipment that were impaired, lost or given up that is included in profit
or loss.

75. Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore,
disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial state-
ments with information that allows them to review the policies selected by management and enables comparisons to
be made with other entities. For similar reasons, it is necessary to disclose:

(a)

depreciation, whether recognised in profit or loss or as a part of the cost of other assets, during a period;

and

(b)

accumulated depreciation at the end of the period.

76.

In accordance with IAS 8 an entity discloses the nature and effect of a change in an accounting estimate that has an
effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment,
such disclosure may arise from changes in estimates with respect to:

(a)

residual values;

(b)

the estimated costs of dismantling, removing or restoring items of property, plant and equipment;

(c)

useful lives;

and

(d) depreciation methods.

77.

If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed:

(a)

the effective date of the revaluation;

(b) whether an independent valuer was involved;

(c)

the methods and significant assumptions applied in estimating the items’ fair values;

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(d)

the extent to which the items’ fair values were determined directly by reference to observable prices in an active
market or recent market transactions on arm’s length terms or were estimated using other valuation techniques;

(e)

for each revalued class of property, plant and equipment, the carrying amount that would have been recogn-
ised had the assets been carried under the cost model;

and

(f)

the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the bal-
ance to shareholders.

78.

In accordance with IAS 36 an entity discloses information on impaired property, plant and equipment in addition to
the information required by paragraph 73(e)(iv)-(vi).

79. Users of financial statements may also find the following information relevant to their needs:

(a)

the carrying amount of temporarily idle property, plant and equipment;

(b)

the gross carrying amount of any fully depreciated property, plant and equipment that is still in use;

(c)

the carrying amount of property, plant and equipment retired from active use and held for disposal;

and

(d) when the cost model is used, the fair value of property, plant and equipment when this is materially different from

the carrying amount.

Therefore, entities are encouraged to disclose these amounts.

TRANSITIONAL PROVISIONS

80. The requirements of paragraphs 24-26 regarding the initial measurement of an item of property, plant and equip-
ment acquired in an exchange of assets transaction shall be applied prospectively only to future transactions.

EFFECTIVE DATE

81. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

82. This Standard supersedes IAS 16 Property, Plant and Equipment (revised in 1998).

83. This Standard supersedes the following Interpretations:

(a)

SIC-6 Costs of Modifying Existing Software;

(b)

SIC-14 Property, Plant and Equipment — Compensation for the Impairment or Loss of Items;

and

(c)

SIC-23 Property, Plant and Equipment — Major Inspection or Overhaul Costs.

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APPENDIX

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

IFRS 1 First-time Adoption of International Financial Reporting Standards and its accompanying documents are amended
as described below:

In the IFRS, paragraph 24 is amended to read as follows:

24 If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its individual financial

statements, measure its assets and liabilities at either:

…

(b)

the carrying amounts required by the rest of this IFRS, based on the subsidiary’s date of transition to
IFRSs. These carrying amounts could differ from those described in (a):

…

(ii) when the accounting policies used in the subsidiary’s financial statements differ from those in the con-
solidated financial statements. For example, the subsidiary may use as its accounting policy the cost
model in IAS 16 Property, Plant and Equipment, whereas the group may use the revaluation model.

A2.

In IAS 14 Segment Reporting, paragraph 21 is amended to read as follows:

21. Measurements of segment assets and liabilities include adjustments to the prior carrying amounts of the identi-
fiable segment assets and segment liabilities of an entity acquired in a business combination accounted for as a
purchase, even if those adjustments are made only for the purpose of preparing consolidated financial state-
ments and are not recorded in either the parent’s separate or the subsidiary’s individual financial statements. Simi-
larly, if property, plant and equipment has been revalued subsequent to acquisition in accordance with the revalu-
ation model in IAS 16, then measurements of segment assets reflect those revaluations.

A3.

[Amendment not applicable to bare Standards]

A4.

IAS 36 Impairment of Assets is amended as described below:

In the Standard, paragraphs 4, 9, 37, 38, 41, 42, 59, 96 and 104 are amended to read as follows:

4.

This Standard applies to assets that are carried at revalued amount (fair value) under other Standards, such as
the revaluation model in IAS 16 Property, Plant and Equipment. However, identifying whether a revalued asset may
be impaired depends on the basis used to determine fair value:

…

9.

In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a mini-
mum, the following indications:

…

Internal sources of information

…

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significant changes with an adverse effect on the entity have taken place during the period, or are
expected to take place in the near future, in the extent to which, or manner in which, an asset is used or
is expected to be used. These changes include the asset becoming idle, plans to discontinue or restruc-
ture the operation to which an asset belongs, and plans to dispose of an asset before the previously
expected date;

and

…

37.

Future cash flows shall be estimated for the asset in its current condition. Estimates of future cash flows shall
not include estimated future cash inflows or outflows that are expected to arise from:

…

(b)

future costs to add to, replace part of, or service the asset.

38. Because future cash flows are estimated for the asset in its current condition, value in use does not reflect:

…

(b)

future costs to add to, replace part of, or service the asset or the related future benefits from this future
cost.

41. Until an entity incurs costs to add to, replace part of, or service the asset, estimates of future cash flows do not
include the estimated future cash inflows expected to arise from this cost (see Appendix A, Example 6).

42.

Estimates of future cash flows include future costs necessary for the day-to-day servicing of the asset.

59. An impairment loss shall be recognised as an expense in the income statement immediately, unless the asset
is carried at revalued amount under another Standard (for example, in accordance with the revaluation model
in IAS 16 Property, Plant and Equipment). Any impairment loss of a revalued asset shall be treated as a
revaluation decrease under that other Standard.

96.

In assessing whether there is any indication that an impairment loss recognised for an asset in prior years
may no longer exist or may have decreased, an entity shall consider, as a minimum, the following indications:

…

Internal sources of information

(d)

significant changes with a favourable effect on the entity have taken place during the period, or are
expected to take place in the near future, in the extent to which, or manner in which, the asset is used or
is expected to be used. These changes include costs incurred during the period to add to, replace part of,
or service the asset or a commitment to discontinue or restructure the operation to which the asset
belongs;

and

…

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104. A reversal of an impairment loss for an asset shall be recognised as income immediately in the income state-
ment, unless the asset is carried at revalued amount under another Standard (for example, in accordance with
the revaluation model in IAS 16 Property, Plant and Equipment). Any reversal of an impairment loss of a
revalued asset shall be treated as a revaluation increase under that other Standard.

A5.

In IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the footnote in paragraph 14(a) is deleted.

A6.

IAS 38 Intangible Assets is amended as described below:

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Introduction

Paragraph 7 is deleted.

Standard

In paragraph 7 the following definition is added:

Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an
asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

In paragraph 7 the following definitions are amended:

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Cost is the amount of cash or cash equivalents paid and the fair value of the other consideration given to acquire
an asset at the time of its acquisition or production.

The residual value of an intangible asset is the estimated amount that an entity would currently obtain from dis-
posal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the
condition expected at the end of its useful life.

Useful life is:

(a)

the period over which an asset is expected to be available for use by an entity; or

(b)

the number of production or similar units expected to be obtained from the asset by an entity.

Paragraph 18 and the immediately preceding heading are amended to read as follows:

Recognition and Measurement

18. The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:

(a)

the definition of an intangible asset (see paragraphs 7-17);

and

(b)

the recognition criteria set out in this Standard (see paragraphs 19-55).

This is the case for costs incurred initially to acquire or internally generate an intangible asset and those incurred
subsequently to add to, replace part of, or service it.

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Paragraph 18A is added:

18A. The nature of intangible assets is such that, in many cases, there are no additions to an asset or replacements of
part of an asset. Accordingly, most subsequent expenditures are likely to maintain the future economic benefits
embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recogni-
tion criteria set out in this Standard. In addition, it is often difficult to attribute subsequent expenditure directly
to a particular intangible asset rather than to the business as a whole. Therefore, only rarely will subsequent
expenditure — expenditure incurred after the initial recognition of a purchased intangible asset or after comple-
tion of an internally generated intangible asset — be recognised in the carrying amount of an asset. Consis-
tently with paragraph 51, subsequent expenditure on brands, mastheads, publishing titles, customer lists and
items similar in substance (whether externally purchased or internally generated) is always recognised in profit
or loss as incurred to avoid the recognition of internally generated goodwill.

Paragraph 24 is amended to read as follows:

24. The cost of an intangible asset comprises:

(a)

its purchase price, including import duties and non-refundable purchase taxes, after deducting trade dis-
counts and rebates;

and

(b)

any directly attributable cost of preparing the asset for its intended use.

Paragraphs 24A-24D are added:

24A. Examples of directly attributable costs are:

(a)

costs of employee benefits (as defined in IAS 19 Employee Benefits) arising directly from bringing the asset
to its working condition;

and

(b) professional fees.

24B. Examples of costs that are not a cost of an intangible asset are:

(a)

costs of introducing a new product or service (including costs of advertising and promotional activities);

(b)

costs of conducting business in a new location or with a new class of customer (including costs of staff
training);

and

(c)

administration and other general overhead costs.

24C. Recognition of costs in the carrying amount of an intangible asset ceases when it is in the condition necessary
for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or
redeploying an intangible asset are not included in the carrying amount of that asset. For example, the follow-
ing costs are not included in the carrying amount of an intangible asset:

(a)

costs incurred while an asset capable of operating in the manner intended by management has yet to be
brought into use;

and

(b)

initial operating losses, such as those incurred while demand for the asset’s output builds up.

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24D. Some operations occur in connection with the development of an intangible asset, but are not necessary to bring
the asset to the condition necessary for it to be capable of operating in the manner intended by manage-
ment. These incidental operations may occur before or during the development activities. Because incidental
operations are not necessary to bring an asset to the condition necessary for it to be capable of operating in the
manner intended by management, the income and related expenses of incidental operations are recognised in
profit or loss and included in their respective classifications of income and expense.

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Paragraph 34 is amended to read as follows:

34. One or more intangible assets may be acquired in exchange for a non-monetary asset or assets, or a combination
of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-
monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of
such an intangible asset is measured at fair value unless (a) the exchange transaction lacks commercial substance
or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset
is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset
is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

Paragraphs 34A and 34B are added:

34A. An entity determines whether an exchange transaction has commercial substance by considering the extent to
which its future cash flows are expected to change as a result of the transaction. An exchange transaction has
commercial substance if:

(a)

the configuration (risk, timing and amount) of the cash flows of the asset received differs from the con-
figuration of the cash flows of the asset transferred;

or

(b)

the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a
result of the exchange;

and

(c)

the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific
value of the portion of the entity’s operations affected by the transaction shall reflect post-tax cash flows. The
result of these analyses may be clear without an entity having to perform detailed calculations.

34B. Paragraph 19(b) specifies that a condition for the recognition of an intangible asset is that the cost of the asset
can be measured reliably. The fair value of an intangible asset for which comparable market transactions do not
exist is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant
for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and
used in estimating fair value. If an entity is able to determine reliably the fair value of either the asset received or
the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the
asset received is more clearly evident.

Paragraph 35 is deleted.

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Paragraph 54 is amended to read as follows:

54. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create,
produce and prepare the asset to be capable of operating in the manner intended by management. Examples of
directly attributable costs are:

(a)

costs of materials and services used or consumed in generating the intangible asset;

(b)

costs of employee benefits (as defined in IAS 19 Employee Benefits) arising from the generation of the intan-
gible asset;

(c)

fees to register a legal right;

and

(d)

amortisation of patents and licences that are used to generate the intangible asset.

IAS 23 Borrowing Costs specifies criteria for the recognition of interest as an element of the cost of an internally
generated intangible asset.

The heading preceding paragraphs 60-62 is deleted.

Paragraphs 60 and 61 are deleted.

Paragraph 62 is deleted, its content having been moved to paragraph 18A.

The heading preceding paragraph 63 is amended to read as follows:

Measurement After Recognition

Paragraphs 76 and 77 are amended to read as follows:

76.

If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited
directly to equity under the heading of revaluation surplus. However, the increase shall be recognised in profit
or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or
loss.

77.

If an intangible asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be rec-
ognised in profit or loss. However, the decrease shall be debited directly to equity under the heading of revalu-
ation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

Paragraphs 79 and 80 are amended to read as follows:

79. The depreciable amount of an intangible asset shall be allocated on a systematic basis over its useful life. There
is a rebuttable presumption that the useful life of an intangible asset will not exceed twenty years from the
date when the asset is available for use. Amortisation shall begin when the asset is available for use. Amor-
tisation shall cease when the asset is derecognised.

80. Amortisation is recognised even if there has been an increase in, for example, the asset’s fair value or recoverable

amount. Many factors are considered in determining the useful life of an intangible asset, including:

(a)

the expected usage of the asset by the entity and whether the asset could be managed efficiently by another
management team;

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(b)

typical product life cycles for the asset and public information on estimates of useful lives of similar assets
that are used in a similar way;

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(c)

technical, technological, commercial or other types of obsolescence;

(d)

the stability of the industry in which the asset operates and changes in the market demand for the products
or services output from the asset;

(e)

expected actions by competitors or potential competitors;

(f)

the level of maintenance expenditure required to obtain the expected future economic benefits from the
asset and an entity’s ability and intent to reach such a level;

(g)

the period of control over the asset and legal or similar limits on the use of the asset, such as the expiry
dates of related leases;

and

(h) whether the useful life of the asset is dependent on the useful life of other assets of the entity.

Paragraphs 88-90 are amended to read as follows:

88. The amortisation method used shall reflect the pattern in which the asset’s future economic benefits are
expected to be consumed by the entity. If that pattern cannot be determined reliably, the straight-line method
shall be used. The amortisation charge for each period shall be recognised in profit or loss unless another Stan-
dard permits or requires it to be included in the carrying amount of another asset.

89. A variety of amortisation methods can be used to allocate the depreciable amount of an asset on a systematic
basis over its useful life. These methods include the straight-line method, the diminishing balance method and
the units of production method. The method used is selected based on the expected pattern of consumption of
the future economic benefits embodied in the asset and is applied consistently from period to period, unless there
is a change in the expected pattern of consumption of those future economic benefits. There is rarely, if ever,
persuasive evidence to support an amortisation method for intangible assets that results in a lower amount of
accumulated amortisation than under the straight-line method.

90. Amortisation is usually recognised in profit or loss. However, sometimes the future economic benefits embodied
in an asset are absorbed in producing other assets. In this case, the amortisation charge constitutes part of the
cost of the other asset and is included in its carrying amount. For example, the amortisation of intangible assets
used in a production process is included in the carrying amount of inventories (see IAS 2 Inventories).

Paragraph 93 is amended to read as follows:

93. An estimate of an asset’s residual value is based on the amount recoverable from disposal using prices prevailing
at the date of the estimate for the sale of a similar asset that has reached the end of its useful life and has operated
under conditions similar to those in which the asset will be used. The residual value is reviewed at least at each
financial year-end. A change in the asset’s residual value is accounted for as a change in an accounting estimate
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Paragraph 93A is added:

93A. The residual value of an intangible asset may increase to an amount equal to or greater than the asset’s carrying
amount. If it does, the asset’s amortisation charge is zero unless and until its residual value subsequently
decreases to an amount below the asset’s carrying amount.

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Paragraphs 94 and 95 are amended to read as follows:

94. The amortisation period and the amortisation method shall be reviewed at least at each financial year-end. If
the expected useful life of the asset is different from previous estimates, the amortisation period shall be
changed accordingly. If there has been a change in the expected pattern of consumption of the future eco-
nomic benefits embodied in the asset, the amortisation method shall be changed to reflect the changed pat-
tern. Such changes shall be accounted for as changes in accounting estimates in accordance with IAS 8.

95. During the life of an intangible asset, it may become apparent that the estimate of its useful life is inappro-
priate. For example, the recognition of an impairment loss may indicate that the amortisation period needs to
be changed.

Paragraphs 103 and 104 are amended to read as follows:

103. An intangible asset shall be derecognised:

(a) on disposal;

or

(b) when no future economic benefits are expected from its use or disposal.

104. The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference
between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be included in profit
or loss when the asset is derecognised (unless IAS 17 requires otherwise on a sale and leaseback). Gains shall
not be classified as revenue.

Paragraphs 104A-104C are added:

104A. The disposal of an intangible asset may occur in a variety of ways (eg by sale, by entering into a finance lease,
or by donation). In determining the date of disposal of such an asset, an entity applies the criteria in IAS 18
Revenue for recognising revenue from the sale of goods. IAS 17 applies to disposal by a sale and leaseback.

104B.

If under the recognition principle in paragraph 19 an entity recognises in the carrying amount of an asset the
cost of a replacement for part of an intangible asset, then it derecognises the carrying amount of the replaced
part. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the
cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired
or internally generated.

104C. The consideration receivable on disposal of an intangible asset is recognised initially at its fair value. If pay-
ment for the intangible asset is deferred, the consideration received is recognised initially at the cash price
equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is
recognised as interest revenue in accordance with IAS 18 reflecting the effective yield on the receivable.

Paragraph 105 is deleted.

Paragraph 106 is amended to read as follows:

106. Amortisation does not cease when the intangible asset is no longer used or is held for disposal unless the asset

has been fully depreciated.

In paragraph 107, the sentence ‘Comparative information is not required.’ is deleted.

Paragraph 111(e) is amended to read as follows:

(e)

the amount of contractual commitments for the acquisition of intangible assets.

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Paragraph 113(a)(iii) is amended to read as follows:

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(iii) the carrying amount that would have been recognised had the revalued class of intangible assets been carried

under the benchmark treatment in paragraph 63;

and

Paragraph 113(b) is amended to read as follows and paragraph 113(c) is added:

(b)

the amount of the revaluation surplus that relates to intangible assets at the beginning and end of the period,
indicating the changes during the period and any restrictions on the distribution of the balance to shareholders;

and

(c)

the methods and significant assumptions applied in estimating the assets’ fair values.

Paragraph 121A is added:

121A. The requirements of paragraphs 34-34B regarding the initial measurement of an intangible asset acquired in

an exchange of assets transaction shall be applied prospectively only to future transactions.

A7.

SIC-13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers is amended as described below.

Paragraphs 5 and 6 are amended to read as follows:

5.

In applying IAS 31.48 to non-monetary contributions to a JCE in exchange for an equity interest in the JCE, a
venturer shall recognise in profit or loss for the period the portion of a gain or loss attributable to the equity
interests of the other venturers except when:

(a)

the significant risks and rewards of ownership of the contributed non-monetary asset(s) have not been trans-
ferred to the JCE;

or

(b)

the gain or loss on the non-monetary contribution cannot be measured reliably;

or

(c)

the contribution transaction lacks commercial substance, as that term is described in IAS 16 Property, Plant
and Equipment.

If exception (a), (b) or (c) applies, the gain or loss is regarded as unrealised and therefore is not recognised in profit
or loss unless paragraph 6 also applies.

6.

If, in addition to receiving an equity interest in the JCE, a venturer receives monetary or non-monetary assets, an
appropriate portion of gain or loss on the transaction shall be recognised by the venturer in profit or loss.

After the Effective Date paragraph, paragraphs 14 and 15 are inserted, as follows:

14. The amendments to the accounting for the non-monetary contribution transactions specified in paragraph 5 shall

be applied prospectively to future transactions.

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15. An entity shall apply the amendments to this Interpretation made by IAS 16 Property, Plant and Equipment for
annual periods beginning on or after 1 January 2005. If an entity applies that Standard for an earlier period, it
shall also apply these amendments for that earlier period.

A8.

In SIC-21 Income Taxes — Recovery of Revalued Non-Depreciable Assets, paragraphs 3 - 5 are amended to read as follows:

3.

4.

5.

The issue is how to interpret the term “recovery” in relation to an asset that is not depreciated (non-depreciable
asset) and is revalued in accordance with paragraph 31 of IAS 16.

This Interpretation also applies to investment properties that are carried at revalued amounts under IAS 40.33
but would be considered non-depreciable if IAS 16 were to be applied.

The deferred tax liability or asset that arises from the revaluation of a non-depreciable asset in accordance with
IAS 16.31 shall be measured on the basis of the tax consequences that would follow from recovery of the car-
rying amount of that asset through sale, regardless of the basis of measuring the carrying amount of that
asset. Accordingly, if the tax law specifies a tax rate applicable to the taxable amount derived from the sale of an
asset that differs from the tax rate applicable to the taxable amount derived from using an asset, the former rate
is applied in measuring the deferred tax liability or asset related to a non-depreciable asset.

A9.

[Amendment not applicable to bare Standards]

A10. In SIC-32 Intangible Assets — Web Site Costs, paragraph 9(d) is amended to read as follows:

(d)

the Operating stage begins once development of a web site is complete. Expenditure incurred in this stage shall
be recognised as an expense when it is incurred unless it meets the recognition criteria in IAS 38.19.

A11. In December 2002 the Board published an Exposure Draft of Proposed Amendments to IAS 36 Impairment of Assets
and IAS 38 Intangible Assets. The Board’s proposed amendments to IAS 36 and IAS 38 reflect changes related to its
decisions in its Business Combinations project. Because that project is still under way, those proposed changes are not
reflected in the amendments to IAS 36 and IAS 38 included in this appendix.

A12. In July 2003 the Board published ED 4 Disposal of Non-current Assets and Presentation of Discontinued Operations in which
it proposed amendments to IAS 38 and to IAS 40 Investment Property. Those proposed changes are not reflected in the
amendments to IAS 38 and IAS 40 included in this appendix.

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INTERNATIONAL ACCOUNTING STANDARD 17

Leases

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SUMMARY

Objective

Scope

Definitions

Classification of Leases

Leases in the financial statements of lessees

Finance Leases

Initial Recognition

Subsequent Measurement

Operating Leases

Leases in the financial statements of lessors

Finance Leases

Initial Recognition

Subsequent Measurement

Operating Leases

Sale and leaseback transactions

Transitional provisions

Effective date

Withdrawal of IAS 17 (revised 1997)

Paragraphs

1

2-3

4-6

7-19

20-35

20-32

20-24

25-32

33-35

36-57

36-48

36-38

39-48

49-57

58-66

67-68

69

70

This revised Standard supersedes IAS 17 (revised 1997) Leases and should be applied for annual periods beginning on or
after 1 January 2005. Earlier application is encouraged.

1.

The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure
to apply in relation to leases.

OBJECTIVE

2.

This Standard shall be applied in accounting for all leases other than:

SCOPE

(a)

leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;

and

(b)

licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and
copyrights.

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However, this Standard shall not be applied as the basis of measurement for:

(a) property held by lessees that is accounted for as investment property (see IAS 40 Investment Property);

(b)

investment property provided by lessors under operating leases (see IAS 40);

(c) biological assets held by lessees under finance leases (see IAS 41 Agriculture);

or

(d) biological assets provided by lessors under operating leases (see IAS 41).

3.

This Standard applies to agreements that transfer the right to use assets even though substantial services by the lessor
may be called for in connection with the operation or maintenance of such assets. This Standard does not apply to
agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the
other.

4.

The following terms are used in this Standard with the meanings specified:

DEFINITIONS

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the
right to use an asset for an agreed period of time.

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an
asset. Title may or may not eventually be transferred.

An operating lease is a lease other than a finance lease.

A non-cancellable lease is a lease that is cancellable only:

(a) upon the occurrence of some remote contingency;

(b) with the permission of the lessor;

(c)

if the lessee enters into a new lease for the same or an equivalent asset with the same lessor;

or

(d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the

lease is reasonably certain.

The inception of the lease is the earlier of the date of the lease agreement and the date of commitment by the parties
to the principal provisions of the lease. As at this date:

(a) a lease is classified as either an operating or a finance lease;

and

(b)

in the case of a finance lease, the amounts to be recognised at the commencement of the lease term are
determined.

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The commencement of the lease term is the date from which the lessee is entitled to exercise its right to use the leased
asset. It is the date of initial recognition of the lease (ie the recognition of the assets, liabilities, income or expenses
resulting from the lease, as appropriate).

The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any
further terms for which the lessee has the option to continue to lease the asset, with or without further payment,
when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Minimum lease payments are the payments over the lease term that the lessee is or can be required to make, exclud-
ing contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:

(a)

for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee;

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or

(b)

for a lessor, any residual value guaranteed to the lessor by:

(i)

the lessee;

(ii) a party related to the lessee;

or

(iii) a third party unrelated to the lessor that is financially capable of discharging the obligations under the

guarantee.

However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than
fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease,
that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the
lease term to the expected date of exercise of this purchase option and the payment required to exercise it.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, will-
ing parties in an arm’s length transaction.

Economic life is either:

(a)

the period over which an asset is expected to be economically usable by one or more users;

or

(b)

the number of production or similar units expected to be obtained from the asset by one or more users.

Useful life is the estimated remaining period, from the commencement of the lease term, without limitation by the
lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity.

Guaranteed residual value is:

(a)

for a lessee, that part of the residual value that is guaranteed by the lessee or by a party related to the lessee
(the amount of the guarantee being the maximum amount that could, in any event, become payable);

and

(b)

for a lessor, that part of the residual value that is guaranteed by the lessee or by a third party unrelated to the
lessor that is financially capable of discharging the obligations under the guarantee.

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Unguaranteed residual value is that portion of the residual value of the leased asset, the realisation of which by the
lessor is not assured or is guaranteed solely by a party related to the lessor.

