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Fair value reserve
Unrealised gains/losses (net of tax) on investments
classified as available-for-sale shall be recognised
in equity (within a fair value reserve) [IAS39R.55].
These gains/losses are recycled to the income statement
on disposal or when the asset becomes impaired .
Hedging reserve
IFRS requires that the effective portion of gains
and losses (net of tax) arising from the revaluation
of a financial instrument designated as a cash flow
hedge, be deferred in a separate component of equity
[IAS39R.95]. The reserve is usually described as
a hedging reserve.
These deferred gains and losses are subsequently
released to the income statement in the period or
periods when the hedged item affects the income
statement [IAS39R.100]. If the hedged cash flows
result in the recognition of a non-financial asset
or liability on the balance sheet, the entity can
choose to adjust the basis of the asset or liability
by the amount deferred in equity [IAS39R.98]. However,
this is not permitted if the hedged cash flows result
in the recognition of a financial asset or liability.
If the hedging relationship ceases because one
of the criteria for hedge accounting is no longer
met, the hedge is revoked or the hedging instrument
is expired, sold, terminated or exercised, the gains/losses
accumulated in equity are either:
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released in
profit and loss if the hedged item is no longer
expected to occur; or |
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left in equity until the hedged cash
flow occurs or is no longer expected to occur
[IAS39R.101]. |
Asset revaluation reserve
Subsequent to initial recognition, an item of property,
plant and equipment may be revalued to fair value.
The revaluation surplus is recognised in equity
unless it reverses a decrease in the fair value
of the same asset which was previously recognised
as an expense, in which case it is recognised in
profit or loss [IAS16R.39]. A subsequent decrease
in the fair value must be charged against this reserve
[IAS16R.40].
The revaluation surplus may be transferred to retained
earnings periodically, net of the tax effect. The
amount realised is the difference between depreciation
based on the revalued carrying amount of the asset
and depreciation based on the asset's original cost.
When the asset is sold or scrapped, the balance
in the reserve may be transferred to retained earnings
as a realised gain, without passing through the
income statement
[IAS16R.41].
Foreign currency translation reserve
Foreign currency translation differences shall
be recognised in equity in a foreign currency reserve
[IAS21R.39].
Translation adjustments must be separately tracked
in equity. On disposal of a foreign entity, the
cumulative translation difference relating to the
entity is transferred to the income statement and
included in the gain or loss on sale
[IAS21R.48].
Retained earnings
Retained earnings reflect the entity's accumulated
earnings less dividends accrued and paid to shareholders,
and transfers from other reserves as outlined above.
The cumulative effect of changes in accounting policy
and the correction of errors is also reflected as
an adjustment in retained earnings [IAS8R.22-23]
[IAS8R.42-43].
Presentation and disclosure
Reserves
An entity should disclose:
| a) |
movements in the
fair value reserve, hedging reserve, asset revaluation
reserve and foreign currency translation reserve
in a separate statement of changes in shareholders'
equity [IAS1R.97(b)]; |
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| b) |
either on the face of the balance sheet
or in the notes, a description of the nature
and purpose of each reserve recognised within
equity [IAS1R.76(b)]; and |
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| c) |
any restrictions on the appropriation
or distribution of reserves [IAS1R.76(a)-(v)].
If statutes or shareholders' resolutions restrict
the application of retained earnings and reserves,
entities should disclose the specific terms
of such restrictions for each item. If a standard
restricts the use of certain reserves, a clear
description of the items makes additional disclosure
of their purpose unnecessary. |
Retained earnings and dividends
An entity should disclose:
| a) |
the balance of
retained earnings at the start of the period,
and at the balance sheet date, and the movements
in retained earnings either in the statement
of changes in shareholders' equity, or in a
note to the financial statements [IAS1R.97(b)]; |
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| b) |
the amount of dividends
recognised as distributions to equity holders
during the period, and the related amount per
share [IAS1R.95]. |
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