Rakesh Khanna

IFRS Summary Information Notes by Rakesh Khanna Accounting Policies, accounting estimates and errors IAS 8 Changes in accounting policies Any voluntary change in accounting policy should be accounted for retrospectively (that is restating all previous year figures) unless impractical to do so However on initial adoption of policy to measure PPE or Intangible assets, it should be accounted for in year of change Changes in accounting estimates where change results in change of assets or liabilities or equity, it should be considered in period of change otherwise, it should be adjusted restrospectively Errors Material prior period errors are adjusted retrospectively unless impractical. Fair Value. IFRS 13 A fair value measurement requires management to determine four things: the particular asset or liability that is the subject of the measurement (consistent with its unit of account); the highest and best use for a non-financial asset; the principal (or, in its absence, the most advantageous) market; and the valuation technique. IFRS 13 addresses how to measure fair value, but it does not stipulate when fair value can or should be used. Revenue and construction contracts, IFRS 15 and IAS 20 Under IFRS 15, revenue is recognised based on the satisfaction of performance obligations. In applying IFRS 15, entities would follow this fivestep process: Identify the contract with a customer. Identify the separate performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the separate performance obligations. Recognise revenue when (or as) each performance obligation is satisfied. Software Companies contracts Licensing, installation, Cloud services, customer support, updates, maintnance etc Each distinct obligation to be identified separately. eg. If License is distinct, revenue to be reconginized at point in time or otherwise over time. For customisation, license renewals and customr support, revenue is recongnized at the point in time when the customer obtains control otherwise over time if specific criteria are met Introduction to financial instruments – Objectives, definitions and scope – IAS 32, IAS 39, IFRS 9 and IFRS 7 Financial instruments are recognised and measured according to IAS 39/IFRS 9’s requirements and are disclosed in accordance with IFRS 7. A derivative is a financial instrument that derives its value from an underlying price or index; requires little or no initial net investment; and is settled at a future date. Financial liabilities are measured at amortized cost and tested for fair value at end of period. Any differences are reflected in Other Comprehensive Income Segment reporting. IFRS 8 Employee Benefits Defined contribution plans Eg. EPF, 401k, contribution paid by employer for that period is recognized as cost Defined bneifit plans, Eg. Gratuity, Leave Encashment Actuarual assumptions for interest rates, salary increases, mortality rates etc are considered Subject to certain conditions, the net amount recognised on the balance sheet is the difference between the defined benefit obligation and the plan assets. Share based payment IFRS 2 The most common application is to employee share schemes, such as share option schemes. However, entities sometimes also pay for other expenses, such as professional fees and for the purchase of assets, by means of share-based payment. The accounting treatment under IFRS 2 is based on the fair value of the instruments. Typically, share-based payment transactions are recognised as expenses or assets over any vesting period. The liability is remeasured at each balance sheet date and at the date of settlement, with changes in fair value recognised in the income statement. Taxation – IAS 12, IFRIC 23 Current tax provision based on taxes payable for the period as per tax laws Deferred tax is provided in full for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements Earnings per share Basic EPS is calculated by dividing the profit or loss for the period attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding (including adjustments for bonus and rights issues). Diluted EPS is calculated by adjusting the profit or loss and the weighted average number of ordinary shares by taking into account the conversion of any dilutive potential ordinary shares. Potential ordinary shares are those financial instruments and contracts that might result in issuing ordinary shares, such as convertible bonds and options (including employee share options). Intangible Assets IAS 38 Separately acquired intangible assets are recognised initially at cost. Internally generated intangible assets The process of generating an intangible asset is divided into a research phase and a development phase. No intangible assets arising from the research phase can be recognised. Intangible assets arising from the development phase are recognised when the entity can demonstrate: Its technical feasibility; Its intention to complete the developments; Its ability to use or sell the intangible asset; How the intangible asset will generate probable future economic benefits (for example, the existence of a market for the output of the intangible asset or for the intangible asset itself); The availability of resources to complete the development; and Its ability to measure the attributable expenditure reliably. Any expenditure written off during the research or development phase cannot subsequently be capitalised if the project meets the criteria for recognition at a later date. The costs relating to many internally generated intangible items cannot be capitalised, and they are expensed as incurred. This includes research, start-up