Summarized Notes of

Important IASs and

IFRSs

Compiled by:

Ihsan Ilahi , ACCA (Affiliate), B.sc (Hons)

Note: These notes are not in great detail, only covers most important
accounting matters relating to accounting standards. And also not covers all the
IASs and IFRSs, mainly for the Students of P7- Advance audit and Assurance.
 IAS -2 INVENTORIES

IAS2 defines Inventories as assets which are;

(a) held for sale in the ordinary course of business,
(b) in the process of production for such sale,
(c) In the form of materials or supplies to be consumed in the production process or
rendering of services.

Inventories account for:

IAS-2 requires that those assets that are considered inventory should be recorded at the lower
of;

a) Cost or
b) NRV *(Net Realizable Value)
*Net Realizable Value = Inventory Sales Value Estimated Cost of Completion and Disposal

MEASUREMENT OF INVENTORIES:

Cost should include all:

Costs of purchase (including taxes, transport, and handling) net of trade discounts
received.
Costs of conversion (including fixed and variable manufacturing overheads). and
Other costs incurred in bringing the inventories to their present location and condition.

IAS- 2 does not allow for the capitalization of;

(a) The cost of abnormal levels of waste.
(b) Storage costs where the storage is not part of the production process.
(c) Administrative costs.
(d) Selling costs.
 IAS 12 - INCOME TAXES

KEY DEFINITIONS

Tax base: The tax base of an asset or liability is the amount attributed to that asset or liability for tax
purposes.
Temporary differences: Differences between the carrying amount of an asset or liability in the
statement of financial position and its tax bases.
Taxable temporary differences: Temporary differences that will result in taxable amounts in
determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability
is recovered or settled.
Deductible temporary differences: Temporary differences that will result in amounts that are
deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the
asset or liability is recovered or settled.
Deferred tax liabilities: Deferred tax Liability is the amount of income taxes payable in future
periods in respect of taxable temporary differences.
Deferred tax assets: The amounts of income taxes recoverable in future periods in respect of:

1. deductible temporary differences

2. the carry forward of unused tax losses, and
3. the carry forward of unused tax credits

Recognition of deferred tax liabilities

The general principle in IAS 12 is that a deferred tax liability is recognized for all taxable
temporary differences. There are three exceptions to the requirement to recognize a deferred tax
liability, as follows:

Liabilities arising from initial recognition of goodwill.

Liabilities arising from the initial recognition of an asset/liability other than in a business
combination which, at the time of the transaction, does not affect either the accounting or the
taxable profit.
Liabilities arising from temporary differences associated with investments in subsidiaries,
branches, and associates, and interests in joint arrangements, but only to the extent that the
entity is able to control the timing of the reversal of the differences and it is probable that the
reversal will not occur in the foreseeable future.

Recognition of deferred tax assets:

A deferred tax asset is recognized for deductible temporary differences, unused tax losses and
unused tax credits to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences can be utilized, unless the deferred tax asset arises
from:
 The initial recognition of an asset or liability other than in a business combination which,
at the time of the transaction, does not affect accounting profit or taxable profit.

Deferred tax assets for deductible temporary differences arising from investments in subsidiaries,
branches and associates, and interests in joint arrangements, are only recognized to the extent
that it is probable that the temporary difference will reverse in the foreseeable future and that
taxable profit will be available against which the temporary difference will be utilized.

The carrying amount of deferred tax assets are reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow the benefit of part or that entire deferred tax asset to be utilized. Any such reduction is
subsequently reversed to the extent that it becomes probable that sufficient taxable profit will be
available.

IAS 16-PROPERTY, PLANT AND EQUIPMENT

IAS 16 prescribes that an item of property, plant and equipment should be recognized
(capitalized) as an asset if it is probable that the future economic benefits associated with the
asset will flow to the entity and the cost of the asset can be measured reliably. Future economic
benefits occur when the risks and rewards of the asset's ownership have passed to the entity.

The standard also discusses the accounting treatment of parts of property, plant and equipment
which may require replacement at regular intervals and the capitalization of inspection costs.

Items of property, plant and equipment should be measured at cost, which includes its original
purchase price, any costs necessary to bring the asset to the location and condition for its
intended use (e.g. site preparation, delivery and handling, installation, related professional fees
for architects and engineers), and the estimated cost of dismantling and removing the asset and
restoring the site.

