Appendix D (AASB1_07-15_COMPdec21_01-22)

An entity may elect to use one or more of the following exemptions:

(a) share-based payment transactions (paragraphs D2 and D3);

(b) insurance contracts (paragraph D4);

(c) deemed cost (paragraphs D5–D8B);

(d) leases (paragraphs D9 and D9B–D9E);

(e) [deleted]

(f) cumulative translation differences (paragraphs D12-D13A);

(g) investments in subsidiaries, joint ventures and associates (paragraphs D14–D15A);

(h) assets and liabilities of subsidiaries, associates and joint ventures (paragraphs D16 and D17);

(i) compound financial instruments (paragraph D18);

(j) designation of previously recognised financial instruments (paragraphs D19–D19C);

(k) fair value measurement of financial assets or financial liabilities at initial recognition (paragraph D20);

(l) decommissioning liabilities included in the cost of property, plant and equipment (paragraphs D21 and D21A);

(m) financial assets or intangible assets accounted for in accordance with Interpretation 12 Service Concession Arrangements as identified in AASB 1048 Interpretation of Standards (paragraph D22);

(n) borrowing costs (paragraph D23);

(o) [deleted]

(p) extinguishing financial liabilities with equity instruments (paragraph D25);

(q) severe hyperinflation (paragraphs D26–D30);

(r) joint arrangements (paragraph D31);

(s) stripping costs in the production phase of a surface mine (paragraph D32);

(t) designation of contracts to buy or sell a non-financial item (paragraph D33);

(u) revenue (paragraphs D34 and D35); and

(v) foreign currency transactions and advance consideration (paragraph D36).

An entity shall not apply these exemptions by analogy to other items.

A first-time adopter is encouraged, but not required, to apply AASB 2 Share-based Payment to equity instruments that were granted on or before 7 November 2002. A first-time adopter is also encouraged, but not required, to apply AASB 2 to equity instruments that were granted after 7 November 2002 and vested before the later of (a) the date of transition to Australian Accounting Standards and (b) 1 January 2005. However, if a first-time adopter elects to apply AASB 2 to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in AASB 2. For all grants of equity instruments to which AASB 2 has not been applied (eg equity instruments granted on or before 7 November 2002), a first-time adopter shall nevertheless disclose the information required by paragraphs 44 and 45 of AASB 2. If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which AASB 2 has not been applied, the entity is not required to apply paragraphs 26–29 of AASB 2 if the modification occurred before the date of transition to Australian Accounting Standards.

A first-time adopter is encouraged, but not required, to apply AASB 2 to liabilities arising from share-based payment transactions that were settled before the date of transition to Australian Accounting Standards. A first-time adopter is also encouraged, but not required, to apply AASB 2 to liabilities that were settled before 1 January 2005. For liabilities to which AASB 2 is applied, a first-time adopter is not required to restate comparative information to the extent that the information relates to a period or date that is earlier than 7 November 2002.

A first-time adopter may apply the transitional provisions in AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 4 restricts changes in accounting policies for insurance contracts, including changes made by a first-time adopter.

An entity may elect to measure an item of property, plant and equipment at the date of transition to Australian Accounting Standards at its fair value and use that fair value as its deemed cost at that date.

A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to Australian Accounting Standards as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:

(a) fair value; or

(b) cost or depreciated cost in accordance with Australian Accounting Standards, adjusted to reflect, for example, changes in a general or specific price index.

The elections in paragraphs D5 and D6 are also available for:

(a) investment property, if an entity elects to use the cost model in AASB 140 Investment Property;

(aa) right-of-use assets (AASB 16 Leases); and

(b) intangible assets that meet:

(i) the recognition criteria in AASB 138 (including reliable measurement of original cost); and

(ii) the criteria in AASB 138 for revaluation (including the existence of an active market).

An entity shall not use these elections for other assets or for liabilities.

Notwithstanding paragraphs D5–D7, where a lessee is a not-for-profit entity, the entity may elect to measure a class of right-of-use assets arising under leases that had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives at fair value at the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements or at the previous GAAP valuation if that valuation broadly reflects that fair value.