and advertising costs. Expenditure on internally generated brands, mastheads, customer lists, publishing titles and goodwill are not recognised as intangible assets. Intangible assets acquired in a business combination If an intangible asset is acquired in a business combination, both the probability and measurement criterion are always considered to be met. An intangible asset will therefore always be recognised, regardless of whether it has been previously recognised in the acquiree’s financial statements. Subsequent measurement Intangible assets are amortised, unless they have an indefinite useful life. Amortisation is carried out on a systematic basis over the useful life of the intangible asset. An intangible asset has an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Intangible assets with finite useful lives are considered for impairment when there is an indication that the asset has been impaired. Intangible assets with indefinite useful lives, and intangible assets not yet in use, are tested annually for impairment and whenever there is an indication of impairment. Property, plant and equipment – IAS 16 Property, plant and equipment (PPE) is recognised when the cost of an asset can be reliably measured and it is probable that the entity will obtain future economic benefits from the asset. PPE is measured initially at cost. Cost includes the fair value of the consideration given to acquire the asset (net of discounts and rebates) and any directly attributable cost of bringing the asset to working condition for its intended use (inclusive of import duties and non-refundable purchase taxes). Directly attributable costs include the cost of site preparation, delivery, installation costs, relevant professional fees and the estimated cost of dismantling and removing the asset and restoring the site (to the extent that such a cost is recognised as a provision). Classes of PPE are carried either at historical cost less accumulated depreciation and any accumulated impairment losses (the cost model), or at a revalued amount less any accumulated depreciation and subsequent accumulated impairment losses (the revaluation model). The depreciable amount of PPE (being the gross carrying value less the estimated residual value) is depreciated on a systematic basis over its useful life. Subsequent expenditure relating to an item of PPE is capitalised if it meets the recognition criteria. PPE might comprise parts with different useful lives. Depreciation is calculated based on each individual part’s life. In case of replacement of one part, the new part is capitalised to the extent that it meets the recognition criteria of an asset, and the carrying amount of the part replaced is derecognised. The cost of a major inspection or overhaul of an item, occurring at regular intervals over the useful life of the item, is capitalised to the extent that it meets the recognition criteria of an asset. The carrying amounts of the parts replaced are derecognised. Borrowing costs IAS 23 Under IAS 23, ‘Borrowing costs’, entities are required to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset to be capitalised. Investment property – IAS 40 Investment property is property (land or a building, or part of a building, or both) held by an entity to earn rentals and/or for capital appreciation (for example, property in the course of construction or development). Any other properties are accounted for as property, plant and equipment (PPE) or inventory if part of regular business operations of entity. Investment property is initially measured at cost. Management could subsequently measure investment properties at fair value or at cost. This is an accounting policy choice. The policy chosen is applied consistently to all of the investment properties that the entity owns. Investment properties in the course of construction or development are measured at fair value if this can be reliably measured, where the fair value option is chosen. Otherwise, they are measured at cost. The cost model requires investment properties to be carried at cost less accumulated depreciation and any accumulated impairment losses; the fair value of these properties is disclosed in the notes. Impairment of assets – IAS 36 The basic principle of impairment is that an asset cannot be carried on the balance sheet above its recoverable amount. Recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use: Fair value less costs of disposal is ‘the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date’ less costs of disposal. Guidance on fair value is given in IFRS 13. Value in use requires management to estimate the present value of the future cash flows that are expected to be derived from the asset in its current condition. The carrying value of an asset is compared to the recoverable amount. An asset or CGU is impaired when its carrying amount exceeds its recoverable amount. Any impairment is allocated to the asset or assets of the CGU, with the impairment loss recognised in profit or loss. An asset seldom generates cash flows independently of other assets. Most assets are tested for impairment in groups of assets described as cash-generating units (CGUs). A CGU is the smallest identifiable group of assets that generates inflows that are largely independent from the cash flows from other CGUs. Lease accounting – IAS 17, IFRS 16 IAS 17 A lease gives one party (the lessee) the right to use an asset over an agreed period of time in return for payment to the lessor. Leasing is an important source of medium – and long-term financing; accounting for leases can have a significant impact on lessees’ and lessors’ financial statements. Leases are classified as finance or operating leases at inception, depending on whether substantially all of the risks and rewards of ownership transfer to the lessee. Under a finance lease, the lessee has substantially all of the risks and rewards of ownership. All other leases are operating leases. Leases of land and buildings are considered separately under IFRS. Under a finance lease, the lessee recognises an asset held under a finance lease and a corresponding obligation to pay rentals. The lessee depreciates the asset. The lessor recognises the leased asset as a receivable. The receivable is measured at the ‘net investment’ in the lease – that is, the minimum lease payments receivable, discounted at the internal rate of return of the lease, plus the unguaranteed residual that accrues to the lessor. Under an operating lease, the lessee does not recognise an asset and lease obligation. The lessor continues to recognise the leased asset and depreciates it. The rentals paid are normally charged to the income statement of the lessee and credited to that of the lessor on a straight-line basis. IFRS 16 IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Under IFRS 16, lessees have to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for almost all lease contracts. This is a significant change compared to IAS 17, under which lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 gives lessees optional exemptions for certain short-term leases and leases of low-value assets. In the income statement, lessees will have to present interest expense on the lease liability and depreciation on the right-of-use asset. In the cash flow statement, the part of the lease payments that reflects interest on the lease liability can be presented as an operating cash flow (if it is the entity’s policy to present interest payments as operating cash flows). Cash payments for the principal portion of the lease liability are classified within financing activities. Payments for short-term leases, for leases of low-value assets and variable lease payments not included in the measurement of the lease liability are presented within operating activities. As under IAS 17, the lessor has to classify leases as either finance or operating, depending on whether substantially all of the risks and rewards incidental to ownership of the underlying asset have been transferred. For a finance lease, the lessor recognises a receivable; and, for an operating lease, the lessor continues to recognise the underlying asset. IFRS 16 adds significant new, enhanced disclosure requirements for both lessors and lessees. So for lessee effectively all Finance or Operating Leases have to be accounted for as per new IFRS 16 Lessors will contintue to account for based on Finance Lease and Operating Lease as per IAS 17 Inventories – IAS 2 Inventories are initially recognised at the lower of cost and net realisable value (NRV). Cost of inventories includes import duties, nonrefundable taxes, transport and handling costs, and any other directly attributable costs less trade discounts, rebates and similar items. NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling expenses. IAS 2, ‘Inventories’, requires the cost for items that are not interchangeable or that have been segregated for specific contracts to be determined on an individual-item basis. The cost of other items of inventory used is assigned by using either the first-in, first-out (FIFO) or weighted average cost formula. Last-in, first-out (LIFO) is not permitted. An entity uses the same cost formula for all inventories that have a similar nature and use to the entity. A different cost formula could be justified where inventories have a different nature or use. The cost formula used is applied on a consistent basis from period to period. Provisions and contingencies – IAS 37 Recognition and initial measurement A provision is recognised when: the entity has a present obligation as a result of past events; it is probable (that is, more likely than not) that a transfer of economic benefits will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. Contingent liabilities Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the entity’s control, or present obligations that arise from past events but are not recognised because: (a) it is not probable that an outflow of economic benefits will be required to settle the obligation; or (b) the amount cannot be measured reliably. Contingent liabilities are not recognised, but are disclosed, unless the possibility of an outflow is remote. Contingent assets Contingent assets are possible assets that arise from past events and whose existence will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the entity’s control. Contingent assets are not recognised. Contingent assets are disclosed if the inflow of economic benefits is probable. Events after the reporting period and financial commitments – IAS 10 It is not practicable for preparers to finalise financial statements without a period of time elapsing between the balance sheet date and the date on which the financial statements are authorised for issue. The question therefore arises as to the extent to which events occurring between the balance sheet date and the date of approval (that is, 'events after the reporting period' or ‘post balance sheet events’) should be reflected in the financial statements. Events after the reporting period are either adjusting events or non-adjusting events. Adjusting events provide additional evidence of conditions that already existed at the balance sheet date – for example, the determination, after