This note explains the impact of the adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' on the Group's Financial Statements and also discloses the new accounting policies that have been applied from 1 July 2018, where they are different to those applied in prior periods.
The table below shows the impact on the opening balance sheet retained earnings as at 1 July 2018, from the adoption of IFRS 15; note only the line items affected by the change have been included:
| Statement of Financial Position (extract) | Reported
30.06.18
£m | IFRS 15
£m | Restated 01.07.18
£m |
|---|
| Current Liabilities | | | |
| Trade and other payables | (75.7) | (6.5) | (82.2) |
| Non-Current Liabilities | | | |
| Deferred tax liabilities | (96.8) | 1.6 | (95.2) |
| Equity | | | |
| Retained Earnings | 125.5 | (4.9) | 120.6 |
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 'Revenue from Contracts with Customers' from 1 July 2018 which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions of IFRS 15, the Group has adopted the modified retrospective approach, recognising a cumulative adjustment to decrease equity at 1 July 2018. This adjustment represents the earlier recognition of rebates and discounts based on the most likely method of calculation, and the associated tax impact.
Following the clarification IFRS 15 provides over the treatment of variable consideration, the timing of rebates and the deductions and discounts recognition has been refined through adoption of the most likely amount method.
The adoption of IFRS 15 has resulted in revenue and profit being £0.2 million higher in the current period compared to IAS 18. There is a corresponding deferred tax debit of £0.04 million recognised in relation to this.
IFRS 9 Financial Instruments – Impact of Adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 'Financial Instruments' from 1 July 2018 resulted in changes in accounting policies but did not have a material impact on the financial statements for the year to 30 June 2019, or retained earnings at 1 July 2018. The new accounting policies are set out in note 1. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.
The Group has trade receivables for sales of inventory that are subject to IFRS 9's new expected credit loss model. The Group was required to revise its impairment methodology under IFRS 9 for this class of asset which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments for a period of greater than 120 days past due.
Cash and cash equivalents are also subject to the impairment requirements of IFRS 9; however, the identified impairment loss of this financial asset was immaterial.