MEASUREMENT AFTER RECOGNITION

IAS 16 permits two accounting models for measurement of the asset in periods subsequent to its
recognition, namely the cost model and the revaluation model.

Under the cost model, the carrying amount of the asset is measured at cost less accumulated
depreciation and eventual impairment (similar to the inventory's Lower of cost or market prudent
principle). Under the cost model, the impairment is always recognized (debited) as expense.
Under the revaluation model, the asset is carried at its revalued amount, being its fair value at
the date of revaluation less subsequent depreciation and impairment, provided that fair value
can be determined reliably.
o If a revaluation results in an increase in value, it should be credited to equity (through
other comprehensive income), unless it represents the reversal of a revaluation
decrease of the same asset previously recognized as an expense, in which case it should
be recognized as income.
 o An asset should also be impaired in accordance with IAS 36 Impairment of Assets if its
recoverable amount falls below its carrying amount. Recoverable amount is the higher
of an asset's fair value less costs to sell and its value in use (estimate of future cash
flows the entity expects to derive from the asset).An impairment cost under the
revaluation model is treated as a revaluation decrease (decrease of other
comprehensive income) to the extent of previous revaluation surpluses. Any loss that
takes the asset below historical depreciated cost is recognized in the income statement.

DE-RECOGNITION:
ITEMS OF PROPERTY , PLANT AND EQUIPMENT ARE DERECOGNIZED ON DISPOSAL OR WHEN NO
FUTURE ECONOMIC BENEFIT IS EXPECTED FROM ITS USE . AN ENTITY SHOULD RECOGNIZE ANY
GAIN OR LOSS ON DISPOSAL IN ITS INCOME STATEMENT . THE GAIN OR LOSS ON DISPOSAL IS THE
DIFFERENCE BETWEEN THE PROCEEDS RECEIVED IN EXCHANGE FOR THE ASSET DISPOSED AND THE
CARRYING AMOUNT AT THE TIME OF DISPOSAL .

IAS 19 EMPLOYEE BENEFITS

OBJECTIVE:
THE OBJECTIVE OF IAS 19 IS TO PRESCRIBE THE ACCOUNTING AND DISCLOSURE FOR EMPLOYEE BENEFITS,
REQUIRING AN ENTITY TO RECOGNISE A LIABILITY WHERE AN EMPLOYEE HAS PROVIDED SERVICE AND AN
EXPENSE WHEN THE ENTITY CONSUMES THE ECONOMIC BENEFITS OF EMPLOYEE SERVICE .
POST-EMPLOYMENT BENEFIT PLANS:
POST-EMPLOYMENT BENEFIT PLANS ARE INFORMAL OR FORMAL ARRANGEMENTS WHERE AN ENTITY PROVIDES
POST - EMPLOYMENT BENEFITS TO ONE OR MORE EMPLOYEES, E .G. RETIREMENT BENEFITS (PENSIONS OR LUMP
SUM PAYMENTS ), LIFE INSURANCE AND MEDICAL CARE .
Two Types of Plans:

1). Defined contribution plans: Under a defined contribution plan, the entity pays fixed
contributions into a fund but has no legal or constructive obligation to make further payments if the
fund does not have sufficient assets to pay all of the employees' entitlements to post-employment
benefits. The entity's obligation is therefore effectively limited to the amount it agrees to contribute to
the fund and effectively place actuarial and investment risk on the employee.

Accounting Treatment:
For defined contribution plans, the amount recognized in the period is the contribution payable in
exchange for service rendered by employees during the period.

Contributions to a defined contribution plan which are not expected to be wholly settled within 12
months after the end of the annual reporting period in which the employee renders the related service
are discounted to their present value.

2). Defined benefit plans: These are post-employment benefit plans other than a defined
contribution plans. These plans create an obligation on the entity to provide agreed benefits to current
and past employees and effectively places actuarial and investment risk on the entity.
Accounting Treatment:

The measurement of a net defined benefit liability or assets requires the application of an
actuarial valuation method, the attribution of benefits to periods of service, and the use of
actuarial assumptions. The fair value of any plan assets is deducted from the present value of the
defined benefit obligation in determining the net deficit or surplus.