Initial direct costs are incremental costs that are directly attributable to negotiating and arranging a lease, except
for such costs incurred by manufacturer or dealer lessors.

Gross investment in the lease is the aggregate of:

(a)

the minimum lease payments receivable by the lessor under a finance lease,

and

(b) any unguaranteed residual value accruing to the lessor.

Net investment in the lease is the gross investment in the lease discounted at the interest rate implicit in the lease.

Unearned finance income is the difference between:

(a)

the gross investment in the lease,

and

(b)

the net investment in the lease.

The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate
present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of
(i) the fair value of the leased asset and (ii) any initial direct costs of the lessor.

The lessee’s incremental borrowing rate of interest is the rate of interest the lessee would have to pay on a similar
lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over
a similar term, and with a similar security, the funds necessary to purchase the asset.

Contingent rent is that portion of the lease payments that is not fixed in amount but is based on the future amount
of a factor that changes other than with the passage of time (eg percentage of future sales, amount of future use,
future price indices, future market rates of interest).

5. A lease agreement or commitment may include a provision to adjust the lease payments for changes in the construc-
tion or acquisition cost of the leased property or for changes in some other measure of cost or value, such as general
price levels, or in the lessor’s costs of financing the lease, during the period between the inception of the lease and the
commencement of the lease term. If so, the effect of any such changes shall be deemed to have taken place at the incep-
tion of the lease for the purposes of this Standard.

6.

The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option
to acquire title to the asset upon the fulfilment of agreed conditions. These contracts are sometimes known as hire pur-
chase contracts.

CLASSIFICATION OF LEASES

7.

The classification of leases adopted in this Standard is based on the extent to which risks and rewards incidental to own-
ership of a leased asset lie with the lessor or the lessee. Risks include the possibilities of losses from idle capacity or
technological obsolescence and of variations in return because of changing economic conditions. Rewards may be rep-
resented by the expectation of profitable operation over the asset’s economic life and of gain from appreciation in value
or realisation of a residual value.

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8. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to owner-
ship. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards inci-
dental to ownership.

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9.

Because the transaction between a lessor and a lessee is based on a lease agreement between them, it is appropriate to
use consistent definitions. The application of these definitions to the differing circumstances of the lessor and lessee
may result in the same lease being classified differently by them. For example, this may be the case if the lessor benefits
from a residual value guarantee provided by a party unrelated to the lessee.

10. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the
form of the contract. (*) Examples of situations that individually or in combination would normally lead to a lease being
classified as a finance lease are:

(a)

the lease transfers ownership of the asset to the lessee by the end of the lease term;

(b)

the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value
at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the
option will be exercised;

(c)

the lease term is for the major part of the economic life of the asset even if title is not transferred;

(d)

at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all
of the fair value of the leased asset;

and

(e)

the leased assets are of such a specialised nature that only the lessee can use them without major modifications.

11.

Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease
are:

(a)

if the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee;

(b)

gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form
of a rent rebate equalling most of the sales proceeds at the end of the lease);

and

(c)

the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than mar-
ket rent.

12. The examples and indicators in paragraphs 10 and 11 are not always conclusive. If it is clear from other features that
the lease does not transfer substantially all risks and rewards incidental to ownership, the lease is classified as an oper-
ating lease. For example, this may be the case if ownership of the asset transfers at the end of the lease for a variable
payment equal to its then fair value, or if there are contingent rents, as a result of which the lessee does not have sub-
stantially all such risks and rewards.

(*) See also SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

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13. Lease classification is made at the inception of the lease. If at any time the lessee and the lessor agree to change the
provisions of the lease, other than by renewing the lease, in a manner that would have resulted in a different classifi-
cation of the lease under the criteria in paragraphs 7-12 if the changed terms had been in effect at the inception of the
lease, the revised agreement is regarded as a new agreement over its term. However, changes in estimates (for example,
changes in estimates of the economic life or of the residual value of the leased property), or changes in circumstances
(for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes.

14. Leases of land and of buildings are classified as operating or finance leases in the same way as leases of other
assets. However, a characteristic of land is that it normally has an indefinite economic life and, if title is not expected to
pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and
rewards incidental to ownership, in which case the lease of land will be an operating lease. A payment made on enter-
ing into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are
amortised over the lease term in accordance with the pattern of benefits provided.

15. The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease
classification. If title to both elements is expected to pass to the lessee by the end of the lease term, both elements are
classified as a finance lease, whether analysed as one lease or as two leases, unless it is clear from other features that the
lease does not transfer substantially all risks and rewards incidental to ownership of one or both elements. When the
land has an indefinite economic life, the land element is normally classified as an operating lease unless title is expected
to pass to the lessee by the end of the lease term, in accordance with paragraph 14. The buildings element is classified
as a finance or operating lease in accordance with paragraphs 7-13.

16. Whenever necessary in order to classify and account for a lease of land and buildings, the minimum lease payments
(including any lump-sum upfront payments) are allocated between the land and the buildings elements in proportion
to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the incep-
tion of the lease. If the lease payments cannot be allocated reliably between these two elements, the entire lease is clas-
sified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease is clas-
sified as an operating lease.

17. For a lease of land and buildings in which the amount that would initially be recognised for the land element, in accor-
dance with paragraph 20, is immaterial, the land and buildings may be treated as a single unit for the purpose of lease
classification and classified as a finance or operating lease in accordance with paragraphs 7-13. In such a case, the eco-
nomic life of the buildings is regarded as the economic life of the entire leased asset.

18. Separate measurement of the land and buildings elements is not required when the lessee’s interest in both land and
buildings is classified as an investment property in accordance with IAS 40 and the fair value model is adopted. Detailed
calculations are required for this assessment only if the classification of one or both elements is otherwise uncertain.

19.

In accordance with IAS 40, it is possible for a lessee to classify a property interest held under an operating lease as an
investment property. If it does, the property interest is accounted for as if it were a finance lease and, in addition, the
fair value model is used for the asset recognised. The lessee shall continue to account for the lease as a finance lease,
even if a subsequent event changes the nature of the lessee’s property interest so that it is no longer classified as invest-
ment property. This will be the case if, for example, the lessee:

(a)

occupies the property, which is then transferred to owner-occupied property at a deemed cost equal to its fair value
at the date of change in use;

or

(b)

grants a sublease that transfers substantially all of the risks and rewards incidental to ownership of the interest to
an unrelated third party. Such a sublease is accounted for by the lessee as a finance lease to the third party,
although it may be accounted for as an operating lease by the third party.

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LEASES IN THE FINANCIAL STATEMENTS OF LESSEES

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Finance Leases

I n i t i a l R e c o g n i t i o n

20. At the commencement of the lease term, lessees shall recognise finance leases as assets and liabilities in their bal-
ance sheets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum
lease payments, each determined at the inception of the lease. The discount rate to be used in calculating the present
value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if
not, the lessee’s incremental borrowing rate shall be used. Any initial direct costs of the lessee are added to the
amount recognised as an asset.

21. Transactions and other events are accounted for and presented in accordance with their substance and financial reality
and not merely with legal form. Although the legal form of a lease agreement is that the lessee may acquire no legal
title to the leased asset, in the case of finance leases the substance and financial reality are that the lessee acquires the
economic benefits of the use of the leased asset for the major part of its economic life in return for entering into an
obligation to pay for that right an amount approximating, at the inception of the lease, the fair value of the asset and
the related finance charge.

22.

If such lease transactions are not reflected in the lessee’s balance sheet, the economic resources and the level of obli-
gations of an entity are understated, thereby distorting financial ratios. Therefore, it is appropriate for a finance lease
to be recognised in the lessee’s balance sheet both as an asset and as an obligation to pay future lease payments. At the
commencement of the lease term, the asset and the liability for the future lease payments are recognised in the balance
sheet at the same amounts except for any initial direct costs of the lessee that are added to the amount recognised as
an asset.

23.

It is not appropriate for the liabilities for leased assets to be presented in the financial statements as a deduction from
the leased assets. If for the presentation of liabilities on the face of the balance sheet a distinction is made between cur-
rent and non-current liabilities, the same distinction is made for lease liabilities.

24.

Initial direct costs are often incurred in connection with specific leasing activities, such as negotiating and securing leas-
ing arrangements. The costs identified as directly attributable to activities performed by the lessee for a finance lease
are added to the amount recognised as an asset.

S u b s e q u e n t M e a s u r e m e n t

25. Minimum lease payments shall be apportioned between the finance charge and the reduction of the outstanding
liability. The finance charge shall be allocated to each period during the lease term so as to produce a constant peri-
odic rate of interest on the remaining balance of the liability. Contingent rents shall be charged as expenses in the
periods in which they are incurred.

26.

In practice, in allocating the finance charge to periods during the lease term, a lessee may use some form of approxi-
mation to simplify the calculation.

27. A finance lease gives rise to depreciation expense for depreciable assets as well as finance expense for each account-
ing period. The depreciation policy for depreciable leased assets shall be consistent with that for depreciable assets
that are owned, and the depreciation recognised shall be calculated in accordance with IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets. If there is no reasonable certainty that the lessee will obtain ownership
by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.

28. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on
a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If
there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected
use is the useful life of the asset; otherwise the asset is depreciated over the shorter of the lease term and its useful life.

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29. The sum of the depreciation expense for the asset and the finance expense for the period is rarely the same as the lease
payments payable for the period, and it is, therefore, inappropriate simply to recognise the lease payments payable as
an expense. Accordingly, the asset and the related liability are unlikely to be equal in amount after the commencement
of the lease term.

30. To determine whether a leased asset has become impaired, an entity applies IAS 36 Impairment of Assets.

31. Lessees shall, in addition to meeting the requirements of IAS 32 Financial Instruments: Disclosure and Presen-

tation, make the following disclosures for finance leases:

(a)

for each class of asset, the net carrying amount at the balance sheet date.

(b) a reconciliation between the total of future minimum lease payments at the balance sheet date, and their
present value. In addition, an entity shall disclose the total of future minimum lease payments at the balance
sheet date, and their present value, for each of the following periods:

(i) not later than one year;

(ii)

later than one year and not later than five years;

(iii) later than five years.

(c)

contingent rents recognised as an expense in the period.

(d)

the total of future minimum sublease payments expected to be received under non-cancellable subleases at the
balance sheet date.

(e) a general description of the lessee’s material leasing arrangements including, but not limited to, the following:

(i)

the basis on which contingent rent payable is determined;

(ii)

the existence and terms of renewal or purchase options and escalation clauses;

and

(iii) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and fur-

ther leasing.

32.

In addition, the requirements for disclosure in accordance with IAS 16, IAS 36, IAS 38, IAS 40 and IAS 41 apply to
lessees for assets leased under finance leases.

Operating Leases

33. Lease payments under an operating lease shall be recognised as an expense on a straight-line basis over the lease

term unless another systematic basis is more representative of the time pattern of the user’s benefit (*).

34. For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are recognised as
an expense on a straight-line basis unless another systematic basis is representative of the time pattern of the user’s ben-
efit, even if the payments are not on that basis.

(*) See also SIC-15 Operating Leases – Incentives.

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35. Lessees shall, in addition to meeting the requirements of IAS 32, make the following disclosures for operating leases:

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(a)

the total of future minimum lease payments under non—cancellable operating leases for each of the following
periods:

(i) not later than one year;

(ii)

later than one year and not later than five years;

(iii) later than five years.

(b)

the total of future minimum sublease payments expected to be received under non-cancellable subleases at the
balance sheet date.

(c)

lease and sublease payments recognised as an expense in the period, with separate amounts for minimum lease
payments, contingent rents, and sublease payments.

(d) a general description of the lessee’s significant leasing arrangements including, but not limited to, the

following:

(i)

the basis on which contingent rent payable is determined;

(ii)

the existence and terms of renewal or purchase options and escalation clauses;

and

(iii) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt and fur-

ther leasing.

LEASES IN THE FINANCIAL STATEMENTS OF LESSORS

Finance Leases

I n i t i a l R e c o g n i t i o n

36. Lessors shall recognise assets held under a finance lease in their balance sheets and present them as a receivable at

an amount equal to the net investment in the lease.

37. Under a finance lease substantially all the risks and rewards incidental to legal ownership are transferred by the lessor,
and thus the lease payment receivable is treated by the lessor as repayment of principal and finance income to reim-
burse and reward the lessor for its investment and services.

38.

Initial direct costs are often incurred by lessors and include amounts such as commissions, legal fees and internal costs
that are incremental and directly attributable to negotiating and arranging a lease. They exclude general overheads such
as those incurred by a sales and marketing team. For finance leases other than those involving manufacturer or dealer
lessors, initial direct costs are included in the initial measurement of the finance lease receivable and reduce the amount
of income recognised over the lease term. The interest rate implicit in the lease is defined in such a way that the initial
direct costs are included automatically in the finance lease receivable; there is no need to add them separately. Costs
incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease are excluded from the
definition of initial direct costs. As a result, they are excluded from the net investment in the lease and are recognised
as an expense when the selling profit is recognised, which for a finance lease is normally at the commencement of the
lease term.

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S u b s e q u e n t M e a s u r e m e n t

39. The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the

lessor’s net investment in the finance lease.

40. A lessor aims to allocate finance income over the lease term on a systematic and rational basis. This income allocation
is based on a pattern reflecting a constant periodic return on the lessor’s net investment in the finance lease. Lease pay-
ments relating to the period, excluding costs for services, are applied against the gross investment in the lease to reduce
both the principal and the unearned finance income.

41. Estimated unguaranteed residual values used in computing the lessor’s gross investment in a lease are reviewed regu-
larly. If there has been a reduction in the estimated unguaranteed residual value, the income allocation over the lease
term is revised and any reduction in respect of amounts accrued is recognised immediately.

42. Manufacturer or dealer lessors shall recognise selling profit or loss in the period, in accordance with the policy fol-
lowed by the entity for outright sales. If artificially low rates of interest are quoted, selling profit shall be restricted
to that which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer les-
sors in connection with negotiating and arranging a lease shall be recognised as an expense when the selling profit
is recognised.

43. Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A finance lease of an

asset by a manufacturer or dealer lessor gives rise to two types of income:

(a)

profit or loss equivalent to the profit or loss resulting from an outright sale of the asset being leased, at normal
selling prices, reflecting any applicable volume or trade discounts;

and

(b)

finance income over the lease term.

44. The sales revenue recognised at the commencement of the lease term by a manufacturer or dealer lessor is the fair value
of the asset, or, if lower, the present value of the minimum lease payments accruing to the lessor, computed at a mar-
ket rate of interest. The cost of sale recognised at the commencement of the lease term is the cost, or carrying amount
if different, of the leased property less the present value of the unguaranteed residual value. The difference between the
sales revenue and the cost of sale is the selling profit, which is recognised in accordance with the entity’s policy for
outright sales.

45. Manufacturer or dealer lessors sometimes quote artificially low rates of interest in order to attract customers. The use
of such a rate would result in an excessive portion of the total income from the transaction being recognised at the
time of sale. If artificially low rates of interest are quoted, selling profit is restricted to that which would apply if a mar-
ket rate of interest were charged.

46. Costs incurred by a manufacturer or dealer lessor in connection with negotiating and arranging a finance lease are rec-
ognised as an expense at the commencement of the lease term because they are mainly related to earning the manu-
facturer’s or dealer’s selling profit.

47. Lessors shall, in addition to meeting the requirements in IAS 32, disclose the following for finance leases:

(a) a reconciliation between the gross investment in the lease at the balance sheet date, and the present value of
minimum lease payments receivable at the balance sheet date. In addition, an entity shall disclose the gross
investment in the lease and the present value of minimum lease payments receivable at the balance sheet date,
for each of the following periods:

(i) not later than one year;

(ii)

later than one year and not later than five years;

(iii) later than five years.

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(b) unearned finance income.

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(c)

the unguaranteed residual values accruing to the benefit of the lessor.

(d)

the accumulated allowance for uncollectible minimum lease payments receivable.

(e)

contingent rents recognised as income in the period.

(f)

a general description of the lessor’s material leasing arrangements.

48. As an indicator of growth it is often useful also to disclose the gross investment less unearned income in new business

added during the period, after deducting the relevant amounts for cancelled leases.

Operating Leases

49. Lessors shall present assets subject to operating leases in their balance sheets according to the nature of the asset.

50. Lease income from operating leases shall be recognised in income on a straight—line basis over the lease term, unless
another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset
is diminished (*).

51. Costs, including depreciation, incurred in earning the lease income are recognised as an expense. Lease income (exclud-
ing receipts for services provided such as insurance and maintenance) is recognised on a straight-line basis over the
lease term even if the receipts are not on such a basis, unless another systematic basis is more representative of the time
pattern in which use benefit derived from the leased asset is diminished.

52.

Initial direct costs incurred by lessors in negotiating and arranging an operating lease shall be added to the carry-
ing amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease
income.

53. The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy

for similar assets, and depreciation shall be calculated in accordance with IAS 16 and IAS 38.

54. To determine whether a leased asset has become impaired, an entity applies IAS 36.

55. A manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is

not the equivalent of a sale.

56. Lessors shall, in addition to meeting the requirements of IAS 32, disclose the following for operating leases:

(a)

the future minimum lease payments under non-cancellable operating leases in the aggregate and for each of
the following periods:

(i) not later than one year;

(ii)

later than one year and not later than five years;

(iii) later than five years.

(b)

total contingent rents recognised as income in the period.

(c) a general description of the lessor’s leasing arrangements.

(*) See also SIC-15 Operating Leases – Incentives.

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57.

In addition, the disclosure requirements in IAS 16, IAS 36, IAS 38, IAS 40 and IAS 41 apply to lessors for assets pro-
vided under operating leases.

SALE AND LEASEBACK TRANSACTIONS

58. A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The lease payment
and the sale price are usually interdependent because they are negotiated as a package. The accounting treatment of a
sale and leaseback transaction depends upon the type of lease involved.

59.

If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount
shall not be immediately recognised as income by a seller-lessee. Instead, it shall be deferred and amortised over the
lease term.

60.

If the leaseback is a finance lease, the transaction is a means whereby the lessor provides finance to the lessee, with the
asset as security. For this reason it is not appropriate to regard an excess of sales proceeds over the carrying amount as
income. Such excess is deferred and amortised over the lease term.

61.

If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at
fair value, any profit or loss shall be recognised immediately. If the sale price is below fair value, any profit or loss
shall be recognised immediately except that, if the loss is compensated for by future lease payments at below market
price, it shall be deferred and amortised in proportion to the lease payments over the period for which the asset is
expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortised
over the period for which the asset is expected to be used.

62.

If the leaseback is an operating lease, and the lease payments and the sale price are at fair value, there has in effect been
a normal sale transaction and any profit or loss is recognised immediately.

63. For operating leases, if the fair value at the time of a sale and leaseback transaction is less than the carrying amount
of the asset, a loss equal to the amount of the difference between the carrying amount and fair value shall be rec-
ognised immediately.

64. For finance leases, no such adjustment is necessary unless there has been an impairment in value, in which case the

carrying amount is reduced to recoverable amount in accordance with IAS 36.

65. Disclosure requirements for lessees and lessors apply equally to sale and leaseback transactions. The required descrip-
tion of material leasing arrangements leads to disclosure of unique or unusual provisions of the agreement or terms of
the sale and leaseback transactions.

66. Sale and leaseback transactions may trigger the separate disclosure criteria in IAS 1 Presentation of Financial Statements.

TRANSITIONAL PROVISIONS

67. Subject to paragraph 68, retrospective application of this Standard is encouraged but not required. If the Standard
is not applied retrospectively, the balance of any pre-existing finance lease is deemed to have been properly deter-
mined by the lessor and shall be accounted for thereafter in accordance with the provisions of this Standard.

68. An entity that has previously applied IAS 17 (revised 1997) shall apply the amendments made by this Standard
retrospectively for all leases or, if IAS 17 (revised 1997) was not applied retrospectively, for all leases entered into
since it first applied that Standard.

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EFFECTIVE DATE

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69. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005 it shall disclose that
fact.

WITHDRAWAL OF IAS 17 (REVISED 1997)

70. This Standard supersedes IAS 17 Leases (revised in 1997).

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APPENDIX

Amendments to Other Pronouncements

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1. [Amendment not applicable to bare Standards]

A2. [Amendment not applicable to bare Standards]

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INTERNATIONAL ACCOUNTING STANDARD 21

The Effects of Changes in Foreign Exchange Rates

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SUMMARY

Objective

Scope

Definitions

Elaboration on the Definitions

Functional Currency

Net Investment in a Foreign Operation

Monetary Items

Summary of the approach required by this standard

Reporting foreign currency transactions in the functional currency

Initial Recognition

Reporting at Subsequent Balance Sheet Dates

Recognition of Exchange Differences

Change in Functional Currency

Use of a presentation currency other than the functional currency

Translation to the Presentation Currency

Translation of a Foreign Operation

Disposal of a Foreign Operation

Tax effects of all exchange differences

Disclosure

Effective date and transition

Withdrawal of other pronouncements

Paragraphs

1-2

3-7

8-16

9-16

9-14

15

16

17-19

20-37

20-22

23-26

27-34

35-37

38-49

38-43

44-47

48-49

50

51-57

58-60

61-62

This revised Standard supersedes IAS 21 (revised 1993) The Effects of Changes in Foreign Exchange Rates and should be applied
for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1. An entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have
foreign operations. In addition, an entity may present its financial statements in a foreign currency. The objective of
this Standard is to prescribe how to include foreign currency transactions and foreign operations in the financial state-
ments of an entity and how to translate financial statements into a presentation currency.

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2.

The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the
financial statements.

3.

This Standard shall be applied (*):

SCOPE

(a)

in accounting for transactions and balances in foreign currencies, except for those derivative transactions and
balances that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement;

(b)

in translating the results and financial position of foreign operations that are included in the financial state-
ments of the entity by consolidation, proportionate consolidation or the equity method;

and

(c)

in translating an entity’s results and financial position into a presentation currency.

4.

5.

6.

IAS 39 applies to many foreign currency derivatives and, accordingly, these are excluded from the scope of this Stan-
dard. However, those foreign currency derivatives that are not within the scope of IAS 39 (eg some foreign currency
derivatives that are embedded in other contracts) are within the scope of this Standard. In addition, this Standard applies
when an entity translates amounts relating to derivatives from its functional currency to its presentation currency.

This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net invest-
ment in a foreign operation. IAS 39 applies to hedge accounting.

This Standard applies to the presentation of an entity’s financial statements in a foreign currency and sets out require-
ments for the resulting financial statements to be described as complying with International Financial Reporting Stan-
dards. For translations of financial information into a foreign currency that do not meet these requirements, this Stan-
dard specifies information to be disclosed.

7.

This Standard does not apply to the presentation in a cash flow statement of cash flows arising from transactions in a
foreign currency, or to the translation of cash flows of a foreign operation (see IAS 7 Cash Flow Statements).

DEFINITIONS

8.

The following terms are used in this Standard with the meanings specified:

Closing rate is the spot exchange rate at the balance sheet date.

Exchange difference is the difference resulting from translating a given number of units of one currency into another
currency at different exchange rates.

Exchange rate is the ratio of exchange for two currencies.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, will-
ing parties in an arm’s length transaction.

Foreign currency is a currency other than the functional currency of the entity.

Foreign operation is an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activi-
ties of which are based or conducted in a country or currency other than those of the reporting entity.

(*) See also SIC-7 Introduction of the Euro.

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Functional currency is the currency of the primary economic environment in which the entity operates.

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IAS 21

A group is a parent and all its subsidiaries.

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable
number of units of currency.

Net investment in a foreign operation is the amount of the reporting entity’s interest in the net assets of that
operation.

Presentation currency is the currency in which the financial statements are presented.

Spot exchange rate is the exchange rate for immediate delivery.

Elaboration on the Definitions

F u n c t i o n a l C u r r e n c y

9.

The primary economic environment in which an entity operates is normally the one in which it primarily generates
and expends cash. An entity considers the following factors in determining its functional currency:

(a)

the currency:

(i)

that mainly influences sales prices for goods and services (this will often be the currency in which sales prices
for its goods and services are denominated and settled);

and

(ii) of the country whose competitive forces and regulations mainly determine the sales prices of its goods and

services.

(b)

the currency that mainly influences labour, material and other costs of providing goods or services (this will often
be the currency in which such costs are denominated and settled).

10. The following factors may also provide evidence of an entity’s functional currency:

(a)

the currency in which funds from financing activities (ie issuing debt and equity instruments) are generated.

(b)

the currency in which receipts from operating activities are usually retained.

11. The following additional factors are considered in determining the functional currency of a foreign operation, and
whether its functional currency is the same as that of the reporting entity (the reporting entity, in this context, being
the entity that has the foreign operation as its subsidiary, branch, associate or joint venture):

(a) whether the activities of the foreign operation are carried out as an extension of the reporting entity, rather than
being carried out with a significant degree of autonomy. An example of the former is when the foreign operation
only sells goods imported from the reporting entity and remits the proceeds to it. An example of the latter is when
the operation accumulates cash and other monetary items, incurs expenses, generates income and arranges bor-
rowings, all substantially in its local currency.

(b) whether transactions with the reporting entity are a high or a low proportion of the foreign operation’s activities.

