IFRS 14 Regulatory Deferral AccountsIllustrative Examples

These examples accompany, but are not part of, IFRS 14.

Regulatory deferral account balances

Example 1—Illustrative presentation of financial statements

IE1

Paragraphs 20⁠–⁠25 of this Standard require an entity to present regulatory deferral account debit balances and credit balances and any related deferred tax asset (liability) and the net movement in those balances as separate line items in the statement of financial position and the statement(s) of profit or loss and other comprehensive income respectively. Sub-totals are drawn before the regulatory line items are presented. In addition, paragraph 26 requires an entity to present additional basic and diluted earnings per share, which are calculated by excluding the net movement in regulatory deferral account balances, when the entity presents earnings per share in accordance with IAS 33 Earnings per Share. Example 1 illustrates how these requirements might be met, but is not intended to illustrate all aspects of this Standard or IFRS more generally.

XYZ Group—Statement of financial position as at 31 December 20X7(in currency units)

[Refer:paragraphs 20, 21, 24 and B11 and Basis for Conclusions paragraphs BC40⁠–⁠BC47]
  31 Dec 20X7   31 Dec 20X6
ASSETS      
Non-current assets      
Property, plant and equipment 350,700   360,020
Goodwill 80,800   91,200
Other intangible assets 227,470   227,470
Investments in associates 100,150   110,770
Investments in equity instruments 129,790   146,460
  888,910   935,920
Current assets      
Inventories 135,230   132,500
Trade receivables 91,600   110,800
Other current assets 25,650   12,540
Cash and cash equivalents 212,160   220,570
  464,640   476,410
Total assets  1,353,550   1,412,330
Regulatory deferral account debit balances and related deferred tax asset 112,950   111,870
Total assets and regulatory deferral account debit balances 1,466,500   1,524,200
       
Note: The aggregated total that is presented for regulatory deferral account debit balances and the related deferred tax asset includes the sum of the regulatory deferral account debit balances of CU100,240 (20X6 – CU102,330) plus the deferred tax asset that is related to the recognition of regulatory deferral account balances of CU12,710 (20X6 – CU9,540). This aggregated presentation is permitted by paragraphs 24 and B11 of this Standard. An alternative disaggregated presentation is illustrated in Example 2.

XYZ Group—Statement of financial position as at 31 December 20X7(in currency units)

[Refer:paragraphs 20, 21, 24 and B11 and Basis for Conclusions paragraphs BC40⁠–⁠BC47]
  31 Dec 20X7   31 Dec 20X6
EQUITY AND LIABILITIES      
Equity attributable to owners of the parent      
Share capital 650,000   600,000
Retained earnings 243,500   164,500
Other components of equity 10,200   21,200
  903,700   785,700
Non-controlling interests 70,050   45,800
Total equity 973,750   831,500
       
Non-current liabilities      
Long-term borrowings 120,000   160,000
Deferred tax 28,800   26,040
Long-term provisions 28,850   52,240
  177,650   238,280
Current liabilities      
Trade and other payables 87,140   111,150
Short-term borrowings 80,000   200,000
Current portion of long-term borrowings 10,000   20,000
Current tax payable 35,000   42,000
Short-term provisions 5,000   4,800
  217,140   377,950
Total liabilities 394,790   616,230
Total equity and liabilities 1,368,540   1,447,730
Regulatory deferral account credit balances 97,960   76,470
Total equity, liabilities and regulatory deferral account credit balances 1,466,500   1,524,200
 
Note: regulatory deferral account balances are not described as assets or liabilities for the purposes of this Standard. The sub-totals described as “Total assets” and “Total liabilities” are comparable to those that would be presented if the regulatory deferral account balances were not recognised. The difference between these two sub-totals represents the net balance of all regulatory deferral account balances recognised and any related deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances, which would otherwise be recognised within retained earnings or other components of equity.

