ANNUAL REPORT 2015
47
Notes to the Combined
Financial Statements
As at 30 September 2015
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
FRS 109
Financial Instruments
(cont’d)
with regard to the measurement of financial liabilities designated as at fair value through profit or loss, FRS 109 requires that
the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is
presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other
comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a
financial liability’s credit risk are not subsequently reclassified to profit or loss. Under FRS 39, the entire amount of the change in
the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.
in relation to the impairment of financial assets, FRS 109 requires an expected credit loss model, as opposed to an incurred
credit loss model under FRS 39. The expected credit loss model requires an entity to account for expected credit losses and
changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other
words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
the new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available
in FRS 39. Under FRS 109, greater flexibility has been introduced to the types of transactions eligible for hedge accounting,
specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-
financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced
with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required.
Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.
Management is currently evaluating the potential impact of the application of the FRS 109 on the financial statements of the Group and
the Company in the period of initial adoption.
FRS 115
Revenue from Contracts with Customers
In November 2014, FRS 115 was issued which establishes a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. FRS 115 will supersede the current revenue recognition guidance including FRS 18
Revenue
, FRS
11
Construction Contracts
and the related Interpretations when it becomes effective.
The core principle of FRS 115 is that an entity should recognise revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Specifically, the Standard introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under FRS 115, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or
services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added
in FRS 115 to deal with specific scenarios. Furthermore, extensive disclosures are required by FRS 115.
FRS 115 will take effect from the financial year beginning on or after 1 January 2018 with retrospective application required. Under
this transition method, an entity shall apply this Standard retrospectively only to contracts that are not completed at the date of initial
adoption. Management is currently evaluating the potential impact of the application of FRS 115 on the financial statements of the Group
and of the Company in the period of initial adoption.
