Accounting for non-cash consideration in terms of IFRS 15

Consideration for the sale of goods can be received in cash as well in a form other than cash. IFRS 15 provides specific guidance when it comes to determining the transaction price for contracts in  which a customer promises consideration in a form other than cash.

Note: The requirements for accounting for non-cash consideration are prescribed by IFRS 15. The determination of the fair value of the non-cash consideration to be accounted for must be done in accordance with IFRS 13.

If a customer provides goods and/or services to assist an entity in fulfilling its contract, the entity should assess whether it obtains control of such goods or services. In the event that the entity does obtain control of such goods and services, the goods and services will be considered to be non-cash consideration and should be accounted for as such.

This document will provide a brief snapshot regarding the treatment which IFRS 15 prescribes when accounting for non-cash consideration.

  1. What is non-cash consideration?
    Non-cash consideration can typically be defined as consideration which is received or receivable by the customer which is in a form other than cash.Examples of non-cash consideration typically include:
    ➢ Shares
    ➢ Material, equipment and labor
    ➢ Contribution of assets from the customer for the purposes of the contract being met where the entity gains control of these assets.
  2. How should non-cash consideration be measured?
    IFRS 15 prescribes that an entity shall measure the non-cash consideration (or promise of non-cash consideration) at fair value as defined in IFRS 13. Therefore, the fair value of such the non-cash consideration (or promise of non-cash consideration) should be as at the measurement date of the transaction, which would typically be the transaction date. It is therefore extremely important to ensure that your client has accounted for the fair value of any non-cash consideration receivable at the correct date.Note that if an entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall measure the consideration indirectly by reference to the stand-alone selling
    price of the goods or services promised to the customer (or class of customer) in exchange for the consideration.
  3. How should subsequent changes in fair value of the non-cash consideration receivable be accounted for?
    If the fair value of the non-cash consideration promised by a customer varies for reasons other than only the form of the consideration (for example, the fair value could vary because of
    the entity performance), an entity shall apply the requirements in paragraphs 56 – 58 of IFRS 15.

Remember to take note of the following important points when accounting for non-cash consideration:

  • The general rule to follow is that if the consideration in the contract is received or is to be received in a form other than cash, the entity will measure such non-cash consideration at
    fair value, as defined in IFRS 13.
  • The requirements of IFRS 13 with regards to the measurement therefore need to be applied when accounting for non-cash consideration.
  • It is also crucial to note that, in accordance with IFRS 13, fair value is market-based measure of an exit price that is receivable and NOT an entity-specific value.
  • Therefore, an entity’s intention with regards to any non-cash consideration received (for example, an asset) is not relevant for the purposes of determining its fair value.

October 2018 edition

In this Issue

Your tax deadlines for October

The due date for non-provisional taxpayers who submit their income tax via eFiling or electronically at a SARS branch is 31 October.

Time is running out and SARS is cracking down on late lodgements and failure to submit returns.

The penalty amount that will be charged for late lodgement depends on your taxable income and, says SARS, “can range from R250 up to R16,000 a month for each month that the non-compliance continues.”

Treat this deadline seriously!

Will the 21st century really be Africa’s time to flourish?

“We really need to have a third wave, and it needs to happen in sub-Saharan Africa” (Bill Gates)

Two factors often cited as to why “Africa’s time is coming” are:

  • Demographics – the huge populations of India and China are cited as a key factor in their rapid growth. Currently Africa is the fastest growing continent and its population is set to double by 2050.
  • Leapfrogging technology – for example, developing countries have set up banking in remote areas of East Africa by using cell phones powered by small solar panels. They have thus bypassed the whole process of setting up banking and electrical infrastructure.

Is it likely that these predictions will materialise and if so what impact will all this have on South Africa?

Demographics – the unseen flaw

It is accepted that large populations create a large potential market as has happened in Brazil for example. However to reap this benefit, populations need to start declining once development begins to take off. The reason for this is what is known as the “dependency ratio”.

In 1960, in developing countries in Asia, Africa and South America women had an average of six children. Since then the number has declined in Asia to 2.2 children and to 3 children in South America. However Africa has remained high at just under 5 children per woman.

Having fewer dependents allows parents to focus on their careers, grow their wealth and afford to spend more on things like education and health care on smaller families. As these smaller families rapidly join the middle class, this helps to provide the momentum for infrastructure development and rapid economic growth. As long as Africa has a high care dependency ratio, it will be extremely difficult to mirror China and India.

In South Africa our average number of births is 2.4 per woman which puts us in between Asia and South America. If we can get some basics right, like education, we could start to rapidly develop.


Mobile phones have been used for more than developing banking in Africa but smart phones are also used, for example, to help rural farmers. Satellites scan a farm and can tell the farmers which of their fruit trees have rot and need to be pulled out before the disease spreads to other trees. They can get advice on what crops to plant and how much fertiliser to use etc. Technology thus is enabling some African countries to progress at a rapid rate.