A first-time adopter may have established a deemed cost in accordance with previous GAAP for some or all of its assets and liabilities by measuring them at their fair value at one particular date because of an event such as a privatisation or initial public offering.

(a) If the measurement date is at or before the date of transition to Australian Accounting Standards, the entity may use such event-driven fair value measurements as deemed cost for Australian Accounting Standards at the date of that measurement.

(b) If the measurement date is after the date of transition to Australian Accounting Standards, but during the period covered by the first Australian-Accounting-Standards financial statements, the event-driven fair value measurements may be used as deemed cost when the event occurs. An entity shall recognise the resulting adjustments directly in retained earnings (or if appropriate, another category of equity) at the measurement date. At the date of transition to Australian Accounting Standards, the entity shall either establish the deemed cost by applying the criteria in paragraphs D5–D7 or measure assets and liabilities in accordance with the other requirements in this Standard.

Under some national accounting requirements exploration and development costs for oil and gas properties in the development or production phases are accounted for in cost centres that include all properties in a large geographical area. A first-time adopter using such accounting under previous GAAP may elect to measure oil and gas assets at the date of transition to Australian Accounting Standards on the following basis:

(a) exploration and evaluation assets at the amount determined under the entity’s previous GAAP; and

(b) assets in the development or production phases at the amount determined for the cost centre under the entity’s previous GAAP. The entity shall allocate this amount to the cost centre’s underlying assets pro rata using reserve volumes or reserve values as of that date.

The entity shall test exploration and evaluation assets and assets in the development and production phases for impairment at the date of transition to Australian Accounting Standards in accordance with AASB 6 Exploration for and Evaluation of Mineral Resources or AASB 136 respectively and, if necessary, reduce the amount determined in accordance with (a) or (b) above. For the purposes of this paragraph, oil and gas assets comprise only those assets used in the exploration, evaluation, development or production of oil and gas.

Some entities hold items of property, plant and equipment, right-of-use assets or intangible assets that are used, or were previously used, in operations subject to rate regulation. The carrying amount of such items might include amounts that were determined under previous GAAP but do not qualify for capitalisation in accordance with Australian Accounting Standards. If this is the case, a first-time adopter may elect to use the previous GAAP carrying amount of such an item at the date of transition to Australian Accounting Standards as deemed cost. If an entity applies this exemption to an item, it need not apply it to all items. At the date of transition to Australian Accounting Standards, an entity shall test for impairment in accordance with AASB 136 each item for which this exemption is used. For the purposes of this paragraph, operations are subject to rate regulation if they are governed by a framework for establishing the prices that can be charged to customers for goods or services and that framework is subject to oversight and/or approval by a rate regulator (as defined in AASB 14 Regulatory Deferral Accounts).

A first-time adopter may assess whether a contract existing at the date of transition to Australian Accounting Standards contains a lease by applying paragraphs 9–11 of AASB 16 to those contracts on the basis of facts and circumstances existing at that date.

[Deleted]

When a first-time adopter that is a lessee recognises lease liabilities and right-of-use assets, it may apply the following approach to all of its leases (subject to the practical expedients described in paragraph D9D):

(a) measure a lease liability at the date of transition to Australian Accounting Standards. A lessee following this approach shall measure that lease liability at the present value of the remaining lease payments (see paragraph D9E), discounted using the lessee’s incremental borrowing rate (see paragraph D9E) at the date of transition to Australian Accounting Standards.

(b) measure a right-of-use asset at the date of transition to Australian Accounting Standards. The lessee shall choose, on a lease-by-lease basis, to measure that right-of-use asset at either:

(i) its carrying amount as if AASB 16 had been applied since the commencement date of the lease (see paragraph D9E), but discounted using the lessee’s incremental borrowing rate at the date of transition to Australian Accounting Standards; or

(ii) an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of transition to Australian Accounting Standards.

(c) apply AASB 136 to right-of-use assets at the date of transition to Australian Accounting Standards.