The present value of an entity's defined benefit obligations and related service costs is determined using
the 'projected unit credit method', which sees each period of service as giving rise to an additional unit
of benefit entitlement and measures each unit separately in building up the final obligation. This
requires an entity to attribute benefit to the current period (to determine current service cost) and the
current and prior periods (to determine the present value of defined benefit obligations).

Actuarial assumptions used in measurement:

The overall actuarial assumptions used must be unbiased and mutually compatible, and represent
the best estimate of the variables determining the ultimate post-employment benefit cost.

Financial assumptions must be based on market expectations at the end of the reporting
period.
Mortality assumptions are determined by reference to the best estimate of the mortality of
plan members during and after employment.
The discount rate used is determined by reference to market yields at the end of the
reporting period on high quality corporate bonds, or where there is no deep market in
such bonds, by reference to market yields on government bonds.

Past service costs:

Past service cost is the term used to describe the change in a defined benefit obligation for
employee service in prior periods, arising as a result of changes to plan arrangements in the
current period (i.e. plan amendments introducing or changing benefits payable, or curtailments
which significantly reduce the number of covered employees.
Past service cost may be either positive (where benefits are introduced or improved) or negative
(where existing benefits are reduced). Past service cost is recognized as an expense at the earlier
of the date when a plan amendment or curtailment occurs and the date when an entity recognizes
any termination benefits, or related restructuring costs.

IAS 36 - IMPAIRMENT OF ASSETS

OBJECTIVE OF IAS 36:
TO ENSURE THAT ASSETS ARE CARRIED AT NO MORE THAN THEIR RECOVERABLE AMOUNT, AND TO DEFINE
HOW RECOVERABLE AMOUNT IS DETERMINED .
KEY DEFINITIONS [IAS 36]

Impairment loss: The amount by which the carrying amount of an asset or cash-
generating unit exceeds its recoverable amount
Carrying amount: The amount at which an asset is recognized in the balance sheet after
deducting accumulated depreciation and accumulated impairment losses
Recoverable amount: The higher of an asset's fair value less costs of disposal
(sometimes called net selling price) and its value in use
Fair value: The price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
Value in use: The present value of the future cash flows expected to be derived from an
asset or cash-generating unit.

Indications of impairment:

External sources:

Market value declines.

Negative changes in technology, markets, economy, or laws.
Increases in market interest rates.
Net assets of the company higher than market capitalization.

Internal sources:

Obsolescence or physical damage.

Asset is idle, part of a restructuring or held for disposal.
Worse economic performance than expected.
For investments in subsidiaries, joint ventures or associates, the carrying amount is higher
than the carrying amount of the investee's assets, or a dividend exceeds the total
comprehensive income of the investee.
DETERMINING RECOVERABLE AMOUNT:
If fair value less costs of disposal cannot be determined, then recoverable amount is
value in use.
Assets to be disposed of, recoverable amount is fair value less costs of disposal.

Value in use:

The calculation of value in use should reflect the following elements:

An estimate of the future cash flows the entity expects to derive from the asset.
Expectations about possible variations in the amount or timing of those future cash flows.
The time value of money, represented by the current market risk-free rate of interest.

Recognition of an impairment loss:

An impairment loss is recognized whenever recoverable amount is below carrying

amount.
The impairment loss is recognized as an expense (unless it relates to a revalued asset
where the impairment loss is treated as a revaluation decrease).
Adjust depreciation for future periods.

IMPAIRMENT OF GOODWILL:

Goodwill should be tested for impairment annually.

To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating
units, or groups of cash-generating units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to
those units or groups of units. Each unit or group of units to which the goodwill is so allocated
shall: [IAS 36.80]

represent the lowest level within the entity at which the goodwill is monitored for internal
management purposes; and
Not be larger than an operating segment determined in (accordance with IFRS 8
Operating Segments).

The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of
units) in the following order:

first, reduce the carrying amount of any goodwill allocated to the cash-generating unit
(group of units); and
Then, reduce the carrying amounts of the other assets of the unit (group of units) pro rata
on the basis.
The carrying amount of an asset should not be reduced below the highest of:

its fair value less costs of disposal (if measurable)

its value in use (if measurable)
Zero.