(c) whether cash flows from the activities of the foreign operation directly affect the cash flows of the reporting entity

and are readily available for remittance to it.

(d) whether cash flows from the activities of the foreign operation are sufficient to service existing and normally

expected debt obligations without funds being made available by the reporting entity.

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IAS 21

12. When the above indicators are mixed and the functional currency is not obvious, management uses its judgement to
determine the functional currency that most faithfully represents the economic effects of the underlying transactions,
events and conditions. As part of this approach, management gives priority to the primary indicators in paragraph 9
before considering the indicators in paragraphs 10 and 11, which are designed to provide additional supporting evi-
dence to determine an entity’s functional currency.

13. An entity’s functional currency reflects the underlying transactions, events and conditions that are relevant to
it. Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying
transactions, events and conditions.

14.

If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements are restated
in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies. An entity cannot avoid restatement in
accordance with IAS 29 by, for example, adopting as its functional currency a currency other than the functional cur-
rency determined in accordance with this Standard (such as the functional currency of its parent).

N e t

I n v e s t m e n t

i n a F o r e i g n O p e r a t i o n

15. An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settle-
ment is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net invest-
ment in that foreign operation, and is accounted for in accordance with paragraphs 32 and 33. Such monetary items
may include long-term receivables or loans. They do not include trade receivables or trade payables.

M o n e t a r y I t e m s

16. The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable num-
ber of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that
are to be settled in cash; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver)
a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be
received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the
essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or deter-
minable number of units of currency. Examples include: amounts prepaid for goods and services (eg prepaid rent);
goodwill; intangible assets; inventories; property, plant and equipment; and provisions that are to be settled by the
delivery of a non-monetary asset.

SUMMARY OF THE APPROACH REQUIRED BY THIS STANDARD

17.

In preparing financial statements, each entity — whether a stand-alone entity, an entity with foreign operations (such
as a parent) or a foreign operation (such as a subsidiary or branch) — determines its functional currency in accordance
with paragraphs 9-14. The entity translates foreign currency items into its functional currency and reports the effects
of such translation in accordance with paragraphs 20-37 and 50.

18. Many reporting entities comprise a number of individual entities (eg a group is made up of a parent and one or more
subsidiaries). Various types of entities, whether members of a group or otherwise, may have investments in associates
or joint ventures. They may also have branches. It is necessary for the results and financial position of each individual
entity included in the reporting entity to be translated into the currency in which the reporting entity presents its finan-
cial statements. This Standard permits the presentation currency of a reporting entity to be any currency (or curren-
cies). The results and financial position of any individual entity within the reporting entity whose functional currency
differs from the presentation currency are translated in accordance with paragraphs 38-50.

19. This Standard also permits a stand-alone entity preparing financial statements or an entity preparing separate financial
statements in accordance with IAS 27 Consolidated and Separate Financial Statements to present its financial statements
in any currency (or currencies). If the entity’s presentation currency differs from its functional currency, its results and
financial position are also translated into the presentation currency in accordance with paragraphs 38-50.

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REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE FUNCTIONAL CURRENCY

L 394/101

IAS 21

Initial Recognition

20. A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, includ-

ing transactions arising when an entity:

(a)

buys or sells goods or services whose price is denominated in a foreign currency;

(b) borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency;

or

(c)

otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.

21. A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to
the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the
date of the transaction.

22. The date of a transaction is the date on which the transaction first qualifies for recognition in accordance with Inter-
national Financial Reporting Standards. For practical reasons, a rate that approximates the actual rate at the date of the
transaction is often used, for example, an average rate for a week or a month might be used for all transactions in each
foreign currency occurring during that period. However, if exchange rates fluctuate significantly, the use of the average
rate for a period is inappropriate.

Reporting at Subsequent Balance Sheet Dates

23. At each balance sheet date:

(a)

foreign currency monetary items shall be translated using the closing rate;

(b) non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using

the exchange rate at the date of the transaction;

and

(c) non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange

rates at the date when the fair value was determined.

24. The carrying amount of an item is determined in conjunction with other relevant Standards. For example, property,
plant and equipment may be measured in terms of fair value or historical cost in accordance with IAS 16 Property, Plant
and Equipment. Whether the carrying amount is determined on the basis of historical cost or on the basis of fair value,
if the amount is determined in a foreign currency it is then translated into the functional currency in accordance with
this Standard.

25. The carrying amount of some items is determined by comparing two or more amounts. For example, the carrying
amount of inventories is the lower of cost and net realisable value in accordance with IAS 2 Inventories. Similarly, in
accordance with IAS 36 Impairment of Assets, the carrying amount of an asset for which there is an indication of impair-
ment is the lower of its carrying amount before considering possible impairment losses and its recoverable
amount. When such an asset is non-monetary and is measured in a foreign currency, the carrying amount is deter-
mined by comparing:

(a)

the cost or carrying amount, as appropriate, translated at the exchange rate at the date when that amount was
determined (ie the rate at the date of the transaction for an item measured in terms of historical cost);

and

(b)

the net realisable value or recoverable amount, as appropriate, translated at the exchange rate at the date when
that value was determined (eg the closing rate at the balance sheet date).

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The effect of this comparison may be that an impairment loss is recognised in the functional currency but would not
be recognised in the foreign currency, or vice versa.

26. When several exchange rates are available, the rate used is that at which the future cash flows represented by the trans-
action or balance could have been settled if those cash flows had occurred at the measurement date. If exchangeability
between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be
made.

Recognition of Exchange Differences

27. As noted in paragraph 3, IAS 39 applies to hedge accounting for foreign currency items. The application of hedge
accounting requires an entity to account for some exchange differences differently from the treatment of exchange dif-
ferences required by this Standard. For example, IAS 39 requires that exchange differences on monetary items that
qualify as hedging instruments in a cash flow hedge are reported initially in equity to the extent that the hedge is
effective.

28. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates differ-
ent from those at which they were translated on initial recognition during the period or in previous financial state-
ments shall be recognised in profit or loss in the period in which they arise, except as described in paragraph 32.

29. When monetary items arise from a foreign currency transaction and there is a change in the exchange rate between the
transaction date and the date of settlement, an exchange difference results. When the transaction is settled within the
same accounting period as that in which it occurred, all the exchange difference is recognised in that period. However,
when the transaction is settled in a subsequent accounting period, the exchange difference recognised in each period
up to the date of settlement is determined by the change in exchange rates during each period.

30. When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain
or loss shall be recognised directly in equity. Conversely, when a gain or loss on a non-monetary item is recognised
in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.

31. Other Standards require some gains and losses to be recognised directly in equity. For example, IAS 16 requires some
gains and losses arising on a revaluation of property, plant and equipment to be recognised directly in equity. When
such an asset is measured in a foreign currency, paragraph 23(c) of this Standard requires the revalued amount to be
translated using the rate at the date the value is determined, resulting in an exchange difference that is also recognised
in equity.

32. Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign
operation (see paragraph 15) shall be recognised in profit or loss in the separate financial statements of the report-
ing entity or the individual financial statements of the foreign operation, as appropriate. In the financial state-
ments that include the foreign operation and the reporting entity (eg consolidated financial statements when the
foreign operation is a subsidiary), such exchange differences shall be recognised initially in a separate component
of equity and recognised in profit or loss on disposal of the net investment in accordance with paragraph 48.

33. When a monetary item forms part of a reporting entity’s net investment in a foreign operation and is denominated in
the functional currency of the reporting entity, an exchange difference arises in the foreign operation’s individual finan-
cial statements in accordance with paragraph 28. Similarly, if such an item is denominated in the functional currency
of the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements in accor-
dance with paragraph 28. Such exchange differences are reclassified to the separate component of equity in the finan-
cial statements that include the foreign operation and the reporting entity (ie financial statements in which the foreign
operation is consolidated, proportionately consolidated or accounted for using the equity method). However, a mon-
etary item that forms part of the reporting entity’s net investment in a foreign operation may be denominated in a cur-
rency other than the functional currency of either the reporting entity or the foreign operation. The exchange differ-
ences that arise on translating the monetary item into the functional currencies of the reporting entity and the foreign
operation are not reclassified to the separate component of equity in the financial statements that include the foreign
operation and the reporting entity (ie they remain recognised in profit or loss).

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its

financial

34. When an entity keeps its books and records in a currency other than its functional currency, at the time the entity pre-
pares
statements all amounts are translated into the functional currency in accordance
with paragraphs 20-26. This produces the same amounts in the functional currency as would have occurred had the
items been recorded initially in the functional currency. For example, monetary items are translated into the functional
currency using the closing rate, and non-monetary items that are measured on a historical cost basis are translated using
the exchange rate at the date of the transaction that resulted in their recognition.

Change in Functional Currency

35. When there is a change in an entity’s functional currency, the entity shall apply the translation procedures appli-

cable to the new functional currency prospectively from the date of the change.

36. As noted in paragraph 13, the functional currency of an entity reflects the underlying transactions, events and condi-
tions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if
there is a change to those underlying transactions, events and conditions. For example, a change in the currency that
mainly influences the sales prices of goods and services may lead to a change in an entity’s functional currency.

37. The effect of a change in functional currency is accounted for prospectively. In other words, an entity translates all items
into the new functional currency using the exchange rate at the date of the change. The resulting translated amounts
for non-monetary items are treated as their historical cost. Exchange differences arising from the translation of a for-
eign operation previously classified in equity in accordance with paragraphs 32 and 39(c) are not recognised in profit
or loss until the disposal of the operation.

USE OF A PRESENTATION CURRENCY OTHER THAN THE FUNCTIONAL CURRENCY

Translation to the Presentation Currency

38. An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from
the entity’s functional currency, it translates its results and financial position into the presentation currency. For
example, when a group contains individual entities with different functional currencies, the results and financial posi-
tion of each entity are expressed in a common currency so that consolidated financial statements may be presented.

39. The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary

economy shall be translated into a different presentation currency using the following procedures:

(a) assets and liabilities for each balance sheet presented (ie including comparatives) shall be translated at the clos-

ing rate at the date of that balance sheet;

(b)

income and expenses for each income statement (ie including comparatives) shall be translated at exchange
rates at the dates of the transactions;

and

(c) all resulting exchange differences shall be recognised as a separate component of equity.

40. For practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an aver-
age rate for the period, is often used to translate income and expense items. However, if exchange rates fluctuate sig-
nificantly, the use of the average rate for a period is inappropriate.

41. The exchange differences referred to in paragraph 39(c) result from:

(a)

translating income and expenses at the exchange rates at the dates of the transactions and assets and liabilities at
the closing rate. Such exchange differences arise both on income and expense items recognised in profit or loss
and on those recognised directly in equity.

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(b)

translating the opening net assets at a closing rate that differs from the previous closing rate.

These exchange differences are not recognised in profit or loss because the changes in exchange rates have little or no
direct effect on the present and future cash flows from operations. When the exchange differences relate to a foreign
operation that is consolidated but not wholly-owned, accumulated exchange differences arising from translation and
attributable to minority interests are allocated to, and recognised as part of, minority interest in the consolidated bal-
ance sheet.

42. The results and financial position of an entity whose functional currency is the currency of a hyperinflationary

economy shall be translated into a different presentation currency using the following procedures:

(a) all amounts (ie assets, liabilities, equity items, income and expenses, including comparatives) shall be trans-

lated at the closing rate at the date of the most recent balance sheet, except that

(b) when amounts are translated into the currency of a non-hyperinflationary economy, comparative amounts shall
be those that were presented as current year amounts in the relevant prior year financial statements (ie not
adjusted for subsequent changes in the price level or subsequent changes in exchange rates).

43. When an entity’s functional currency is the currency of a hyperinflationary economy, the entity shall restate its
financial statements in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies before
applying the translation method set out in paragraph 42, except for comparative amounts that are translated into
a currency of a non-hyperinflationary economy (see paragraph 42(b)). When the economy ceases to be hyperinfla-
tionary and the entity no longer restates its financial statements in accordance with IAS 29, it shall use as the his-
torical costs for translation into the presentation currency the amounts restated to the price level at the date the
entity ceased restating its financial statements.

Translation of a Foreign Operation

44. Paragraphs 45-47, in addition to paragraphs 38-43, apply when the results and financial position of a foreign opera-
tion are translated into a presentation currency so that the foreign operation can be included in the financial state-
ments of the reporting entity by consolidation, proportionate consolidation or the equity method.

45. The incorporation of the results and financial position of a foreign operation with those of the reporting entity follows
normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a sub-
sidiary (see IAS 27 Consolidated and Separate Financial Statements and IAS 31 Interests in Joint Ventures). However, an intra-
group monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding
intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial state-
ments. This is because the monetary item represents a commitment to convert one currency into another and exposes
the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial state-
ments of the reporting entity, such an exchange difference continues to be recognised in profit or loss or, if it arises
from the circumstances described in paragraph 32, it is classified as equity until the disposal of the foreign operation.

46. When the financial statements of a foreign operation are as of a date different from that of the reporting entity, the
foreign operation often prepares additional statements as of the same date as the reporting entity’s financial state-
ments. When this is not done, IAS 27 allows the use of a different reporting date provided that the difference is no
greater than three months and adjustments are made for the effects of any significant transactions or other events that
occur between the different dates. In such a case, the assets and liabilities of the foreign operation are translated at the
exchange rate at the balance sheet date of the foreign operation. Adjustments are made for significant changes in
exchange rates up to the balance sheet date of the reporting entity in accordance with IAS 27. The same approach is
used in applying the equity method to associates and joint ventures and in applying proportionate consolidation to
joint ventures in accordance with IAS 28 Investments in Associates and IAS 31.

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47. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying
amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and
liabilities of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation
and shall be translated at the closing rate in accordance with paragraphs 39 and 42.

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IAS 21

Disposal of a Foreign Operation

48. On the disposal of a foreign operation, the cumulative amount of the exchange differences deferred in the separate
component of equity relating to that foreign operation shall be recognised in profit or loss when the gain or loss on
disposal is recognised.

49. An entity may dispose of its interest in a foreign operation through sale, liquidation, repayment of share capital or aban-
donment of all, or part of, that entity. The payment of a dividend is part of a disposal only when it constitutes a return
of the investment, for example when the dividend is paid out of pre-acquisition profits. In the case of a partial disposal,
only the proportionate share of the related accumulated exchange difference is included in the gain or loss. A write-
down of the carrying amount of a foreign operation does not constitute a partial disposal. Accordingly, no part of the
deferred foreign exchange gain or loss is recognised in profit or loss at the time of a write-down.

TAX EFFECTS OF ALL EXCHANGE DIFFERENCES

50. Gains and losses on foreign currency transactions and exchange differences arising on translating the results and finan-
cial position of an entity (including a foreign operation) into a different currency may have tax effects. IAS 12 Income
Taxes applies to these tax effects.

DISCLOSURE

51.

In paragraphs 53 and 55-57 references to ‘functional currency’ apply, in the case of a group, to the functional cur-
rency of the parent.

52. An entity shall disclose:

(a)

the amount of exchange differences recognised in profit or loss except for those arising on financial instru-
ments measured at fair value through profit or loss in accordance with IAS 39;

and

(b) net exchange differences classified in a separate component of equity, and a reconciliation of the amount of

such exchange differences at the beginning and end of the period.

53. When the presentation currency is different from the functional currency, that fact shall be stated, together with

disclosure of the functional currency and the reason for using a different presentation currency.

54. When there is a change in the functional currency of either the reporting entity or a significant foreign operation,

that fact and the reason for the change in functional currency shall be disclosed.

55. When an entity presents its financial statements in a currency that is different from its functional currency, it shall
describe the financial statements as complying with International Financial Reporting Standards only if they com-
ply with all the requirements of each applicable Standard and each applicable Interpretation of those Standards
including the translation method set out in paragraphs 39 and 42.

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56. An entity sometimes presents its financial statements or other financial information in a currency that is not its func-
tional currency without meeting the requirements of paragraph 55. For example, an entity may convert into another
currency only selected items from its financial statements. Or, an entity whose functional currency is not the currency
of a hyperinflationary economy may convert the financial statements into another currency by translating all items at
the most recent closing rate. Such conversions are not in accordance with International Financial Reporting Standards
and the disclosures set out in paragraph 57 are required.

57. When an entity displays its financial statements or other financial information in a currency that is different from
either its functional currency or its presentation currency and the requirements of paragraph 55 are not met, it shall:

(a)

clearly identify the information as supplementary information to distinguish it from the information that com-
plies with International Financial Reporting Standards;

(b) disclose the currency in which the supplementary information is displayed;

and

(c) disclose the entity’s functional currency and the method of translation used to determine the supplementary

information.

EFFECTIVE DATE AND TRANSITION

58. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

59. An entity shall apply paragraph 47 prospectively to all acquisitions occurring after the beginning of the financial
reporting period in which this Standard is first applied. Retrospective application of paragraph 47 to earlier acqui-
sitions is permitted. For an acquisition of a foreign operation treated prospectively but which occurred before the
date on which this Standard is first applied, the entity shall not restate prior years and accordingly may, when appro-
priate, treat goodwill and fair value adjustments arising on that acquisition as assets and liabilities of the entity
rather than as assets and liabilities of the foreign operation. Therefore, those goodwill and fair value adjustments
either are already expressed in the entity’s functional currency or are non-monetary foreign currency items, which
are reported using the exchange rate at the date of the acquisition.

60. All other changes resulting from the application of this Standard shall be accounted for in accordance with the

requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

61. This Standard supersedes IAS 21 The Effects of Changes in Foreign Exchange Rates (revised in 1993).

62. This Standard supersedes the following Interpretations:

(a)

SIC-11 Foreign Exchange — Capitalisation of Losses Resulting from Severe Currency Devaluations;

(b)

SIC-19 Reporting Currency — Measurement and Presentation of Financial Statements under IAS 21 and IAS 29;

and

(c)

SIC-30 Reporting Currency — Translation from Measurement Currency to Presentation Currency.

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APPENDIX

Amendments to Other Pronouncements

L 394/107

IAS 21

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In IAS 7 Cash Flow Statements, paragraphs 25 and 26 are amended to read as follows:

25. Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional cur-
rency by applying to the foreign currency amount the exchange rate between the functional currency and the
foreign currency at the date of the cash flow.

26. The cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional cur-

rency and the foreign currency at the dates of the cash flows.

A2.

IAS 12 Income Taxes is amended as described below:

Paragraph 1 of the Introduction (now numbered paragraph IN 2) is amended to read as follows:

IN2. …

Furthermore, there are some temporary differences which are not timing differences, for example those temporary dif-
ferences that arise when:

(a)

the non-monetary assets and liabilities of an entity are measured in its functional currency but the taxable profit
or tax loss (and, hence, the tax base of its non-monetary assets and liabilities is determined in a difference
currency;

(b) …

Paragraphs 41 and 62 are amended to read as follows:

41. The non-monetary assets and liabilities of an entity are measured in its functional currency (see IAS 21 The Effects
of Changes in Foreign Exchange Rates). If the entity’s taxable profit or tax loss (and, hence, the tax base of its non-
monetary assets and liabilities) is determined in a different currency, changes in the exchange rate give rise to
temporary differences that result in a recognised deferred tax liability or (subject to paragraph 24) asset. The
resulting deferred tax is charged or credited to profit or loss (see paragraph 58).

62.

International Financial Reporting Standards require or permit certain items to be credited or charged directly to
equity. Examples of such items are:

…

(c)

…

exchange differences arising on the translation of the financial statements of a foreign operation (see IAS 21
The Effects of Changes in Foreign Exchange Rates);

and

A3.

IAS 29 Financial Reporting in Hyperinflationary Economies is amended as described below:

Paragraph 1 is amended to read as follows:

1.

This Standard shall be applied to the individual financial statements, including the consolidated financial
statements, of any entity whose functional currency is the currency of a hyperinflationary economy.

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IAS 21

Paragraph 8 is amended to read as follows:

8.

The financial statements of an entity whose functional currency is the currency of a hyperinflationary
economy, whether they are based on a historical cost approach or a current cost approach, shall be stated in
terms of the measuring unit current at the balance sheet date. The corresponding figures for the previous
period required by IAS 1 Presentation of Financial Statements, and any information in respect of earlier peri-
ods shall also be stated in terms of the measuring unit current at the balance sheet date. For the purpose of
presenting comparative amounts in a different presentation currency, paragraphs 42(b) and 43 of IAS 21 The
Effects of Changes in Foreign Exchange Rates (as revised in 2003) apply.

Paragraph 17 is amended to read as follows:

17. A general price index may not be available for the periods for which the restatement of property, plant and equip-
ment is required by this Standard. In these circumstances, it may be necessary to use an estimate based, for
example, on the movements in the exchange rate between the functional currency and a relatively stable foreign
currency.

Paragraph 23 is deleted.

Paragraph 31 is amended to read as follows:

31. The gain or loss on the net monetary position is accounted for in accordance with paragraphs 27 and 28.

Paragraph 34 is amended to read as follows:

34. Corresponding figures for the previous reporting period, whether they were based on a historical cost approach
or a current cost approach, are restated by applying a general price index so that the comparative financial state-
ments are presented in terms of the measuring unit current at the end of the reporting period. Information that
is disclosed in respect of earlier periods is also expressed in terms of the measuring unit current at the end of the
reporting period. For the purpose of presenting comparative amounts in a different presentation currency, para-
graphs 42(b) and 43 of IAS 21 The Effects of Changes in Foreign Exchange Rates (as revised in 2003) apply.

Paragraph 39 is amended to read as follows:

39. The following disclosures shall be made:

the fact that the financial statements and the corresponding figures for previous periods have been
restated for the changes in the general purchasing power of the functional currency and, as a result, are
stated in terms of the measuring unit current at the balance sheet date;

(a)

…

A4.

[Amendment not applicable to bare Standards]

A5.

[Amendment not applicable to bare Standards]

A6.

In IAS 38 Intangible Assets, paragraph 107 is amended to read as follows:

107. The financial statements shall disclose the following for each class of intangible assets, distinguishing

between internally generated intangible assets and other intangible assets:

…

(e) a reconciliation of the carrying amount at the beginning and end of the period showing:

…

(vii) net exchange differences arising on the translation of the financial statements into a different pre-
sentation currency, and on the translation of a foreign operation into the presentation currency of
the reporting entity;

and

…

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A7.

In IAS 41 Agriculture, paragraph 50 is amended to read as follows:

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50. An entity shall present a reconciliation of changes in the carrying amount of biological assets between the

beginning and the end of the current period. The reconciliation shall include:

…

(f) net exchange differences arising on the translation of financial statements into a different presentation
currency, and on the translation of a foreign operation into the presentation currency of the reporting
entity;

and

…

A8.

SIC-7 Introduction of the Euro is amended as described below.

Paragraph 4 is amended to read as follows:

4.

This means that, in particular:

foreign currency monetary assets and liabilities resulting from transactions shall continue to be translated
into the functional currency at the closing rate. Any resultant exchange differences shall be recognised as
income or expense immediately, except that an entity shall continue to apply its existing accounting policy
for exchange gains and losses related to hedges of the currency risk of a forecast transaction.

cumulative exchange differences relating to the translation of financial statements of foreign operations shall
continue to be classified as equity and shall be recognised as income or expense only on the disposal of the
net investment in the foreign operation.

(a)

(b)

…

The statement of effective date is amended to read as follows:

Effective Date: This Interpretation becomes effective on 1 June 1998. Changes in accounting policies shall be
accounted for according to the requirements of IAS 8.

A9.

IFRS 1 First-time Adoption of International Financial Reporting Standards is amended as described below.

In Appendix B, paragraphs B1A and B1B are added:

B1A An entity need not apply IAS 21 The Effects of Changes in Foreign Exchange Rates retrospectively to fair value adjust-
ments and goodwill arising in business combinations that occurred before the date of transition to IFRSs. If the
entity does not apply IAS 21 retrospectively to those fair value adjustments and goodwill, it shall treat them as
assets and liabilities of the entity rather than as assets and liabilities of the acquiree. Therefore, those goodwill
and fair value adjustments either are already expressed in the entity’s functional currency or are non-monetary
foreign currency items, which are reported using the exchange rate applied under previous GAAP.

B1B An entity may apply IAS 21 retrospectively to fair value adjustments and goodwill arising in either:

(a)

all business combinations that occurred before the date of transition to IFRSs;

or

(b)

all business combinations that the entity elects to restate to comply with IAS 22, as permitted by para-
graph B1 above.

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IAS 24

INTERNATIONAL ACCOUNTING STANDARD 24

Related Party Disclosures

SUMMARY

Objective

Scope

Purpose of related party disclosures

Definitions

Disclosure

Effective date

Withdrawal of IAS 24 (reformatted 1994)

Paragraphs

1

2-4

5-8

9-11

12-22

23

24

This revised Standard supersedes IAS 24 (reformatted 1994) Related Party Disclosures and should be applied for annual peri-
ods beginning on or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary to draw
attention to the possibility that its financial position and profit or loss may have been affected by the existence of related
parties and by transactions and outstanding balances with such parties.

SCOPE

2.

This Standard shall be applied in:

(a)

identifying related party relationships and transactions;

(b)

identifying outstanding balances between an entity and its related parties;

(c)

identifying the circumstances in which disclosure of the items in (a) and (b) is required;

and

(d) determining the disclosures to be made about those items.

