Tool 2 of 4

Do we have a specified main business activity?

This is new in IFRS 18, it is a judgement, and it decides where interest and dividends go. Nothing downstream can be settled before it is. The output here is a draft rationale for your file, because that is what an auditor will ask for rather than a category.

Entity name

Do you hold assets that generate a return individually and largely independently of your other resources? Debt or equity investments held for a return, or investment property let to third parties.Do you provide financing to customers? Lending, instalment credit, or financing the purchase of your own goods.

Neither specified main business activity applies

The ordinary corporate position. Interest and dividends earned on assets held independently of operations are investing, and interest on borrowings is financing, which is why the finance line most statements present as one splits in two.

What this decides

Interest received on cash and depositsInvestingIt leaves the finance line most statements present it on today.
Dividends receivedInvesting
Share of profit of associates and joint venturesInvesting
Interest paid on borrowingsFinancingStays where it is, which is why the old finance line splits in two.

What to write in the file

That neither specified activity applies, and the basis for concluding so. A one-line conclusion is enough as long as the reasoning is there.

Draft rationale

Edit the bracketed parts. The conclusion is only as good as the facts you put under it.

IFRS 18 specified main business activity assessment
Entity: [entity name]
Prepared: [date] Prepared by: [name] Reviewed by: [name]

CONCLUSION
[entity name] does not have either of the specified main business activities set out in IFRS 18.

BASIS
IFRS 18 asks whether an entity, as a main business activity, invests in assets
that generate a return individually and largely independently of its other
resources, or provides financing to customers.

[Set out the entity's activities here, and the facts the conclusion rests on.
State what the entity does, which assets it holds and why they are or are not
held as a main business activity. This is the paragraph an auditor will read.]

MATTERS TO DOCUMENT
- That neither specified activity applies, and the basis for concluding so. A one-line conclusion is enough as long as the reasoning is there.

CONSEQUENCES FOR CLASSIFICATION
- Interest received on cash and deposits: Investing (It leaves the finance line most statements present it on today.)
- Dividends received: Investing
- Share of profit of associates and joint ventures: Investing
- Interest paid on borrowings: Financing (Stays where it is, which is why the old finance line splits in two.)

This assessment drives the classification of income and expenses in the
categories above. A change to the conclusion changes all of them, so it should be
revisited if the entity's activities change.

Prepared with the help of IFRS 18 Navigator (ifrs18navigator.com). A reference
aid, not advice, and no substitute for review by a qualified technical
accounting lead or auditor.

A reference aid for qualified finance professionals. Not accounting, audit, legal or tax advice, and no substitute for review by your technical accounting lead or auditor. Terms

Draft rationale

Edit the bracketed parts. The conclusion is only as good as the facts you put under it.

IFRS 18 specified main business activity assessment Entity: [entity name] Prepared: [date] Prepared by: [name] Reviewed by: [name] CONCLUSION [entity name] does not have either of the specified main business activities set out in IFRS 18. BASIS IFRS 18 asks whether an entity, as a main business activity, invests in assets that generate a return individually and largely independently of its other resources, or provides financing to customers. [Set out the entity's activities here, and the facts the conclusion rests on. State what the entity does, which assets it holds and why they are or are not held as a main business activity. This is the paragraph an auditor will read.] MATTERS TO DOCUMENT - That neither specified activity applies, and the basis for concluding so. A one-line conclusion is enough as long as the reasoning is there. CONSEQUENCES FOR CLASSIFICATION - Interest received on cash and deposits: Investing (It leaves the finance line most statements present it on today.) - Dividends received: Investing - Share of profit of associates and joint ventures: Investing - Interest paid on borrowings: Financing (Stays where it is, which is why the old finance line splits in two.) This assessment drives the classification of income and expenses in the categories above. A change to the conclusion changes all of them, so it should be revisited if the entity's activities change. Prepared with the help of IFRS 18 Navigator (ifrs18navigator.com). A reference aid, not advice, and no substitute for review by a qualified technical accounting lead or auditor.