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Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
Adoption of IFRS 9 and IFRS 15for Interim FinancialStatements
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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page 1
No party should rely on the contents of this publication without first obtaining advice from a qualified professional person.
The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done, by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
Disclaimer
This publication is provided on the terms and understanding that i) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and ii) the publisher is not engaged in rendering legal, accounting, professional or other advice or services.
Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.
Contents
1. Introduction.................................................................................................................................................... 2
2. Illustrative Financial Statements.................................................................................................................... 2
3. Explanatory booklets..................................................................................................................................... 2
4. Editorial articles and social media commentary............................................................................................. 2
5. IFRS SYSTEM Software............................................................................................................................... 2
6. Trigger points................................................................................................................................................. 3
7. Impact on the adoption of IFRS 9 and IFRS 15 for Interim Financial Statements......................................... 3
8. Conventions used in the example................................................................................................................. 3
9. Example........................................................................................................................................................ 4
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Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
This publication is a complimentary resource provided by IFRS SYSTEM Pty Limited and its related entities and is intended to assist those who are dealing with the adoption of IFRS 9 and IFRS 15 for Interim Financial Statements.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Introduction
The resources fall into the following three broad categories:
This booklet is part of a series of complimentary resources that we make available to professionals involved in the preparation, oversight or audit of statutory accounts.
• Illustrative Financial Statements• Explanatory booklets• Editorial articles and social media commentary
Illustrative Financial Statements
IFRS SYSTEM’s Illustrative Financial Statements are an invaluable statutory accounts production resource. Available in PDF and Word formats, the Illustrative Financial Statements are updated to reflect the International Financial Reporting Standards (IFRS) as at 30 June and 31 December each year.
If you would like to know more about IFRS SYSTEM Software please visit .www.ifrssystem.com
We acknowledge that IFRS SYSTEM resources are prepared from our point of view, which is just one of many. However, after many years, and many hundreds of financial statements prepared, we know our process works and we are proud to share it.
If you would like to suggest a topic for us to consider or comment on, add to, or even challenge anything in this booklet, please email us at [email protected].
Editorial articles and social media commentary
Many of the complimentary resources we provide are a by-product of our efforts to develop and deliver the world’s best statutory accounts production software.
We don’t create booklets for every circumstance, just those that a) we think are important and b) issues that people are finding challenging. Our explanatory booklets can be downloaded from https://ifrssystem.com/resources.
Our explanatory booklets fill this gap. These booklets cover a range of issues such as ‘Constructing of financial statements’, ‘The impact on disclosures when changing the basis of preparation’ and ‘The impact on disclosures arising from changes to the Accounting Standards’.
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Explanatory booklets
IFRS SYSTEM articles, posts and tips can be found in a range of accounting publications and social media sites.
We build IFRS SYSTEM Software so that users don’t need to worry about the complexities associated with changing the basis of preparation from one period to the next, or worrying about how disclosures are effected by changes to the Accounting Standards.
Whilst illustrative financial statements are very helpful, they can be like a map that shows only the destination (or end result). What they don’t show is ‘how to get there’ or ‘how things have changed’.
IFRS SYSTEM Software
The Illustrative Financial Statements are produced as part of our testing and quality assurance processes, while the explanatory booklets can come from our research with preparers, auditors and regulators.
These practical and clear examples cover a wide range of reporting scenarios and can be used with
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Trigger points
The following are some potential trigger points that would suggest that IFRS 15 'Revenue from Contracts with Customers' impacts your Interim Financial Statements:
The following are some potential trigger points that would suggest that IFRS 9 'Financial Instruments'impacts your Interim Financial Statements:
• Assets in the latest Annual Report included 'Available-for-sale financial assets' and 'Held-to-maturity investments'. If still held, these would be reclassified to another investment category, such as 'Financial assets at fair value through other comprehensive income'
The following is a summary of the new disclosures (where applicable):
• Bad debt / impairment of receivables expense in previous periods, indicating that the expected credit losses on receivables needs to be applied
• 'Accrued revenue' is now reclassified into 'Contract
assets’
• 'Revenue received in advance' and 'Deferred revenue' is now reclassified into 'Contract liabilities’
Impact on the adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
• Consider if any 'Accrued expenses' should be reclassified into 'Contract liabilities'
• Statement of profit or loss and other comprehensive income: 'Interest revenue calculated using the effective interest method' (expanded description) moved from the notes to the face of the statement
• Statement of profit or loss and other comprehensive income: new income items on the face of the statement for 'Net gain on derecognition of financial assets at amortised cost', 'Net gain on remeasurement from reclassification of financial assets at amortised cost to fair value' and 'Net gain transferred from other comprehensive income on reclassification of financial assets'
• Statement of profit or loss and other comprehensive income: new other comprehensive items for 'Gain/(loss) on the revaluation of equity instruments at fair value through other comprehensive income' (will not be reclassified) and 'Gain/(loss) on the revaluation of financial liabilities at fair value through other comprehensive income' (may be reclassified)
• Statement of financial position: new classifications for 'Contract assets', 'Financial assets at fair value through other comprehensive income' and 'Contract liabilities'
• Notes to the financial statements - Significant accounting policies: include IFRS 9 and IFRS 15into the new or amended Accounting Standards and Interpretations adopted
• Notes to the financial statements - Other liabilities: new item for 'Refund liabilities'
• Notes to the financial statements - Other assets: new items for 'Customer acquisition costs', 'Customer fulfilment costs' and 'Right of return assets'
• Notes to the financial statements - Contract assets: new note including a reconciliation
• Notes to the financial statements - Revenue: new disclosures for disaggregation of revenue
Conventions used in the example
• Content that is not impacted by IFRS 9 or IFRS 15 is presented as on a clear backgroundblack text
• Notes to the financial statements - Contract liabilities: new note including a reconciliation and a breakdown of unsatisfied performance obligations
• Notes to the financial statements - Trade and other receivables: new disclosures for allowance for expected credit losses
• Notes to the financial statements - Restatement of comparatives: disclose the impact on the comparatives and consider changing the note name to Restatement of comparatives - adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers’
For illustrative purposes the conventions that apply to the following example are:
• Content that has been added or changed as a consequence of IFRS 9 or IFRS 15 is presented as green text on a grey shaded background
• The placeholder pages reserved for the management report and the independent auditor’s review report have been intentionally omitted
• Notes to the financial statements - Significant accounting policies: new accounting policies for revenue recognition, trade and other receivables, contract assets, customer acquisition costs, customer fulfilment costs, right of return assets, investments and other financial assets, contract liabilities and refund liabilities
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLC
Company Number 01234567
Interim Report -
30 June 2018
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCDirectors' responsibilities statement30 June 2018
1
The directors are responsible for preparing the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial half-year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the consolidated entity and the profit or loss of the consolidated entity for that half-year.