XYZ Group—Statement of profit or loss and other comprehensive income for the year ended 31 December 20X7(illustrating the presentation of profit or loss and other comprehensive income in one statement and the classification of expenses within profit or loss by function)(in currency units)

[Refer:paragraphs 22⁠–⁠24, 26 and B12⁠–⁠B14 and Basis for Conclusions paragraphs BC44⁠–⁠BC46]
    20X7   20X6
Revenue 390,000   358,784
Cost of sales (237,062)   (230,000)
Gross profit 152,938   128,784
Other income 44,247   16,220
Distribution costs (9,000)   (13,700)
Administrative expenses (20,000)   (31,500)
Other expenses (2,100)   (1,200)
Finance costs (8,000)   (7,500)
Share of profit of associates 35,100   15,100
Profit before tax 193,185   106,204
Income tax expense (43,587)   (44,320)
Profit for the year before net movements in regulatory deferral account balances 149,598   61,884
Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement  (27,550)   3,193
Profit for the year and net movements in regulatory deferral account balances 122,048   65,077
Other comprehensive income: Items that will not be reclassified to profit or loss      
Remeasurement of defined benefit pension plans (7,938)   (3,784)
Net movement in regulatory deferral account balances related to other comprehensive income 7,140   4,207
Other comprehensive income for the year, net of income tax (798)   423
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 121,250   65,500
Profit and net movements in regulatory deferral account balances attributable to:      
  Owners of the parent 97,798   51,977
  Non-controlling interests 24,250   13,100
    122,048   65,077
Total comprehensive income attributable to      
  Owners of the parent 97,000   52,400
  Non-controlling interests 24,250   13,100
  121,250   65,500
Earnings per share (in currency units):      
  Basic and diluted  0.61   0.35
  Basic and diluted including net movement in regulatory deferral account balances 0.46   0.30
         
Notes:
(1) To simplify the example, it is assumed that all regulatory deferral account balances relate to activities that are carried out in wholly-owned subsidiaries and thus no amounts are attributable to non-controlling interests. 
(2) The aggregated total that is presented for the net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement includes the net movement in regulatory deferral account balances of CU30,720 [Refer:paragraph IE2 Note (5)] (20X6 – CU9,127) and the movement in the related deferred tax asset that is related to the recognition of regulatory deferral account balances, which is CU3,170 [Refer:CU12,710 less CU9,540] (20X6 – CU12,320). This aggregated presentation is permitted by paragraphs 24 and B12 of this Standard. An alternative disaggregated presentation is illustrated in Example 2.
Profit (loss), including net movement in regulatory deferral account balances related to profit or loss and net movement in related deferred tax, attributable to non-controlling interests Example MonetaryDuration, Credit IFRS 14.23 Example 824500
Profit (loss), including net movement in regulatory deferral account balances related to profit or loss and net movement in related deferred tax, attributable to owners of parent Example MonetaryDuration, Credit IFRS 14.23 Example 824500

IE2

For each type of rate-regulated activity, paragraph 33 requires an entity to present, for each class of regulatory deferral account balance, a reconciliation of the carrying amount at the beginning and the end of the period. This example illustrates how that requirement may be met for an entity with two types of rate-regulated activity (electricity distribution and gas distribution), but is not intended to illustrate all aspects of this Standard or IFRS more generally.

Regulatory deferral account balances
Regulatory deferral account debit balances 20X6 Balances arising in the period Recovery/reversal 20X7 Remaining recovery/ reversal period (years)
Electricity distribution
Construction costs 18,720 5,440 (80) 24,080 4⁠–⁠10
Storm damage 64,410 – (12,060) 52,350 4
Other regulatory accounts 6,270 2,320 (950) 7,640 4⁠–⁠10
Gas distribution
Pension costs 5,130 10,120 (2,980) 12,270 N/A
Gas cost variances 7,800 – (3,900) 3,900 1
  102,330 17,880 (19,970) 100,240  
Regulatory deferral account credit balances          
Electricity distribution
Land disposal – 19,000 – 19,000 10
Income tax 6,360 3,207 (1,093) 8,474 1⁠–⁠10
Gas distribution
Gas cost variances 600 4,000 (200) 4,400 2⁠–⁠3
Income tax 3,180 1,603 (547) 4,236 1⁠–⁠10
Decommissioning costs 66,330 (2,030) (2,450) 61,850 3⁠–⁠20
  76,470 25,780 (4,290) 97,960  
           