3.

4.

This Standard requires disclosure of related party transactions and outstanding balances in the separate financial
statements of a parent, venturer or investor presented in accordance with IAS 27 Consolidated and Separate Finan-
cial Statements.

Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial
statements. Intragroup related party transactions and outstanding balances are eliminated in the preparation of con-
solidated financial statements of the group.

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PURPOSE OF RELATED PARTY DISCLOSURES

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5.

Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on
parts of their activities through subsidiaries, joint ventures and associates. In these circumstances, the entity’s ability to
affect the financial and operating policies of the investee is through the presence of control, joint control or significant
influence.

6. A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties
may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at
cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at
the same amounts as between unrelated parties.

7.

The profit or loss and financial position of an entity may be affected by a related party relationship even if related party
transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity
with other parties. For example, a subsidiary may terminate relations with a trading partner on acquisition by the par-
ent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain
from acting because of the significant influence of another — for example, a subsidiary may be instructed by its parent
not to engage in research and development.

8.

For these reasons, knowledge of related party transactions, outstanding balances and relationships may affect assess-
ments of an entity’s operations by users of financial statements, including assessments of the risks and opportunities
facing the entity.

DEFINITIONS

9.

The following terms are used in this Standard with the meanings specified:

Related party: A party is related to an entity if:

(a) directly, or indirectly through one or more intermediaries, the party:

(i)

controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries
and fellow subsidiaries);

(ii) has an interest in the entity that gives it significant influence over the entity;

or

(iii) has joint control over the entity;

(b)

the party is an associate (as defined in IAS 28 Investments in Associates) of the entity;

(c)

the party is a joint venture in which the entity is a venturer (see IAS 31 Interests in Joint Ventures);

(d)

the party is a member of the key management personnel of the entity or its parent;

(e)

the party is a close member of the family of any individual referred to in (a) or (d);

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(f)

the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which signifi-
cant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e);

or

(g)

the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is
a related party of the entity.

A related party transaction is a transfer of resources, services or obligations between related parties, regardless of
whether a price is charged.

Close members of the family of an individual are those family members who may be expected to influence, or be
influenced by, that individual in their dealings with the entity. They may include:

(a)

the individual’s domestic partner and children;

(b)

children of the individual’s domestic partner;

and

(c) dependants of the individual or the individual’s domestic partner.

Compensation includes all employee benefits (as defined in IAS 19 Employee Benefits) including employee ben-
efits to which IFRS 2 Share-based Payement applies. Employee benefits are all forms of consideration paid, pay-
able or provided by the entity, or on behalf of the entity, in exchange for services rendered to the entity. It also
includes such consideration paid on behalf of a parent of the entity in respect of the entity. Compensation includes:

(a)

short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and
paid sick leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non-
monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current
employees;

(b) post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-

employment medical care;

(c)

other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service
benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end
of the period, profit-sharing, bonuses and deferred compensation;

(d)

termination benefits;

and

(e)

share-based payment.

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities.

Joint control is the contractually agreed sharing of control over an economic activity.

Key management personnel are those persons having authority and responsibility for planning, directing and con-
trolling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of
that entity.

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Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is
not control over those policies. Significant influence may be gained by share ownership, statute or agreement.

10.

In considering each possible related party relationship, attention is directed to the substance of the relationship and not
merely the legal form.

11.

In the context of this Standard, the following are not necessarily related parties:

(a)

two entities simply because they have a director or other member of key management personnel in common, not-
withstanding (d) and (f) in the definition of ‘related party’.

(b)

two venturers simply because they share joint control over a joint venture.

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(c)

(i) providers of finance,

(ii) trade unions,

(iii) public utilities,

and

(iv) government departments and agencies,

simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an
entity or participate in its decision-making process);

and

(d)

a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume
of business, merely by virtue of the resulting economic dependence.

DISCLOSURE

12. Relationships between parents and subsidiaries shall be disclosed irrespective of whether there have been transac-
tions between those related parties. An entity shall disclose the name of the entity’s parent and, if different, the ulti-
mate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial state-
ments available for public use, the name of the next most senior parent that does so shall also be disclosed.

13. To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is
appropriate to disclose the related party relationship when control exists, irrespective of whether there have been trans-
actions between the related parties.

14. The identification of related party relationships between parents and subsidiaries is in addition to the disclosure require-
ments in IAS 27, IAS 28 and IAS 31, which require an appropriate listing and description of significant investments in
subsidiaries, associates and jointly controlled entities.

15. When neither the entity’s parent nor the ultimate controlling party produces financial statements available for public
use, the entity discloses the name of the next most senior parent that does so. The next most senior parent is the first
parent in the group above the immediate parent that produces consolidated financial statements available for public
use.

16. An entity shall disclose key management personnel compensation in total and for each of the following categories:

(a)

short-term employee benefits;

(b) post-employment benefits;

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(c)

other long-term benefits;

(d)

termination benefits;

and

(e)

share-based payment.

17.

If there have been transactions between related parties, an entity shall disclose the nature of the related party rela-
tionship as well as information about the transactions and outstanding balances necessary for an understanding of
the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to
the requirements in paragraph 16 to disclose key management personnel compensation. At a minimum, disclosures
shall include:

(a)

the amount of the transactions;

(b)

the amount of outstanding balances and:

(i)

their terms and conditions, including whether they are secured, and the nature of the consideration to be
provided in settlement;

and

(ii) details of any guarantees given or received;

(c) provisions for doubtful debts related to the amount of outstanding balances;

and

(d)

the expense recognised during the period in respect of bad or doubtful debts due from related parties.

18. The disclosures required by paragraph 17 shall be made separately for each of the following categories:

(a)

the parent;

(b)

entities with joint control or significant influence over the entity;

(c)

subsidiaries;

(d) associates;

(e)

joint ventures in which the entity is a venturer;

(f) key management personnel of the entity or its parent;

and

(g) other related parties.

19. The classification of amounts payable to, and receivable from, related parties in the different categories as required in
paragraph 18 is an extension of the disclosure requirement in IAS 1 Presentation of Financial Statements for information
to be presented either on the balance sheet or in the notes. The categories are extended to provide a more compre-
hensive analysis of related party balances and apply to related party transactions.

20. The following are examples of transactions that are disclosed if they are with a related party:

(a)

purchases or sales of goods (finished or unfinished);

(b) purchases or sales of property and other assets;

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(c)

rendering or receiving of services;

(d)

leases;

(e)

transfers of research and development;

(f)

transfers under licence agreements;

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(g)

transfers under finance arrangements (including loans and equity contributions in cash or in kind);

(h) provision of guarantees or collateral;

and

(i)

settlement of liabilities on behalf of the entity or by the entity on behalf of another party.

21. Disclosures that related party transactions were made on terms equivalent to those that prevail in arm’s length trans-

actions are made only if such terms can be substantiated.

22.

Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an under-
standing of the effects of related party transactions on the financial statements of the entity.

EFFECTIVE DATE

23. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF IAS 24 (REFORMATTED 1994)

24. This Standard supersedes IAS 24 Related Party Disclosures (reformatted in 1994).

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APPENDIX

Amendment to IAS 30

This amendment in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, this amendment shall be applied for that earlier period.

A1.

In IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions, paragraph 58 is amended to
read as follows:

58. When a bank has entered into transactions with related parties, it is appropriate to disclose the nature of the related
party relationship as well as information about the transactions and outstanding balances necessary for an under-
standing of the potential effects of the relationship on the financial statements of the bank. The disclosures are
made in accordance with IAS 24 and include disclosures relating to a bank’s policy for lending to related parties
and, in respect of related party transactions, the amount included in:

(a) …

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INTERNATIONAL ACCOUNTING STANDARD 27

Consolidated and Separate Financial Statements

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SUMMARY

Scope

Definitions

Presentation of consolidated financial statements

Scope of consolidated financial statements

Consolidation procedures

Accounting for investments in subsidiaries, jointly controlled entities and associates in separate financial
statements

Disclosure

Effective date

Withdrawal of other pronouncements

Paragraphs

1-3

4-8

9-11

12-21

22-36

37-39

40-42

43

44-45

This revised Standard supersedes IAS 27 (revised 2000) Consolidated Financial Statements and Accounting for Investments in Sub-
sidiaries and should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.

SCOPE

1.

2.

3.

This Standard shall be applied in the preparation and presentation of consolidated financial statements for a group
of entities under the control of a parent.

This Standard does not deal with methods of accounting for business combinations and their effects on consolidation,
including goodwill arising on a business combination (see IAS 22 Business Combinations).

This Standard shall also be applied in accounting for investments in subsidiaries, jointly controlled entities and asso-
ciates when an entity elects, or is required by local regulations, to present separate financial statements.

4.

The following terms are used in this Standard with the meanings specified:

DEFINITIONS

Consolidated financial statements are the financial statements of a group presented as those of a single economic
entity.

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities.

The cost method is a method of accounting for an investment whereby the investment is recognised at cost. The
investor recognises income from the investment only to the extent that the investor receives distributions from accu-
mulated profits of the investee arising after the date of acquisition. Distributions received in excess of such profits
are regarded as a recovery of investment and are recognised as a reduction of the cost of the investment.

A group is a parent and all its subsidiaries.

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Minority interest is that portion of the profit or loss and net assets of a subsidiary attributable to equity interests
that are not owned, directly or indirectly through subsidiaries, by the parent.

A parent is an entity that has one or more subsidiaries.

Separate financial statements are those presented by a parent, an investor in an associate or a venturer in a jointly
controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on
the basis of the reported results and net assets of the investees.

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another
entity (known as the parent).

5. A parent or its subsidiary may be an investor in an associate or a venturer in a jointly controlled entity. In such cases,
consolidated financial statements prepared and presented in accordance with this Standard are also prepared so as to
comply with IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.

6.

7.

For an entity described in paragraph 5, separate financial statements are those prepared and presented in addition to
the financial statements referred to in paragraph 5. Separate financial statements need not be appended to, or accom-
pany, those statements.

The financial statements of an entity that does not have a subsidiary, associate or venturer’s interest in a jointly con-
trolled entity are not separate financial statements.

8. A parent that is exempted in accordance with paragraph 10 from presenting consolidated financial statements may

present separate financial statements as its only financial statements.

PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

9. A parent, other than a parent described in paragraph 10, shall present consolidated financial statements in which

it consolidates its investments in subsidiaries in accordance with this Standard.

10. A parent need not present consolidated financial statements if and only if:

(a)

the parent is itself a wholly–owned subsidiary, or is a partially-owned subsidiary of another entity and its other
owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the par-
ent not presenting consolidated financial statements;

(b)

the parent’s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange
or an over–the–counter market, including local and regional markets);

(c)

the parent did not file, nor is it in the process of filing, its financial statements with a securities commission or
other regulatory organisation for the purpose of issuing any class of instruments in a public market;

and

(d)

the ultimate or any intermediate parent of the parent produces consolidated financial statements available for
public use that comply with International Financial Reporting Standards.

11. A parent that elects in accordance with paragraph 10 not to present consolidated financial statements, and presents

only separate financial statements, complies with paragraphs 37-42.

SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS

12. Consolidated financial statements shall include all subsidiaries of the parent, except those referred to in

paragraph 16.

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13. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the
voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does
not constitute control. Control also exists when the parent owns half or less of the voting power of an entity when
there is: (*)

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(a)

power over more than half of the voting rights by virtue of an agreement with other investors;

(b) power to govern the financial and operating policies of the entity under a statute or an agreement;

(c)

power to appoint or remove the majority of the members of the board of directors or equivalent governing body
and control of the entity is by that board or body;

or

(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and con-

trol of the entity is by that board or body.

14. An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary
shares, or other similar instruments that have the potential, if exercised or converted, to give the entity voting power or
reduce another party’s voting power over the financial and operating policies of another entity (potential voting
rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including poten-
tial voting rights held by another entity, are considered when assessing whether an entity has the power to govern the
financial and operating policies of another entity. Potential voting rights are not currently exercisable or convertible
when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.

15.

In assessing whether potential voting rights contribute to control, the entity examines all facts and circumstances
(including the terms of exercise of the potential voting rights and any other contractual arrangements whether con-
sidered individually or in combination) that affect potential voting rights, except the intention of management and the
financial ability to exercise or convert.

16. A subsidiary shall be excluded from consolidation when there is evidence that (a) control is intended to be tempo-
rary because the subsidiary is acquired and held exclusively with a view to its disposal within twelve months from
acquisition and (b) management is actively seeking a buyer. Investments in such subsidiaries shall be classified as
held for trading and accounted for in accordance with IAS 39 Financial Instruments: Recognition and
Measurement.

17. When a subsidiary previously excluded from consolidation in accordance with paragraph 16 is not disposed of within
twelve months, it shall be consolidated as from the date of acquisition (see IAS 22). Financial statements for the periods
since acquisition shall be restated.

18. Exceptionally, an entity may have found a buyer for a subsidiary excluded from consolidation in accordance with para-
graph 16, but may not have completed the sale within twelve months of acquisition because of the need for approval
by regulators or others. The entity is not required to consolidate such a subsidiary if the sale is in process at the balance
sheet date and there is no reason to believe that it will not be completed shortly after the balance sheet date.

19. A subsidiary is not excluded from consolidation simply because the investor is a venture capital organisation, mutual

fund, unit trust or similar entity.

20. A subsidiary is not excluded from consolidation because its business activities are dissimilar from those of the other
entities within the group. Relevant information is provided by consolidating such subsidiaries and disclosing addi-
tional information in the consolidated financial statements about the different business activities of subsidiaries. For
example, the disclosures required by IAS 14 Segment Reporting help to explain the significance of different business
activities within the group.

(*)

See also SIC-12 Consolidation — Special Purpose Entities.

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21. A parent loses control when it loses the power to govern the financial and operating policies of an investee so as to
obtain benefit from its activities. The loss of control can occur with or without a change in absolute or relative own-
ership levels. It could occur, for example, when a subsidiary becomes subject to the control of a government, court,
administrator or regulator. It could also occur as a result of a contractual agreement.

CONSOLIDATION PROCEDURES

22.

In preparing consolidated financial statements, an entity combines the financial statements of the parent and its sub-
sidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses. In order that the
consolidated financial statements present financial information about the group as that of a single economic entity, the
following steps are then taken:

(a)

the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each sub-
sidiary are eliminated (see IAS 22, which describes the treatment of any resultant goodwill);

(b) minority interests in the profit or loss of consolidated subsidiaries for the reporting period are identified;

and

(c) minority interests in the net assets of consolidated subsidiaries are identified separately from the parent share-

holders’ equity in them. Minority interests in the net assets consist of:

(i)

the amount of those minority interests at the date of the original combination calculated in accordance with
IAS 22;

and

(ii)

the minority’s share of changes in equity since the date of the combination.

23. When potential voting rights exist, the proportions of profit or loss and changes in equity allocated to the parent and
minority interests are determined on the basis of present ownership interests and do not reflect the possible exercise or
conversion of potential voting rights.

24.

Intragroup balances, transactions, income and expenses shall be eliminated in full.

25.

Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses
resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated
in full. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial state-
ments. IAS 12 Income Taxes applies to temporary differences that arise from the elimination of profits and losses result-
ing from intragroup transactions.

26. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial
statements shall be prepared as of the same reporting date. When the reporting dates of the parent and a subsidiary
are different, the subsidiary prepares, for consolidation purposes, additional financial statements as of the same date
as the financial statements of the parent unless it is impracticable to do so.

27. When, in accordance with paragraph 26, the financial statements of a subsidiary used in the preparation of con-
solidated financial statements are prepared as of a reporting date different from that of the parent, adjustments shall
be made for the effects of significant transactions or events that occur between that date and the date of the parents
financial statements. In any case, the difference between the reporting date of the subsidiary and that of the parent
shall be no more than three months. The length of the reporting periods and any difference in the reporting dates
shall be the same from period to period.

28. Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and

other events in similar circumstances.

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29.

If a member of the group uses accounting policies other than those adopted in the consolidated financial statements
for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements
in preparing the consolidated financial statements.

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30. The income and expenses of a subsidiary are included in the consolidated financial statements from the date of acqui-
sition as defined in IAS 22. The income and expenses of a subsidiary are included in the consolidated financial state-
ments until the date on which the parent ceases to control the subsidiary. The difference between the proceeds from
the disposal of the subsidiary and its carrying amount as of the date of disposal, including the cumulative amount of
any exchange differences that relate to the subsidiary recognised in equity in accordance with IAS 21 The Effects of
Changes in Foreign Exchange Rates, is recognised in the consolidated income statement as the gain or loss on the disposal
of the subsidiary.

31. An investment in an entity shall be accounted for in accordance with IAS 39 Financial Instruments: Recognition
and Measurement from the date that it ceases to be a subsidiary, provided that it does not become an associate as
defined in IAS 28 or a jointly controlled entity as described in IAS 31.

32. The carrying amount of the investment at the date that the entity ceases to be a subsidiary shall be regarded as the

cost on initial measurement of a financial asset in accordance with IAS 39.

33. Minority interests shall be presented in the consolidated balance sheet within equity, separately from the parent

shareholders’ equity. Minority interests in the profit or loss of the group shall also be separately disclosed.

34. The profit or loss is attributed to the parent shareholders and minority interests. Because both are equity, the amount

attributed to minority interests is not income or expense.

35. Losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the subsidiary’s
equity. The excess, and any further losses applicable to the minority, are allocated against the majority interest except
to the extent that the minority has a binding obligation and is able to make an additional investment to cover the
losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minori-
ty’s share of losses previously absorbed by the majority has been recovered.

36.

If a subsidiary has outstanding cumulative preference shares that are held by minority interests and classified as equity,
the parent computes its share of profits or losses after adjusting for the dividends on such shares, whether or not divi-
dends have been declared.

ACCOUNTING FOR INVESTMENTS IN SUBSIDIARIES, JOINTLY CONTROLLED ENTITIES AND
ASSOCIATES IN SEPARATE FINANCIAL STATEMENTS

37. When separate financial statements are prepared, investments in subsidiaries, jointly controlled entities and asso-

ciates shall be accounted for either:

(a) at cost,

or

(b)

in accordance with IAS 39.

The same accounting shall be applied for each category of investments.

38. This Standard does not mandate which entities produce separate financial statements available for public use. Para-
graphs 37 and 39-42 apply when an entity prepares separate financial statements that comply with International Finan-
cial Reporting Standards. The entity also produces consolidated financial statements available for public use as required
by paragraph 9, unless the exemption provided in paragraph 10 is applicable.

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39.

Investments in jointly controlled entities and associates that are accounted for in accordance with IAS 39 in the con-
solidated financial statements shall be accounted for in the same way in the investor’s separate financial statements.

DISCLOSURE

40. The following disclosures shall be made in consolidated financial statements:

(a)

the fact that a subsidiary is not consolidated in accordance with paragraph 16;

(b)

[Deleted]

(c)

the nature of the relationship between the parent and a subsidiary when the parent does not own, directly or
indirectly through subsidiaries, more than half of the voting power;

(d)

the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or
potential voting power of an investee does not constitute control;

(e)

the reporting date of the financial statements of a subsidiary when such financial statements are used to pre-
pare consolidated financial statements and are as of a reporting date or for a period that is different from that
of the parent, and the reason for using a different reporting date or period;

and

(f)

the nature and extent of any significant restrictions (eg resulting from borrowing arrangements or regulatory
requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to
repay loans or advances.

41. When separate financial statements are prepared for a parent that, in accordance with paragraph 10, elects not to

prepare consolidated financial statements, those separate financial statements shall disclose:

(a)

the fact that the financial statements are separate financial statements; that the exemption from consolidation
has been used; the name and country of incorporation or residence of the entity whose consolidated financial
statements that comply with International Financial Reporting Standards have been produced for public use;
and the address where those consolidated financial statements are obtainable;

(b) a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name,
country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting
power held;

and

(c) a description of the method used to account for the investments listed under (b).

42. When a parent (other than a parent covered by paragraph 41), venturer with an interest in a jointly controlled entity
or an investor in an associate prepares separate financial statements, those separate financial statements shall
disclose:

(a)

the fact that the statements are separate financial statements and the reasons why those statements are pre-
pared if not required by law;

(b) a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name,
country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting
power held;

and

(c) a description of the method used to account for the investments listed under (b);

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and shall identify the financial statements prepared in accordance with paragraph 9 of this Standard, IAS 28 and
IAS 31 to which they relate.

EFFECTIVE DATE

43. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

44. This Standard supersedes IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries (revised

in 2000).

45. This Standard supersedes SIC-33 Consolidation and Equity Method— Potential Voting Rights and Allocation of Ownership

Interests.

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IAS 27

APPENDIX

Amendments to Other Pronouncements

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In IAS 22 Business Combinations paragraph 1 is amended to read as follows:

1.

The following terms are used in this Standard with the meanings specified:

…

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by
another entity (known as the parent).

Minority interest is that portion of the profit or loss and net assets of a subsidiary attributable to equity inter-
ests that are not owned, directly or indirectly through subsidiaries, by the parent.

A2. [Amendment not applicable to bare Standards]

A3. SIC-12 Consolidation — Special Purpose Entities is amended as described below.

The reference is amended to read as follows:

Reference: IAS 27 Consolidated and Separate Financial Statements

Paragraphs 9, 10 and 11 are amended to read as follows:

9.

In the context of an SPE, control may arise through the predetermination of the activities of the SPE (operating on
‘autopilot’) or otherwise. IAS 27.13 indicates several circumstances which result in control even in cases where an
entity owns one half or less of the voting power of another entity. Similarly, control may exist even in cases where
an entity owns little or none of the SPE’s equity. The application of the control concept requires, in each case,
judgement in the context of all relevant factors.

10.

In addition to the situations described in IAS 27.13, the following circumstances, for example, may indicate a rela-
tionship in which an entity controls an SPE and consequently should consolidate the SPE (additional guidance is
provided in the Appendix to this Interpretation):

(a)

in substance, the activities of the SPE are being conducted on behalf of the entity according to its specific
business needs so that the entity obtains benefits from the SPE’s operation;

(b)

in substance, the entity has the decision-making powers to obtain the majority of the benefits of the activi-
ties of the SPE or, by setting up an ‘autopilot’ mechanism, the entity has delegated these decision-making
powers;

(c)

in substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be
exposed to risks incident to the activities of the SPE;

or

(d)

in substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets
in order to obtain benefits from its activities.

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11.

[Deleted]

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A4.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations, appli-
cable at December 2003, references to the current version of IAS 27 Consolidated Financial Statements and Accounting for
Investments in Subsidiaries are amended to IAS 27 Consolidated and Separate Financial Statements.

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IAS 28

INTERNATIONAL ACCOUNTING STANDARD 28

Investments in Associates

SUMMARY

Scope

Definitions

Significant Influence

Equity Method

Application of the equity method

Impairment Losses

Separate Financial Statements

Disclosure

Effective date

Withdrawal of other pronouncements

Paragraphs

1

2-12

6-10

11-12

13-36

31-34

35-36

37-40

41

42-43

This revised Standard supersedes IAS 28 (revised 2000) Accounting for Investments in Associates and should be applied for
annual periods beginning on or after 1 January 2005. Earlier application is encouraged.

SCOPE

1.

This Standard shall be applied in accounting for investments in associates. However, it does not apply to invest-
ments in associates held by:

(a) venture capital organisations,

or

(b) mutual funds, unit trusts and similar entities including investment-linked insurance funds

that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trad-
ing and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Such
investments shall be measured at fair value in accordance with IAS 39, with changes in fair value recognised in
profit or loss in the period of the change.

2.

The following terms are used in this Standard with the meanings specified:

DEFINITIONS

An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has sig-
nificant influence and that is neither a subsidiary nor an interest in a joint venture.

Consolidated financial statements are the financial statements of a group presented as those of a single economic
entity.

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Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities.

The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted
thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of
the investor includes the investor’s share of the profit or loss of the investee.

Joint control is the contractually agreed sharing of control over an economic activity.

Separate financial statements are those presented by a parent, an investor in an associate or a venturer in a jointly
controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on
the basis of the reported results and net assets of the investees.

Significant influence is the power to participate in the financial and operating policy decisions of the investee but
is not control or joint control over those policies.

A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another
entity (known as the parent).

Financial statements in which the equity method is applied are not separate financial statements, nor are the financial
statements of an entity that does not have a subsidiary, associate or venturer’s interest in a joint venture.

Separate financial statements are those presented in addition to consolidated financial statements, financial statements
in which investments are accounted for using the equity method and financial statements in which venturers’ interests
in joint ventures are proportionately consolidated. Separate financial statements may or may not be appended to, or
accompany, those financial statements.

Entities that are exempted in accordance with paragraph 10 of IAS 27 Consolidated and Separate Financial Statements from
consolidation, paragraph 2 of IAS 31 Interests in Joint Ventures from applying proportionate consolidation or para-
graph 13(c) of this Standard from applying the equity method may present separate financial statements as their only
financial statements.

3.

4.

5.

Significant Influence

6.

If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the
investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not
the case. Conversely, if the investor holds, directly or indirectly (eg through subsidiaries), less than 20 per cent of the
voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence
can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an
investor from having significant influence.

7.

