Meisei group Newsletter
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Announcement Date Contents
31 March 2015 The Financial Services Agency announced a plan to carry out the “Focused review on financial statements for FY2015”. FSA also announced some points to be remembered when developing and submitting the financial statements for FY2015.
31 March 2015

The Japanese Institute of Certified Public Accountants (JICPA) released following announcements.

-Partial revision for Q&A about “Accounting standard for incorporated administrative agency” and “Annotations of accounting standard for incorporated administrative agency”

-JICPA released Industry Audit Practice Committee Practical Guideline No.52 “the practical guideline regarding the assurance service for compliance of conduct code concerning JBA (Japanese Bankers Association) TIBOR”

-Taxation Research Committee Research Report No.30 “Postponement and exemption of tax payment in regard to donation tax and inheritance tax of unlisted stock etc. (In response to tax reform in and after FY2013)”

-The outline for partial amendment of registration system for listed company audit firms

27 March 2015

JICPA released following amendments.

-Law and Regulation Committee Research Report No.14 “Documentation exemplar of Audit and Quarterly review contract”

-Regulations Committee Research Report No.10 “Preparation of Contract of Assurance Service etc. of Financial Information”

-“Interpretation of professional ethics”

26 March 2015

The Accounting Standards Board of Japan (ASBJ) released the following revised accounting standards etc.

-ASBJ Statement No.1 (revised 2015) Accounting Standards for Treasury Shares and Appropriation of Legal Reserve.

-ASBJ Guidance No.25 (revised 2015) Implementation Guidance on Accounting Standard for Retirement Benefits

-PITF No.18 (revised 2015) Practical Solution on Accounting for Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements

19 March 2015 JICPA released the exposure draft for a series of practical guidelines etc. regarding audit for incorporated administrative agency
11 March 2015 ASBJ released the revised PITF No.31 Practical Solution on Accounting for Leases by Lessees under the New Measures to Promote Investment in Facilities Using Lease Methods

Topics

 
 

Key considerations for completing the account closing procedures in Japan for fiscal year ended March 2015

1.Revision of accounting standard for retirement benefits

Regarding the accounting treatment for retirement benefits, major revisions were undertaken in 2012 in order to achieve convergence of IFRSs and Japanese GAAP. Among these, followings are items which require to be applied mandatorily to both consolidated and individual financial statements from the fiscal year ended March 2015:

 

[1] Method for attributing estimated value of retirement benefits to periods of service

[2] Setting of discount rate

[3] Method for setting the expected salary increase rate

[4] Multi-employer Plans – When multi-employers have similar retirement benefit system -

[5] Presentation of past service cost as the extraordinary gain or loss

2.Revised Accounting Standard for Business Combinations

This revision will be applied on or after the beginning of the fiscal year starting on or after April 1st 2015. However, companies can early adopt following three treatments from the fiscal year ending March 2015.

[1] Accounting treatment for the changes in a parent’s ownership interest in a subsidiary

If there was a change in a parent’s ownership interest in a subsidiary which is controlled on a continuing basis, it previously had to be reported as the profit and loss. However, after the revision, it has to be presented as capital surplus.

[2] Acquisition-related costs for a business combination

Within the costs which are directly expended for the business combination as acquisition, it was previously prescribed that the specific consideration/fees for outside advisors etc. which are recognized as consideration of acquisition shall be included in the acquisition cost. However, after the revision, those fees shall be treated as the expense in the fiscal year during which it occurred. Also, the nature and the amount of major acquisition-related costs shall be presented in explanatory note.

[3] Tentative accounting treatment

In business combination accounting, it is sometimes difficult to calculate and allocate acquisition costs, and in such cases, tentative accounting treatment is adopted. If the amount is determined in next fiscal year, it was previously prescribed to be reported as an extraordinary gain or loss at the next fiscal year of business combination. However, new accounting standard stipulates that the amendments for allocation of acquisition costs should be reflected on the financial statements in the year of business combination.