In preparing these financial statements, the directors are required to:
● select suitable accounting policies and then apply them consistently;
● make judgements and accounting estimates that are reasonable and prudent;
● state whether International Financial Reporting Standard IAS 34 'Interim Financial Reporting' has been followed, subject to any material departures disclosed and explained in the financial statements; and
● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the consolidated entity will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the consolidated entity's transactions and disclose with reasonable accuracy at any time the financial position of the consolidated entity and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the consolidated entity and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCContents30 June 2018
2
Statement of profit or loss and other comprehensive income 3Statement of financial position
5 Statement of changes in equity
7 Statement of cash flows
8 Notes to the financial statements
9 Independent auditor's review report to the members of Pinnacle IFRS Interim UK PLC
26
General information
The financial statements cover Pinnacle IFRS Interim UK PLC as a consolidated entity consisting of Pinnacle IFRS Interim UK PLC and the entities it controlled at the end of, or during, the half-year. The financial statements are presented in Pound sterling, which is Pinnacle IFRS Interim UK PLC's functional and presentation currency.
Pinnacle IFRS Interim UK PLC is a listed public company limited by shares, incorporated and domiciled in the United Kingdom. Its
registered office and principal place of business are:
Registered office
Principal place of business
10th Floor
5th Floor
Universal Administration Building
Pinnacle Business Centre
12 Highland Street
247 Edward Street
London EC1
London EC1
The financial statements were authorised for issue, in accordance with a resolution of directors, on 23 August 2018.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCStatement of profit or loss and other comprehensive incomeFor the half-year ended 30 June 2018
ConsolidatedNote 30 Jun 2018 30 Jun 2017
£'000
£'000
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes
3
Revenue
4
233,357
218,931
Share of profits of associates accounted for using the equity method
5
1,616
1,437 Other income
6
692
192 Interest revenue calculated using the effective interest method
543
272 Net gain on derecognition of financial assets at amortised cost
50
-
Expenses
Changes in inventories
(660)
(782)Raw materials and consumables used
(68,486)
(65,515)Employee benefits expense
(112,431)
(109,130)Depreciation and amortisation expense
(10,570)
(10,979)Impairment of receivables
(256)
(262)Other expenses
(17,612)
(15,960)Finance costs
7
(1,119)
(1,726)
Profit before income tax expense
25,124
16,478
Income tax expense
(7,159)
(4,560)
Profit after income tax expense for the half-year
17,965
11,918
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Gain on the revaluation of equity instruments at fair value through other comprehensive income, net of tax
35
-
Items that may be reclassified subsequently to profit or loss
Cash flow hedges transferred to profit or loss, net of tax
-
(2)Cash flow hedges transferred to inventory in the statement of financial position, net of tax
(1)
(5)Net change in the fair value of cash flow hedges taken to equity, net of tax
(3)
(12)Foreign currency translation
(157)
(98)
Other comprehensive income for the half-year, net of tax
(126)
(117)
Total comprehensive income for the half-year
17,839
11,801
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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adoption of IFRS 9 'Financial Instruments' and
Pinnacle IFRS Interim UK PLCStatement of profit or loss and other comprehensive incomeFor the half-year ended 30 June 2018
ConsolidatedNote 30 Jun 2018 30 Jun 2017
£'000 £'000
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes
4
Profit for the half-year is attributable to:
Non-controlling interest
71
114 Owners of Pinnacle IFRS Interim UK PLC
17,894
11,804
17,965
11,918
Total comprehensive income for the half-year is attributable to:
Non-controlling interest
71
114 Owners of Pinnacle IFRS Interim UK PLC
17,768
11,687
17,839
11,801
Pence
Pence
Basic earnings per share
12.18
8.37 Diluted earnings per share
12.18
8.37
Refer to note 2 for detailed information on Restatement of comparatives -
IFRS 15 'Revenue from Contracts with Customers'.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCStatement of financial positionAs at 30 June 2018
Consolidated
Note
30 Jun 2018
31 Dec 2017
£'000
£'000
The above statement of financial position should be read in conjunction with the accompanying notes
5
Assets
Current assets
Cash and cash equivalents
26,136
22,258 Trade and other receivables
8
13,420
12,958 Contract assets
9
2,458
2,508 Inventories
39,525
40,185 Financial assets at fair value through profit or loss
360
-Other
10
3,935
3,444
85,834
81,353 Non-current assets classified as held for sale
11
6,000
-Total current assets
91,834
81,353
Non-current assets
Receivables
145
135 Investments accounted for using the equity method
