Put options written on non-controlling interests ifrs
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated. Amounts are shown in thousands of euros unless otherwise stated. The euro is the presentation currency of the Group. Preparing the financial statements in accordance with IFRS means that management is required to make assessments, estimates and assumptions that influence the application of regulations and the amounts reported for assets, equity, liabilities, commitments, income and expenses.
The estimates made and the related assumptions are based on historical experience and various other factors, such as relevant knowledge, which are considered to be reasonable under the given circumstances. The IFRS financial statements have been prepared under the historical cost convention except for financial derivatives, share-based payment plans, contingent considerations, certain non-current assets and post-employment benefits.
The estimates and assumptions serve as the basis for assessing the value of recognized assets and liabilities whose amounts cannot currently be determined from other sources. However, actual results may differ from the put options written on non-controlling interests ifrs. Estimates and underlying assumptions are subject to constant assessment.
Changes in estimates and assumptions are recognized in the period in which the estimates are revised. The areas involving higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Untilthe Group presented deferred income tax assets and deferred income tax liabilities as separate assets and liabilities. Duringthe Group put options written on non-controlling interests ifrs a detailed review of its deferred tax positions across jurisdictions of presence in line with the criteria of IAS 12 Income Taxes and adjusted its put options written on non-controlling interests ifrs figures at 31 December to present qualifying positions on a net basis.
Refer to note 27 for more details. The amended standards put options written on non-controlling interests ifrs for the current reporting period listed below are applicable to the Group and have been adopted by the Group and implemented as of 1 January The following new standards and amendments to standards and interpretations are applicable to the Group and are effective for annual periods beginning after 1 January These have not been applied in put options written on non-controlling interests ifrs these consolidated financial statements, and will be adopted by the Group at the moment they become effective.
Subsidiaries are those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.
All intercompany transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Any adjustments to the purchase price allocation are made within the one-year measurement period in accordance with IFRS 3.
If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Income Statement. Under the anticipated acquisition method the interests of the non-controlling shareholder are presented as already owned, even though legally they are still non-controlling interests. The recognition of the related financial liability implies that the interests subject to the purchase are deemed to have been acquired already.
The initial measurement of the fair value of the financial put options written on non-controlling interests ifrs recognized by the Group forms part of the contingent consideration for the acquisition.
Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability will be recognized in accordance with IAS 39 in the Income Statement. Acquisition-related expenses are taken into the Income Statement at the moment they are incurred. Acquisitions made by the Group, acquired from the parent company HAL Holdingare treated as common control transactions and predecessor accounting is applied.
Under predecessor accounting no purchase price allocation is performed. The acquired net assets are included in the GrandVision consolidation at carrying value as included in the consolidation of HAL Holding. The difference between the consideration transferred and the net assets is recognized in equity.
The transactions with non-controlling interests are accounted as transactions with equity holders of the Group. For purchases of non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the net assets of the subsidiary is deducted from equity.
Gains or losses on disposals to non-controlling interests are also recorded in equity. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group's investments in its associates and joint ventures are initially recognized at cost including goodwill identified on acquisition, net of any accumulated impairment losses and are subsequently accounted for using the equity method.
The cumulative movements are adjusted against the carrying amounts of the investments. If the ownership interest in its associates and joint ventures is reduced but significant influence is retained, only a proportionate share put options written on non-controlling interests ifrs the amounts previously recognized in Other Comprehensive Income is reclassified to the Income Statement where appropriate.
The Group determines at each reporting date whether there is an objective evidence that the investments in its associates and joint ventures is impaired. Items in the financial statements of the various Group companies are measured in the currency of the primary economic environment in which each entity operates the functional currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized in the Income Statement, except when deferred in Other Comprehensive Income as qualifying cash flow hedges.
Foreign currency exchange gains and losses are presented in the Income Statement either in the operating result if foreign currency transactions relate to operational activities, assets and liabilities, or within the financial result for non-operating financial assets and liabilities. The assets and liabilities of foreign subsidiaries, including goodwill and fair value adjustments arising on consolidation, are translated into the presentation currency at the exchange rate applicable at the balance sheet date.