3.Other revisions

Along with the revision of accounting standard for business combination, the new regulation was established concerning the practical guidelines for the consolidated tax effect accounting and consolidated cash flow statement. In addition, this year’s tax revision has to be also considered from a viewpoint of a tax accounting.

 
Author: Keisuke Sannomiya
 

 

The My Number Act (The Social Security and Tax Number System) in Japan

The Social Security and Tax Number System, the so-called “My Number System,” will be put in place in Japan from January 2016 and following effects are expected accordingly.

 

(1)Realization of fair and impartial society
This system will contribute to obtaining a more accurate information of incomes and recipients of public services. It helps to prevent benefit fraud or avoidance of legal duty, and allows to make effective support to people who really need help.

(2)Improvement of convenience for the people
The system will also lead to streamlined administrative procedures, including decrease of the required documentation. In addition, people will become able to confirm his/her own information which is retained by the governmental agencies, and conversely, to receive various information from the government.

(3)Administrative efficiency
The change will occur inside the government, too. The time and labor for various cumbersome procedures such as collation of information, data input or transcription, will be reduced to a large extent. It also enhances the cooperation between different categories of operations, and reduces duplication of work.

 
Author:Yasuaki Nakazawa
 

Serials

 
 

"The fraud audit procedures with ActiveData" will not appear this month.

 

 

The Accounting Treatment and Disclosure under IFRS rules (Series) - Article 2: IAS16 “Property, Plant and Equipment”

1.Introduction

This time, we will focus on IAS16 “Property, Plant and Equipment”.

2.Measurement at recognition

Cost of property, plant and equipment consists of following elements.

(1)Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(2)Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(3)The initial estimate of dismantling cost

 

The calculation of the cost

Company A acquired a building on April 1st, X1. How to journalize this transaction, based on the following information?

(1)Acquisition of building : 100 million Yen

(2)Costs of site preparation : 5 million Yen

(3)Professional fees : 1 million Yen

(4)Real estate acquisition tax : 2 million Yen

(5)The initial estimate of dismantling cost : 15 million Yen

【Answer】

Building 123,000 

       Cash  108,000,000

       Asset retirement obligation   15,000,000

※Costs of site preparation and Professional fees are stated in IAS16, as Examples of directly attributable costs.
According to Japanese tax law, the acquisition tax for real estate is not required to be included to the acquisition cost, and at that time, it is treated as “taxes and dues”. This makes a difference from IFRS, which prescribes to include non-refundable acquisition tax.

 

In addition, regarding borrowing costs directly attributed to acquisition, construction or production of the qualifying asset, they are also required to be capitalized as a part of the cost. (Please refer to our previous article about IAS23 “Borrowing Costs”, in Meisei newsletter No. 12).

3.Measurement after recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.

Cost model: After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Revaluation model: an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of the following ways.

(1)The method which restates proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

(2)The method which eliminates against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus.

If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

Example

Company B adopts the Revaluation model for its buildings. How to journalize the following each revaluation method (1) and (2), based on the information below?

 

Acquisition cost : 100,000 Yen

Accumulated depreciation : 50,000 Yen

Fair value of building after revaluation : 40,000 Yen

 

(1)The method which restates proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

(2)The method which eliminates against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.

 

【Answer】

In the case of (1),

Accumulated depreciation 10,000 Yen※2

    Revaluation loss on property, plant and equipment  10,000 Yen※3

                               Building    20,000Yen※1

40,000/(100,000-50,000)=0.8

※1  100,000×(1-0.8)=20,000

※2  50,000×(1-0.8)=10,000

※3  (100,000-50,000)-40,000 =10,000

 

In the case of (2),

Accumulated depreciation  50,000Yen

Revaluation loss on property, plant and equipment  10,000Yen※2

                            Building  60,000Yen※1

※1  100,000-40,000 =60,000

※2  (100,000 -50,000)-40,000 =10,000

 

If the revaluation surplus 5,000Yen was recognized in the prior year, journal entry using (2) is;

Accumulated depreciation  50,000Yen

Revaluation surplus       5,000Yen

Revaluation loss on property, plant and equipment  5,000Yen

Building      60,000Yen

4.Disclosure

 In IAS16, items to be disclosed are described as follows.