African countries still need infrastructure. There is no point in doubling your farming yield if you cannot get your product quickly and cost effectively to market. Without decent roads, ports, an effective legal system and no bottlenecks at border posts, Africa will struggle to fulfil its potential.

Many breakthroughs can be made with technology but without a decent foundation, leapfrogging will only have a limited impact.

We in South Africa have reasonable infrastructure but very high inequality and still need to focus on uplifting the poorer sections of the country and creating a more enabling environment to attract investment.

In a nutshell, South Africa is potentially well placed to move rapidly ahead. Things are unfortunately less certain for the bulk of our continent.

Surviving a business crisis: Consider your turnaround options

“Turnarounds seldom turn”
(Warren Buffett)

In the life cycle of any business, it will almost inevitably experience a crisis. This is always a very difficult time and it will be a test of judgment and experience how senior management respond. Usually, it will be some issue that is solvable and the business will continue to operate.

Sometimes however it is an existential threat and this will need careful thought and planning.

Stress drains your energy

Deciding whether to try and turn around a business or put it into liquidation is enormously stressful. Many careers and the family of staff and key stakeholders could suffer depending on the outcome.

It is unlikely there will be a second chance if the first decision made by management turns out to be incorrect.

What is the problem?

So the first thing to do is identify the core problem. There are many things to look at:

  • Is your business in a mature to old stage?
  • Are there disruptors like Uber in the industry?
  • Is there still demand for the product or service your business provides?
  • What sort of shape is your business in? Are systems and infrastructure creaking or worse?

Money, planning and analysis

Once the problem and a solution have been identified, don’t forget that turning around a business will take resources. Plan your cash flow carefully.

Business turnarounds are also high risk – remember they will often not work out. But careful planning and analysis will improve the odds of success – ask your accountants for their specialist help and advice at this crucial time.

Directors Beware! You could be held personally liable for data breaches

Hacking into computers has become common place. In the United States it grew by 45% in 2017. Yahoo, one of America’s largest Internet search engines, was recently the victim of cyber crime and disgruntled shareholders are suing the directors for dereliction of their fiduciary duties.

Hacking is a reality in South Africa also, which raises the issue of your personal liability as a director in the event of your company being exposed to cyber crime.

What do the Companies Act and King IV expect of directors?

Directors need to have “taken reasonably diligent steps to become informed about the matter” – in other words directors would be expected to know cyber crime has become commonplace and to take steps to ensure the company takes all the necessary actions to prevent outsiders getting access to company information. King IV specifically charges directors to “identify and respond to incidents, including cyber attacks…”.

Your risk is that as a director you are personally liable for any costs, losses or damages resulting from a breach of your duties.

How to protect yourself from liability

If a company suffers loss from a hacking incident, then directors need to show they have addressed the issue to the best of their ability if they want to avoid attracting such liability.

Whilst many of us may feel lost when it comes to technology, it is clearly an issue that exposes a company to significant risk. Make sure you and your board of directors gain an understanding of how to protect your business. You need also to ensure that in need you can show documentation to a court to prove that you acted with diligence to counter the risk of being hacked.

Importing from Amazon: You could be forced to register as an importer

“Forewarned is forearmed”
(Wise old proverb)

Picture this: Gavin brings in books and DVDs from Amazon (to take just one example – this applies to anything sourced from foreign online retailers like eBay, Alibaba etc). He pays VAT and Customs Duty on the products and is frustrated when his couriers don’t deliver his purchases. He gets even more frustrated after phoning them as they tell him that his products have not been released from Customs because he is not a registered importer.

When must you register?

If you bring in more than three shipments (or if your imports cumulatively are more than R50,000) per calendar year, then you are required to register as an importer with SARS. This has been a requirement since 2013, but SARS have only been enforcing it this year. This is in spite of the fact that VAT and Customs duty is already being recovered.

That’s bad news…

Registering as an importer is not easy. You have to:

  • Complete a DA185 and a DA185.4A1
  • Show proof of address
  • Have a tax clearance certificate
  • Have a certified ID copy
  • Lodge a bank statement
  • Lodge an affidavit stating that all the above information is correct.

The Customs Act and Regulations pertaining to importers are more than 6,000 pages long! Be warned, if you want to import a lot of books, DVDs or other goods, your life will get a whole lot more complicated. Don’t take chances here; ask your accountant for help if you fall into the net.

Get the most out of your audit while saving costs

With careful planning and good implementation, you can help your auditors give you not only a cost effective audit but one that gives you more assurance that your systems are sound and that your annual financial statements fairly reflect your economic position.

Firstly, lay a good base

  • Implementing strong internal controls and keeping up to date financial records will go a long way to ensuring a smooth audit.
  • Good internal controls mean the auditors will have faith in your systems and this will reduce the amount of testing they do.
  • Up to date financial records with monthly reconciliations of control accounts and explanations for significant variances will further enhance the audit process.
  • One of the key audit factors is determining the risk of the financial statements being misstated, so keeping abreast of your company’s financial risks and sharing this with the auditors will help reduce their audit time.