34,192
32,576 Financial assets at fair value through other comprehensive income
170
-Investment properties
46,900
46,900 Property, plant and equipment
121,253
129,690 Intangibles
12,170
12,357 Deferred tax
9,860
9,407
Other 12
2,308
2,220
Total non-current assets
226,998 233,285
Total assets
318,832 314,638
Liabilities
Current liabilities Trade and other payables 20,004 19,468 Contract liabilities 13 2,269 2,135 Borrowings 6,114 4,475 Derivative financial instruments 122 116 Income tax
6,701
4,497
Employee benefits
8,352
8,270 Provisions
3,494
3,362
Other 14
2,130
2,159
49,186
44,482
Liabilities directly associated with assets classified as held for sale
4,000
-Total current liabilities
53,186
44,482
Non-current liabilities
Borrowings
20,823
21,630 Deferred tax
4,617
4,446 Employee benefits
11,149
10,975 Provisions
1,475
1,325 Total non-current liabilities
38,064
38,376
Total liabilities
91,250
82,858
Net assets
227,582
231,780
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCStatement of financial positionAs at 30 June 2018
Consolidated
Note
30 Jun 2018
31 Dec 2017
£'000
£'000
The above statement of financial position should be read in conjunction with the accompanying notes
6
Equity
Issued capital
182,953
182,953 Reserves
3,276
3,402 Retained profits
23,990
28,133 Equity attributable to the owners of Pinnacle IFRS Interim UK PLC
210,219
214,488 Non-controlling interest
17,363
17,292
Total equity
227,582
231,780
Refer to note 2 for detailed information on Restatement of comparatives -
adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'.
___________________________
___________________________
Daniel Example
Elizabeth Example
Director
Director
23 August 2018
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCStatement of changes in equityFor the half-year ended 30 June 2018
The above statement of changes in equity should be read in conjunction with the accompanying notes
7
Issued
Retained
Non-controlling
Total equity
capital
Reserves
profits
interest
Consolidated
£'000
£'000
£'000
£'000
£'000
Balance at 1 January 2017
182,678
3,625
15,310
17,107
218,720
Adjustment for change in accounting policy (note 2)
-
-
326
-
326
Balance at 1 January 2017 -
restated
182,678
3,625
15,636
17,107
219,046
Profit after income tax expense for the half-year
-
-
11,804
114
11,918 Other comprehensive income for the half-year, net of tax
-
(117)
-
-
(117)
Total comprehensive income for the half-year
-
(117)
11,804
114
11,801
Transactions with owners in their capacity as owners:
Dividends paid (note 15)
-
-
(11,744)
- (11,744)
Balance at 30 June 2017
182,678
3,508
15,696
17,221 219,103
Issued
Retained
Non-controlling
Total equity capital Reserves profits interest Consolidated £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2018 182,953 3,402 26,737 17,292 230,384
Adjustment for change in accounting policy (note 2)
- -
1,396
-
1,396
Balance at 1 January 2018 -
restated
182,953
3,402
28,133
17,292
231,780
Profit after income tax expense for the half-year -
-
17,894
71
17,965
Other comprehensive income for the half-year, net of tax
-
(126)
-
-
(126)
Total comprehensive income for the half-year
-
(126)
17,894
71
17,839
Transactions with owners in their capacity as owners:
Dividends paid (note 15)
-
-
(22,037)
-
(22,037)
Balance at 30 June 2018
182,953
3,276
23,990
17,363
227,582
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCStatement of cash flowsFor the half-year ended 30 June 2018
Consolidated
Note
30 Jun 2018
30 Jun 2017
£'000
£'000
The above statement of cash flows should be read in conjunction with the accompanying notes
8
Cash flows from operating activities
Receipts from customers
231,777
217,416 Payments to suppliers and employees
(199,796)
(194,235)
31,981
23,181 Interest received
540
272 Other revenue
2,123
1,691 Interest and other finance costs paid
(1,119)
(1,726)Income taxes paid
(5,163)
(4,231)
Net cash from operating activities
28,362
19,187
Cash flows from investing activities
Payment for purchase of business, net of cash acquired
19
(8,072)
-Payments for investments
(510)
-Payments for property, plant and equipment
(297)
(1,524)Proceeds from disposal of investments
80
-
Proceeds from disposal of property, plant and equipment
1,511
250
Net cash used in investing activities
(7,288)
(1,274)
Cash flows from financing activities
Proceeds from borrowings 10,000 -Dividends paid 15 (22,037) (11,744)Repayment of borrowings (5,168) (12,294)
Net cash used in financing activities (17,205) (24,038)
Net increase/(decrease) in cash and cash equivalents 3,869 (6,125)Cash and cash equivalents at the beginning of the financial half-year
22,258
10,371
Effects of exchange rate changes on cash and cash equivalents
9
5
Cash and cash equivalents at the end of the financial half-year
26,136
4,251
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
9
Note 1. Significant accounting policies
These general purpose financial statements for the interim half-year reporting period ended 30 June 2018 have been prepared in accordance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting' and the Companies Act 2006, as appropriate for for-profit oriented entities.