The existence of significant influence by an investor is usually evidenced in one or more of the following ways:

(a)

representation on the board of directors or equivalent governing body of the investee;

(b) participation in policy-making processes,

including participation in decisions about dividends or other

distributions;

(c) material transactions between the investor and the investee;

(d)

interchange of managerial personnel;

or

(e)

provision of essential technical information.

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8. An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary
shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional vot-
ing power or reduce another party’s voting power over the financial and operating policies of another entity (ie poten-
tial voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, includ-
ing potential voting rights held by other entities, are considered when assessing whether an entity has significant
influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exer-
cised or converted until a future date or until the occurrence of a future event.

9.

In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and cir-
cumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements
whether considered individually or in combination) that affect potential rights, except the intention of management
and the financial ability to exercise or convert.

10. An entity loses significant influence over an investee when it loses the power to participate in the financial and oper-
ating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute
or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a gov-
ernment, court, administrator or regulator. It could also occur as a result of a contractual agreement.

Equity Method

11. Under the equity method, the investment in an associate is initially recognised at cost and the carrying amount is
increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisi-
tion. The investor’s share of the profit or loss of the investee is recognised in the investor’s profit or loss. Distributions
received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also
be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s
equity that have not been recognised in the investee’s profit or loss. Such changes include those arising from the revalu-
ation of property, plant and equipment and from foreign exchange translation differences. The investor’s share of those
changes is recognised directly in equity of the investor.

12. When potential voting rights exist, the investor’s share of profit or loss of the investee and of changes in the investee’s
equity is determined on the basis of present ownership interests and does not reflect the possible exercise or conver-
sion of potential voting rights.

APPLICATION OF THE EQUITY METHOD

13. An investment in an associate shall be accounted for using the equity method except when:

(a)

there is evidence that the investment is acquired and held exclusively with a view to its disposal within twelve
months from acquisition and that management is actively seeking a buyer;

(b)

the exception in paragraph 10 of IAS 27, allowing a parent that also has an investment in an associate not to
present consolidated financial statements, applies;

or

(c) all of the following apply:

(i)

the investor is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other
owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the
investor not applying the equity method;

(ii)

the investor’s debt or equity instruments are not traded in a public market (a domestic or foreign stock
exchange or an over-the-counter market, including local and regional markets);

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(iii) the investor did not file, nor is it in the process of filing, its financial statements with a securities com-
mission or other regulatory organisation, for the purpose of issuing any class of instruments in a public
market;

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and

(iv) the ultimate or any intermediate parent of the investor produces consolidated financial statements avail-

able for public use that comply with International Financial Reporting Standards.

14.

Investments described in paragraph 13(a) shall be classified as held for trading and accounted for in accordance
with IAS 39.

15. When an investment in an associate previously accounted for in accordance with IAS 39 is not disposed of within
twelve months, it shall be accounted for using the equity method as from the date of acquisition (see IAS 22 Business
Combinations). Financial statements for the periods since acquisition shall be restated.

16. Exceptionally, an entity may have found a buyer for an associate described in paragraph 13(a), but may not have com-
pleted the sale within twelve months because of the need for approval by regulators or others. The entity is not required
to apply the equity method to an investment in such an associate if the sale is in process at the balance sheet date and
there is no reason to believe that it will not be completed shortly after the balance sheet date.

17. The recognition of income on the basis of distributions received may not be an adequate measure of the income earned
by an investor on an investment in an associate because the distributions received may bear little relation to the per-
formance of the associate. Because the investor has significant influence over the associate, the investor has an interest
in the associate’s performance and, as a result, the return on its investment. The investor accounts for this interest by
extending the scope of its financial statements to include its share of profits or losses of such an associate. As a result,
application of the equity method provides more informative reporting of the net assets and profit or loss of the investor.

18. An investor shall discontinue the use of the equity method from the date that it ceases to have significant influence
over an associate and shall account for the investment in accordance with IAS 39 from that date, provided the asso-
ciate does not become a subsidiary or a joint venture as defined in IAS 31.

19. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on

initial measurement as a financial asset in accordance with IAS 39.

20. Many of the procedures appropriate for the application of the equity method are similar to the consolidation proce-
dures described in IAS 27. Furthermore, the concepts underlying the procedures used in accounting for the acquisition
of a subsidiary are also adopted in accounting for the acquisition of an investment in an associate.

21. A group’s share in an associate is the aggregate of the holdings in that associate by the parent and its subsidiaries. The
holdings of the group’s other associates or joint ventures are ignored for this purpose. When an associate has subsid-
iaries, associates, or joint ventures, the profits or losses and net assets taken into account in applying the equity method
are those recognised in the associate’s financial statements (including the associate’s share of the profits or losses and
net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting poli-
cies (see paragraphs 26 and 27).

22. Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between an investor (including its consoli-
dated subsidiaries) and an associate are recognised in the investor’s financial statements only to the extent of unrelated
investors’ interests in the associate. ‘Upstream’ transactions are, for example, sales of assets from an associate to the
investor. ‘Downstream’ transactions are, for example, sales of assets from the investor to an associate. The investor’s
share in the associate’s profits and losses resulting from these transactions is eliminated.

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23. An investment in an associate is accounted for using the equity method from the date on which it becomes an asso-
ciate. On acquisition of the investment any difference (whether positive or negative) between the cost of the invest-
ment and the investor’s share of the fair values of the net identifiable assets of the associate is treated as goodwill (see
IAS 22). Goodwill relating to an associate is included in the carrying amount of the investment. Appropriate adjust-
ments to the investor’s share of the profits or losses after acquisition are made to account, for example, for deprecia-
tion of the depreciable assets, based on their fair values at the date of acquisition.

24. The most recent available financial statements of the associate are used by the investor in applying the equity
method. When the reporting dates of the investor and the associate are different, the associate prepares, for the use
of the investor, financial statements as of the same date as the financial statements of the investor unless it is
impracticable to do so.

25. When, in accordance with paragraph 24, the financial statements of an associate used in applying the equity method
are prepared as of a different reporting date from that of the investor, adjustments shall be made for the effects of
significant transactions or events that occur between that date and the date of the investor’s financial statements. In
any case, the difference between the reporting date of the associate and that of the investor shall be no more than
three months. The length of the reporting periods and any difference in the reporting dates shall be the same from
period to period.

26. The investor’s financial statements shall be prepared using uniform accounting policies for like transactions and

events in similar circumstances.

27.

If an associate uses accounting policies other than those of the investor for like transactions and events in similar cir-
cumstances, adjustments shall be made to conform the associate’s accounting policies to those of the investor when
the associate’s financial statements are used by the investor in applying the equity method.

28.

If an associate has outstanding cumulative preference shares that are held by parties other than the investor and clas-
sified as equity, the investor computes its share of profits or losses after adjusting for the dividends on such shares,
whether or not the dividends have been declared.

29.

If an investor’s share of losses of an associate equals or exceeds its interest in the associate, the investor discontinues
recognising its share of further losses. The interest in an associate is the carrying amount of the investment in the asso-
ciate under the equity method together with any long-term interests that, in substance, form part of the investor’s net
investment in the associate. For example, an item for which settlement is neither planned nor likely to occur in the
foreseeable future is, in substance, an extension of the entity’s investment in that associate. Such items may include pref-
erence shares and long-term receivables or loans but do not include trade receivables, trade payables or any long-term
receivables for which adequate collateral exists, such as secured loans. Losses recognised under the equity method in
excess of the investor’s investment in ordinary shares are applied to the other components of the investor’s interest in
an associate in the reverse order of their seniority (ie priority in liquidation).

30. After the investor’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to
the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associ-
ate. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its
share of the profits equals the share of losses not recognised.

Impairment Losses

31. After application of the equity method, including recognising the associate’s losses in accordance with paragraph 29,
the investor applies the requirements of IAS 39 to determine whether it is necessary to recognise any additional impair-
ment loss with respect to the investor’s net investment in the associate.

32. The investor also applies the requirements of IAS 39 to determine whether any additional impairment loss is recogn-
ised with respect to the investor’s interest in the associate that does not constitute part of the net investment and the
amount of that impairment loss.

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33.

If application of the requirements in IAS 39 indicates that the investment may be impaired, an entity applies IAS 36
Impairment of Assets. In determining the value in use of the investment, an entity estimates:

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(a)

its share of the present value of the estimated future cash flows expected to be generated by the investee, includ-
ing the cash flows from the operations of the investee and the proceeds on the ultimate disposal of the investment;

or

(b)

the present value of the estimated future cash flows expected to arise from dividends to be received from the
investment and from its ultimate disposal.

Under appropriate assumptions, both methods give the same result. Any resulting impairment loss for the investment
is allocated in accordance with IAS 36. Therefore, it is allocated first to any remaining goodwill (see paragraph 23).

34. The recoverable amount of an investment in an associate is assessed for each associate, unless the associate does not
generate cash inflows from continuing use that are largely independent of those from other assets of the entity.

Separate Financial Statements

35. An investment in an associate shall be accounted for in the investor’s separate financial statements in accordance

with paragraphs 37-42 of IAS 27.

36. This Standard does not mandate which entities produce separate financial statements available for public use.

DISCLOSURE

37. The following disclosures shall be made:

(a)

the fair value of investments in associates for which there are published price quotations;

(b)

summarised financial information of associates, including the aggregated amounts of assets, liabilities, rev-
enues and profit or loss;

(c)

the reasons why the presumption that an investor does not have significant influence is overcome if the inves-
tor holds, directly or indirectly through subsidiaries, less than 20 per cent of the voting or potential voting
power of the investee but concludes that it has significant influence;

(d)

the reasons why the presumption that an investor has significant influence is overcome if the investor holds,
directly or indirectly through subsidiaries, 20 per cent or more of the voting or potential voting power of the
investee but concludes that it does not have significant influence;

(e)

(f)

the reporting date of the financial statements of an associate, when such financial statements are used in apply-
ing the equity method and are as of a reporting date or for a period that is different from that of the investor,
and the reason for using a different reporting date or different period;

the nature and extent of any significant restrictions (eg resulting from borrowing arrangements or regulatory
requirements) on the ability of associates to transfer funds to the investor in the form of cash dividends, or
repayment of loans or advances;

(g)

the unrecognised share of losses of an associate, both for the period and cumulatively, if an investor has dis-
continued recognition of its share of losses of an associate;

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(h)

the fact that an associate is not accounted for using the equity method in accordance with paragraph 13;

and

(i)

summarised financial information of associates, either individually or in groups, that are not accounted for
using the equity method, including the amounts of total assets, total liabilities, revenues and profit or loss.

38.

Investments in associates accounted for using the equity method shall be classified as non-current assets. The inves-
tor’s share of the profit or loss of such associates, and the carrying amount of those investments, shall be separately
disclosed. The investor’s share of any discontinuing operations of such associates shall also be separately disclosed.

39. The investor’s share of changes recognised directly in the associate’s equity shall be recognised directly in equity by
the investor and shall be disclosed in the statement of changes in equity as required by IAS 1 Presentation of Finan-
cial Statements.

40.

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the investor shall disclose:

(a)

its share of the contingent liabilities of an associate incurred jointly with other investors;

and

(b)

those contingent liabilities that arise because the investor is severally liable for all or part of the liabilities of
the associate.

EFFECTIVE DATE

41. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

42. This Standard supersedes IAS 28 Accounting for Investments in Associates (revised in 2000).

43. This Standard supersedes the following Interpretations:

(a)

SIC-3 Elimination of Unrealised Profits and Losses on Transactions with Associates;

(b)

SIC-20 Equity Accounting Method — Recognition of Losses;

and

(c)

SIC-33 Consolidation and Equity Method — Potential Voting Rights and Allocation of Ownership Interests.

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APPENDIX

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations, appli-
cable at December 2003, references to the current version of IAS 28 Accounting for Investments in Associates are amended
to IAS 28 Investments in Associates.

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IAS 31

INTERNATIONAL ACCOUNTING STANDARD 31

Interests in Joint Ventures

SUMMARY

Scope

Definitions

Forms of Joint Venture

Joint Control

Contractual Arrangement

Jointly controlled operations

Jointly controlled assets

Jointly controlled entities

Financial Statements of a Venturer

Proportionate Consolidation

Equity Method

Exceptions to Proportionate Consolidation and Equity Method

Separate Financial Statements of a Venturer

Transactions between a venturer and a joint venture

Reporting interests in joint ventures in the financial statements of an investor

Operators of joint ventures

Disclosure

Effective date

Withdrawal of IAS 31 (revised 2000)

Paragraphs

1-2

3-12

7

8

9-12

13-17

18-23

24-47

30-45

30-37

38-41

42-45

46-47

48-50

51

52-53

54-57

58

59

This revised Standard supersedes IAS 31 (revised 2000) Financial Reporting of Interests in Joint Ventures and should be
applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.

SCOPE

1.

This Standard shall be applied in accounting for interests in joint ventures and the reporting of joint venture assets,
liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures
or forms under which the joint venture activities take place. However, it does not apply to venturers’ interests in
jointly controlled entities held by:

(a) venture capital organisations,

or

(b) mutual funds, unit trusts and similar entities including investment-linked insurance funds

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that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trad-
ing and accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Such
investments shall be measured at fair value in accordance with IAS 39, with changes in fair value recognised in
profit or loss in the period of the change.

2. A venturer with an interest in a jointly controlled entity is exempted from paragraphs 30 (proportionate consoli-

dation) and 38 (equity method) when it meets the following conditions:

(a)

there is evidence that the interest is acquired and held exclusively with a view to its disposal within twelve
months from acquisition and that management is actively seeking a buyer;

(b)

the exception in paragraph 10 of IAS 27 Consolidated and Separate Financial Statements allowing a parent
that also has an interest in a jointly controlled entity not to present consolidated financial statements is
applicable;

or

(c) all of the following apply:

(i)

the venturer is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its
owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the
venturer not applying proportionate consolidation or the equity method;

(ii)

the venturer’s debt or equity instruments are not traded in a public market (a domestic or foreign stock
exchange or an over-the-counter market, including local and regional markets);

(iii) the venturer did not file, nor is it in the process of filing, its financial statements with a securities com-
mission or other regulatory organisation, for the purpose of issuing any class of instruments in a public
market;

and

(iv) the ultimate or any intermediate parent of the venturer produces consolidated financial statements avail-

able for public use that comply with International Financial Reporting Standards.

DEFINITIONS

3.

The following terms are used in this Standard with the meanings specified:

Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefits
from it.

The equity method is a method of accounting whereby an interest in a jointly controlled entity is initially recorded
at cost and adjusted thereafter for the post-acquisition change in the venturer’s share of net assets of the jointly
controlled entity. The profit or loss of the venturer includes the venturer’s share of the profit or loss of the jointly
controlled entity.

An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.

Joint control is the contractually agreed sharing of control over an economic activity.

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A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is
subject to joint control.

Proportionate consolidation is a method of accounting whereby a venturer’s share of each of the assets, liabilities,
income and expenses of a jointly controlled entity is combined line by line with similar items in the venturer’s finan-
cial statements or reported as separate line items in the venturer’s financial statements.

Separate financial statements are those presented by a parent, an investor in an associate or a venturer in a jointly
controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on
the basis of the reported results and net assets of the investees.

Significant influence is the power to participate in the financial and operating policy decisions of an economic activ-
ity but is not control or joint control over those policies.

A venturer is a party to a joint venture and has joint control over that joint venture.

4.

5.

6.

Financial statements in which proportionate consolidation or the equity method is applied are not separate financial
statements, nor are the financial statements of an entity that does not have a subsidiary, associate or venturer’s interest
in a jointly controlled entity.

Separate financial statements are those presented in addition to consolidated financial statements, financial statements
in which investments are accounted for using the equity method and financial statements in which venturers’ interests
in joint ventures are proportionately consolidated. Separate financial statements need not be appended to, or accom-
pany, those statements.

Entities that are exempted in accordance with paragraph 10 of IAS 27 from consolidation, paragraph 13(c) of IAS 28
Investments in Associates from applying the equity method or paragraph 2 of this Standard from applying proportionate
consolidation or the equity method may present separate financial statements as their only financial statements.

Forms of Joint Venture

7.

Joint ventures take many different forms and structures. This Standard identifies three broad types — jointly controlled
operations, jointly controlled assets and jointly controlled entities — that are commonly described as, and meet the
definition of, joint ventures. The following characteristics are common to all joint ventures:

(a)

two or more venturers are bound by a contractual arrangement;

and

(b)

the contractual arrangement establishes joint control.

Joint Control

8.

Joint control may be precluded when an investee is in legal reorganisation or in bankruptcy, or operates under severe
long-term restrictions on its ability to transfer funds to the venturer. If joint control is continuing, these events are not
enough in themselves to justify not accounting for joint ventures in accordance with this Standard.

Contractual Arrangement

9.

The existence of a contractual arrangement distinguishes interests that involve joint control from investments in asso-
ciates in which the investor has significant influence (see IAS 28). Activities that have no contractual arrangement to
establish joint control are not joint ventures for the purposes of this Standard.

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10. The contractual arrangement may be evidenced in a number of ways, for example by a contract between the venturers
or minutes of discussions between the venturers. In some cases, the arrangement is incorporated in the articles or other
by-laws of the joint venture. Whatever its form, the contractual arrangement is usually in writing and deals with such
matters as:

(a)

the activity, duration and reporting obligations of the joint venture;

(b)

the appointment of the board of directors or equivalent governing body of the joint venture and the voting rights
of the venturers;

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(c)

capital contributions by the venturers;

and

(d)

the sharing by the venturers of the output, income, expenses or results of the joint venture.

11. The contractual arrangement establishes joint control over the joint venture. Such a requirement ensures that no single
venturer is in a position to control the activity unilaterally. The arrangement identifies those decisions in areas essential
to the goals of the joint venture which require the consent of all the venturers and those decisions which may require
the consent of a specified majority of the venturers.

12. The contractual arrangement may identify one venturer as the operator or manager of the joint venture. The operator
does not control the joint venture but acts within the financial and operating policies that have been agreed by the ven-
turers in accordance with the contractual arrangement and delegated to the operator. If the operator has the power to
govern the financial and operating policies of the economic activity, it controls the venture and the venture is a sub-
sidiary of the operator and not a joint venture.

JOINTLY CONTROLLED OPERATIONS

13. The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the
establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers
themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its
own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities
may be carried out by the venturer’s employees alongside the venturer’s similar activities. The joint venture agreement
usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in com-
mon are shared among the venturers.

14. An example of a jointly controlled operation is when two or more venturers combine their operations, resources and
expertise to manufacture, market and distribute jointly a particular product, such as an aircraft. Different parts of the
manufacturing process are carried out by each of the venturers. Each venturer bears its own costs and takes a share of
the revenue from the sale of the aircraft, such share being determined in accordance with the contractual arrangement.

15.

In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:

(a)

the assets that it controls and the liabilities that it incurs;

and

(b)

the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the
joint venture.

16. Because the assets, liabilities, income and expenses are recognised in the financial statements of the venturer, no adjust-
ments or other consolidation procedures are required in respect of these items when the venturer presents consoli-
dated financial statements.

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17. Separate accounting records may not be required for the joint venture itself and financial statements may not be pre-
pared for the joint venture. However, the venturers may prepare management accounts so that they may assess the per-
formance of the joint venture.

JOINTLY CONTROLLED ASSETS

18. Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets
contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture. The
assets are used to obtain benefits for the venturers. Each venturer may take a share of the output from the assets and
each bears an agreed share of the expenses incurred.

19. These joint ventures do not involve the establishment of a corporation, partnership or other entity, or a financial struc-
ture that is separate from the venturers themselves. Each venturer has control over its share of future economic ben-
efits through its share of the jointly controlled asset.

20. Many activities in the oil, gas and mineral extraction industries involve jointly controlled assets. For example, a number
of oil production companies may jointly control and operate an oil pipeline. Each venturer uses the pipeline to trans-
port its own product in return for which it bears an agreed proportion of the expenses of operating the pipeline. Another
example of a jointly controlled asset is when two entities jointly control a property, each taking a share of the rents
received and bearing a share of the expenses.

21.

In respect of its interest in jointly controlled assets, a venturer shall recognise in its financial statements:

(a)

its share of the jointly controlled assets, classified according to the nature of the assets;

(b) any liabilities that it has incurred;

(c)

its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;

(d) any income from the sale or use of its share of the output of the joint venture, together with its share of any

expenses incurred by the joint venture;

and

(e) any expenses that it has incurred in respect of its interest in the joint venture.

22.

In respect of its interest in jointly controlled assets, each venturer includes in its accounting records and recognises in
its financial statements:

(a)

its share of the jointly controlled assets, classified according to the nature of the assets rather than as an invest-
ment. For example, a share of a jointly controlled oil pipeline is classified as property, plant and equipment.

(b)

any liabilities that it has incurred, for example those incurred in financing its share of the assets.

(c)

its share of any liabilities incurred jointly with other venturers in relation to the joint venture.

(d)

any income from the sale or use of its share of the output of the joint venture, together with its share of any
expenses incurred by the joint venture.

(e)

any expenses that it has incurred in respect of its interest in the joint venture, for example those related to financ-
ing the venturer’s interest in the assets and selling its share of the output.

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Because the assets, liabilities, income and expenses are recognised in the financial statements of the venturer, no adjust-
ments or other consolidation procedures are required in respect of these items when the venturer presents consoli-
dated financial statements.

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23. The treatment of jointly controlled assets reflects the substance and economic reality and, usually, the legal form of the
joint venture. Separate accounting records for the joint venture itself may be limited to those expenses incurred in com-
mon by the venturers and ultimately borne by the venturers according to their agreed shares. Financial statements may
not be prepared for the joint venture, although the venturers may prepare management accounts so that they may
assess the performance of the joint venture.

JOINTLY CONTROLLED ENTITIES

24. A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity
in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual
arrangement between the venturers establishes joint control over the economic activity of the entity.

25. A jointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses and earns income. It
may enter into contracts in its own name and raise finance for the purposes of the joint venture activity. Each venturer
is entitled to a share of the profits of the jointly controlled entity, although some jointly controlled entities also involve
a sharing of the output of the joint venture.

26. A common example of a jointly controlled entity is when two entities combine their activities in a particular line of
business by transferring the relevant assets and liabilities into a jointly controlled entity. Another example is when an
entity commences a business in a foreign country in conjunction with the government or other agency in that country,
by establishing a separate entity that is jointly controlled by the entity and the government or agency.

27. Many jointly controlled entities are similar in substance to those joint ventures referred to as jointly controlled opera-
tions or jointly controlled assets. For example, the venturers may transfer a jointly controlled asset, such as an oil pipe-
line, into a jointly controlled entity, for tax or other reasons. Similarly, the venturers may contribute into a jointly con-
trolled entity assets that will be operated jointly. Some jointly controlled operations also involve the establishment of
a jointly controlled entity to deal with particular aspects of the activity, for example, the design, marketing, distribution
or after-sales service of the product.

28. A jointly controlled entity maintains its own accounting records and prepares and presents financial statements in the

same way as other entities in conformity with International Financial Reporting Standards.

29. Each venturer usually contributes cash or other resources to the jointly controlled entity. These contributions are
included in the accounting records of the venturer and recognised in its financial statements as an investment in the
jointly controlled entity.

Financial Statements of a Venturer

P r o p o r t i o n a t e C o n s o l i d a t i o n

30. A venturer shall recognise its interest in a jointly controlled entity using proportionate consolidation or the alter-
native method described in paragraph 38. When proportionate consolidation is used, one of the two reporting for-
mats identified below shall be used.

31. A venturer investor recognises its interest in a jointly controlled entity using one of the two reporting formats for pro-
portionate consolidation irrespective of whether it also has investments in subsidiaries or whether it describes its finan-
cial statements as consolidated financial statements.

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32. When recognising an interest in a jointly controlled entity, it is essential that a venturer reflects the substance and eco-
nomic reality of the arrangement, rather than the joint venture’s particular structure or form. In a jointly controlled
entity, a venturer has control over its share of future economic benefits through its share of the assets and liabilities of
the venture. This substance and economic reality are reflected in the consolidated financial statements of the venturer
when the venturer recognises its interests in the assets, liabilities, income and expenses of the jointly controlled entity
by using one of the two reporting formats for proportionate consolidation described in paragraph 34.

33. The application of proportionate consolidation means that the balance sheet of the venturer includes its share of the
assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of
the venturer includes its share of the income and expenses of the jointly controlled entity. Many of the procedures
appropriate for the application of proportionate consolidation are similar to the procedures for the consolidation of
investments in subsidiaries, which are set out in IAS 27.

34. Different reporting formats may be used to give effect to proportionate consolidation. The venturer may combine its
share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line
by line, in its financial statements. For example, it may combine its share of the jointly controlled entity’s inventory
with its inventory and its share of the jointly controlled entity’s property, plant and equipment with its property, plant
and equipment. Alternatively, the venturer may include separate line items for its share of the assets, liabilities, income
and expenses of the jointly controlled entity in its financial statements. For example, it may show its share of a current
asset of the jointly controlled entity separately as part of its current assets; it may show its share of the property, plant
and equipment of the jointly controlled entity separately as part of its property, plant and equipment. Both these
reporting formats result in the reporting of identical amounts of profit or loss and of each major classification of assets,
liabilities, income and expenses; both formats are acceptable for the purposes of this Standard.