Notwithstanding the requirements in paragraph D9B, a first-time adopter that is a lessee shall measure the right-of-use asset at fair value at the date of transition to Australian Accounting Standards for leases that meet the definition of investment property in AASB 140 and are measured using the fair value model in AASB 140 from the date of transition to Australian Accounting Standards.

A first-time adopter that is a lessee may do one or more of the following at the date of transition to Australian Accounting Standards, applied on a lease-by-lease basis:

(a) apply a single discount rate to a portfolio of leases with reasonably similar characteristics (for example, a similar remaining lease term for a similar class of underlying asset in a similar economic environment).

(b) elect not to apply the requirements in paragraph D9B to leases for which the lease term (see paragraph D9E) ends within 12 months of the date of transition to Australian Accounting Standards. Instead, the entity shall account for (including disclosure of information about) these leases as if they were short-term leases accounted for in accordance with paragraph 6 of AASB 16.

(c) elect not to apply the requirements in paragraph D9B to leases for which the underlying asset is of low value (as described in paragraphs B3–B8 of AASB 16). Instead, the entity shall account for (including disclosure of information about) these leases in accordance with paragraph 6 of AASB 16.

(d) exclude initial direct costs (see paragraph D9E) from the measurement of the right-of-use asset at the date of transition to Australian Accounting Standards.

(e) use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.

Notwithstanding paragraphs D9B–D9D, where a lessee is a not-for-profit entity and the lease had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives, all references in those paragraphs to the date of transition to Australian Accounting Standards shall be read as referring to the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements. Consequently, the entity shall measure the lease liability and the right-of-use asset at that date.

Where a lessee is a not-for-profit entity and elects to measure at fair value in accordance with paragraph AusD7.1 a class of right-of-use assets arising under leases that had at inception significantly below-market terms and conditions principally to enable the entity to further its objectives, the entity shall also recognise any related items in accordance with paragraph 9 of AASB 1058 Income of Not-for-Profit Entities. Any income arising shall be recognised as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate) at the beginning of the current period presented in the entity’s first Australian-Accounting-Standards financial statements.

Lease payments, lessee, lessee’s incremental borrowing rate, commencement date of the lease, initial direct costs and lease term are defined terms in AASB 16 and are used in this Standard with the same meaning.

[Deleted]

AASB 121 requires an entity:

(a) to recognise some translation differences in other comprehensive income and accumulate these in a separate component of equity; and

(b) on disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) from equity to profit or loss as part of the gain or loss on disposal.

However, a first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to Australian Accounting Standards. If a first-time adopter uses this exemption:

(a) the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Australian Accounting Standards; and

(b) the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to Australian Accounting Standards and shall include later translation differences.

Instead of applying paragraph D12 or paragraph D13, a subsidiary that uses the exemption in paragraph D16(a) may elect, in its financial statements, to measure cumulative translation differences for all foreign operations at the carrying amount that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to Australian Accounting Standards, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. A similar election is available to an associate or joint venture that uses the exemption in paragraph D16(a).

When an entity prepares separate financial statements, AASB 127 requires it to account for its investments in subsidiaries, joint ventures and associates either:

(a) at cost;

(b) in accordance with AASB 9; or

(c) using the equity method as described in AASB 128.

If a first-time adopter measures such an investment at cost in accordance with AASB 127, it shall measure that investment at one of the following amounts in its separate opening Australian-Accounting-Standards statement of financial position:

(a) cost determined in accordance with AASB 127; or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value at the entity’s date of transition to Australian Accounting Standards in its separate financial statements; or

(ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, joint venture or associate that it elects to measure using a deemed cost.

If a first-time adopter accounts for such an investment using the equity method procedures as described in AASB 128:

(a) the first-time adopter applies the exemption for past business combinations (Appendix C) to the acquisition of the investment.

(b) if the entity becomes a first-time adopter for its separate financial statements earlier than for its consolidated financial statements, and

(i) later than its parent, the entity shall apply paragraph D16 in its separate financial statements.

(ii) later than its subsidiary, the entity shall apply paragraph D17 in its separate financial statements.