These general purpose financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these
financial statements are to be read in conjunction with the annual report for the year ended 31 December 2017.
The principal accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the policies stated below.
New or amended Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the International Accounting Standards Board ('IASB') that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
The following Accounting Standards and Interpretations are most relevant to the consolidated entity:
IFRS 9 Financial Instruments
The consolidated entity has adopted IFRS 9 from 1 January 2018. The standard introduced new classification and measurement models for financial assets. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows which arise on specified dates and that are solely principal and interest. A debt investment shall be measured at fair value through other comprehensive income if it is held within a business model whose objective is to both hold assets in order to collect contractual cash flows which arise on specified dates that are solely principal and interest as well as selling the asset on the basis of its fair value. All other financial assets are classified and measured at fair value through profit or loss unless the entity makes an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading or contingent consideration recognised in a business combination) in other comprehensive income ('OCI'). Despite these requirements, a financial asset may be irrevocably designated as measured at fair value through profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities designated at fair value through profit or loss, the standard requires the portion of the change in fair value that relates to the entity's own credit risk to be presented in OCI (unless it would create an accounting mismatch). New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is measured using a 12- month ECL method unless the credit risk on a financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss allowance is available.
IFRS 15 Revenue from Contracts with Customers
The consolidated entity has adopted IFRS 15 from 1 January 2018. The standard provides a single comprehensive model for revenue recognition. The core principle of the standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduced a new contract-based revenue recognition model with a measurement approach that is based on an allocation of the transaction price. This is described further in the accounting policies below. Credit risk is presented separately as an expense rather than adjusted against revenue. Contracts with customers are presented in an entity's statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity's performance and the customer's payment. Customer acquisition costs and costs to fulfil a contract can, subject to certain criteria, be capitalised as an asset and amortised over the contract period.
The impact on the financial performance and position of the consolidated entity from the adoption of these Accounting Standards is detailed in note 2.
Going concern
The financial statements have been prepared on a going concern basis as there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable.
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 1. Significant accounting policies (continued)
10
Revenue recognitionThe consolidated entity recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts,rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it
is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability.
Sale of goods
Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery.
Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on either a fixed price or an hourly rate.
Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days.
The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been
grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
Contract assets
Contract assets are recognised when the consolidated entity has satisfied the performance obligations in the contract and either has not recognised a receivable to reflect its unconditional right to consideration or the consideration is not due. Contract assets are treated as financial assets for impairment purposes.
Customer acquisition costs
Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract with a customer and are expected to be recovered. Customer acquisition costs are amortised on a straight-line basis over the term of the contract.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 1. Significant accounting policies (continued)
11
Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss.
Customer fulfilment costs
Customer fulfilment costs are capitalised as an asset when all the following are met: (i) the costs relate directly to the contract or specifically identifiable proposed contract; (ii) the costs generate or enhance resources of the consolidated entity that will be used to satisfy future performance obligations; and (iii) the costs are expected to be recovered. Customer fulfilment costs are amortised on a
straight-line basis over the term of the contract.
Right of return assets
Right of return assets represents the right to recover inventory sold to customers and is based on an estimate of customers who may exercise their right to return the goods and claim a refund. Such rights are measured at the value at which the inventory was previously carried prior to sale, less expected recovery costs and any impairment.
Investments and other financial assets
Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on
their classification. Classification is determined based on both the
business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless, an accounting mismatch is being avoided.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it's carrying value is written off.
Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss.
Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated
entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition.
Impairment of financial assets
The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.
For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss.
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 1. Significant accounting policies (continued)
12
Contract liabilities
Contract liabilities are recognised
when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its unconditional right to consideration (whichever is earlier), before the consolidated entity has transferred the goods or services to the customer. The liability is the consolidated entity's obligation to transfer goods or services to a customer from which it has received consideration.
Refund liabilities
Refund liabilities are recognised where the consolidated entity receives consideration from a customer and expects to refund some, or all, of that consideration to the customer. A refund liability is measured at the amount of consideration received or receivable for which the consolidated entity does not expect to be entitled and is updated at the end of each reporting period for changes in circumstances. Historical data is used across product lines to estimate such returns at the time of sale based on an expected value methodology.
Note 2. Restatement of comparatives -
adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from
Contracts with Customers'
Adoption of IFRS 9 'Financial Instruments'
The consolidated entity has adopted IFRS 9 from 1 January 2018, using the full retrospective method of adoption and comparatives have been restated.
The investment classifications 'Available-for-sale financial assets' and 'Held- to-maturity investments' are no longer used and 'Financial assets at fair value through other comprehensive income' was introduced. There were no investments held in these categories as at 31 December 2017.
'Interest revenue' is no longer included in the 'Revenue' note and is now shown separately on the face of the statement of profit or loss and other comprehensive income, resulting in a reclassification of £272,000 for the half-year ended 30 June 2017.
The consolidated entity
has applied the simplified approach to measuring expected credit losses, resulting in an additional impairment expense of £164,000 (and a total impairment expense of £262,000) for the half-year ended 30 June 2017 and an additional allowance for expected credit losses of £824,000 and an additional deferred tax asset of £247,000 as at 31 December 2017.