35. Whichever format is used to give effect to proportionate consolidation, it is inappropriate to offset any assets or liabili-
ties by the deduction of other liabilities or assets or any income or expenses by the deduction of other expenses or
income, unless a legal right of set-off exists and the offsetting represents the expectation as to the realisation of the
asset or the settlement of the liability.

36. A venturer shall discontinue the use of proportionate consolidation from the date on which it ceases to have joint

control over a jointly controlled entity.

37. A venturer discontinues the use of proportionate consolidation from the date on which it ceases to share in the con-
trol of a jointly controlled entity. This may happen, for example, when the venturer disposes of its interest or when
such external restrictions are placed on the jointly controlled entity that the venturer no longer has joint control.

E q u i t y M e t h o d

38. As an alternative to proportionate consolidation described in paragraph 30, a venturer shall recognise its interest

in a jointly controlled entity using the equity method.

39. A venturer recognises its interest in a jointly controlled entity using the equity method irrespective of whether it also

has investments in subsidiaries or whether it describes its financial statements as consolidated financial statements.

40.

Some venturers recognise their interests in jointly controlled entities using the equity method, as described in
IAS 28. The use of the equity method is supported by those who argue that it is inappropriate to combine controlled
items with jointly controlled items and by those who believe that venturers have significant influence, rather than joint
control, in a jointly controlled entity. This Standard does not recommend the use of the equity method because pro-
portionate consolidation better reflects the substance and economic reality of a venturer’s interest in a jointly con-
trolled entity, that is to say, control over the venturer’s share of the future economic benefits. Nevertheless, this Stan-
dard permits the use of the equity method, as an alternative treatment, when recognising interests in jointly controlled
entities.

41. A venturer shall discontinue the use of the equity method from the date on which it ceases to have joint control

over, or have significant influence in, a jointly controlled entity.

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42.

Interests in jointly controlled entities that meet the condition set out in paragraph 2(a) shall be classified as held
for trading and accounted for in accordance with IAS 39.

43. When, in accordance with paragraphs 2(a) and 42, an interest in a jointly controlled entity previously accounted for in
accordance with IAS 39 is not disposed of within twelve months, it shall be accounted for using proportionate con-
solidation or the equity method as from the date of acquisition (see IAS 22 Business Combinations). Financial statements
for the periods since acquisition shall be restated.

44. Exceptionally, a venturer may have found a buyer for an interest described in paragraph 2(a), but may not have com-
pleted the sale within twelve months of acquisition because of the need for approval by regulators or others. The ven-
turer is not required to apply proportionate consolidation or the equity method to an interest in a jointly controlled
entity if the sale is in process at the balance sheet date and there is no reason to believe that it will not be completed
shortly after the balance sheet date.

45. From the date on which a jointly controlled entity becomes a subsidiary of a venturer, the venturer shall account
for its interest in accordance with IAS 27. From the date on which a jointly controlled entity becomes an associate
of a venturer, the venturer shall account for its interest in accordance with IAS 28.

Separate Financial Statements of a Venturer

46. An interest in a jointly controlled entity shall be accounted for in a venturer’s separate financial statements in accor-

dance with paragraphs 37-42 of IAS 27.

47. This Standard does not mandate which entities produce separate financial statements available for public use.

TRANSACTIONS BETWEEN A VENTURER AND A JOINT VENTURE

48. When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the
transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and pro-
vided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognise only
that portion of the gain or loss that is attributable to the interests of the other venturers. (*) The venturer shall
recognise the full amount of any loss when the contribution or sale provides evidence of a reduction in the net real-
isable value of current assets or an impairment loss.

49. When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profits of
the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise
its share of the losses resulting from these transactions in the same way as profits except that losses shall be rec-
ognised immediately when they represent a reduction in the net realisable value of current assets or an impairment
loss.

50. To assess whether a transaction between a venturer and a joint venture provides evidence of impairment of an asset,
the venturer determines the recoverable amount of the asset in accordance with IAS 36 Impairment of Assets. In deter-
mining value in use, the venturer estimates future cash flows from the asset on the basis of continuing use of the asset
and its ultimate disposal by the joint venture.

REPORTING INTERESTS IN JOINT VENTURES IN THE FINANCIAL STATEMENTS OF AN INVESTOR

51. An investor in a joint venture that does not have joint control shall account for that investment in accordance with

IAS 39 or, if it has significant influence in the joint venture, in accordance with IAS 28.

OPERATORS OF JOINT VENTURES

52. Operators or managers of a joint venture shall account for any fees in accordance with IAS 18 Revenue.

(*) See also SIC-13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers.

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53. One or more venturers may act as the operator or manager of a joint venture. Operators are usually paid a manage-

ment fee for such duties. The fees are accounted for by the joint venture as an expense.

DISCLOSURE

54. A venturer shall disclose the aggregate amount of the following contingent liabilities, unless the probability of loss

is remote, separately from the amount of other contingent liabilities:

(a) any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share

in each of the contingent liabilities that have been incurred jointly with other venturers;

(b)

its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable;

and

(c)

those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other
venturers of a joint venture.

55. A venturer shall disclose the aggregate amount of the following commitments in respect of its interests in joint ven-

tures separately from other commitments:

(a) any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital

commitments that have been incurred jointly with other venturers;

and

(b)

its share of the capital commitments of the joint ventures themselves.

56. A venturer shall disclose a listing and description of interests in significant joint ventures and the proportion of
ownership interest held in jointly controlled entities. A venturer that recognises its interests in jointly controlled enti-
ties using the line-by-line reporting format for proportionate consolidation or the equity method shall disclose the
aggregate amounts of each of current assets, long-term assets, current liabilities, long-term liabilities, income and
expenses related to its interests in joint ventures.

57. A venturer shall disclose the method it uses to recognise its interests in jointly controlled entities.

EFFECTIVE DATE

58. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

WITHDRAWAL OF IAS 31 (REVISED 2000)

59. This Standard supersedes IAS 31 Financial Reporting of Interests in Joint Ventures (revised in 2000).

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APPENDIX

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

A1. SIC-13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers is amended as described below.

The reference is amended to read as follows:

Reference: IAS 31 Interests in Joint Ventures

Paragraph 1 is amended to read as follows:

1.

IAS 31.48 refers to both contributions and sales between a venturer and a joint venture as follows: ‘When a ven-
turer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction
shall reflect the substance of the transaction’. In addition, IAS 31.24 says that ‘a jointly controlled entity is a joint
venture that involves the establishment of a corporation, partnership or other entity in which each venturer has
an interest.’ There is no explicit guidance on the recognition of gains and losses resulting from contributions of
non-monetary assets to jointly controlled entities (‘JCEs’).

…

A2.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations, appli-
cable at December 2003, references to the current version of IAS 31 Financial Reporting of Interests in Joint Ventures are
amended to IAS 31 Interests in Joint Ventures.

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INTERNATIONAL ACCOUNTING STANDARD 33

Earnings per Share

SUMMARY

Objective

Scope

Definitions

Measurement

Basic Earnings per Share

Earnings

Shares

Diluted Earnings per Share

Earnings

Shares

Dilutive Potential Ordinary Shares

Options, warrants and their equivalents

Convertible instruments

Contingently issuable shares

Contracts that may be settled in ordinary shares or cash

Purchased options

Written put options

Retrospective adjustments

Presentation

Disclosure

Effective date

Withdrawal of other pronouncements

Paragraphs

1

2-4

5-8

9-63

9-29

12-18

19-29

30-63

33-35

36-40

41-63

45-48

49-51

52-57

58-61

62

63

64-65

66-69

70-73

74

75-76

This revised Standard supersedes IAS 33 (1997) Earnings Per Share and should be applied for annual periods beginning on or
after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe principles for the determination and presentation of earnings per share,
so as to improve performance comparisons between different entities in the same reporting period and between dif-
ferent reporting periods for the same entity. Even though earnings per share data have limitations because of the dif-
ferent accounting policies that may be used for determining ‘earnings’, a consistently determined denominator enhances
financial reporting. The focus of this Standard is on the denominator of the earnings per share calculation.

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2.

This Standard shall be applied by entities whose ordinary shares or potential ordinary shares are publicly traded
and by entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets.

3. An entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this

Standard.

4. When an entity presents both consolidated financial statements and separate financial statements prepared in accor-
dance with IAS 27 Consolidated and Separate Financial Statements, the disclosures required by this Standard need
be presented only on the basis of the consolidated information. An entity that chooses to disclose earnings per share
based on its separate financial statements shall present such earnings per share information only on the face of its
separate income statement. An entity shall not present such earnings per share information in the consolidated
financial statements.

5.

The following terms are used in this Standard with the meanings specified:

DEFINITIONS

Antidilution is an increase in earnings per share or a reduction in loss per share resulting from the assumption that
convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon
the satisfaction of specified conditions.

A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified
conditions.

Contingently issuable ordinary shares are ordinary shares issuable for little or no cash or other consideration upon
the satisfaction of specified conditions in a contingent share agreement.

Dilution is a reduction in earnings per share or an increase in loss per share resulting from the assumption that
convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon
the satisfaction of specified conditions.

Options, warrants and their equivalents are financial instruments that give the holder the right to purchase ordi-
nary shares.

An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.

A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.

Put options on ordinary shares are contracts that give the holder the right to sell ordinary shares at a specified price
for a given period.

6. Ordinary shares participate in profit for the period only after other types of shares such as preference shares have par-
ticipated. An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same
rights to receive dividends.

7.

Examples of potential ordinary shares are:

(a)

financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares;

(b) options and warrants;

(c)

shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as
the purchase of a business or other assets.

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IAS 33

8.

Terms defined in IAS 32 Financial Instruments: Disclosure and Presentation are used in this Standard with the meanings
specified in paragraph 11 of IAS 32, unless otherwise noted. IAS 32 defines financial instrument, financial asset, finan-
cial liability, equity instrument and fair value, and provides guidance on applying those definitions.

MEASUREMENT

Basic Earnings per Share

9. An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders
of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

10. Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the
parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator)
during the period.

11. The objective of basic earnings per share information is to provide a measure of the interests of each ordinary share of

a parent entity in the performance of the entity over the reporting period.

E a r n i n g s

12. For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity holders of the

parent entity in respect of:

(a) profit or loss from continuing operations attributable to the parent entity;

and

(b) profit or loss attributable to the parent entity

shall be the amounts in (a) and (b) adjusted for the after-tax amounts of preference dividends, differences arising
on the settlement of preference shares, and other similar effects of preference shares classified as equity.

13. All items of income and expense attributable to ordinary equity holders of the parent entity that are recognised in a
period, including tax expense and dividends on preference shares classified as liabilities are included in the determi-
nation of profit or loss for the period attributable to ordinary equity holders of the parent entity (see IAS 1 Presentation
of Financial Statements).

14. The after-tax amount of preference dividends that is deducted from profit or loss is:

(a)

the after-tax amount of any preference dividends on non-cumulative preference shares declared in respect of the
period;

and

(b)

the after-tax amount of the preference dividends for cumulative preference shares required for the period, whether
or not the dividends have been declared. The amount of preference dividends for the period does not include the
amount of any preference dividends for cumulative preference shares paid or declared during the current period
in respect of previous periods.

15.

Preference shares that provide for a low initial dividend to compensate an entity for selling the preference shares at a
discount, or an above-market dividend in later periods to compensate investors for purchasing preference shares at a
premium, are sometimes referred to as increasing rate preference shares. Any original issue discount or premium on
increasing rate preference shares is amortised to retained earnings using the effective interest method and treated as a
preference dividend for the purposes of calculating earnings per share.

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16.

Preference shares may be repurchased under an entity’s tender offer to the holders. The excess of the fair value of the
consideration paid to the preference shareholders over the carrying amount of the preference shares represents a return
to the holders of the preference shares and a charge to retained earnings for the entity. This amount is deducted in
calculating profit or loss attributable to ordinary equity holders of the parent entity.

17. Early conversion of convertible preference shares may be induced by an entity through favourable changes to the origi-
nal conversion terms or the payment of additional consideration. The excess of the fair value of the ordinary shares or
other consideration paid over the fair value of the ordinary shares issuable under the original conversion terms is a
return to the preference shareholders, and is deducted in calculating profit or loss attributable to ordinary equity hold-
ers of the parent entity.

18. Any excess of the carrying amount of preference shares over the fair value of the consideration paid to settle them is

added in calculating profit or loss attributable to ordinary equity holders of the parent entity.

S h a r e s

19. For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted aver-

age number of ordinary shares outstanding during the period.

20. Using the weighted average number of ordinary shares outstanding during the period reflects the possibility that the
amount of shareholders’ capital varied during the period as a result of a larger or smaller number of shares being out-
standing at any time. The weighted average number of ordinary shares outstanding during the period is the number of
ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or
issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that
the shares are outstanding as a proportion of the total number of days in the period; a reasonable approximation of
the weighted average is adequate in many circumstances.

21.

Shares are usually included in the weighted average number of shares from the date consideration is receivable (which
is generally the date of their issue), for example:

(a)

ordinary shares issued in exchange for cash are included when cash is receivable;

(b) ordinary shares issued on the voluntary reinvestment of dividends on ordinary or preference shares are included

when dividends are reinvested;

(c)

ordinary shares issued as a result of the conversion of a debt instrument to ordinary shares are included from the
date that interest ceases to accrue;

(d) ordinary shares issued in place of interest or principal on other financial instruments are included from the date

that interest ceases to accrue;

(e)

ordinary shares issued in exchange for the settlement of a liability of the entity are included from the settlement
date;

(f)

ordinary shares issued as consideration for the acquisition of an asset other than cash are included as of the date
on which the acquisition is recognised;

and

(g) ordinary shares issued for the rendering of services to the entity are included as the services are rendered.

The timing of the inclusion of ordinary shares is determined by the terms and conditions attaching to their
issue. Due consideration is given to the substance of any contract associated with the issue.

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22. Ordinary shares issued as part of the purchase consideration of a business combination that is an acquisition are
included in the weighted average number of shares from the date of the acquisition. This is because the acquirer incor-
porates the results of the operations of the acquiree into its income statement from that date. Ordinary shares issued
as part of a business combination that is a uniting of interests are included in the calculation of the weighted average
number of shares for all periods presented. This is because the financial statements of the combined entity are pre-
pared as if the combined entity had always existed. Therefore, the number of ordinary shares used for the calculation
of basic earnings per share in a business combination that is a uniting of interests is the aggregate of the weighted aver-
age number of shares of the combined entities, adjusted to equivalent shares of the entity whose shares are outstand-
ing after the combination.

23. Ordinary shares that will be issued upon the conversion of a mandatorily convertible instrument are included in the

calculation of basic earnings per share from the date the contract is entered into.

24. Contingently issuable shares are treated as outstanding and are included in the calculation of basic earnings per share
only from the date when all necessary conditions are satisfied (ie the events have occurred). Shares that are issuable
solely after the passage of time are not contingently issuable shares, because the passage of time is a certainty.

25. Outstanding ordinary shares that are contingently returnable (ie subject to recall) are not treated as outstanding and
are excluded from the calculation of basic earnings per share until the date the shares are no longer subject to recall.

26. The weighted average number of ordinary shares outstanding during the period and for all periods presented shall
be adjusted for events, other than the conversion of potential ordinary shares, that have changed the number of
ordinary shares outstanding without a corresponding change in resources.

27. Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a correspond-

ing change in resources. Examples include:

(a)

a capitalisation or bonus issue (sometimes referred to as a stock dividend);

(b)

a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders;

(c)

a share split;

and

(d)

a reverse share split (consolidation of shares).

28.

In a capitalisation or bonus issue or a share split, ordinary shares are issued to existing shareholders for no additional
consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources. The
number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordi-
nary shares outstanding as if the event had occurred at the beginning of the earliest period presented. For example, on
a two-for-one bonus issue, the number of ordinary shares outstanding before the issue is multiplied by three to obtain
the new total number of ordinary shares, or by two to obtain the number of additional ordinary shares.

29. A consolidation of ordinary shares generally reduces the number of ordinary shares outstanding without a correspond-
ing reduction in resources. However, when the overall effect is a share repurchase at fair value, the reduction in the
number of ordinary shares outstanding is the result of a corresponding reduction in resources. An example is a share
consolidation combined with a special dividend. The weighted average number of ordinary shares outstanding for the
period in which the combined transaction takes place is adjusted for the reduction in the number of ordinary shares
from the date the special dividend is recognised.

Diluted Earnings per Share

30. An entity shall calculate diluted earnings per share amounts for profit or loss attributable to ordinary equity hold-
ers of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity
holders.

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31. For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordi-
nary equity holders of the parent entity, and the weighted average number of shares outstanding, for the effects of
all dilutive potential ordinary shares.

32. The objective of diluted earnings per share is consistent with that of basic earnings per share — to provide a measure
of the interest of each ordinary share in the performance of an entity — while giving effect to all dilutive potential ordi-
nary shares outstanding during the period. As a result:

(a)

profit or loss attributable to ordinary equity holders of the parent entity is increased by the after-tax amount of
dividends and interest recognised in the period in respect of the dilutive potential ordinary shares and is adjusted
for any other changes in income or expense that would result from the conversion of the dilutive potential ordi-
nary shares;

and

(b)

the weighted average number of ordinary shares outstanding is increased by the weighted average number of addi-
tional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordi-
nary shares.

E a r n i n g s

33. For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordi-
nary equity holders of the parent entity, as calculated in accordance with paragraph 12, by the after-tax effect of:

(a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss

attributable to ordinary equity holders of the parent entity as calculated in accordance with paragraph 12;

(b) any interest recognised in the period related to dilutive potential ordinary shares;

and

(c) any other changes in income or expense that would result from the conversion of the dilutive potential ordi-

nary shares.

34. After the potential ordinary shares are converted into ordinary shares, the items identified in paragraph 33(a)-(c) no
longer arise. Instead, the new ordinary shares are entitled to participate in profit or loss attributable to ordinary equity
holders of the parent entity. Therefore, profit or loss attributable to ordinary equity holders of the parent entity cal-
culated in accordance with paragraph 12 is adjusted for the items identified in paragraph 33(a)-(c) and any related
taxes. The expenses associated with potential ordinary shares include transaction costs and discounts accounted for in
accordance with the effective interest method (see paragraph 9 of IAS 39 Financial Instruments: Recognition and Mea-
surement, as revised in 2003).

35. The conversion of potential ordinary shares may lead to consequential changes in income or expenses. For example,
the reduction of interest expense related to potential ordinary shares and the resulting increase in profit or reduction
in loss may lead to an increase in the expense related to a non-discretionary employee profit-sharing plan. For the pur-
pose of calculating diluted earnings per share, profit or loss attributable to ordinary equity holders of the parent entity
is adjusted for any such consequential changes in income or expense.

S h a r e s

36. For the purpose of calculating diluted earnings per share, the number of ordinary shares shall be the weighted aver-
age number of ordinary shares calculated in accordance with paragraphs 19 and 26, plus the weighted average
number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into
ordinary shares. Dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at
the beginning of the period or, if later, the date of the issue of the potential ordinary shares.

37. Dilutive potential ordinary shares shall be determined independently for each period presented. The number of dilu-
tive potential ordinary shares included in the year-to-date period is not a weighted average of the dilutive potential
ordinary shares included in each interim computation.

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38.

Potential ordinary shares are weighted for the period they are outstanding. Potential ordinary shares that are cancelled
or allowed to lapse during the period are included in the calculation of diluted earnings per share only for the portion
of the period during which they are outstanding. Potential ordinary shares that are converted into ordinary shares dur-
ing the period are included in the calculation of diluted earnings per share from the beginning of the period to the date
of conversion; from the date of conversion, the resulting ordinary shares are included in both basic and diluted earn-
ings per share.

39. The number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares is determined
from the terms of the potential ordinary shares. When more than one basis of conversion exists, the calculation
assumes the most advantageous conversion rate or exercise price from the standpoint of the holder of the potential
ordinary shares.

40. A subsidiary, joint venture or associate may issue to parties other than the parent, venturer or investor potential ordi-
nary shares that are convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary
shares of the parent, venturer or investor (the reporting entity). If these potential ordinary shares of the subsidiary, joint
venture or associate have a dilutive effect on the basic earnings per share of the reporting entity, they are included in
the calculation of diluted earnings per share.

D i l u t i v e P o t e n t i a l O r d i n a r y S h a r e s

41. Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would

decrease earnings per share or increase loss per share from continuing operations.

42. An entity uses profit or loss from continuing operations attributable to the parent entity as the control number to
establish whether potential ordinary shares are dilutive or antidilutive. Profit or loss from continuing operations attrib-
utable to the parent entity is adjusted in accordance with paragraph 12 and excludes items relating to discontinuing
operations.

43.

44.

Potential ordinary shares are antidilutive when their conversion to ordinary shares would increase earnings per share
or decrease loss per share from continuing operations. The calculation of diluted earnings per share does not assume
conversion, exercise, or other issue of potential ordinary shares that would have an antidilutive effect on earnings per
share.

In determining whether potential ordinary shares are dilutive or antidilutive, each issue or series of potential ordinary
shares is considered separately rather than in aggregate. The sequence in which potential ordinary shares are consid-
ered may affect whether they are dilutive. Therefore, to maximise the dilution of basic earnings per share, each issue or
series of potential ordinary shares is considered in sequence from the most dilutive to the least dilutive, ie dilutive
potential ordinary shares with the lowest ‘earnings per incremental share’ are included in the diluted earnings per share
calculation before those with a higher earnings per incremental share. Options and warrants are generally included
first because they do not affect the numerator of the calculation.

O p t i o n s , w a r r a n t s a n d t h e i r e q u i v a l e n t s

45. For the purpose of calculating diluted earnings per share, an entity shall assume the exercise of dilutive options
and warrants of the entity. The assumed proceeds from these instruments shall be regarded as having been received
from the issue of ordinary shares at the average market price of ordinary shares during the period. The difference
between the number of ordinary shares issued and the number of ordinary shares that would have been issued at
the average market price of ordinary shares during the period shall be treated as an issue of ordinary shares for no
consideration.

46. Options and warrants are dilutive when they would result in the issue of ordinary shares for less than the average mar-
ket price of ordinary shares during the period. The amount of the dilution is the average market price of ordinary shares
during the period minus the issue price. Therefore, to calculate diluted earnings per share, potential ordinary shares
are treated as consisting of both the following:

(a)

a contract to issue a certain number of the ordinary shares at their average market price during the period. Such
ordinary shares are assumed to be fairly priced and to be neither dilutive nor antidilutive. They are ignored in the
calculation of diluted earnings per share.

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(b)

a contract to issue the remaining ordinary shares for no consideration. Such ordinary shares generate no pro-
ceeds and have no effect on profit or loss attributable to ordinary shares outstanding. Therefore, such shares are
dilutive and are added to the number of ordinary shares outstanding in the calculation of diluted earnings per
share.

47. Options and warrants have a dilutive effect only when the average market price of ordinary shares during the period
exceeds the exercise price of the options or warrants (ie they are ‘in the money’). Previously reported earnings per share
are not retroactively adjusted to reflect changes in prices of ordinary shares.

48. Employee share options with fixed or determinable terms and non-vested ordinary shares are treated as options in the
calculation of diluted earnings per share, even though they may be contingent on vesting. They are treated as out-
standing on the grant date. Performance-based employee share options are treated as contingently issuable shares
because their issue is contingent upon satisfying specified conditions in addition to the passage of time.

C o n v e r t i b l e i n s t r u m e n t s

49. The dilutive effect of convertible instruments shall be reflected in diluted earnings per share in accordance with para-

graphs 33 and 36.

50. Convertible preference shares are antidilutive whenever the amount of the dividend on such shares declared in or accu-
mulated for the current period per ordinary share obtainable on conversion exceeds basic earnings per share. Simi-
larly, convertible debt is antidilutive whenever its interest (net of tax and other changes in income or expense) per ordi-
nary share obtainable on conversion exceeds basic earnings per share.

51. The redemption or induced conversion of convertible preference shares may affect only a portion of the previously
outstanding convertible preference shares. In such cases, any excess consideration referred to in paragraph 17 is attrib-
uted to those shares that are redeemed or converted for the purpose of determining whether the remaining outstand-
ing preference shares are dilutive. The shares redeemed or converted are considered separately from those shares that
are not redeemed or converted.

C o n t i n g e n t l y i s s u a b l e s h a r e s

52. As in the calculation of basic earnings per share, contingently issuable ordinary shares are treated as outstanding and
included in the calculation of diluted earnings per share if the conditions are satisfied (ie the events have occurred). Con-
tingently issuable shares are included from the beginning of the period (or from the date of the contingent share agree-
ment, if later). If the conditions are not satisfied, the number of contingently issuable shares included in the diluted
earnings per share calculation is based on the number of shares that would be issuable if the end of the period were
the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency
period expires.

53.