If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its financial statements, measure its assets and liabilities at either:

(a) the carrying amounts that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to Australian Accounting Standards, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary (this election is not available to a subsidiary of an investment entity, as defined in AASB 10, that is required to be measured at fair value through profit or loss); or

(b) the carrying amounts required by the rest of this Standard, based on the subsidiary’s date of transition to Australian Accounting Standards. These carrying amounts could differ from those described in (a):

(i) when the exemptions in this Standard result in measurements that depend on the date of transition to Australian Accounting Standards.

(ii) when the accounting policies used in the subsidiary’s financial statements differ from those in the consolidated financial statements. For example, the subsidiary may use as its accounting policy the cost model in AASB 116 Property, Plant and Equipment, whereas the group may use the revaluation model.

A similar election is available to an associate or joint venture that becomes a first-time adopter later than an entity that has significant influence or joint control over it.

However, if an entity becomes a first-time adopter later than its subsidiary (or associate or joint venture) the entity shall, in its consolidated financial statements, measure the assets and liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in the financial statements of the subsidiary (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the business combination in which the entity acquired the subsidiary. Notwithstanding this requirement, a non-investment entity parent shall not apply the exception to consolidation that is used by any investment entity subsidiaries. Similarly, if a parent becomes a first-time adopter for its separate financial statements earlier or later than for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, except for consolidation adjustments.

AASB 132 Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components. If the liability component is no longer outstanding, retrospective application of AASB 132 involves separating two portions of equity. The first portion is in retained earnings and represents the cumulative interest accreted on the liability component. The other portion represents the original equity component. However, in accordance with this Standard, a first-time adopter need not separate these two portions if the liability component is no longer outstanding at the date of transition to Australian Accounting Standards.

AASB 9 permits a financial liability (provided it meets certain criteria) to be designated as a financial liability at fair value through profit or loss. Despite this requirement an entity is permitted to designate, at the date of transition to Australian Accounting Standards, any financial liability as at fair value through profit or loss provided the liability meets the criteria in paragraph 4.2.2 of AASB 9 at that date.

An entity may designate a financial asset as measured at fair value through profit or loss in accordance with paragraph 4.1.5 of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards.

An entity may designate an investment in an equity instrument as at fair value through other comprehensive income in accordance with paragraph 5.7.5 of AASB 9 on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards.

For a financial liability that is designated as a financial liability at fair value through profit or loss, an entity shall determine whether the treatment in paragraph 5.7.7 of AASB 9 would create an accounting mismatch in profit or loss on the basis of the facts and circumstances that exist at the date of transition to Australian Accounting Standards.

Despite the requirements of paragraphs 7 and 9, an entity may apply the requirements in paragraph B5.1.2A(b) of AASB 9 prospectively to transactions entered into on or after the date of transition to Australian Accounting Standards.

Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities as identified in AASB 1048 requires specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. A first-time adopter need not comply with these requirements for changes in such liabilities that occurred before the date of transition to Australian Accounting Standards. If a first-time adopter uses this exemption, it shall:

(a) measure the liability as at the date of transition to Australian Accounting Standards in accordance with AASB 137;

(b) to the extent that the liability is within the scope of Interpretation 1, estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using its best estimate of the historical risk-adjusted discount rate(s) that would have applied for that liability over the intervening period; and

(c) calculate the accumulated depreciation on that amount, as at the date of transition to Australian Accounting Standards, on the basis of the current estimate of the useful life of the asset, using the depreciation policy adopted by the entity in accordance with Australian Accounting Standards.

An entity that uses the exemption in paragraph D8A(b) (for oil and gas assets in the development or production phases accounted for in cost centres that include all properties in a large geographical area under previous GAAP) shall, instead of applying paragraph D21 or Interpretation 1 (as identified in AASB 1048):

(a) measure decommissioning, restoration and similar liabilities as at the date of transition to Australian Accounting Standards in accordance with AASB 137; and

(b) recognise directly in retained earnings any difference between that amount and the carrying amount of those liabilities at the date of transition to Australian Accounting Standards determined under the entity’s previous GAAP.