Notes:
(1) Construction costs consist of costs that are not permitted to be included in the cost of property, plant and equipment in accordance with IAS 16 Property, Plant and Equipment. [Refer:Basis for Conclusions paragraphs BC40⁠–⁠BC43 and BC45]
(2) Other regulatory accounts include regulatory deferral account debit balances that are individually immaterial.
(3) The net movement in the pension costs regulatory deferral account balance of CU7,140 (CU12,270 – CU5,130) relates to the remeasurement of the defined benefit pension plan, which is presented in other comprehensive income in accordance with IAS 19 Employee Benefits. In accordance with paragraph 22 of this Standard, the related movement in the regulatory deferral account balance is also presented in other comprehensive income.
(4) The recovery from, or refund to, customers of future income taxes through future rates is recognised as a regulatory deferral account balance. The company has recognised a deferred tax asset of CU12,710 (20X6 – CU9,540) arising from the recognition of regulatory deferral account balances and a corresponding regulatory deferral account credit balance of CU12,710 (20X6 – CU9,540). The deferred tax asset balance is presented within the total regulatory deferral account debit balances presented in the statement of financial position. [Refer:paragraph 24 and Appendix B paragraph B11(a)]
(5) The net movement of CU30,720 in the remaining regulatory deferral account balances is presented in the profit or loss section of the statement of profit or loss and other comprehensive income, net of the movement in the deferred tax asset related to the regulatory deferral account balances of CU3,170 [CU (8,474 – 6,360) + CU(4,236 – 3,180)]. [Refer:paragraphs 23 and 24 and Appendix B paragraph B12(a)] The remaining net movement of CU30,720 consists of:
    Decrease in regulatory deferral account debit balances(CU100,240 – CU102,330) (2,090)  
    Less: increase in pension cost regulatory deferral account debit balance presented in other comprehensive income(CU12,270 – CU5,130) (7,140)  
      (9,230)  
    Increase in regulatory deferral account credit balances(CU97,960 – CU76,470) (21,490)  
    Net movement in regulatory deferral account balances presented in profit or loss 30,720  
         
Electricity distribution [member] Example IFRS 14.33 Example 824500
Gas distribution [member] Example IFRS 14.33 Example 824500

Example 2—Discontinued operations and taxation

IE3

Paragraphs 25 and 34 of this Standard require an entity to disclose the regulatory deferral account debit and credit balances and the net movement in those balances that relate to discontinued operations and disposal groups and to deferred taxes respectively. Paragraphs B19⁠–⁠B22 provide additional guidance relating to these disclosures. In particular, paragraphs B20⁠–⁠B21 permit an entity to present the regulatory deferral account amounts that are related to discontinued operations or disposal groups alongside the other regulatory deferral account amounts that are presented in the statement of financial position or the statement of profit or loss and other comprehensive income, or disclose them in the table that is required by paragraph 33. Example 2 illustrates how these requirements might be met, but is not intended to illustrate all aspects of this Standard or IFRS more generally.

IE4

In this example, the entity is in the process of disposing of one of its wholly-owned, rate-regulated subsidiaries and, consequently, is presenting the assets and liabilities of that subsidiary as a disposal group in the statement of financial position in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. In addition, the results of that subsidiary are presented in a single line item in the statement of profit or loss as a discontinued operation. The entity has decided that the amounts related to the regulatory deferral account balances included in the disposal group should be presented separately in the statement of financial position as permitted by paragraph B20.

