ANNUAL REPORT 2020
82
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10 and those in IAS 28 in dealing with the sale or contribution of assets
between an investor and its associate or joint venture. The main conse-
quence of the amendments is that a full gain or loss is recognised when a
transaction involves a business. A partial gain or loss is recognised when
a transaction involves assets that do not constitute a business, even if
these assets are held by a subsidiary. The Group and the Company believe
the amendments will have no material impact on the financial statements.
3. IFRS 17 Insurance Contracts (effective for annual periods beginning on
or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies
dispensation to carry on accounting for insurance contracts using existing
practices. As a consequence, it was difficult for investors to compare and
contrast the financial performance of otherwise similar insurance compa-
nies. IFRS 17 is a single principle-based standard to account for all types
of insurance contracts, including reinsurance contracts that an insurer
holds. The standard requires recognition and measurement of groups of
insurance contracts at: (i) a risk-adjusted present value of the future cash
flows (the fulfilment cash flows) that incorporates all of the available in-
formation about the fulfilment cash flows in a way that is consistent with
observable market information; plus (if this value is a liability) or minus (if
this value is an asset) (ii) an amount representing the unearned profit in
the group of contracts (the contractual service margin). Insurers will be
recognising the profit from a group of insurance contracts over the period
they provide insurance coverage, and as they are released from risk. If a
group of contracts is or becomes loss-making, an entity will be recognising
the loss immediately. The Group and the Company are currently assessing
the impact of the amendments on the financial statements.
4. Classification of liabilities as current or non-current – Amendments
to IAS 1 (effective for annual periods beginning on or after 1 January 2022).
These narrow scope amendments clarify that liabilities are classified as
either current or non-current, depending on the rights that exist at the
end of the reporting period. Liabilities are non-current if the entity has a
substantive right, at the end of the reporting period, to defer settlement for
at least twelve months. The guidance no longer requires such a right to be
unconditional. Management’s expectations whether they will subsequently
exercise the right to defer settlement do not affect classification of liabil-
ities. The right to defer only exists if the entity complies with any relevant
conditions as of the end of the reporting period. A liability is classified as
current if a condition is breached at or before the reporting date even if
a waiver of that condition is obtained from the lender after the end of
the reporting period. Conversely, a loan is classified as non-current if a
loan covenant is breached only after the reporting date. In addition, the
amendments include clarifying the classification requirements for debt a
company might settle by converting it into equity. ‘Settlement’ is defined
as the extinguishment of a liability with cash, other resources embodying
economic benefits or an entity’s own equity instruments. There is an ex-
ception for convertible instruments that might be converted into equity,
but only for those instruments where the conversion option is classified as
an equity instrument as a separate component of a compound financial in-
strument. The Group and the Company are currently assessing the impact
of the amendments on the financial statements.
5. Classification of liabilities as current or non-current, deferral of ef-
fective date – Amendments to IAS 1 (effective for annual periods begin-
ning on or after 1 January 2023). The amendment to IAS 1 on classification
of liabilities as current or non-current was issued in January 2020 with an
original effective date 1 January 2022. However, in response to the Covid-19
pandemic, the effective date was deferred by one year to provide compa-
nies with more time to implement classification changes resulting from
the amended guidance.
6. Proceeds before intended use, Onerous contracts – cost of fulfilling
a contract, Reference to the Conceptual Framework – narrow scope
amendments to IAS 16, IAS 37 and IFRS 3, and Annual Improvements to
IFRSs 2018-2020 – amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41
(effective for annual periods beginning on or after 1 January 2022).
The amendment to IAS 16 prohibits an entity from deducting from the cost
of an item of PPE any proceeds received from selling items produced while
the entity is preparing the asset for its intended use. The proceeds from
selling such items, together with the costs of producing them, are now
recognised in profit or loss. An entity will use IAS 2 to measure the cost
of those items. Cost will not include depreciation of the asset being tested
because it is not ready for its intended use. The amendment to IAS 16 also
clarifies that an entity is ‘testing whether the asset is functioning properly’
when it assesses the technical and physical performance of the asset. The
financial performance of the asset is not relevant to this assessment. An
asset might therefore be capable of operating as intended by management
and subject to depreciation before it has achieved the level of operating
performance expected by management.
The amendment to IAS 37 clarifies the meaning of ‘costs to fulfil a contract’.
The amendment explains that the direct cost of fulfilling a contract com-
prises the incremental costs of fulfilling that contract; and an allocation of
other costs that relate directly to fulfilling. The amendment also clarifies
that, before a separate provision for an onerous contract is established,
an entity recognises any impairment loss that has occurred on assets used
in fulfilling the contract, rather than on assets dedicated to that contract.
IFRS 3 was amended to refer to the 2018 Conceptual Framework for Finan-
cial Reporting, in order to determine what constitutes an asset or a liability
in a business combination. Prior to the amendment, IFRS 3 referred to the
2001 Conceptual Framework for Financial Reporting. In addition, a new
exception in IFRS 3 was added for liabilities and contingent liabilities. The
exception specifies that, for some types of liabilities and contingent lia-
bilities, an entity applying IFRS 3 should instead refer to IAS 37 or IFRIC 21,
rather than the 2018 Conceptual Framework. Without this new exception,
an entity would have recognised some liabilities in a business combination
that it would not recognise under IAS 37. Therefore, immediately after the
acquisition, the entity would have had to derecognise such liabilities and
recognise a gain that did not depict an economic gain. It was also clarified
that the acquirer should not recognise contingent assets, as defined in IAS
37, at the acquisition date.
The amendment to IFRS 9 addresses which fees should be included in the
10% test for derecognition of financial liabilities. Costs or fees could be
paid to either third parties or the lender. Under the amendment, costs or
fees paid to third parties will not be included in the 10% test.
Illustrative Example 13 that accompanies IFRS 16 was amended to remove
the illustration of payments from the lessor relating to leasehold improve-
ments. The reason for the amendment is to remove any potential confu-
sion about the treatment of lease incentives.
IFRS 1 allows an exemption if a subsidiary adopts IFRS at a later date than
its parent. The subsidiary can measure its assets and liabilities at the
carrying amounts that would be included in its parent’s consolidated fi-
nancial statements, based on the parent’s date of transition to IFRS, if no
adjustments were made for consolidation procedures and for the effects
of the business combination in which the parent acquired the subsidiary.
IFRS 1 was amended to allow entities that have taken this IFRS 1 exemption
to also measure cumulative translation differences using the amounts re-
ported by the parent, based on the parent’s date of transition to IFRS. The