IAS 37- PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

KEY DEFINITIONS:

Provision:

Provisions are liability of uncertain timing or amount.

Liability:

Present obligation as a result of past events.

Settlement is expected to result in an outflow of resources (payment).

Contingent liability:

a possible obligation depending on whether some uncertain future event occurs, or

A present obligation but payment is not probable or the amount cannot be measured reliably.

*Contingent Liability should be disclosed in notes to the accounts.

Contingent asset:

A possible asset that arises from past events, and

Whose existence will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity?

*Contingent assets should be disclosed in notes to the accounts.

RECOGNITION OF A PROVISION:

An entity must recognize a provision if, and only if:

A present obligation (legal or constructive) has arisen as a result of a past event (the obligatory
event),
payment is probable (' likely to happen), and
The amount can be estimated reliably.
Obligatory Event:
An obligatory event is an event that creates a legal or constructive obligation and, therefore, results in
an entity having no realistic alternative but to settle the obligation.

Constructive obligation:

A CONSTRUCTIVE OBLIGATION ARISES IF PAST PRACTICE CREATES A VALID EXPECTATION ON THE PART OF A
THIRD PARTY , FOR EXAMPLE , A RETAIL STORE THAT HAS A LONG - STANDING POLICY OF ALLOWING CUSTOMERS
TO RETURN MERCHANDISE WITHIN , SAY , A 30- DAY PERIOD .

MEASUREMENT OF PROVISIONS:

The amount recognized as a provision should be the best estimate of the expenditure required to
settle the present obligation at the balance sheet date, that is, the amount that an entity would
rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party.
This means:

Provisions for one-off events (restructuring, environmental clean-up, settlement of a

lawsuit) are measured at the most likely amount.
Review provisions at each reporting date and adjust them to reflect the current best
estimate at that reporting date
unwinding of the discount is a finance cost

Circumstance Recognize a provision?

Restructuring by sale of an operation Only when the entity is committed to a sale, i.e. there
is a binding sale agreement.
Restructuring by closure or reorganization Only when a detailed form plan is in place and the
entity has started to implement the plan, or announced
its main features to those affected. A Board decision is
insufficient.
Land contamination A provision is recognized as contamination occurs for
any legal obligations of clean up, or for constructive
obligations if the company's published policy is to clean
up even if there is no legal requirement to do so (past
event is the contamination and public expectation
created by the company's policy)
Customer refunds Recognize a provision if the entities established policy
is to give refunds (past event is the sale of the product
together with the customer's expectation, at time of
purchase, that a refund would be available).
RESTRUCTURINGS
A RESTRUCTURING IS:

Sale or termination of a line of business.

Closure of business location.
Changes in management structure.
Fundamental reorganizations.

IAS 38- INTANGIBLE ASSETS

KEY DEFINITIONS:

Intangible asset:
Intangible assets are identifiable non-monetary asset without physical substance. An asset is a
resource that is controlled by the entity as a result of past events (for example, purchase or self-
creation) and from which future economic benefits (inflows of cash or other assets) are expected.
Thus, the three critical attributes of an intangible asset are:

Identifiability
control (power to obtain benefits from the asset)
future economic benefits (such as revenues or reduced future costs)

Examples of intangible assets:

Patented technology, computer software, databases and trade secrets.

Trademarks, trade dress, newspaper mastheads, internet domains.
Video and audiovisual material (e.g. motion pictures, television programs).
Customer lists.
Mortgage servicing rights.
Licensing, royalty and standstill agreements.
Import quotas.

Intangibles can be acquired: by separate purchase, as part of a business combination, by

a government grant, by self-creation (internal generation)

Recognition criteria:

IAS 38 requires an entity to recognize an intangible asset on cost, whether purchased or self-
created (at cost) if, and only if:

*It is probable that the future economic benefits that are attributable to the asset will flow
to the entity; and
The cost of the asset can be measured reliably.
*The probability of future economic benefits must be based on reasonable and supportable
assumptions about conditions that will exist over the life of the asset.

INITIAL RECOGNITION OF RESEARCH AND DEVELOPMENT COSTS:

Charge all research cost to expense.
Development costs are capitalized only after technical and commercial feasibility of the asset for
sale or use have been established. This means that the entity must intend and be able to
complete the intangible asset and either uses it or sells it and be able to demonstrate how the
asset will generate future economic benefits.