(1)Items regarding the accounting policy

For each class of property, plant and equipment,

(a) The measurement bases used for determining the gross carrying amount

(b) The depreciation methods used

(c) The useful lives or the depreciation rates used

 

Example disclosure

We use the Cost model to measure the property, plant and equipment after recognition as our accounting policy. The property, plant and equipment are presented in the amount of the acquisition cost after deducting accumulated depreciation and accumulated impairment loss.

The acquisition cost includes the cost directly attributed to acquisition of asset, dismantling, elimination and restoring item of property, plant and equipment.

Depreciation cost is calculated mainly by straight-line method which charges cost evenly throughout the useful life of each fixed asset. Useful life of each asset is as follows.

 

Buildings and structures:  3 to 50 years

Tools, furniture and fixtures:  2 to 20 years

 

(2) Change in an accounting estimate

When the company changes the estimate of depreciation method, useful life, residual value and costs of dismantling, it should disclose the nature and effect of the change that has an effect in the current period or is expected to have an effect in subsequent period.

- Reporting period

- The potential effects of the change and its amount

 

(3) Carrying amount of the beginning and end of the year, and comments on increase and decrease of amounts.

For each class of property, plant and equipment,

(a) Carrying amount (before deducting the accumulated depreciation ), and accumulated depreciation at the beginning and end of the year

(b) Table for adjusting of carrying amount at the beginning and end of the year

 

Example disclosure

Acquisition cost Building and Structure Tools, furniture and fixtures Land Total
Balance as of April 1, YearX1 100,000 25,000 40,000 165,000
Acquisition
Business combination
Disposition
Other increase/decrease
15,000
100
△2,200
5,000
10,000
70
△3,000
3,500
-
-
-
-
25,000
170
△5,200
8,500
Balance as of March 31, YearX2 117,900 35,570 40,000 193,470
Acquisition
Business combination
Disposition
Other increase/decrease
10,000

△5,000
4,800
14,000

△880
1,000


△5,000
24,000

△10,880
5,800
Balance as of March 31, YearX3 127,700 49,690 35,000 212,390

 

Accumulated depreciation and accumulated impairment loss Building and Structure Tools, furniture and fixtures Land Total
Balance as of April 1, YearX1 △45,000 △12,000 - △57,000
Depreciation cost
Impairment loss
Disposition
Other increase/decrease
△12,000
△4,000
1,000
△2,000
△6,000
△500
1,500
△1,000
-
-
-
-
△18,000
△4,500
2,500
△3,000
Balance as of March 31, YearX2 △62,000 △18,000 - △80,000
Depreciation cost
Impairment loss
Disposition
Other increase/decrease
△11,000
△3,550
3,000
△890
△7,800

300
△400
-
-
-
-
△18,800
△3,550
3,300
△1,290
Balance as of March 31, YearX3 △74,440 △25,900 - △100,340

 

Carrying amount Building and Structure Tools, furniture and fixtures Land Total
Balance as of April 1, YearX1 55,000 13,000 40,000 108,000
Balance as of March 31, YearX2 55,900 17,570 40,000 113,470
Balance as of March 31, YearX3 53,260 23,790 35,000 112,050

 

(4)Contract for acquisition and retention of asset, and other facts or condition

(a) Whether the company owns fixed asset with restricted ownership, or fixed asset which is pledged as security for liabilities, and its amount

(b) Expenditure which is included in the carrying amount of property, plant, and equipment under construction

(5)Additional items to be disclosed regarding the revaluation model

(a) the effective date of the revaluation

(b) whether an independent valuer was involved

(c) The carrying amount that would have been recognized had the assets been carried under the cost model

(d) The revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders

 
Author: CPA Kazuki Sek
 

 

"Helpful information for medium and small-sized business" will not appear this month.

 


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  Meisei Newsletter #54
issued in June 5. 2015
Publisher:Tsuyoshi takeda
Web Designer:Zealous.inc Keiko Sasaki
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