Adoption of IFRS 15 'Revenue from Contracts with Customers'
The consolidated entity has adopted IFRS 15 from 1 January 2018, using the retrospective method
of adoption (with the exemption of hedge accounting), resulting in the following restatement of comparatives for the statement of financial position as at 31 December 2017:
● Contract assets of £2,508,000 were recognised (reclassified from accrued revenue of £2,214,000 and recognised
additional revenue from rendering of services of £294,000)
● Customer acquisition costs of £1,791,000 (current assets of £1,274,000 and non-current assets of £517,000) were
recognised (reclassified from employee benefits expense of £1,884,000 and from other expenses of £194,000 and opening retained earnings adjustment of £877,000; less amortisation recognised of £1,164,000)
● Customer fulfilment costs of £1,057,000 (current assets of £614,000 and non-current assets of £443,000) were recognised (reclassified from employee benefits expense of £1,112,000 and from other expenses of £114,000 and opening retained earnings adjustment of £518,000; less amortisation recognised of £687,000)
● Right of return assets of £618,000 were recognised (resulting in a reduction in raw materials and consumables used of £618,000) and corresponding refund liabilities of £942,000 were recognised (resulting in a reduction in revenue of £942,000)
● Deferred tax asset increased by £283,000 (as
a result of the tax effect on refund liabilities)
● Contract liabilities of £2,135,000 were recognised (reclassified from accrued expenses of £1,523,000 and revenue received in advance of £612,000)
● Deferred tax liability increased by £1,128,000 (as a result of the tax effect on contract assets, capitalised costs and right of return assets)
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 2. Restatement of comparatives -
adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' (continued)
13
Corresponding adjustments were also made as at 30 June 2017, resulting in the following restatement of comparatives for the statement of profit or loss and other comprehensive income for the half-year ended 30 June 2017:
● Sale of goods revenue reduced by £18,000 (as a result of the recognition of refund liabilities)
● Rendering of services revenue increased by £378,000 (as a result of the recognition of contract assets)
● Raw materials and consumables used reduced by £44,000 (as a result of the recognition of right of return assets)● Employee benefits expense reduced by £1,732,000 (as a result of
the capitalisation of customer acquisition costs and customer fulfilment costs)
● Depreciation and amortisation expense increased by £798,000 (as a result of the amortisation of customer acquisition costs and customer fulfilment costs)
● Other expenses reduced by £128,000 (as a result of the capitalisation of customer acquisition costs and customer fulfilment costs)
● Income tax expense increased by £440,000
The impact on the statement of profit or loss and other comprehensive income and statement of financial position is as follows:
Statement of profit or loss and other comprehensive income
Consolidated
30 Jun 2017
30 Jun 2017 £'000
£'000
£'000
Extract
Reported Adjustment
Restated
Revenue 218,843 88 218,931
Interest revenue calculated using the effective interest method - 272 272
Expenses Raw materials and consumables used (65,559) 44 (65,515)Employee benefits expense (110,862) 1,732 (109,130)Depreciation and
amortisation expense
(10,181)
(798)
(10,979)
Impairment of receivables
-
(262)
(262)Other expenses
(16,186)
226
(15,960)
Profit before income tax expense
15,176
1,302
16,478
Income tax expense
(4,169)
(391)
(4,560)
Profit after income tax expense for the half-year
11,007
911
11,918
Other comprehensive income for the half-year, net of tax
(117)
-
(117)
Total comprehensive income for the half-year
10,890
911
11,801
Profit for the half-year is attributable to:
Non-controlling interest
114
-
114 Owners of Pinnacle IFRS Interim UK PLC
10,893
911
11,804
11,007
911
11,918
Total comprehensive income for the half-year is attributable to:
Non-controlling interest
114
-
114 Owners of Pinnacle IFRS Interim UK PLC
10,776
911
11,687
10,890
911
11,801
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 2. Restatement of comparatives -
adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' (continued)
14
Pence
Pence
Pence
Reported
Adjustment
Restated
Basic earnings per share
7.73
0.64
8.37 Diluted earnings per share
7.73
0.64
8.37
Statement of financial position at the beginning of the earliest comparative period
Retained profits as at 1 January 2017 were restated by £326,000, as result of expected credit losses, capitalised customer acquisition costs, capitalised customer fulfilment costs, right of return assets and refund liabilities; as described above.
Statement of financial position at the end of the earliest comparative period
Consolidated
31 Dec 2017
31 Dec 2017
£'000
£'000
£'000Extract
Reported
Adjustment
Restated
Assets
Current assets
Trade and other receivables
13,782
(824) 12,958
Contract assets
-
2,508
2,508 Other 3,152 292 3,444 Total current assets 79,377 1,976 81,353
Non-current assets Deferred tax 8,877 530 9,407 Other 1,260 960 2,220 Total non-current assets 231,795 1,490 233,285
Total assets
311,172
3,466
314,638
Liabilities
Current liabilities
Contract liabilities
-
2,135
2,135 Other
3,352
(1,193)
2,159 Total current liabilities
43,540
942
44,482
Non-current liabilities
Deferred tax
3,318
1,128
4,446 Total non-current liabilities
37,248
1,128
38,376
Total liabilities
80,788
2,070
82,858
Net assets
230,384
1,396
231,780
Equity
Retained profits
26,737
1,396
28,133
Total equity
230,384
1,396
231,780
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
15
Note 3. Operating segments
Identification
of reportable operating segments
The consolidated entity is organised into three operating segments based on differences in products and services provided: computer manufacturing, computer retailing and computer distribution. These operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments.
Other segments represent the investment property holdings and rental income of the consolidated entity.
The CODM reviews EBITDA (earnings before interest, tax, depreciation and amortisation). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements.