IE5

In addition, the entity has decided to present separately the deferred tax asset balance that relates to the recognition of regulatory deferral account balances that are expected to be recovered (reversed) through future rates by presenting additional line items for the deferred tax asset balance and the movement in it, as permitted by paragraphs 24 and B11⁠–⁠B12.

XYZ Group—Statement of financial position as at 31 December 20X7 (extract)(in currency units)

[Refer:paragraphs 20, 21, 24 and B11 and Basis for Conclusions paragraphs BC40⁠–⁠BC47]
  31 Dec 20X7   31 Dec 20X6
ASSETS      
Non-current assets      
AAA x   x
  888,910   935,920
Current assets      
BBB x   x
  x   x
Disposal group assets  15,200   –
  464,640   476,410
Total assets 1,353,550   1,412,330
Regulatory deferral account debit balances directly related to disposal group 9,800   –
Other regulatory deferral account debit balances 90,440   102,330
Deferred tax asset associated with regulatory deferral account balances 12,710   9,540
Total assets and regulatory deferral account debit balances 1,466,500   1,524,200
       

XYZ Group—Statement of financial position as at 31 December 20X7 (extract)(in currency units)

[Refer:paragraphs 20, 21, 24 and B11 and Basis for Conclusions paragraphs BC40⁠–⁠BC47]
  31 Dec 20X7   31 Dec 20X6
EQUITY AND LIABILITIES      
Equity attributable to owners of the parent x   x
Non-controlling interests x   x
Total equity 973,750   831,500
Non-current liabilities      
DDD x   x
  177,650   238,280
Current liabilities      
EEE x   x
  x   x
Disposal group liabilities  2,540   –
  217,140   377,950
Total liabilities  394,790   616,230
Total equity and liabilities 1,368,540   1,447,730
Regulatory deferral account credit balances directly related to disposal group 17,460   –
Other regulatory deferral account credit balances 80,500   76,470
Total equity, liabilities and regulatory deferral account credit balances 1,466,500   1,524,200
       
Note: regulatory deferral account balances are not described as assets or liabilities for the purposes of this Standard. The sub-totals described as “Total assets” and “Total liabilities” are comparable to those that would be presented if the regulatory deferral account balances were not recognised. The difference between these two sub-totals represents the net balance of all regulatory deferral account balances recognised and any related deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances, which would otherwise be recognised within retained earnings or other components of equity.

XYZ Group—Statement of profit or loss and other comprehensive income for the year ended 31 December 20X7 (extract)(illustrating the presentation of profit or loss and other comprehensive income in one statement) (in currency units)

[Refer:paragraphs 22⁠–⁠24 and B12 and Basis for Conclusions paragraphs BC44⁠–⁠BC46]
  20X7   20X6
Revenue 390,000   358,784
FFF x   x
Profit before tax 196,685   106,204
Income tax expense (43,587)   (44,320)
Profit for the year from continuing operations 153,098   61,884
Loss for the year from discontinued operations (3,500)   –
Profit for the year before net movements in regulatory deferral account balances 149,598   61,884
Net movement in regulatory deferral account balances related to profit or loss (30,720)   (9,127)
Net movement in the deferred tax asset arising from regulatory deferral account balances related to profit or loss 3,170   12,320
Profit for the year and net movements in regulatory deferral account balances 122,048   65,077
Other comprehensive income: Items that will not be reclassified to profit or loss      
Remeasurement of defined benefit pension plans (7,938)   (3,784)
Net movement in regulatory deferral account balances related to other comprehensive income 7,140   4,207
Other comprehensive income for the year, net of income tax (798)   423
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 121,250   65,500
       