If attainment or maintenance of a specified amount of earnings for a period is the condition for contingent issue and
if that amount has been attained at the end of the reporting period but must be maintained beyond the end of the
reporting period for an additional period, then the additional ordinary shares are treated as outstanding, if the effect is
dilutive, when calculating diluted earnings per share. In that case, the calculation of diluted earnings per share is based
on the number of ordinary shares that would be issued if the amount of earnings at the end of the reporting period
were the amount of earnings at the end of the contingency period. Because earnings may change in a future period,
the calculation of basic earnings per share does not include such contingently issuable ordinary shares until the end of
the contingency period because not all necessary conditions have been satisfied.

54. The number of ordinary shares contingently issuable may depend on the future market price of the ordinary shares. In
that case, if the effect is dilutive, the calculation of diluted earnings per share is based on the number of ordinary shares
that would be issued if the market price at the end of the reporting period were the market price at the end of the
contingency period. If the condition is based on an average of market prices over a period of time that extends beyond
the end of the reporting period, the average for the period of time that has lapsed is used. Because the market price
may change in a future period, the calculation of basic earnings per share does not include such contingently issuable
ordinary shares until the end of the contingency period because not all necessary conditions have been satisfied.

55. The number of ordinary shares contingently issuable may depend on future earnings and future prices of the ordinary
shares. In such cases, the number of ordinary shares included in the diluted earnings per share calculation is based on
both conditions (ie earnings to date and the current market price at the end of the reporting period). Contingently issu-
able ordinary shares are not included in the diluted earnings per share calculation unless both conditions are met.

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56.

In other cases, the number of ordinary shares contingently issuable depends on a condition other than earnings or mar-
ket price (for example, the opening of a specific number of retail stores). In such cases, assuming that the present sta-
tus of the condition remains unchanged until the end of the contingency period, the contingently issuable ordinary
shares are included in the calculation of diluted earnings per share according to the status at the end of the reporting
period.

57. Contingently issuable potential ordinary shares (other than those covered by a contingent share agreement, such as

contingently issuable convertible instruments) are included in the diluted earnings per share calculation as follows:

(a)

an entity determines whether the potential ordinary shares may be assumed to be issuable on the basis of the con-
ditions specified for their issue in accordance with the contingent ordinary share provisions in paragraphs 52-56;

and

(b)

if those potential ordinary shares should be reflected in diluted earnings per share, an entity determines their
impact on the calculation of diluted earnings per share by following the provisions for options and warrants in
paragraphs 45-48, the provisions for convertible instruments in paragraphs 49-51, the provisions for contracts
that may be settled in ordinary shares or cash in paragraphs 58-61, or other provisions, as appropriate.

However, exercise or conversion is not assumed for the purpose of calculating diluted earnings per share unless exer-
cise or conversion of similar outstanding potential ordinary shares that are not contingently issuable is assumed.

C o n t r a c t s t h a t m a y b e s e t t l e d i n o r d i n a r y s h a r e s o r c a s h

58. When an entity has issued a contract that may be settled in ordinary shares or cash at the entity’s option, the entity
shall presume that the contract will be settled in ordinary shares, and the resulting potential ordinary shares shall
be included in diluted earnings per share if the effect is dilutive.

59. When such a contract is presented for accounting purposes as an asset or a liability, or has an equity component and
a liability component, the entity shall adjust the numerator for any changes in profit or loss that would have resulted
during the period if the contract had been classified wholly as an equity instrument. That adjustment is similar to the
adjustments required in paragraph 33.

60. For contracts that may be settled in ordinary shares or cash at the holder’s option, the more dilutive of cash settle-

ment and share settlement shall be used in calculating diluted earnings per share.

61. An example of a contract that may be settled in ordinary shares or cash is a debt instrument that, on maturity, gives
the entity the unrestricted right to settle the principal amount in cash or in its own ordinary shares. Another example
is a written put option that gives the holder a choice of settling in ordinary shares or cash.

P u r c h a s e d o p t i o n s

62. Contracts such as purchased put options and purchased call options (ie options held by the entity on its own ordinary
shares) are not included in the calculation of diluted earnings per share because including them would be antidilu-
tive. The put option would be exercised only if the exercise price were higher than the market price and the call option
would be exercised only if the exercise price were lower than the market price.

W r i t t e n p u t o p t i o n s

63. Contracts that require the entity to repurchase its own shares, such as written put options and forward purchase
contracts, are reflected in the calculation of diluted earnings per share if the effect is dilutive. If these contracts are
‘in the money’ during the period (ie the exercise or settlement price is above the average market price for that
period), the potential dilutive effect on earnings per share shall be calculated as follows:

(a)

it shall be assumed that at the beginning of the period sufficient ordinary shares will be issued (at the average
market price during the period) to raise proceeds to satisfy the contract;

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(b)

it shall be assumed that the proceeds from the issue are used to satisfy the contract (ie to buy back ordinary
shares);

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and

(c)

the incremental ordinary shares (the difference between the number of ordinary shares assumed issued and
the number of ordinary shares received from satisfying the contract) shall be included in the calculation of
diluted earnings per share.

RETROSPECTIVE ADJUSTMENTS

64.

If the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation, bonus
issue or share split, or decreases as a result of a reverse share split, the calculation of basic and diluted earnings per
share for all periods presented shall be adjusted retrospectively. If these changes occur after the balance sheet date
but before the financial statements are authorised for issue, the per share calculations for those and any prior period
financial statements presented shall be based on the new number of shares. The fact that per share calculations
reflect such changes in the number of shares shall be disclosed. In addition, basic and diluted earnings per share of
all periods presented shall be adjusted for:

(a)

the effects of errors and adjustments resulting from changes in accounting policies, accounted for
retrospectively;

and

(b)

the effects of a business combination that is a uniting of interests.

65. An entity does not restate diluted earnings per share of any prior period presented for changes in the assumptions used

in earnings per share calculations or for the conversion of potential ordinary shares into ordinary shares.

PRESENTATION

66. An entity shall present on the face of the income statement basic and diluted earnings per share for profit or loss
from continuing operations attributable to the ordinary equity holders of the parent entity and for profit or
loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares
that has a different right to share in profit for the period. An entity shall present basic and diluted earnings per
share with equal prominence for all periods presented.

67. Earnings per share is presented for every period for which an income statement is presented. If diluted earnings per
share is reported for at least one period, it shall be reported for all periods presented, even if it equals basic earnings per
share. If basic and diluted earnings per share are equal, dual presentation can be accomplished in one line on the income
statement.

68. An entity that reports a discontinuing operation shall disclose the basic and diluted amounts per share for the dis-
continuing operation either on the face of the income statement or in the notes to the financial statements.

69. An entity shall present basic and diluted earnings per share, even if the amounts are negative (ie a loss per share).

70. An entity shall disclose the following:

DISCLOSURE

(a)

(b)

the amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation
of those amounts to profit or loss attributable to the parent entity for the period. The reconciliation shall
include the individual effect of each class of instruments that affects earnings per share.

the weighted average number of ordinary shares used as the denominator in calculating basic and diluted earn-
ings per share, and a reconciliation of these denominators to each other. The reconciliation shall include the
individual effect of each class of instruments that affects earnings per share.

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(c)

instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in
the future, but were not included in the calculation of diluted earnings per share because they are antidilutive
for the period(s) presented.

(d) a description of ordinary share transactions or potential ordinary share transactions, other than those
accounted for in accordance with paragraph 64, that occur after the balance sheet date and that would have
changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the
period if those transactions had occurred before the end of the reporting period.

71. Examples of transactions in paragraph 70(d) include:

(a)

an issue of shares for cash;

(b)

an issue of shares when the proceeds are used to repay debt or preference shares outstanding at the balance sheet
date;

(c)

the redemption of ordinary shares outstanding;

(d)

the conversion or exercise of potential ordinary shares outstanding at the balance sheet date into ordinary shares;

(e)

an issue of options, warrants, or convertible instruments;

and

(f)

the achievement of conditions that would result in the issue of contingently issuable shares.

Earnings per share amounts are not adjusted for such transactions occurring after the balance sheet date because such
transactions do not affect the amount of capital used to produce profit or loss for the period.

72. Financial instruments and other contracts generating potential ordinary shares may incorporate terms and conditions
that affect the measurement of basic and diluted earnings per share. These terms and conditions may determine whether
any potential ordinary shares are dilutive and, if so, the effect on the weighted average number of shares outstanding
and any consequent adjustments to profit or loss attributable to ordinary equity holders. The disclosure of the terms
and conditions of such financial instruments and other contracts is encouraged, if not otherwise required (see IAS 32).

73.

If an entity discloses, in addition to basic and diluted earnings per share, amounts per share using a reported com-
ponent of the income statement other than one required by this Standard, such amounts shall be calculated using
the weighted average number of ordinary shares determined in accordance with this Standard. Basic and diluted
amounts per share relating to such a component shall be disclosed with equal prominence and presented in the notes
to the financial statements. An entity shall indicate the basis on which the numerator(s) is (are) determined, includ-
ing whether amounts per share are before tax or after tax. If a component of the income statement is used that is
not reported as a line item in the income statement, a reconciliation shall be provided between the component used
and a line item that is reported in the income statement.

EFFECTIVE DATE

74. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies the Standard for a period beginning before 1 January 2005 it shall disclose that
fact.

WITHDRAWAL OF OTHER PRONOUNCEMENTS

75. This Standard supersedes IAS 33 Earnings Per Share (issued in 1997).

76. This Standard supersedes SIC-24 Earnings Per Share — Financial Instruments and Other Contracts that May Be Settled in

Shares.

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APPENDIX A

Application Guidance

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This appendix is an integral part of the Standard.

Profit or Loss Attributable to the Parent Entity

A1. For the purpose of calculating earnings per share based on the consolidated financial statements, profit or loss attrib-
utable to the parent entity refers to profit or loss of the consolidated entity after adjusting for minority interests.

Rights Issues

A2. The issue of ordinary shares at the time of exercise or conversion of potential ordinary shares does not usually give rise
to a bonus element. This is because the potential ordinary shares are usually issued for full value, resulting in a pro-
portionate change in the resources available to the entity. In a rights issue, however, the exercise price is often less than
the fair value of the shares. Therefore, as noted in paragraph 27(b), such a rights issue includes a bonus element. If a
rights issue is offered to all existing shareholders, the number of ordinary shares to be used in calculating basic and
diluted earnings per share for all periods before the rights issue is the number of ordinary shares outstanding before the
issue, multiplied by the following factor:

(Fair value per share immediately before the xercise of right)/(Theoretical ex-rights fair value per share)

The theoretical ex-rights fair value per share is calculated by adding the aggregate market value of the shares immedi-
ately before the exercise of the rights to the proceeds from the exercise of the rights, and dividing by the number of
shares outstanding after the exercise of the rights. Where the rights are to be publicly traded separately from the shares
before the exercise date, fair value for the purposes of this calculation is established at the close of the last day on which
the shares are traded together with the rights.

Control Number

A3. To illustrate the application of the control number notion described in paragraphs 42 and 43, assume that an entity
has profit from continuing operations attributable to the parent entity of CU4 800 (*) a loss from discontinuing opera-
tions attributable to the parent entity of (CU7 200), a loss attributable to the parent entity of (CU2 400), and 2 000
ordinary shares and 400 potential ordinary shares outstanding. The entity’s basic earnings per share is CU2.40 for con-
tinuing operations, (CU3.60) for discontinuing operations and (CU1.20) for the loss. The 400 potential ordinary shares
are included in the diluted earnings per share calculation because the resulting CU2.00 earnings per share for continu-
ing operations is dilutive, assuming no profit or loss impact of those 400 potential ordinary shares. Because profit from
continuing operations attributable to the parent entity is the control number, the entity also includes those 400 poten-
tial ordinary shares in the calculation of the other earnings per share amounts, even though the resulting earnings per
share amounts are antidilutive to their comparable basic earnings per share amounts, ie the loss per share is less
[(CU3.00) per share for the loss from discontinuing operations and (CU1.00) per share for the loss].

(*)

In this guidance, monetary amounts are denominated in ‘currency units’ (CU).

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IAS 33

Average Market Price of Ordinary Shares

A4. For the purpose of calculating diluted earnings per share, the average market price of ordinary shares assumed to be
issued is calculated on the basis of the average market price of the ordinary shares during the period. Theoretically, every
market transaction for an entity’s ordinary shares could be included in the determination of the average market price. As
a practical matter, however, a simple average of weekly or monthly prices is usually adequate.

A5. Generally, closing market prices are adequate for calculating the average market price. When prices fluctuate widely,
however, an average of the high and low prices usually produces a more representative price. The method used to cal-
culate the average market price is used consistently unless it is no longer representative because of changed condi-
tions. For example, an entity that uses closing market prices to calculate the average market price for several years of
relatively stable prices might change to an average of high and low prices if prices start fluctuating greatly and the clos-
ing market prices no longer produce a representative average price.

Options, Warrants and Their Equivalents

A6. Options or warrants to purchase convertible instruments are assumed to be exercised to purchase the convertible instru-
ment whenever the average prices of both the convertible instrument and the ordinary shares obtainable upon con-
version are above the exercise price of the options or warrants. However, exercise is not assumed unless conversion of
similar outstanding convertible instruments, if any, is also assumed.

A7. Options or warrants may permit or require the tendering of debt or other instruments of the entity (or its parent or a
subsidiary) in payment of all or a portion of the exercise price. In the calculation of diluted earnings per share, those
options or warrants have a dilutive effect if (a) the average market price of the related ordinary shares for the period
exceeds the exercise price or (b) the selling price of the instrument to be tendered is below that at which the instrument
may be tendered under the option or warrant agreement and the resulting discount establishes an effective exercise price
below the market price of the ordinary shares obtainable upon exercise. In the calculation of diluted earnings per share,
those options or warrants are assumed to be exercised and the debt or other instruments are assumed to be tendered. If
tendering cash is more advantageous to the option or warrant holder and the contract permits tendering cash, tender-
ing of cash is assumed. Interest (net of tax) on any debt assumed to be tendered is added back as an adjustment to the
numerator.

A8. Similar treatment is given to preference shares that have similar provisions or to other instruments that have conver-

sion options that permit the investor to pay cash for a more favourable conversion rate.

A9. The underlying terms of certain options or warrants may require the proceeds received from the exercise of those instru-
ments to be applied to redeem debt or other instruments of the entity (or its parent or a subsidiary). In the calculation
of diluted earnings per share, those options or warrants are assumed to be exercised and the proceeds applied to pur-
chase the debt at its average market price rather than to purchase ordinary shares. However, the excess proceeds
received from the assumed exercise over the amount used for the assumed purchase of debt are considered (ie assumed
to be used to buy back ordinary shares) in the diluted earnings per share calculation. Interest (net of tax) on any debt
assumed to be purchased is added back as an adjustment to the numerator.

Written Put Options

A10. To illustrate the application of paragraph 63, assume that an entity has outstanding 120 written put options on its
ordinary shares with an exercise price of CU35. The average market price of its ordinary shares for the period is
CU28. In calculating diluted earnings per share, the entity assumes that it issued 150 shares at CU28 per share at the
beginning of the period to satisfy its put obligation of CU4 200. The difference between the 150 ordinary shares issued
and the 120 ordinary shares received from satisfying the put option (30 incremental ordinary shares) is added to the
denominator in calculating diluted earnings per share.

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Instruments of Subsidiaries, Joint Ventures or Associates

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A11. Potential ordinary shares of a subsidiary, joint venture or associate convertible into either ordinary shares of the sub-
sidiary, joint venture or associate, or ordinary shares of the parent, venturer or investor (the reporting entity) are
included in the calculation of diluted earnings per share as follows:

(a)

(b)

instruments issued by a subsidiary, joint venture or associate that enable their holders to obtain ordinary shares
of the subsidiary, joint venture or associate are included in calculating the diluted earnings per share data of the
subsidiary, joint venture or associate. Those earnings per share are then included in the reporting entity’s earn-
ings per share calculations based on the reporting entity’s holding of the instruments of the subsidiary, joint ven-
ture or associate.

instruments of a subsidiary, joint venture or associate that are convertible into the reporting entity’s ordinary
shares are considered among the potential ordinary shares of the reporting entity for the purpose of calculating
diluted earnings per share. Likewise, options or warrants issued by a subsidiary, joint venture or associate to pur-
chase ordinary shares of the reporting entity are considered among the potential ordinary shares of the report-
ing entity in the calculation of consolidated diluted earnings per share.

A12. For the purpose of determining the earnings per share effect of instruments issued by a reporting entity that are con-
vertible into ordinary shares of a subsidiary, joint venture or associate, the instruments are assumed to be converted
and the numerator (profit or loss attributable to ordinary equity holders of the parent entity) adjusted as necessary in
accordance with paragraph 33. In addition to those adjustments, the numerator is adjusted for any change in the profit
or loss recorded by the reporting entity (such as dividend income or equity method income) that is attributable to the
increase in the number of ordinary shares of the subsidiary, joint venture or associate outstanding as a result of the
assumed conversion. The denominator of the diluted earnings per share calculation is not affected because the num-
ber of ordinary shares of the reporting entity outstanding would not change upon assumed conversion.

Participating Equity Instruments and Two-Class Ordinary Shares

A13. The equity of some entities includes:

(a)

instruments that participate in dividends with ordinary shares according to a predetermined formula (for
example, two for one) with, at times, an upper limit on the extent of participation (for example, up to, but not
beyond, a specified amount per share).

(b)

a class of ordinary shares with a different dividend rate from that of another class of ordinary shares but without
prior or senior rights.

A14. For the purpose of calculating diluted earnings per share, conversion is assumed for those instruments described in
paragraph A13 that are convertible into ordinary shares if the effect is dilutive. For those instruments that are not
convertible into a class of ordinary shares, profit or loss for the period is allocated to the different classes of shares
and participating equity instruments in accordance with their dividend rights or other rights to participate in undis-
tributed earnings. To calculate basic and diluted earnings per share:

(a)

(b)

profit or loss attributable to ordinary equity holders of the parent entity is adjusted (a profit reduced and a loss
increased) by the amount of dividends declared in the period for each class of shares and by the contractual
amount of dividends (or interest on participating bonds) that must be paid for the period (for example, unpaid
cumulative dividends).

the remaining profit or loss is allocated to ordinary shares and participating equity instruments to the extent that
each instrument shares in earnings as if all of the profit or loss for the period had been distributed. The total
profit or loss allocated to each class of equity instrument is determined by adding together the amount allocated
for dividends and the amount allocated for a participation feature.

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(c)

the total amount of profit or loss allocated to each class of equity instrument is divided by the number of out-
standing instruments to which the earnings are allocated to determine the earnings per share for the instrument.

For the calculation of diluted earnings per share, all potential ordinary shares assumed to have been issued are included
in outstanding ordinary shares.

Partly Paid Shares

A15. Where ordinary shares are issued but not fully paid, they are treated in the calculation of basic earnings per share as
a fraction of an ordinary share to the extent that they were entitled to participate in dividends during the period rela-
tive to a fully paid ordinary share.

A16. To the extent that partly paid shares are not entitled to participate in dividends during the period they are treated as
the equivalent of warrants or options in the calculation of diluted earnings per share. The unpaid balance is assumed
to represent proceeds used to purchase ordinary shares. The number of shares included in diluted earnings per share
is the difference between the number of shares subscribed and the number of shares assumed to be purchased.

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APPENDIX B

Amendments to Other Pronouncements

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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this
Standard for an earlier period, these amendments shall be applied for that earlier period.

B1.

In International Financial Reporting Standards, including International Accounting Standards and Interpretations, appli-
cable at December 2003, references to the current version of IAS 33 Earnings Per Share are amended to IAS 33 Earnings
per Share.

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IAS 40

INTERNATIONAL ACCOUNTING STANDARD 40

Investment Property

SUMMARY

Objective

Scope

Definitions

Recognition

Measurement at recognition

Measurement after recognition

Accounting Policy

Fair Value Model

Inability to Determine Fair Value Reliably

Cost Model

Transfers

Disposals

Disclosure

Fair Value Model and Cost Model

Fair Value Model

Cost Model

Transitional provisions

Fair Value Model

Cost Model

Effective date

Withdrawal of IAS 40 (2000)

Paragraphs

1

2-4

5-15

16-19

20-29

30-56

30-32

33-55

53-55

56

57-65

66-73

74-79

74-79

76-78

79

80-84

80-82

83-84

85

86

This revised Standard supersedes IAS 40 (2000) Investment Property and should be applied for annual periods beginning on
or after 1 January 2005. Earlier application is encouraged.

OBJECTIVE

1.

The objective of this Standard is to prescribe the accounting treatment for investment property and related disclosure
requirements.

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2.

This Standard shall be applied in the recognition, measurement and disclosure of investment property.

3. Among other things, this Standard applies to the measurement in a lessee’s financial statements of investment prop-
erty interests held under a lease accounted for as a finance lease and to the measurement in a lessor’s financial state-
ments of investment property provided to a lessee under an operating lease. This Standard does not deal with matters
covered in IAS 17 Leases, including:

(a)

classification of leases as finance leases or operating leases;

(b)

recognition of lease income from investment property (see also IAS 18 Revenue);

(c) measurement in a lessee’s financial statements of property interests held under a lease accounted for as an oper-

ating lease;

(d) measurement in a lessor’s financial statements of its net investment in a finance lease;

(e)

accounting for sale and leaseback transactions;

and

(f)

disclosure about finance leases and operating leases.

4.

This Standard does not apply to:

(a)

biological assets related to agricultural activity (see IAS 41 Agriculture); and

(b) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

DEFINITIONS

5.

The following terms are used in this Standard with the meanings specified:

Carrying amount is the amount at which an asset is recognised in the balance sheet.

Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset
at the time of its acquisition or construction.

Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s
length transaction.

Investment property is property (land or a building — or part of a building — or both) held (by the owner or by the
lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes;

or

(b)

sale in the ordinary course of business.

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Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the pro-
duction or supply of goods or services or for administrative purposes.

6. A property interest that is held by a lessee under an operating lease may be classified and accounted for as invest-
ment property if, and only if, the property would otherwise meet the definition of an investment property and the
lessee uses the fair value model set out in paragraphs 33-55 for the asset recognised. This classification alternative
is available on a property-by-property basis. However, once this classification alternative is selected for one such
property interest held under an operating lease, all property classified as investment property shall be accounted for
using the fair value model. When this classification alternative is selected, any interest so classified is included in
the disclosures required by paragraphs 74-78.

7.

Investment property is held to earn rentals or for capital appreciation or both. Therefore, an investment property gen-
erates cash flows largely independently of the other assets held by an entity. This distinguishes investment property
from owner-occupied property. The production or supply of goods or services (or the use of property for administra-
tive purposes) generates cash flows that are attributable not only to property, but also to other assets used in the pro-
duction or supply process. IAS 16 Property, Plant and Equipment applies to owner-occupied property.

8.

The following are examples of investment property:

(a)

land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.

(b)

land held for a currently undetermined future use. (If an entity has not determined that it will use the land as
owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded as held for
capital appreciation).

(c)

a building owned by the entity (or held by the entity under a finance lease) and leased out under one or more oper-
ating leases.

(d)

a building that is vacant but is held to be leased out under one or more operating leases.

9.

The following are examples of items that are not investment property and are therefore outside the scope of this
Standard:

(a)

property held for sale in the ordinary course of business or in the process of construction or development for such
sale (see IAS 2 Inventories), for example, property acquired exclusively with a view to subsequent disposal in the
near future or for development and resale.

(b) property being constructed or developed on behalf of third parties (see IAS 11 Construction Contracts).

(c)

owner-occupied property (see IAS 16), including (among other things) property held for future use as owner-
occupied property, property held for future development and subsequent use as owner-occupied property, prop-
erty occupied by employees (whether or not the employees pay rent at market rates) and owner-occupied prop-
erty awaiting disposal.

(d) property that is being constructed or developed for future use as investment property. IAS 16 applies to such prop-
erty until construction or development is complete, at which time the property becomes investment property and
this Standard applies. However, this Standard applies to existing investment property that is being redeveloped
for continued future use as investment property (see paragraph 58).

(e)

property that is leased to another entity under a finance lease.

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10. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is
held for use in the production or supply of goods or services or for administrative purposes. If these portions could be
sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the por-
tions could not be sold separately, the property is investment property only if an insignificant portion is held for use in
the production or supply of goods or services or for administrative purposes.

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11.

In some cases, an entity provides ancillary services to the occupants of a property it holds. An entity treats such a prop-
erty as investment property if the services are insignificant to the arrangement as a whole. An example is when the
owner of an office building provides security and maintenance services to the lessees who occupy the building.

12.

In other cases, the services provided are significant. For example, if an entity owns and manages a hotel, services pro-
vided to guests are significant to the arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied
property, rather than investment property.

13.

It may be difficult to determine whether ancillary services are so significant that a property does not qualify as invest-
ment property. For example, the owner of a hotel sometimes transfers some responsibilities to third parties under a
management contract. The terms of such contracts vary widely. At one end of the spectrum, the owner’s position may,
in substance, be that of a passive investor. At the other end of the spectrum, the owner may simply have outsourced
day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations of
the hotel.

14.

Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so
that it can exercise that judgement consistently in accordance with the definition of investment property and with the
related guidance in paragraphs 7-13. Paragraph 75(c) requires an entity to disclose these criteria when classification is
difficult.

15.

In some cases, an entity owns property that is leased to, and occupied by, its parent or another subsidiary. The prop-
erty does not qualify as investment property in the consolidated financial statements, because the property is owner-
occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is
investment property if it meets the definition in paragraph 5. Therefore, the lessor treats the property as investment
property in its individual financial statements.