The information reported to the CODM is on a monthly basis.
Types of products and services
The principal products and services of each of these operating segments
are as follows:
Computer manufacturing
the manufacture and wholesaling of computers and components in the United KingdomComputer retailing
the retailing of computers and components predominately in the United Kingdom
Computer distribution
the freight and cartage of computers and components to customers in the United Kingdom
Intersegment transactions
Intersegment transactions were made at market rates. The computer retailing operating segment purchases finished goods from the computer manufacturing operating segment and pays for freight costs to the computer distribution operating segment. Intersegment transactions are eliminated on consolidation.
Intersegment receivables, payables and loans
Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation.
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 3. Operating segments (continued)
16
Operating segment information
Computer
Computer
Computer
Other
manufacturing
retailing
distribution
segments
Total
Consolidated -
30 Jun 2018
£'000
£'000
£'000
£'000
£'000
Revenue
Sales to external customers
13,233
216,423
1,848
-
231,504 Intersegment sales
101,008
-
4,453
-
105,461
Total sales revenue
114,241
216,423
6,301
-
336,965
Other revenue
-
-
-
1,853 1,853
Total segment revenue
114,241
216,423
6,301
1,853
338,818 Intersegment eliminations
(105,461)
Unallocated revenue:
Interest revenue 543 Total revenue 233,900
EBITDA 8,393 26,011 1,804 62 36,270 Depreciation and amortisation (10,570)Interest revenue 543 Finance costs (1,119)Profit before income tax expense
25,124
Income tax expense
(7,159)Profit after income tax expense
17,965
Assets
Segment assets
155,823
119,731
21,405
-
296,959 Intersegment eliminations
(15,568)Unallocated assets:
Cash and cash equivalents
18,551 Ordinary shares
530 Land and buildings
8,500 Deferred tax asset
9,860 Total assets
318,832
Liabilities
Segment liabilities
41,390
38,249
6,861
-
86,500 Intersegment eliminations
(15,568)Unallocated liabilities:
Provision for income tax
6,701 Bank loans
9,000 Deferred tax liability
4,617 Total liabilities
91,250
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 3. Operating segments (continued)
17
Computer
Computer
Computer
Other
manufacturing
retailing
distribution
segments
TotalConsolidated -
30 Jun 2017
£'000
£'000
£'000
£'000
£'000
Revenue
Sales to external customers
12,169
202,906
2,165
-
217,240 Intersegment sales
95,711
-
1,404
-
97,115 Total sales revenue
107,880
202,906
3,569
-
314,355 Other revenue
-
-
-
1,691
1,691 Total segment revenue
107,880
202,906
3,569
1,691
316,046 Intersegment eliminations
(97,115)Unallocated revenue:
Interest revenue
272 Total revenue
219,203
EBITDA
5,991
21,059
847
1,014
28,911 Depreciation and amortisation
(10,979)Interest revenue
272 Finance costs
(1,726)Profit before income tax expense
16,478
Income tax expense
(4,560)Profit after income tax expense
11,918
Note 4. Revenue
Consolidated 30 Jun 2018 30 Jun 2017 £'000 £'000
Revenue from contracts with customers Sale of goods 229,656 215,075 Rendering of services 1,848 2,165
231,504
217,240
Other revenue Rent from investment properties
1,812
1,655
Other revenue
41
36
1,853
1,691
Revenue
233,357
218,931
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 4. Revenue (continued)
18
Disaggregation of revenue
The disaggregation of revenue from contracts with customers is as follows:
Computer
Computer
Computer
manufacturing
retailing
distribution
TotalConsolidated -
30 Jun 2018
£'000
£'000
£'000
£'000
Major product lines
Laptops
6,699
179,980
1,646
188,325 Desktops
2,106
23,614
202
25,922 Components
4,428
12,829
-
17,257
13,233
216,423
1,848
231,504
Geographical regions
United Kingdom
11,478
191,632
1,848
204,958 Ireland
1,147
18,364
-
19,511 Rest of the World
608
6,427
-
7,035
13,233
216,423
1,848
231,504
Timing of revenue recognition
Goods transferred at a point in time
13,233
216,423
-
229,656
Services transferred over time
-
-
1,848
1,848
13,233
216,423
1,848 231,504
Computer
Computer
Computer
manufacturing retailing distribution Total
Consolidated - 30 Jun 2017 £'000 £'000 £'000 £'000
Major product lines Laptops 6,057 165,426 1,878 173,361 Desktops 2,421 26,783 287 29,491 Components 3,691 10,697 - 14,388
12,169
202,906
2,165 217,240
Geographical regions United Kingdom
10,807
183,007
2,165
195,979
Ireland
955
15,328
-
16,283 Rest of the World
407
4,571
-
4,978
12,169
202,906
2,165
217,240
Timing of revenue recognition
Goods transferred at a point in time
12,169
202,906
-
215,075 Services transferred over time
-
-
2,165
2,165
12,169
202,906
2,165
217,240
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
19
Note 5. Share of profits of associates accounted for using the equity method
Consolidated
30 Jun 2018
30 Jun 2017
£'000
£'000
Share of profit -
associates
1,616
1,437
Note 6. Other income
Consolidated
30 Jun 2018
30 Jun 2017
£'000
£'000
Net gain on disposal of property, plant and equipment
422
192 Insurance recoveries
270
-
Other income
692
192
Note 7. Expenses
Consolidated
30 Jun 2018
30 Jun 2017
£'000
£'000
Profit before income tax includes the following specific expenses:
Cost of sales
Cost of sales
142,226
138,991
Finance costs
Interest and finance charges paid/payable
1,119
1,726
Net foreign exchange loss Net foreign exchange loss 9 4
Rental expense relating to operating leases Minimum lease payments 18,399 17,437
Write off of assets
Inventories
269
56
Note 8. Current assets -
trade and other receivables
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Trade receivables
14,344
13,735 Less: Allowance for expected credit losses
(991)
(824)
13,353
12,911
Other receivables
60
43 Interest receivable
7
4
13,420
12,958
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 8. Current assets -
trade and other receivables (continued)
20
Allowance for expected credit losses
The consolidated entity has recognised a loss of £256,000 (30 Jun 2017: £262,000) in profit or loss in respect of the expected credit losses for the half-year ended 30 June 2018.