Regulatory deferral account balances
Regulatory deferral account debit balances 20X6 Balances arising in the period Recovery/reversal Other movements 20X7 Remaining recovery/reversal period (years)
Electricity distribution
Construction costs 18,720 5,440 (80) – 24,080 4⁠–⁠10
Storm damage 64,410 – (12,060) (9,800) 42,550 4
Other regulatory balances 6,270 2,320 (950) – 7,640 4⁠–⁠10
Gas distribution
Pension costs 5,130 10,120 (2,980) – 12,270 N/A
Gas cost variances 7,800 – (3,900) – 3,900 1
  102,330 17,880 (19,970) (9,800) 90,440  
Disposal group – – – 9,800 9,800  
  102,330 17,880 (19,970) – 100,240  
Regulatory deferral account credit balances            
Electricity distribution
Land disposal – 19,000 – – 19,000 10
Income tax 6,360 3,207 (1,093) – 8,474 1⁠–⁠10
Gas distribution
Gas cost variances 600 4,000 (200) – 4,400 2⁠–⁠3
Income tax 3,180 1,603 (547) – 4,236 1⁠–⁠10
Decommissioning costs 66,330 (2,030) (2,450) (17,460) 44,390 3⁠–⁠20
  76,470 25,780 (4,290) (17,460) 80,500  
Disposal group – – – 17,460 17,460  
  76,470 25,780 (4,290) – 97,960  
 
[Refer:paragraph 33(a)]  
Notes:
(1) The net movement in the pension costs regulatory deferral account balance of CU7,140 (CU12,270 – CU5,130) relates to the remeasurement of the defined benefit pension plan, which is presented in other comprehensive income in accordance with IAS 19 Employee Benefits. In accordance with paragraph 22 of this Standard, the related movement in the regulatory deferral account balance is also presented in other comprehensive income.
(2) The recovery from, or refund to, customers of future income taxes through future rates is recognised as a regulatory deferral account balance. The company has recognised a deferred tax asset of CU12,710 (20X6 – CU9,540) arising from the recognition of regulatory deferral account balances and a corresponding regulatory deferral account credit balance of CU12,710 (20X6 – CU9,540). The deferred tax asset balance is presented separately alongside the total of regulatory deferral account debit balances in the statement of financial position. [Refer:paragraph 24 and Appendix B paragraph B11(b)] Similarly, the net movement in the deferred tax asset related to the regulatory deferral account balances of CU3,170 [CU(8,474 - 6,360) + CU(4,236 – 3,180)] is presented separately in the statement of profit or loss. [Refer:paragraph 24 and Appendix B paragraph B12(b)]
(3) The net movement of CU30,720 in the remaining regulatory deferral account balances is presented in the profit or loss section of the statement of profit or loss and other comprehensive income. [Refer:paragraph 23] This remaining net movement consists of:
    Decrease in regulatory deferral account debit balances(CU100,240 – CU102,330) (2,090)  
    Less: increase in pension cost regulatory deferral account debit balance presented in other comprehensive income(CU12,270 – CU5,130) (7,140)  
      (9,230)  
    Increase in regulatory deferral account credit balances(CU97,960 – CU76,470) (21,490)  
    Net movement in regulatory deferral account balances presented in profit or loss (30,720)  
(4) In this example, the other movements represent transfers to the disposal group and have been shown separately in accordance with paragraph 33(a)(iii). If there are other movements that require separate disclosure, such as those caused by impairments or the effects of changes in foreign exchange rates or discount rates, these could be shown in a separate column or another method of disclosure, such as a footnote to the table. 
Increase (decrease) through transfers to disposal groups, regulatory deferral account credit balances Example MonetaryDuration, Credit IFRS 14.33 a (iii) Example 824500
Increase (decrease) through transfers to disposal groups, regulatory deferral account debit balances Example MonetaryDuration, Debit IFRS 14.33 a (iii) Example 824500
Other regulatory deferral account credit balances Example MonetaryInstant, Credit IFRS 14.25 Example 824500
Other regulatory deferral account debit balances Example MonetaryInstant, Debit IFRS 14.25 Example 824500
Net movement in other regulatory deferral account balances related to profit or loss Common practice MonetaryDuration, Credit IFRS 14.25 Common practice 824500