INITIAL RECOGNITION : INTERNALLY GENERATED BRANDS, MASTHEADS, TITLES, LISTS:

Brands, mastheads, publishing titles, customer lists and items similar in substance that are
internally generated should not be recognized as assets.

INITIAL MEASUREMENT:
INTANGIBLE ASSETS ARE INITIALLY MEASURED AT COST.
MEASUREMENT SUBSEQUENT TO ACQUISITION:
A).COST MODEL B). REVALUATION MODEL

Cost model:
After initial recognition intangible assets should be carried at cost less accumulated amortization
and impairment losses.

Revaluation model:
Intangible assets may be carried at a revalued amount (based on fair value) less any subsequent
amortization and impairment losses only if fair value can be determined by reference to an active
market. Such active markets are expected to be uncommon for intangible assets.

Treatment under revaluation model:

Under the revaluation model, revaluation increases are recognized in other comprehensive
income and accumulated in the "revaluation surplus" within equity except to the extent that it
reverses a revaluation decrease previously recognized in profit and loss.
 IFRS-2 Share-based Payment
Scope
IFRS- 2 defines a share-based payment as a transaction in which the entity receives or acquires
goods or services as consideration for equity instruments of the entity or by incurring liabilities
for amounts based on the price of the entitys shares or other equity instruments of the entity.
The accounting requirements for the share-based payment depend on how the transaction will
be settled; a) Through the issuance of equity, b) the payment of cash, or c) through the
issuance of equity or payment of cash.

The issuance of shares or rights to shares requires an increase in a component of equity. IFRS 2
requires the offsetting debit entry to be expensed when the payment for goods or services does
not represent an asset. The expense should be recognized as the goods or services are consumed.
For example, the issuance of shares or rights to shares to purchase inventory would be presented
as an increase in inventory and would be expensed only once the inventory is sold or impaired.

The issuance of fully vested shares, or rights to shares, is presumed to relate to past service,
requiring the full amount of the grant-date fair value to be expensed immediately. The issuance
of shares to employees with, say, a three-year vesting period is considered to relate to services
over the vesting period. Therefore, the fair value of the share-based payment, determined at the
grant date, should be expensed over the vesting period.

As a general principle, the total expense related to equity-settled share-based payments will equal
the multiple of the total instruments that vest and the grant-date fair value of those instruments.
In short, there is truing up to reflect what happens during the vesting period. However, if the
equity-settled share-based payment has a market related performance condition, the expense
would still be recognized if all other vesting conditions are met. The following example provides
an illustration of a typical equity-settled share-based payment.

IFRS 5 -NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Held-for-sale classification:
In general, the following conditions must be met for an asset (or 'disposal group') to be classified
as held for sale:

Management is committed to a plan to sell.

The asset is available for immediate sale.
An active program to locate a buyer is initiated.
The sale is highly probable, within 12 months of classification as held for sale (subject to
limited exceptions).
The asset is being actively marketed for sale at a sales price reasonable in relation to its
fair value.
 Actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn.

Measurement:

After classification as held for sale. Non-current assets or disposal groups that are classified as
held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Impairment:

Impairment must be considered both at the time of classification as held for sale and
subsequently:

At the time of classification as held for sale Any impairment loss is recognized in profit
or loss unless the asset had been measured at revalued amount under IAS 16 or IAS 38,
in which case the impairment is treated as a revaluation decrease.
After classification as held for sale. Calculate any impairment loss based on the difference
between the adjusted carrying amounts of the asset/disposal group and fair value less costs to
sell. Any impairment loss that arises by using the measurement principles in IFRS 5 must be
recognized in profit or loss, even for assets previously carried at revalued amounts.

Classification as discontinuing:

A discontinued operation is a component of an entity that either has been disposed of or is

classified as held for sale, and:

represents either a separate major line of business or a geographical area of operations

is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations, or
Is a subsidiary acquired exclusively with a view to resale and the disposal involves loss
of control.