The ageing of the receivables and allowance for expected credit losses provided for above are as follows:
Expected credit loss rate
Carrying amount
Allowance for expected credit losses
30 Jun 2018
31 Dec 2017
30 Jun 2018
31 Dec 2017
30 Jun 2018
31 Dec 2017Consolidated
%
%
£'000
£'000
£'000
£'000
Not overdue
1%
1%
7,719
7,904
77
79 0 to 3 months overdue
5%
5%
4,129
3,951
206
198 3 to 6 months overdue
10%
10%
1,607
1,207
161
121 Over 6 months overdue
50%
50%
1,094
851
547
426
14,549
13,913
991
824
Note 9. Current assets -
contract assets
Consolidated
30 Jun 2018
31 Dec 2017 £'000
£'000
Contract assets 2,458 2,508
Reconciliation Reconciliation of the written down values at the beginning and end of the current and previous financial half-year are set out below:
Opening balance 2,508 2,875 Additions
5,164
4,788
Cumulative catch-up adjustments
1,531
1,374 Transfer to trade receivables
(6,745)
(6,529)
Closing balance
2,458
2,508
Note 10. Current assets -
other
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Prepayments
1,110
873 Security deposits
65
65 Customer acquisition costs
1,417
1,274 Customer fulfilment costs
672
614 Right of return assets
671
618
3,935
3,444
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
21
Note 11. Current assets -
non-current assets classified as held for sale
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Land
6,000
-
The vacant land situated at 22 Smith Street, Parramatta NSW is currently for sale and is expected to be sold within five months from the reporting date through an auction process. The proposed development of a head office building on the site has been abandoned and the land is now surplus to requirements. The land is not allocated to an operating segment.
Note 12. Non-current assets -
other
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Security deposits
1,260
1,260 Customer acquisition costs
564
517
Customer fulfilment costs
484
443
2,308
2,220
Note 13. Current liabilities -
contract liabilities
Consolidated 30 Jun 2018 31 Dec 2017 £'000 £'000
Contract liabilities 2,269 2,135
Reconciliation
Reconciliation of the written down values at the beginning and end of the current and previous financial half-year are set out below:
Opening balance
2,135
1,974
Payments received in advance
1,441
1,473 Cumulative catch-up adjustments
174
249 Transfer to revenue -
included in the opening balance
(1,141)
(1,236)Transfer to revenue -
performance obligations satisfied in previous periods
(208)
(178)Transfer to revenue -
other balances
(132)
(147)
Closing balance
2,269
2,135
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 13. Current liabilities -
contract liabilities (continued)
22
Unsatisfied performance obligations
The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting
period was £3,891,000 as at 30 June 2018 (£3,507,000 as at 31 December 2017) and is expected to be recognised as revenue in future periods as follows:
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Within 6 months
1,482
1,344 6 to 12 months
1,128
1,032 12 to 18 months
874
817 18 to 24 months
407
314
3,891
3,507
Note 14. Current liabilities -
other
Consolidated
30 Jun 2018
31 Dec 2017
£'000
£'000
Accrued expenses
1,143
1,217
Refund liabilities
987
942
2,130
2,159
Note 15. Equity -
dividends
Dividends paid during the financial half-year were as follows:
Consolidated 30 Jun 2018 30 Jun 2017
£'000 £'000
Final dividend for the year ended 31 December 2017 (30 Jun 2017: 31 December 2016) of 15 pence (30 Jun 2017: 8 pence) per ordinary share
22,037
11,744
On [date] the directors declared an interim dividend for the year ending 31 December 2018 of 5 pence per ordinary share to be paid on [date], a total estimated distribution of £7,346,000 based on the number of ordinary shares on issue as at [date]. The financial effect of dividends declared after the reporting date are not reflected in the 30 June 2018 financial statements and will be recognised in subsequent financial reports.
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
23
Note 16. Fair value measurement
Fair value hierarchy
The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3: Unobservable inputs for the asset or liability
Level 1
Level 2
Level 3
Total
Consolidated -
30 Jun 2018
£'000
£'000
£'000
£'000
Assets
Ordinary shares at fair value through profit or loss
360
-
-
360 Ordinary shares at fair value through other comprehensive income
-
-
170
170 Investment properties
-
-
46,900
46,900 Land and buildings
-
-
58,500
58,500 Total assets
360
-
105,570
105,930
Liabilities
Forward foreign exchange contracts
-
122
-
122 Total liabilities
-
122
-
122
Level 1
Level 2
Level 3
Total
Consolidated - 31 Dec 2017 £'000 £'000 £'000 £'000
Assets Investment properties - - 46,900 46,900 Land and buildings - - 58,500 58,500 Total assets - - 105,400 105,400
Liabilities
Forward foreign exchange contracts
-
116
-
116 Total liabilities
-
116
-
116
Assets and liabilities held for sale are measured at fair value on a non-recurring basis.