RECOGNITION

16.

Investment property shall be recognised as an asset when, and only when:

(a)

it is probable that the future economic benefits that are associated with the investment property will flow to
the entity;

and

(b)

the cost of the investment property can be measured reliably.

17. An entity evaluates under this recognition principle all its investment property costs at the time they are incurred. These
costs include costs incurred initially to acquire an investment property and costs incurred subsequently to add to,
replace part of, or service a property.

18. Under the recognition principle in paragraph 16, an entity does not recognise in the carrying amount of an investment
property the costs of the day-to-day servicing of such a property. Rather, these costs are recognised in profit or loss as
incurred. Costs of day-to-day servicing are primarily the cost of labour and consumables, and may include the cost of
minor parts. The purpose of these expenditures is often described as for the ‘repairs and maintenance’ of the property.

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19. Parts of investment properties may have been acquired through replacement. For example, the interior walls may be
replacements of original walls. Under the recognition principle, an entity recognises in the carrying amount of an invest-
ment property the cost of replacing part of an existing investment property at the time that cost is incurred if the rec-
ognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the
derecognition provisions of this Standard.

MEASUREMENT AT RECOGNITION

20. An investment property shall be measured initially at its cost. Transaction costs shall be included in the initial

measurement.

21. The cost of a purchased investment property comprises its purchase price and any directly attributable expendi-
ture. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes
and other transaction costs.

22. The cost of a self-constructed investment property is its cost at the date when the construction or development is com-
plete. Until that date, an entity applies IAS 16. At that date, the property becomes investment property and this Stan-
dard applies (see paragraphs 57(e) and 65).

23. The cost of an investment property is not increased by:

(a)

start-up costs (unless they are necessary to bring the property to the condition necessary for it to be capable of
operating in the manner intended by management),

(b) operating losses incurred before the investment property achieves the planned level of occupancy,

or

(c)

abnormal amounts of wasted material, labour or other resources incurred in constructing or developing the
property.

24.

If payment for an investment property is deferred, its cost is the cash price equivalent. The difference between this
amount and the total payments is recognised as interest expense over the period of credit.

25. The initial cost of a property interest held under a lease and classified as an investment property shall be as pre-
scribed for a finance lease by paragraph 20 of IAS 17, ie the asset shall be recognised at the lower of the fair value
of the property and the present value of the minimum lease payments. An equivalent amount shall be recognised as
a liability in accordance with that same paragraph.

26. Any premium paid for a lease is treated as part of the minimum lease payments for this purpose, and is therefore
included in the cost of the asset, but is excluded from the liability. If a property interest held under a lease is classified
as investment property, the item accounted for at fair value is that interest and not the underlying property. Guidance
on determining the fair value of a property interest is set out for the fair value model in paragraphs 33-52. That guid-
ance is also relevant to the determination of fair value when that value is used as cost for initial recognition purposes.

27. One or more investment properties may be acquired in exchange for a non-monetary asset or assets, or a combination
of monetary and non-monetary assets. The following discussion refers to an exchange of one non-monetary asset for
another, but it also applies to all exchanges described in the preceding sentence. The cost of such an investment prop-
erty is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of
neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even
if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its
cost is measured at the carrying amount of the asset given up.

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28. An entity determines whether an exchange transaction has commercial substance by considering the extent to which
its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial
substance if:

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(a)

the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration
of the cash flows of the asset transferred,

or

(b)

the entity-specific value of the portion of the entity’s operations affected by the transaction changes as a result of
the exchange,

and

(c)

the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the entity-specific value
of the portion of the entity’s operations affected by the transaction shall reflect post-tax cash flows. The result of these
analyses may be clear without an entity having to perform detailed calculations.

29. The fair value of an asset for which comparable market transactions do not exist is reliably measurable if (a) the vari-
ability in the range of reasonable fair value estimates is not significant for that asset or (b) the probabilities of the vari-
ous estimates within the range can be reasonably assessed and used in estimating fair value. If the entity is able to deter-
mine reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is
used to measure cost unless the fair value of the asset received is more clearly evident.

MEASUREMENT AFTER RECOGNITION

Accounting Policy

30. With the exception noted in paragraph 34, an entity shall choose as its accounting policy either the fair value model
in paragraphs 33-55 or the cost model in paragraph 56 and shall apply that policy to all of its investment property.

31.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors states that a voluntary change in accounting policy
shall be made only if the change will result in a more appropriate presentation of transactions, other events or condi-
tions in the entity’s financial statements. It is highly unlikely that a change from the fair value model to the cost model
will result in a more appropriate presentation.

32. This Standard requires all entities to determine the fair value of investment property, for the purpose of either mea-
surement (if the entity uses the fair value model) or disclosure (if it uses the cost model). An entity is encouraged, but
not required, to determine the fair value of investment property on the basis of a valuation by an independent valuer
who holds a recognised and relevant professional qualification and has recent experience in the location and category
of the investment property being valued.

Fair Value Model

33. After initial recognition, an entity that chooses the fair value model shall measure all of its investment property at

fair value, except in the cases described in paragraph 53.

34. When a property interest held by a lessee under an operating lease is classified as an investment property under

paragraph 6, paragraph 30 is not elective; the fair value model shall be applied.

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35. A gain or loss arising from a change in the fair value of investment property shall be recognised in profit or loss for

the period in which it arises.

36. The fair value of investment property is the price at which the property could be exchanged between knowledgeable,
willing parties in an arm’s length transaction (see paragraph 5). Fair value specifically excludes an estimated price
inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, spe-
cial considerations or concessions granted by anyone associated with the sale.

37. An entity determines fair value without any deduction for transaction costs it may incur on sale or other disposal.

38. The fair value of investment property shall reflect market conditions at the balance sheet date.

39. Fair value is time-specific as of a given date. Because market conditions may change, the amount reported as fair value
may be incorrect or inappropriate if estimated as of another time. The definition of fair value also assumes simulta-
neous exchange and completion of the contract for sale without any variation in price that might be made in an arm’s
length transaction between knowledgeable, willing parties if exchange and completion are not simultaneous.

40. The fair value of investment property reflects, among other things, rental income from current leases and reasonable
and supportable assumptions that represent what knowledgeable, willing parties would assume about rental income
from future leases in the light of current conditions. It also reflects, on a similar basis, any cash outflows (including
rental payments and other outflows) that could be expected in respect of the property. Some of those outflows are
reflected in the liability whereas others relate to outflows that are not recognised in the financial statements until a later
date (eg periodic payments such as contingent rents).

41. Paragraph 25 specifies the basis for initial recognition of the cost of an interest in a leased property. Paragraph 33
requires the interest in the leased property to be remeasured, if necessary, to fair value. In a lease negotiated at market
rates, the fair value of an interest in a leased property at acquisition, net of all expected lease payments (including those
relating to recognised liabilities), should be zero. This fair value does not change regardless of whether, for accounting
purposes, a leased asset and liability are recognised at fair value or at the present value of minimum lease payments, in
accordance with paragraph 20 of IAS 17. Thus, remeasuring a leased asset from cost in accordance with paragraph 25
to fair value in accordance with paragraph 33 should not give rise to any initial gain or loss, unless fair value is mea-
sured at different times. This could occur when an election to apply the fair value model is made after initial recognition.

42. The definition of fair value refers to ‘knowledgeable, willing parties’. In this context, ‘knowledgeable’ means that both
the willing buyer and the willing seller are reasonably informed about the nature and characteristics of the investment
property, its actual and potential uses, and market conditions at the balance sheet date. A willing buyer is motivated,
but not compelled, to buy. This buyer is neither over-eager nor determined to buy at any price. The assumed buyer
would not pay a higher price than a market comprising knowledgeable, willing buyers and sellers would require.

43. A willing seller is neither an over-eager nor a forced seller, prepared to sell at any price, nor one prepared to hold out
for a price not considered reasonable in current market conditions. The willing seller is motivated to sell the invest-
ment property at market terms for the best price obtainable. The factual circumstances of the actual investment prop-
erty owner are not a part of this consideration because the willing seller is a hypothetical owner (eg a willing seller
would not take into account the particular tax circumstances of the actual investment property owner).

44. The definition of fair value refers to an arm’s length transaction. An arm’s length transaction is one between parties
that do not have a particular or special relationship that makes prices of transactions uncharacteristic of market con-
ditions. The transaction is presumed to be between unrelated parties, each acting independently.

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45. The best evidence of fair value is given by current prices in an active market for similar property in the same location
and condition and subject to similar lease and other contracts. An entity takes care to identify any differences in the
nature, location or condition of the property, or in the contractual terms of the leases and other contracts relating to
the property.

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46.

In the absence of current prices in an active market of the kind described in paragraph 45, an entity considers infor-
mation from a variety of sources, including:

(a)

current prices in an active market for properties of different nature, condition or location (or subject to different
lease or other contracts), adjusted to reflect those differences;

(b)

recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic con-
ditions since the date of the transactions that occurred at those prices;

and

(c)

discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any
existing lease and other contracts and (when possible) by external evidence such as current market rents for simi-
lar properties in the same location and condition, and using discount rates that reflect current market assessments
of the uncertainty in the amount and timing of the cash flows.

47.

In some cases, the various sources listed in the previous paragraph may suggest different conclusions about the fair
value of an investment property. An entity considers the reasons for those differences, in order to arrive at the most
reliable estimate of fair value within a range of reasonable fair value estimates.

48.

In exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing
property first becomes investment property following the completion of construction or development, or after a change
in use) that the variability in the range of reasonable fair value estimates will be so great, and the probabilities of the
various outcomes so difficult to assess, that the usefulness of a single estimate of fair value is negated. This may indi-
cate that the fair value of the property will not be reliably determinable on a continuing basis (see paragraph 53).

49. Fair value differs from value in use, as defined in IAS 36 Impairment of Assets. Fair value reflects the knowledge and esti-
mates of knowledgeable, willing buyers and sellers. In contrast, value in use reflects the entity’s estimates, including the
effects of factors that may be specific to the entity and not applicable to entities in general. For example, fair value does
not reflect any of the following factors to the extent that they would not be generally available to knowledgeable, will-
ing buyers and sellers:

(a)

additional value derived from the creation of a portfolio of properties in different locations;

(b)

synergies between investment property and other assets;

(c)

legal rights or legal restrictions that are specific only to the current owner;

and

(d)

tax benefits or tax burdens that are specific to the current owner.

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50.

In determining the fair value of investment property, an entity does not double-count assets or liabilities that are rec-
ognised as separate assets or liabilities. For example:

(a)

equipment such as lifts or air-conditioning is often an integral part of a building and is generally included in the
fair value of the investment property, rather than recognised separately as property, plant and equipment.

(b)

if an office is leased on a furnished basis, the fair value of the office generally includes the fair value of the furni-
ture, because the rental income relates to the furnished office. When furniture is included in the fair value of invest-
ment property, an entity does not recognise that furniture as a separate asset.

(c)

the fair value of investment property excludes prepaid or accrued operating lease income, because the entity rec-
ognises it as a separate liability or asset.

(d)

the fair value of investment property held under a lease reflects expected cash flows (including contingent rent
that is expected to become payable). Accordingly, if a valuation obtained for a property is net of all payments
expected to be made, it will be necessary to add back any recognised lease liability, to arrive at the fair value of the
investment property for accounting purposes.

51. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the prop-

erty and does not reflect the related future benefits from this future expenditure.

52.

In some cases, an entity expects that the present value of its payments relating to an investment property (other than
payments relating to recognised liabilities) will exceed the present value of the related cash receipts. An entity applies
IAS 37 Provisions, Contingent Liabilities and Contingent Assets to determine whether to recognise a liability and, if so, how
to measure it.

I n a b i l i t y t o D e t e r m i n e F a i r V a l u e R e l i a b l y

53. There is a rebuttable presumption that an entity can reliably determine the fair value of an investment property on
a continuing basis. However, in exceptional cases, there is clear evidence when an entity first acquires an invest-
ment property (or when an existing property first becomes investment property following the completion of con-
struction or development, or after a change in use) that the fair value of the investment property is not reliably
determinable on a continuing basis. This arises when, and only when, comparable market transactions are infre-
quent and alternative reliable estimates of fair value (for example, based on discounted cash flow projections) are
not available. In such cases, an entity shall measure that investment property using the cost model in IAS 16. The
residual value of the investment property shall be assumed to be zero. The entity shall apply IAS 16 until disposal
of the investment property.

54.

In the exceptional cases when an entity is compelled, for the reason given in the previous paragraph, to measure an
investment property using the cost model in accordance with IAS 16, it measures all its other investment property at
fair value. In these cases, although an entity may use the cost model for one investment property, the entity shall con-
tinue to account for each of the remaining properties using the fair value model.

55.

If an entity has previously measured an investment property at fair value, it shall continue to measure the property
at fair value until disposal (or until the property becomes owner-occupied property or the entity begins to develop
the property for subsequent sale in the ordinary course of business) even if comparable market transactions become
less frequent or market prices become less readily available.

Cost Model

56. After initial recognition, an entity that chooses the cost model shall measure all of its investment property in accor-
dance with IAS 16’s requirements for that model, ie at cost less any accumulated depreciation and any accumulated
impairment losses.

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TRANSFERS

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57. Transfers to, or from, investment property shall be made when, and only when, there is a change in use, evidenced by:

(a)

commencement of owner-occupation, for a transfer from investment property to owner-occupied property;

(b)

commencement of development with a view to sale, for a transfer from investment property to inventories;

(c)

end of owner-occupation, for a transfer from owner-occupied property to investment property;

(d)

commencement of an operating lease to another party, for a transfer from inventories to investment property;

or

(e)

end of construction or development, for a transfer from property in the course of construction or development
(covered by IAS 16) to investment property.

58. Paragraph 57(b) requires an entity to transfer a property from investment property to inventories when, and only when,
there is a change in use, evidenced by commencement of development with a view to sale. When an entity decides to
dispose of an investment property without development, it continues to treat the property as an investment property
until it is derecognised (eliminated from the balance sheet) and does not treat it as inventory. Similarly, if an entity
begins to redevelop an existing investment property for continued future use as investment property, the property
remains an investment property and is not reclassified as owner-occupied property during the redevelopment.

59. Paragraphs 60-65 apply to recognition and measurement issues that arise when an entity uses the fair value model for
investment property. When an entity uses the cost model, transfers between investment property, owner-occupied
property and inventories do not change the carrying amount of the property transferred and they do not change the
cost of that property for measurement or disclosure purposes.

60. For a transfer from investment property carried at fair value to owner-occupied property or inventories, the prop-
erty’s deemed cost for subsequent accounting in accordance with IAS 16 or IAS 2 shall be its fair value at the date
of change in use.

61.

If an owner-occupied property becomes an investment property that will be carried at fair value, an entity shall apply
IAS 16 up to the date of change in use. The entity shall treat any difference at that date between the carrying
amount of the property in accordance with IAS 16 and its fair value in the same way as a revaluation in accordance
with IAS 16.

62. Up to the date when an owner-occupied property becomes an investment property carried at fair value, an entity depre-
ciates the property and recognises any impairment losses that have occurred. The entity treats any difference at that
date between the carrying amount of the property in accordance with IAS 16 and its fair value in the same way as a
revaluation in accordance with IAS 16. In other words:

(a)

any resulting decrease in the carrying amount of the property is recognised in profit or loss. However, to the extent
that an amount is included in revaluation surplus for that property, the decrease is charged against that revalua-
tion surplus.

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(b)

any resulting increase in the carrying amount is treated as follows:

(i)

to the extent that the increase reverses a previous impairment loss for that property, the increase is recogn-
ised in profit or loss. The amount recognised in profit or loss does not exceed the amount needed to restore
the carrying amount to the carrying amount that would have been determined (net of depreciation) had no
impairment loss been recognised.

(ii)

any remaining part of the increase is credited directly to equity in revaluation surplus. On subsequent dis-
posal of the investment property, the revaluation surplus included in equity may be transferred to retained
earnings. The transfer from revaluation surplus to retained earnings is not made through profit or loss.

63. For a transfer from inventories to investment property that will be carried at fair value, any difference between the
fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss.

64. The treatment of transfers from inventories to investment property that will be carried at fair value is consistent with

the treatment of sales of inventories.

65. When an entity completes the construction or development of a self-constructed investment property that will be
carried at fair value, any difference between the fair value of the property at that date and its previous carrying
amount shall be recognised in profit or loss.

DISPOSALS

66. An investment property shall be derecognised (eliminated from the balance sheet) on disposal or when the invest-
ment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.

67. The disposal of an investment property may be achieved by sale or by entering into a finance lease. In determining the
date of disposal for investment property, an entity applies the criteria in IAS 18 for recognising revenue from the sale
of goods and considers the related guidance in the Appendix to IAS 18. IAS 17 applies to a disposal effected by enter-
ing into a finance lease and to a sale and leaseback.

68.

If, in accordance with the recognition principle in paragraph 16, an entity recognises in the carrying amount of an asset
the cost of a replacement for part of an investment property, it derecognises the carrying amount of the replaced
part. For investment property accounted for using the cost model, a replaced part may not be a part that was depre-
ciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use
the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or
constructed. Under the fair value model, the fair value of the investment property may already reflect that the part to
be replaced has lost its value. In other cases it may be difficult to discern how much fair value should be reduced for the
part being replaced. An alternative to reducing fair value for the replaced part, when it is not practical to do so, is to
include the cost of the replacement in the carrying amount of the asset and then to reassess the fair value, as would be
required for additions not involving replacement.

69. Gains or losses arising from the retirement or disposal of investment property shall be determined as the difference
between the net disposal proceeds and the carrying amount of the asset and shall be recognised in profit or loss
(unless IAS 17 requires otherwise on a sale and leaseback) in the period of the retirement or disposal.

70. The consideration receivable on disposal of an investment property is recognised initially at fair value. In particular, if
payment for an investment property is deferred, the consideration received is recognised initially at the cash price
equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recogn-
ised as interest revenue in accordance with IAS 18 using the effective interest method.

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71. An entity applies IAS 37 or other Standards, as appropriate, to any liabilities that it retains after disposal of an invest-

ment property.

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72. Compensation from third parties for investment property that was impaired, lost or given up shall be recognised in

profit or loss when the compensation becomes receivable.

73.

Impairments or losses of investment property, related claims for or payments of compensation from third parties and
any subsequent purchase or construction of replacement assets are separate economic events and are accounted for
separately as follows:

(a)

impairments of investment property are recognised in accordance with IAS 36;

(b)

retirements or disposals of investment property are recognised in accordance with paragraphs 66-71 of this
Standard;

(c)

compensation from third parties for investment property that was impaired, lost or given up is recognised in profit
or loss when it becomes receivable;

and

(d)

the cost of assets restored, purchased or constructed as replacements is determined in accordance with para-
graphs 20-29 of this Standard.

DISCLOSURE

Fair Value Model and Cost Model

74. The disclosures below apply in addition to those in IAS 17. In accordance with IAS 17, the owner of an investment
property provides lessors’ disclosures about leases into which it has entered. An entity that holds an investment prop-
erty under a finance or operating lease provides lessees’ disclosures for finance leases and lessors’ disclosures for any
operating leases into which it has entered.

75. An entity shall disclose:

(a) whether it applies the fair value model or the cost model.

(b)

if it applies the fair value model, whether, and in what circumstances, property interests held under operating
leases are classified and accounted for as investment property.

(c) when classification is difficult (see paragraph 14), the criteria it uses to distinguish investment property from

owner-occupied property and from property held for sale in the ordinary course of business.

(d)

(e)

the methods and significant assumptions applied in determining the fair value of investment property, includ-
ing a statement whether the determination of fair value was supported by market evidence or was more heavily
based on other factors (which the entity shall disclose) because of the nature of the property and lack of com-
parable market data.

the extent to which the fair value of investment property (as measured or disclosed in the financial statements)
is based on a valuation by an independent valuer who holds a recognised and relevant professional qualifica-
tion and has recent experience in the location and category of the investment property being valued. If there
has been no such valuation, that fact shall be disclosed.

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(f)

the amounts recognised in profit or loss for:

(i)

rental income from investment property;

(ii) direct operating expenses (including repairs and maintenance) arising from investment property that gen-

erated rental income during the period;

and

(iii) direct operating expenses (including repairs and maintenance) arising from investment property that did

not generate rental income during the period.

(g)

the existence and amounts of restrictions on the realisability of investment property or the remittance of income
and proceeds of disposal.

(h)

contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or
enhancements.

F a i r V a l u e M o d e l

76.

In addition to the disclosures required by paragraph 75, an entity that applies the fair value model in para-
graphs 33-55 shall disclose a reconciliation between the carrying amounts of investment property at the beginning
and end of the period, showing the following:

(a) additions, disclosing separately those additions resulting from acquisitions and those resulting from subse-

quent expenditure recognised in the carrying amount of an asset;

(b) additions resulting from acquisitions through business combinations;

(c) disposals;

(d) net gains or losses from fair value adjustments;

(e)

the net exchange differences arising on the translation of the financial statements into a different presenta-
tion currency, and on translation of a foreign operation into the presentation currency of the reporting entity;

(f)

transfers to and from inventories and owner-occupied property;

and

(g) other changes.

77. When a valuation obtained for investment property is adjusted significantly for the purpose of the financial state-
ments, for example to avoid double-counting of assets or liabilities that are recognised as separate assets and liabili-
ties as described in paragraph 50, the entity shall disclose a reconciliation between the valuation obtained and the
adjusted valuation included in the financial statements, showing separately the aggregate amount of any recogn-
ised lease obligations that have been added back, and any other significant adjustments.

78.

In the exceptional cases referred to in paragraph 53, when an entity measures investment property using the cost
model in IAS 16, the reconciliation required by paragraph 76 shall disclose amounts relating to that investment
property separately from amounts relating to other investment property. In addition, an entity shall disclose:

(a) a description of the investment property;

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(b) an explanation of why fair value cannot be determined reliably;

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(c)

if possible, the range of estimates within which fair value is highly likely to lie;

and

(d) on disposal of investment property not carried at fair value:

(i)

the fact that the entity has disposed of investment property not carried at fair value;

(ii)

the carrying amount of that investment property at the time of sale;

and

(iii) the amount of gain or loss recognised.

C o s t M o d e l

79.

In addition to the disclosures required by paragraph 75, an entity that applies the cost model in paragraph 56 shall
disclose:

(a)

the depreciation methods used;

(b)

the useful lives or the depreciation rates used;

(c)

the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses)
at the beginning and end of the period;

(d) a reconciliation of the carrying amount of investment property at the beginning and end of the period, show-

ing the following:

(i)

additions, disclosing separately those additions resulting from acquisitions and those resulting from sub-
sequent expenditure recognised as an asset;

(ii)

additions resulting from acquisitions through business combinations;

(iii) disposals;

(iv) depreciation;

(v)

the amount of impairment losses recognised, and the amount of impairment losses reversed, during the
period in accordance with IAS 36;

(vi)

the net exchange differences arising on the translation of the financial statements into a different pre-
sentation currency, and on translation of a foreign operation into the presentation currency of the report-
ing entity;

(vii) transfers to and from inventories and owner-occupied property;

and

(viii) other changes;

and

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(e)

the fair value of investment property. In the exceptional cases described in paragraph 53, when an entity can-
not determine the fair value of the investment property reliably, it shall disclose:

(i)

a description of the investment property;

(ii) an explanation of why fair value cannot be determined reliably;

and

(iii) if possible, the range of estimates within which fair value is highly likely to lie.

TRANSITIONAL PROVISIONS

Fair Value Model

80. An entity that has previously applied IAS 40 (2000) and elects for the first time to classify and account for some or
all eligible property interests held under operating leases as investment property shall recognise the effect of that
election as an adjustment to the opening balance of retained earnings for the period in which the election is first
made. In addition:

(a)

if the entity has previously disclosed publicly (in financial statements or otherwise) the fair value of those prop-
erty interests in earlier periods (determined on a basis that satisfies the definition of fair value in paragraph 5
and the guidance in paragraphs 36-52), the entity is encouraged, but not required:

(i)

to adjust the opening balance of retained earnings for the earliest period presented for which such fair
value was disclosed publicly;

and

(ii)

to restate comparative information for those periods;

and

(b)

if the entity has not previously disclosed publicly the information described in (a), it shall not restate com-
parative information and shall disclose that fact.

81. This Standard requires a treatment different from that required by IAS 8. IAS 8 requires comparative information to be

restated unless such restatement is impracticable.

82. When an entity first applies this Standard, the adjustment to the opening balance of retained earnings includes the

reclassification of any amount held in revaluation surplus for investment property.

Cost Model

83.

IAS 8 applies to any change in accounting policies that is made when an entity first applies this Standard and chooses
to use the cost model. The effect of the change in accounting policies includes the reclassification of any amount held
in revaluation surplus for investment property.

84. The requirements of paragraphs 27-29 regarding the initial measurement of an investment property acquired in an

exchange of assets transaction shall be applied prospectively only to future transactions.

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EFFECTIVE DATE

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85. An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that
fact.

86. This Standard supersedes IAS 40 Investment Property (issued in 2000).

WITHDRAWAL OF IAS 40 (2000)