the year end, of the consideration for assets sold before the year end; or the settlement of a court case after the balance sheet date that confirms that the entity had a present obligation at the balance sheet date. Non- adjusting events indicate conditions that arose after the balance sheet date – for example, announcing a plan to discontinue an operation after the year end or changes in tax rates or tax laws enacted or announced after the balance sheet date. The carrying amounts of assets and liabilities at the balance sheet date are adjusted only for adjusting events or events that indicate that the going-concern basis of preparation in relation to the whole entity is not appropriate. Significant non-adjusting events, such as the issue of shares, major business combinations, destruction of a major production plant by fire, or abnormally large changes after the reporting period in asset prices or foreign exchange rates, are disclosed. Financial commitments If an entity enters into any significant commitment or contingent liability after period end, it must be disclosed as a non-adjusting event. Other standards require disclosure of commitments that exist at the balance sheet date that will affect future periods, such as capital commitments and operating lease commitments. Dividends Dividends proposed or declared after the balance sheet date but before the financial statements have been authorised for issue are not recognised as a liability at the balance sheet date. However, the details of these dividends are disclosed in the notes in accordance with IAS 1. Share capital and reserves Equity instruments (for example, issued, non-redeemable ordinary shares) are generally recorded as the residual after recording the recognition or derecognition of assets or liabilities arising on the equity issue (the proceeds of issue) and after deducting directly attributable transaction costs. Equity instruments are not remeasured after initial recognition. Reserves include retained earnings, together with reserves such as fair value reserves, hedging reserves, asset revaluation reserves and foreign currency translation reserves and other statutory reserves. Treasury shares Treasury shares are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments. Non-controlling interests Non-controlling interests (previously termed ‘minority interests’) in consolidated financial statements are presented as a component of equity, separately from the parent shareholders’ equity. Disclosures IAS 1, ‘Presentation of financial statements’, requires various disclosures. These include the total issued share capital and reserves, presentation of a statement of changes in equity, capital management policies and dividend information. Related-party disclosures – IAS 24 Parent, Subsidiaries, Associates, JVs, KMPs or Persons with control together with their entities and close family members, Post employment benefit plans Finance providers are not related parties simply because of their normal dealings with the entity. Where there have been related party transactions during the period, management discloses the nature of the relationship, as well as information about the transactions and outstanding balances, including commitments, necessary for users to understand the potential impact of the relationship on the financial statements. Disclosure is made by category of related party and by major type of transaction. Items of a similar nature can be disclosed in aggregate, except where separate disclosure is necessary for an understanding of the effects of related party transactions on the entity’s financial statements. Cash flow statements – IAS 7 Operating activities are the entity’s revenue-producing activities. Investing activities are the acquisition and disposal of long-term assets (including business combinations) and investments that are not cash equivalents. Financing activities are changes in equity and borrowings. Management can present operating cash flows by using either the direct method (gross cash receipts/payments) or the indirect method (adjusting net profit or loss for non-operating and non-cash transactions, and for changes in working capital). Cash flows from investing and financing activities are reported separately gross (that is, gross cash receipts and gross cash payments), unless they meet certain specified criteria. Interim financial reporting – IAS 34 Consolidated financial statements – IFRS 10 The principles concerning consolidated financial statements under IFRS are set out in IFRS 10, ‘Consolidated financial statements’. IFRS 10 has a single definition of control. IFRS 10’s objective is to establish principles for presenting and preparing consolidated financial statements when an entity controls one or more entities. IFRS 10 sets out the requirements for when an entity should prepare consolidated financial statements, defines the principles of control, explains how to apply the principles of control, and explains the accounting requirements for preparing consolidated financial statements. The key principle is that control exists, and consolidation is required, only if the investor possesses power over the investee, has exposure to variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect its returns. IFRS 10 provides guidance on the following issues when determining who has control: Assessment of the purpose and design of an investee. Relevant activities and power to direct those. Nature of rights – Whether substantive or merely protective in nature. Assessment of voting rights and potential voting rights. Whether an investor is a principal or an agent when