There were no transfers between levels during the financial half-year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities.
Valuation techniques for fair value measurements categorised within level 2 and level 3
Unquoted investments have been valued using a discounted cash flow model.
The basis of the valuation of investment properties is fair value. The investment properties are revalued annually based on independent assessments by a member of the [NAME] having recent experience in the location and category of investment property being valued. Valuations are based on current prices in an active market for similar properties of the same location and condition, subject to similar leases and takes into consideration occupancy rates and returns on investment.
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
Note 16. Fair value measurement (continued)
24
The basis of the valuation of land and buildings is fair value. The land and buildings were last revalued on 31 December 2016 based on independent assessments by a member of the [NAME] having recent experience in the location and category of land and buildings being valued. The directors do not believe that there has been a material movement in fair value since the revaluation date. Valuations are based on current prices for similar properties in the same location and condition.
Derivative financial instruments have been
valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates.
Level 3 assets and liabilities
Movements in level 3 assets and liabilities during the current financial half-year are set out below:
Ordinary shares at fair
value
Investment
Land and
through OCI
properties
buildings
TotalConsolidated
£'000
£'000
£'000
£'000
Balance at 1 January 2018
-
46,900
58,500
105,400
Gains recognised in other comprehensive income
50
-
-
50 Additions
200
-
-
200
Disposals
(80)
-
-
(80)
Balance at 30 June 2018
170
46,900
58,500 105,570
The level 3 assets and liabilities unobservable inputs and sensitivity are as follows:
Range Description Unobservable inputs (weighted average) Sensitivity
Ordinary shares at fair value through other comprehensive income
Growth rate
2.5% to 3.5% (3.0%)
0.25% change would increase/decrease fair value by £5,000
Discount rate
8.0% to 11.0% (9.5%)
1.00% change would increase/decrease fair value by £14,000
Investment properties
Rental yield
7.5% to 9.0% (8.5%)
0.75% change would increase/decrease fair value by £352,000
Rental growth
1.25% to 2.0% (1.75%)
0.25% change would increase/decrease fair value by £117,000
Long-term vacancy rate
5.0% to 9.0% (7.5%)
0.75% change would increase/decrease fair value by £276,000
Discount rate
4.0% to 6.0% (5.25%)
0.5% change would increase/decrease fair value by £57,000
Land and buildings
Rental yield
6.0% to 8.0% (7.5%)
0.75% change would increase/decrease fair value by £440,000
Discount rate
5.0% to 7.0% (6.25%)
0.5% change would increase/decrease fair value by £61,000
Note 17. Contingent liabilities
During the financial half-year there was a work related accident involving a member of staff. Although the investigation is still in progress, the directors are of the opinion, based on independent legal advice, that the consolidated entity will not be found to be at fault and any potential compensation will be adequately covered by the consolidated entity's insurance policy. Accordingly, no provision has been provided within these financial statements.
The consolidated entity has given bank guarantees as at 30 June 2018 of £3,105,000 (31 Dec 2017: £2,844,000) to various landlords.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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Pinnacle IFRS Interim UK PLCNotes to the financial statements30 June 2018
25
Note 18. Related party transactions
On [date] the consolidated entity commenced a new marketing contract with BE Promotions Limited (director-related of Brad Example). During the financial half-year ended 30 June 2018 payments of £256,118 for marketing services were made. The transactions were made on normal commercial terms and conditions and at market rates.
Note 19. Business combinations
On [date] Pinnacle Delserve Limited, a subsidiary of Pinnacle IFRS Interim UK PLC, acquired 100% of the ordinary shares of Pinnacle CompCarrier Limited (formerly known as CompCarrier Limited) for the total consideration transferred of £8,230,000. This is a freight business and operates in the computer distribution division of the consolidated entity. It was acquired to better utilise the existing computer distribution division administrative function. The goodwill of £408,000 represents the expected synergies from merging this business with the computer distribution division and eliminating third party freight costs. The acquired business contributed revenues of £2,467,000 and profit after tax of £305,000 to the consolidated entity for the period from [date] to 30 June 2018. If the acquisition occurred on 1 January 2018, the full half-year contributions would have been revenues of £2,951,000 and profit after tax of £364,000. The values identified in relation
to the acquisition of CompCarrier are final as at 30 June 2018.
Details of the acquisition are as follows:
Fair value
£'000
Cash and cash equivalents
3 Trade receivables
822
Prepayments
106 Plant and equipment 6,060 Customer contracts 1,250 Deferred tax asset 449 Trade payables (364)Deferred tax liability (375)Employee benefits (129)
Net assets acquired
7,822
Goodwill
408
Acquisition-date fair value of the total consideration transferred
8,230
Representing:
Cash paid or payable to vendor
8,230
Acquisition costs expensed to profit or loss
182
Cash used to acquire business, net of cash acquired:
Acquisition-date fair value of the total consideration transferred
8,230 Less: cash and cash equivalents
(3)Less: payments made in prior periods
(155)
Net cash used
8,072
Note 20. Events after the reporting period
Apart from the dividend declared as disclosed in note 15, no other matter or circumstance has arisen since 30 June 2018 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years.
Adoption of IFRS 9 and IFRS 15 for Interim Financial Statements
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