(a)    The cost of an item of property, plant and equipment may include borrowing costs incurred for the purpose of acquiring or constructing it. IAS 23 Borrowing Costs requires such borrowing costs to be capitalised if the asset takes a substantial period of time to be prepared for its intended use or sale. The definition of borrowing costs includes interest expense calculated by the effective interest method, finance charges on finance leases and exchange differences arising from foreign currency borrowings relating to interest costs. Borrowing costs should be capitalised during construction and include the costs of funds borrowed for the purpose of financing the construction of the asset, and general borrowings which would have been avoided if the expenditure on the asset had occurred. The general borrowing costs are determined by applying a capitalisation rate to the expenditure on that asset. The capitalisation rate will be the weighted average of the borrowing costs applicable to the general pool.

The weighted-average carrying amount of the stadium during the period is

$(20 + 70 + 120 + 170) million/4, that is $95 million.

The capitalisation rate of the borrowings of Emcee during the period of construction is 9% per annum, therefore the total amount of borrowing costs to be capitalised is the weighted-average carrying amount of the stadium multiplied by the capitalisation rate.

That is ($95 million x 9% x 4/12) $2·85 million.

(b)    IAS 38 Intangible Assets states that an entity should recognise an intangible asset where it is probable that future economic benefits will flow to the entity and the cost of the asset can be measured reliably. Therefore, the costs associated with the acquisition of players’ registrations should be capitalised at the fair value of the consideration payable. Costs would include transfer fees, league levy fees, agents’ fees incurred by the club and other directly attributable costs. Costs also include the fair value of any contingent consideration, which is primarily payable to the player’s former club with associated league levy fees, once payment becomes probable. Subsequent reassessments of the amount of contingent consideration payable would be also included in the cost of the player’s registration. The estimate of the fair value of the contingent consideration payable requires management to assess the likelihood of specific performance conditions being met, which would trigger the payment of the contingent consideration. This assessment would be carried out on an individual player basis. The additional amount of contingent consideration potentially payable, in excess of the amounts included in the cost of players’ registrations, would be disclosed. Costs would be fully amortised over the period covered by the player’s contract.

Where a playing contract is extended, any costs associated with securing the extension are added to the unamortised balance at the date of the extension and the revised book value is amortised over the remaining revised contract life. Player registrations would be classified as assets held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations when their carrying value is expected to be recovered principally through a sale transaction and a sale is considered to be highly probable. Additionally, the registrations should be actively marketed by Emcee, which it appears that they are. It would appear that in these circumstances that management is committed to a plan to sell the registration, that the asset is available for immediate sale, that an active programme to locate a buyer is initiated by circulating clubs. In order to fulfil the last criteria of IFRS 5, it may be prudent to only class these registrations as available for sale where unconditional offers have been received prior to a period end. IFRS 5 requires that it is unlikely that the plan to sell the registrations will be significantly changed or withdrawn.

However, because of the subjectivity involved, in the case of player registrations these assets would be stated at the lower of the carrying amount and fair value less costs to sell, as the carrying amount will already be stated in accordance with IFRSs.

Gains and losses on disposal of players’ registrations would be determined by comparing the fair value of the consideration receivable, net of any transaction costs, with the carrying amount and would be recognised in profit or loss within profit on disposal of players’ registrations. Where a part of the consideration receivable is contingent on specified performance conditions, this amount is recognised in profit or loss when the conditions are met.

IAS 36 Impairment of Assets states that entities should annually test their assets for impairment. An asset is impaired if its carrying amount exceeds its recoverable amount which is the higher of the asset’s fair value less costs of disposal and its value in use. It is difficult to determine the value in use of an individual player in isolation as that player (unless via a sale or insurance recovery) cannot generate cash flows on his own. Whilst any individual player cannot really be separated from the single cash generating unit (CGU), being the basketball or football team, there may be certain circumstances where a player is taken out of the CGU, when it becomes clear that they will not play for the club again, for example, a player sustaining a career threatening injury or being permanently removed from the playing squad for another reason. If such circumstances arise, the carrying value of the player should be assessed against the best estimate of the player’s fair value less any costs to sell and an impairment charge made in profit or loss, which reflects any loss arising. The playing registrations disposed of, subsequent to the year end, for $25 million, with an associated net book value of $7 million, would be disclosed as events after the reporting date.

(c)    IFRS 13 Fair Value Measurement would value the stadiums at the price which would be received to sell the asset in an orderly transaction between market participants at the measurement date. The price would be the one which maximises the value of the asset or the group of assets using the principal of the highest and best use. The price would essentially use Level 2 inputs which are inputs other than quoted market prices included within Level 1 which are observable for the asset or liability, either directly or indirectly. Property naming rights present complications when valuing property. The status of the property dictates its suitability for inviting sponsorship attached to its name. It has nothing to do with the property itself but this can be worth a significant amount. Therefore Emcee could include the property naming rights in the valuation of the stadiums and write it off over three years.

IAS 24 Related Party Disclosures sets out the criteria for two entities to be treated as related parties. Such criteria include being members of the same group or where a person or a close member of that person’s family is related to a reporting entity if that person has control or joint control over the reporting entity. IAS 24 deems that parties are not related simply because they have a director or key manager in common. In this case, there are two directors in common and it appears as though the entities are not related. However, the Regulator will need to establish whether the sponsorship deal is a related party transaction (RPT) for the purpose of the financial control provisions. There would need to be demonstrated that the airline may be expected to influence, or be influenced by, the club or a related party of the club. If the deal is deemed to be an RPT, the Regulator will consider whether the sponsorship is at fair value. If the Regulator considers the deal not to be at a fair value, Emcee may be fined and therefore the entity will have to make a provision or disclose a contingent liability for any potential fine under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.