exercising its controlling power. Relationships between investors and how they affect control. Existence of power over specified assets only. Separate financial statements – IAS 27 IAS 27 deals with the accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements. Each category of investments should be accounted for either at cost, in accordance with IAS 39 and IFRS 9, or using the equity method in the separate financial statements. Business combinations – IFRS 3 A business combination is a transaction or event in which an entity (‘acquirer’) obtains control of one or more businesses (‘acquirees’). Under IFRS 10, an investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. A number of factors might influence which entity has control, including: equity shareholding, control of the board and control agreements. There is a presumption of control if an entity owns more than 50% of the equity shareholding in another entity. Business combinations occur in a variety of structures. IFRS 3, ‘Business combinations’, focuses on the substance of the transaction, rather than the legal form. The overall result of a series of transactions is considered if there are a number of transactions among the parties involved. For example, any transaction contingent on the completion of another transaction might be considered to be linked. Judgement is required to determine when transactions should be linked. All business combinations within IFRS 3’s scope are accounted for using the acquisition method. The acquisition method views a business combination from the perspective of the acquirer, and it can be summarised in the following steps: Identify the acquirer. Determine the acquisition date. Recognise and measure the identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree. Recognise and measure the consideration transferred for the acquiree. Recognise and measure goodwill or a gain from a bargain purchase. The acquiree’s identifiable assets (including intangible assets not previously recognised), liabilities and contingent liabilities are generally recognised at their fair value. Fair value is measured in accordance with IFRS 13. If the acquisition is for less than 100% of the acquiree, there is a non-controlling interest. The non-controlling interest represents the equity in a subsidiary that is not attributable, directly or indirectly, to the parent. The acquirer can elect to measure the non-controlling interest at its fair value, or at its proportionate share of the identifiable net assets, on an acquisition-by-acquisition basis. The consideration for the combination includes cash and cash equivalents, the fair value of any non-cash consideration given and liabilities assumed. Any equity instruments issued as part of the consideration are fair valued at the acquisition date. If any of the consideration is deferred, it is discounted to reflect its present value at the acquisition date, if the effect of discounting is material. Consideration includes only those amounts paid to the seller in exchange for control of the entity. Consideration excludes amounts paid to settle pre-existing relationships, payments that are contingent on future employee services and acquisition-related costs. A portion of the consideration might be contingent on the outcome of future events or the acquired entity’s performance (‘contingent consideration’). Contingent consideration is also recognised at its fair value at the date of acquisition. The accounting for contingent consideration after the date of acquisition depends on whether it is classified as a liability (remeasured to fair value each reporting period through profit and loss) or as equity (no subsequent remeasurement). The classification as either a liability or equity is determined with reference to the guidance in IAS 32. Goodwill is recognised for the future economic benefits arising from assets acquired that are not individually identified and separately recognised. Goodwill is the difference between the considerations transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the non-controlling interest is measured at its fair value, goodwill includes amounts attributable to the non-controlling interest. If the noncontrolling interest is measured at its proportionate share of identifiable net assets, goodwill includes only amounts attributable to the controlling interest (that is, the parent). Goodwill is recognised as an asset and tested annually for impairment, or more frequently if there is an indication of impairment. In rare situations (for example, a bargain purchase as a result of a distressed sale), it is possible that no goodwill will result from the transaction. Rather, a gain will be recognised. Business combinations excluded from IFRS 3’s scope (for example, those involving businesses under common control) have a policy choice of using either the acquisition accounting method outlined in IFRS 3 or predecessor accounting. Disposal of subsidiaries, businesses and non-current assets – IFRS 5 IFRS 5, ‘Non-current assets held for sale and discontinued operations’, is relevant when any disposal occurs or is planned, including distribution of non-current assets to shareholders. The held-for-sale criteria in IFRS 5 apply to non-current assets (or disposal groups) whose value will be recovered principally through sale rather than through continuing use. The criteria do not apply to non-assets that are being scrapped, wound down or abandoned. IFRS 5 defines a disposal group as a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The non-current asset (or disposal group) is classified as ‘held for sale’ if it is available