The income and expenses of foreign subsidiaries are translated into the presentation currency at rates approximate to the exchange rates applicable at put options written on non-controlling interests ifrs date of the transaction. Resulting exchange differences are recognized in Other Comprehensive Income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate.
An operating segment is defined as a component of the Company that engages in business activities from which it may earn revenues and incur expenses. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
These operating segments were defined based on geographic markets in line with their maturity, operating characteristics, scale and market presence. All operating segments operate in optical retail and do not have additional significant lines of business or alternative sources of revenue from external customers other than optical retail. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating intercompany revenue within the Group.
The Group recognizes revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity. The amount of revenue is not put options written on non-controlling interests ifrs to be reliably measurable until all contingencies relating to the revenue have been resolved.
The Group bases its estimates on historical results, taking into consideration the type put options written on non-controlling interests ifrs customer, the type of transaction and the specifics of each agreement. The Group operates multiple chains of retail outlets for selling optical products including services related to these products.
Optical product revenues are recognized only when the earning process is complete. Therefore the moment of ordering is not a determining factor and prepayments made by customers are not considered as revenues yet and are accounted for as deferred income. The earning process is considered complete upon delivery to the customer.
Optical retail revenue is usually in cash or by debit or credit card or claimed from healthcare institutions. Income from optical products related services include extended warranties and commissions on put options written on non-controlling interests ifrs insurances put options written on non-controlling interests ifrs is recognized based upon the duration of the underlying contracts.
Merchandise revenue mainly comprises sales to franchisees. The earning process is considered complete upon delivery to the franchisee and when the entity has transferred significant risks and rewards of ownership of the products to the buyer and does not retain continuing managerial involvement or control over the products sold.
Franchise royalty is recognized on an accrual basis in accordance with the substance of the relevant agreements. Other revenues comprise mainly supplier allowances. Supplier allowances are only recognized as revenue if there is no direct relationship with a purchase transaction; otherwise the supplier allowance is deducted from cost.
Experience is used to estimate and provide for such returns at the time of sale as described in note 2. The Group operates customer loyalty programs in several countries. In these programs customers receive vouchers for rebates on future purchases. The vouchers are recognized as a separately identifiable component of the initial sales transaction put options written on non-controlling interests ifrs allocating the fair value of the consideration received between the vouchers and the other components of the sale such that the vouchers are initially recognized as deferred income at their fair value.
Revenue from the vouchers is recognized when the vouchers are redeemed or upon expiry. Vouchers expire after a certain period of time after initial sales depending on each loyalty program. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the Income Statement on a straight-line basis over the period of the lease.
Finance income comprises interest received on outstanding monies and upward adjustments to the fair value, interest result of foreign currency derivatives and net foreign exchange results. Finance costs put options written on non-controlling interests ifrs interest due on funds drawn and commercial paper calculated using the effective interest method, downward adjustments to the fair value and realized value of derivative financial instruments, other interest paid, commitment fees, the amortization of transaction fees related to borrowings, interest on finance leases and net foreign exchange results.
Property, plant and equipment is stated at historical cost less depreciation. Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life. Where the carrying amount of an asset is higher than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the operating result put options written on non-controlling interests ifrs the relevant heading. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.
Property, plant and equipment acquired via a financial lease is carried at the lower of fair value and the present value of the minimum required lease payments at the start of the lease, less cumulative depreciation and impairment note 2. Lease payments are recognized in accordance with note 2.
The property, plant and equipment acquired under finance leases is put options written on non-controlling interests ifrs over the shorter of the useful life of the asset and the lease term. For the purpose of impairment testing, goodwill is allocated to those groups of cash-generating units expected to benefit from the acquisition. Goodwill is not amortized but is subject to annual impairment testing note 2.
Any impairment is recognized immediately as an expense and is not subsequently reversed. Any negative goodwill resulting put options written on non-controlling interests ifrs acquisitions is recognized directly in the Income Statement.
If a cash-generating unit is divested, the carrying amount of its goodwill is recognized in the Income Statement. If the divestment concerns part of cash-generating units, the amount of goodwill written off and recognized in the Income Statement is determined on the basis of the relative value of the part divested compared to the value of the group of cash-generating units. Goodwill directly attributable to the divested unit is written off and recognized in the Income Statement.