A first-time adopter may apply the transitional provisions in Interpretation 12 as identified in AASB 1048.

A first-time adopter can elect to apply the requirements of AASB 123 from the date of transition or from an earlier date as permitted by paragraph 28 of AASB 123. From the date on which an entity that applies this exemption begins to apply AASB 123, the entity:

(a) shall not restate the borrowing cost component that was capitalised under previous GAAP and that was included in the carrying amount of assets at that date; and

(b) shall account for borrowing costs incurred on or after that date in accordance with AASB 123, including those borrowing costs incurred on or after that date on qualifying assets already under construction.

[Deleted]

A first-time adopter may apply the transitional provisions in Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments as identified in AASB 1048.

If an entity has a functional currency that was, or is, the currency of a hyperinflationary economy, it shall determine whether it was subject to severe hyperinflation before the date of transition to Australian Accounting Standards. This applies to entities that are adopting Australian Accounting Standards for the first time, as well as entities that have previously applied Australian Accounting Standards.

The currency of a hyperinflationary economy is subject to severe hyperinflation if it has both of the following characteristics:

(a) a reliable general price index is not available to all entities with transactions and balances in the currency.

(b) exchangeability between the currency and a relatively stable foreign currency does not exist.

The functional currency of an entity ceases to be subject to severe hyperinflation on the functional currency normalisation date. That is the date when the functional currency no longer has either, or both, of the characteristics in paragraph D27, or when there is a change in the entity’s functional currency to a currency that is not subject to severe hyperinflation.

When an entity’s date of transition to Australian Accounting Standards is on, or after, the functional currency normalisation date, the entity may elect to measure all assets and liabilities held before the functional currency normalisation date at fair value on the date of transition to Australian Accounting Standards. The entity may use that fair value as the deemed cost of those assets and liabilities in the opening Australian-Accounting-Standards statement of financial position.

When the functional currency normalisation date falls within a 12-month comparative period, the comparative period may be less than 12 months, provided that a complete set of financial statements (as required by paragraph 10 of AASB 101) is provided for that shorter period.

A first-time adopter may apply the transition provisions in AASB 11 with the following exceptions:

(a) When applying the transition provisions in AASB 11, a first-time adopter shall apply these provisions at the date of transition to Australian Accounting Standards.

(b) When changing from proportionate consolidation to the equity method, a first-time adopter shall test for impairment the investment in accordance with AASB 136 as at the date of transition to Australian Accounting Standards, regardless of whether there is any indication that the investment may be impaired. Any resulting impairment shall be recognised as an adjustment to retained earnings at the date of transition to Australian Accounting Standards.

A first-time adopter may apply the transitional provisions set out in paragraphs A1 to A4 of Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine as identified in AASB 1048. In that paragraph, reference to the effective date shall be interpreted as 1 January 2016 or the beginning of the first Australian-Accounting-Standards reporting period, whichever is later.

AASB 9 permits some contracts to buy or sell a non-financial item to be designated at inception as measured at fair value through profit or loss (see paragraph 2.5 of AASB 9). Despite this requirement an entity is permitted to designate, at the date of transition to Australian Accounting Standards, contracts that already exist on that date as measured at fair value through profit or loss but only if they meet the requirements of paragraph 2.5 of AASB 9 at that date and the entity designates all similar contracts.

A first-time adopter may apply the transition provisions in paragraph C5 of AASB 15. In those paragraphs references to the ‘date of initial application’ shall be interpreted as the beginning of the first Australian-Accounting-Standards reporting period. If a first-time adopter decides to apply those transition provisions, it shall also apply paragraph C6 of AASB 15.

A first-time adopter is not required to restate contracts that were completed before the earliest period presented. A completed contract is a contract for which the entity has transferred all of the goods or services identified in accordance with previous GAAP.

A first-time adopter need not apply AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration, as identified in AASB 1048 Interpretation of Standards, to assets, expenses and income in the scope of that Interpretation initially recognised before the date of transition to Australian Accounting Standards.