for immediate sale in its present condition and its sale is highly probable. A sale is ‘highly probable’ where: there is evidence of management commitment; there is an active programme to locate a buyer and complete the plan; the asset is actively marketed for sale at a reasonable price compared to its fair value; the sale is expected to be completed within 12 months of the date of classification; and actions required to complete the plan indicate that it is unlikely that there will be significant changes to the plan or that it will be withdrawn. A non-current asset (or disposal group) is classified as ‘held for distribution to owners’ where the entity is committed to such distribution (that is, the assets must be available for immediate distribution in their present condition and the distribution must be highly probable). For a distribution to be highly probable, actions to complete the distribution should have been initiated and should be expected to be completed within one year from the date of classification. Actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn. The probability of shareholders’ approval (if required in the jurisdiction) should be considered in the assessment of ‘highly probable’. Non-current assets (or disposal groups) classified as held for sale or as held for distribution are: Measured at the lower of the carrying amount and fair value less costs to sell; Not depreciated or amortised; and Presented separately in the balance sheet (assets and liabilities should not be offset). A discontinued operation is a component of an entity that can be distinguished operationally and financially for financial reporting purposes from the rest of the entity, and it: Represents a separate major line of business or geographical area of operation; Is part of a single co-ordinated plan to dispose of a separate major line of business or major geographical area of operation; or Is a subsidiary acquired exclusively with a view to resale? An operation is classified as discontinued only at the date on which it meets the criteria to be classified as held for sale or when the entity has disposed of it. Although balance sheet information is neither restated nor remeasured for discontinued operations, the statement of comprehensive income information does have to be restated for the comparative period. Discontinued operations are presented separately in the income statement and the cash flow statement. There are additional disclosure requirements in relation to discontinued operations. The date of disposal of a subsidiary or disposal group is the date on which control passes. The consolidated income statement includes the results of a subsidiary or disposal group up to the date of disposal; the gain or loss on disposal is the difference between (a) the carrying amount of the net assets plus any attributable goodwill and amounts accumulated in other comprehensive income (for example, foreign translation adjustments and available- for-sale reserves), and (b) the proceeds of sale. Equity accounting – IAS 28 IAS 28, ‘Investments in associates and joint ventures’, requires that interests in such entities are accounted for using the equity method of accounting. An associate is an entity in which the investor has significant influence, but which is neither a subsidiary nor a joint venture of the investor. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not to control those policies. It is presumed to exist where the investor holds at least 20% of the investee’s voting power. It is presumed not to exist where less than 20% is held. These presumptions can be rebutted. The equity method of accounting also applies to interests in joint ventures. A joint venture is a joint arrangement where the parties that have joint control have rights to the arrangement’s net assets. Under the equity method, the investment in the associate or joint venture is initially carried at cost. It is increased or decreased to recognise the investor’s share of the profit or loss of the associate or joint venture after the date of acquisition. Associates and joint ventures are accounted for using the equity method, unless they meet the criteria to be classified as ‘held for sale’ under IFRS 5. Investments in associates or joint ventures are classified as non-current assets and presented as one line item in the balance sheet (inclusive of notional goodwill arising on acquisition). Investments in associates or joint ventures are tested for impairment in accordance with IAS 36, ‘Impairment of assets’, as single assets if there are impairment indicators under IAS 28 (as amended by IFRS 9). An entity applies IFRS 9 to financial instruments in an associate or joint venture to which the equity method is not applied. These include longterm interests that, in substance, form part of the entity’s net investment in an associate or joint venture. If an investor’s share of its associate’s or joint venture’s losses exceeds the carrying amount of the investment (which, for this purpose, includes other long-term interests that, in substance, form part of the entity’s investment in the associate or the joint venture), the carrying amount of the investment is reduced to nil. Recognition of further losses are discontinued, unless the investor has an obligation to fund the associate or joint venture, or the investor has guaranteed to support the associate or joint venture. In the separate (non-consolidated) financial statements of the investor, the investments in associates or joint ventures are carried at cost, in accordance with IAS 39 and IFRS 9 or using the equity method. Joint arrangements – IFRS 11