Financial Instruments (IAS39, IFRS7, IFRS9)

CLASSIFICATION OF FINANCIAL LIABILITIES:

IAS 39 recognizes two classes of financial liabilities:

Financial liabilities at fair value through profit or loss

Other financial liabilities measured at amortized cost using the effective interest method

The category of financial liability at fair value through profit or loss has two subcategories:
 Designated: A financial liability that is designated by the entity as a liability at fair value through profit or
loss upon initial recognition.
Held for trading: A financial liability classified as held for trading, such as an obligation for securities
borrowed in a short sale, which have to be returned in the future.

CLASSIFICATION OF FINANCIAL ASSETS:

IAS 39 requires financial assets to be classified in one of the following categories:

Financial assets at fair value through profit or loss

Available-for-sale financial assets
Loans and receivables
Held-to-maturity investments

Those categories are used to determine how a particular financial asset is recognized and
measured in the financial statements.

Financial assets at fair value through profit or loss. This category has two subcategories:

Designated: The first includes any financial asset that is designated on initial recognition as one
to be measured at fair value with fair value changes in profit or loss.
Held for trading: The second category includes financial assets that are held for trading. All
derivatives (except those designated hedging instruments) and financial assets acquired or held
for the purpose of selling in the short term or for which there is a recent pattern of short-term
profit taking are held for trading.

INITIAL RECOGNITION :
IAS 39 REQUIRES RECOGNITION OF A FINANCIAL ASSET OR A FINANCIAL LIABILITY WHEN , AND ONLY WHEN , THE
ENTITY BECOMES A PARTY TO THE CONTRACTUAL PROVISIONS OF THE INSTRUMENT , SUBJECT TO THE
FOLLOWING PROVISIONS IN RESPECT OF REGULAR WAY PURCHASES .
INITIAL MEASUREMENT :
INITIALLY , FINANCIAL ASSETS AND LIABILITIES SHOULD BE MEASURED AT FAIR VALUE (INCLUDING TRANSACTION
COSTS, FOR ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS ).
MEASUREMENT SUBSEQUENT TO INITIAL RECOGNITION:
SUBSEQUENTLY , FINANCIAL ASSETS AND LIABILITIES (INCLUDING DERIVATIVES) SHOULD BE MEASURED AT FAIR
VALUE , WITH THE FOLLOWING EXCEPTIONS :

Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities

should be measured at amortized cost using the effective interest method.
 Investments in equity instruments with no reliable fair value measurement (and derivatives
indexed to such equity instruments) should be measured at cost.
Financial assets and liabilities that are designated as a hedged item or hedging instrument are
subject to measurement under the hedge accounting.
Financial liabilities that arise when a transfer of a financial asset does not qualify for
derecognition, or that are accounted for using the continuing-involvement method, are subject to
particular measurement requirements.

HEDGE ACCOUNTING :
IAS 39 PERMITS HEDGE ACCOUNTING UNDER CERTAIN CIRCUMSTANCES PROVIDED THAT THE HEDGING
RELATIONSHIP IS :

formally designated and documented, including the entity's risk management objective and
strategy for undertaking the hedge, identification of the hedging instrument, the hedged item,
the nature of the risk being hedged, and how the entity will assess the hedging instrument's
effectiveness and
expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk as designated and documented, and effectiveness can be reliably
measured and
assessed on an ongoing basis and determined to have been highly effective

Hedging instruments:
Hedging instrument is an instrument whose fair value or cash flows are expected to offset changes in
the fair value or cash flows of a designated hedged item.

Categories of hedges:
A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or
a previously unrecognised firm commitment or an identified portion of such an asset, liability or firm
commitment that is attributable to a particular risk and could affect profit or loss. (a) The gain or loss
from the change in fair value of the hedging instrument is recognized immediately in profit or loss. At the
same time the carrying amount of the hedged item is adjusted for the corresponding gain or loss with
respect to the hedged risk, which is also recognized immediately in net profit or loss.

A cash flow hedge is a hedge of the exposure to variability in cash flows that (I) is attributable to a
particular risk associated with a recognized asset or liability (such as all or some future interest payments
on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss. (b) The
portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is
recognized in other comprehensive income.

If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a

financial liability, any gain or loss on the hedging instrument that was previously recognized directly in
equity is 'recycled' into profit or loss in the same period(s) in which the financial asset or liability affects
profit or loss.