Acquired software is capitalized on the basis of the costs incurred to acquire and to bring to use the put options written on non-controlling interests ifrs software.
Software is amortized when the product is put in operation and charged to the Income Statement using the straight-line method, based on an estimated useful life of maximum five years.
Gary Berchowitz, follow him on LinkedIn. Comments are moderated before being posted. Company A will potentially acquire the shares for fair value after 3 years, so there is no economic risk to Company A, no problem, right? So is the rest of the world. The way I see it, this is where the tension lies:. The answer to this problem drumroll, wait for it…. Why not recognize the liability gross, but take movements put options written on non-controlling interests ifrs the liability through equity?
That way, the tension is resolved. But it does seem that we could solve this with a simple clarification that IFRS 10 applies to the remeasurement of the put options written on non-controlling interests ifrs. Or we put options written on non-controlling interests ifrs call on the collective intelligence of the world to reconsider the debt equity debate…and then just put options written on non-controlling interests ifrs and wait.
TrackBack URL for this entry: Listed below are links to weblogs that reference Written put options on non-controlling interests — read this for the answer! So your 'solution' violates a main principle of the changes to IAS 1.
IFRS 3 already requires that contingent consideration is at fair value through profit or loss. Allowing changes to go to equity when the contingent consideration is in the form of an NCI put overrides this, and results in the legal form an NCI put overriding the accounting for the economic form contingent consideration.
A Reader 02 February at Does the problem not originate from the fact that 'minority shareholders' are considered part of equity? Put options written on non-controlling interests ifrs when these 'minorities' become third party debt holders because they can force the entity to pay them out, then the trouble starts as a liability has to be recognised.
It can become even more confusing when the accounting of this debt is done versus the majority shareholders interest leaving the minority shareholders interest presented as a non controlling interest unaffected put is at the then current fair value at exercise date leaving the fair value risk to the NCI shareholder.
In this scenario the minority interest is twice presented: This presentation can be justified by the two roles the minorities play but I am afraid that this is understandable only for the 'happy few' who have written the related IFRS standards and those who have spent a major part of their professional life time trying to understand what the standard setters have tried to achieve.
I think it would have been easier to understand when the NCI would not have been part of equity and thus part of the debts. Unfortunately the Boards have decided differently and consequently introduced a high level of complexity. May be they reconsider as part of the post implementation review of IFRS 3.
Herwig Opsomer 12 March at Lets assume that "Company A" and the "target company" are both banks in a Basel III jurisdiction, and, in line with your suggestion, Company A recognizes the the liability gross and takes movements in the liability through equity. What would the treatment be for CET1 purposes - I assume that there would be no adjustment to neutralize the negative equity reserve?
A Complicator 14 May at Ideally the fair value of the deferred consideration should not vary too much if the acquirer did a good job of estimating the amount that it expected to pay in 3 years. The acquirer is allowed to factor in its wonderful yet reasonable growth plans resulting from synergies for the target in the calculation of the fair value of the amount that will be paid in 3 years. Any deviation from this discounted amount will be knock on wood minimal.
Any gain on the liability because synergies did not happen will likely be offset by a impairment on the goodwill or other assets. This is more of a failure to estimate what will be paid in three years.
The letters and numbers you entered did not match the image. As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments. Having trouble reading this image? Comments are moderated, and will not appear until the author has approved them. Name is required to post a comment. Please enter a valid email address. Written put options on non-controlling interests — read this for the answer! The way I see it, this is where the tension lies: This is because, if the minority shareholders exercise their right to sell their shares back to the company, the group needs to have sufficient cash reserves on hand to settle the repurchase of shares; However, from an economic or shareholder value perspective, the majority shareholders are indifferent if the cash leaves the group.
Their value per share will remain unchanged if the group buys the shares back for fair value. Therefore it makes no sense that remeasurements on the liability are recognised in the income statement. What do you think about a simple answer to a not-so-simple problem?
Comments Two obvious reasons spring to mind: Gary, Does the problem not originate from the fact that 'minority shareholders' are considered part of equity? Good afternoon Gary Ideally the fair value of the deferred consideration should not vary too much if the acquirer did a good job of estimating the amount that it expected to pay in 3 years.
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