Then, communicate well

  • Have a meeting with your audit partner and advise him or her of what is happening in the business. If there is bad news, communicate this – the chances are the auditors will pick up the bad news during the audit and this could involve them doing extra work to assess how this will impact your financials.
  • At this meeting, find out which staff will be on your audit. Having auditors who have worked on your audit in previous years will save you time, as they will not need to spend additional time understanding your business.
  • The auditors plan a certain number of hours on your audit. Ask for this along with the hourly audit costs so you can plan your cash flow.
  • Usually you send the auditors a final trial balance and from this they assess what tests they will do. If you have some group companies, send a consolidated trial balance – it is easier for the auditors to understand how the business is performing if they work down from the highest to the lowest level.
  • When your auditors request information, make sure it is accurate and what they want. Once the audit starts, designate a senior finance person to liaise with the auditors and to meet regularly with them. Any queries or misunderstandings can be swiftly resolved. This person can monitor how the hours worked and audit costs are panning out, so if the audit looks as though it will run over budget, you can react before extra costs are incurred.

Your auditors’ recommendations

Your auditors will present you with their findings and suggestions as to how to correct any weaknesses they find. Most times you will implement their findings but if there are some you decide won’t work, discuss this with them and get their acceptance of your reasons for not making the proposed changes. This will save time at the next audit when the auditors check how your firm has progressed with their recommendations.

Good planning and good communications will help to keep your costs to a minimum whilst getting assurance on your accounting and internal controls.

Submission of Company Annual Financial Statements and Penalties for Non-compliance

Section 30 of the Companies Act, Act 71 of 2008, requires a company to prepare annual financial statements within six months after the end of its financial year.

Requirement to submit annual financial statements

Section 30 of the Companies Act – Annual Financial Statements

(1) Each year, a company must prepare annual financial statements within six months after the end of its financial year, or such shorter period as may be appropriate to provide the required notice of an annual general meeting in terms of section 61(7).

Regulation 30 of the Companies Act Regulations – Company Annual Returns

(2) A company that is required by the Act or Regulation 28 to have its annual financial statements audited must file a copy of those audited statements––
(a) on the date that it files its annual return, if the company’s board has approved those statements by that date; or
(b) within 20 business days after the board approves those statements, if they had not been approved by the date on which the company filed its annual return.
(3) A company that is not required in terms of the Act or Regulation 28 to have its annual financial statements audited may, at its option––
(a) file a copy of its audited or reviewed statements together with its annual return; or
(b) undertake to file a copy of its audited or reviewed statements within the time contemplated in sub-regulation (2)(b).
(4) A company that is not required to file annual financial statements in terms of sub-regulation (2), or a company that does not elect to file, or undertake to file, a copy of its audited or reviewed annual financial statements in terms of sub-regulation (3), must file a financial accountability supplement to its annual return in Form CoR 30.2.

What does this mean?

Regulation 30 requires the submission of a company’s financial statements together with its annual return by “all companies that is required to have its financial statements audited”.

The following companies are required to have its financial statements audited:

  • public companies
  • state owned companies,
  •  any company that falls within any of the following categories in any particular financial year:

(a) any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R 5 million;
(b) any non-profit company, if it was incorporated––
(i) directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a company; or
(ii) primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; or
(c) any other company whose public interest score in that financial year is
(i) 350 or more; or
(ii) at least 100, but less than 350, if its annual financial statements for that year were internally compiled.

The above companies should therefore file a copy of its approved financial statements together with its annual return or within 20 business days after approval of the financial statements by the Board.

Reportable Irregularities

Section 45 of the Audit Profession Act requires an auditor that is satisfied or has reason to believe that a reportable irregularity has taken place or is taking place in respect of that entity to send a written report to the Independent Regulatory Board of Auditors (IRBA) with particulars of the reportable irregularity.

Companies and Intellectual Property Commission (CIPC)

The CIPC was established in terms of the Companies Act with one of its objectives to “promote compliance with the Act”. The CIPC received Reportable Irregularity reports from the IRBA, where companies were reported by their auditors for failure to comply with Section 30 of the Companies Act in respect of preparing its annual financial statements within six months after the end of its financial year end.

Where a company is required to be audited the financial statements must include the audit report which means that the audit must also be finalized within 6 months after year-end.

The CIPC recently utilized the provisions of Section 175 of the Companies Act, which provides for an administrative fine to be issued for a company where a Compliance Notice has been issued for specific continuous non-compliance with the requirements of the Companies Act.

As a result, court orders were granted for an administrative fine to be paid by these non-compliant companies. The administrative fine to be paid by each company is equal to 10% of their turnover during the period which the companies were found to be non-compliant.

Tax implications for Cryptocurrency

A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the
transfer of assets.

Cryptocurrencies are increasingly becoming more popular today. This is a kind of currency that does not have any physical substance and only exists in the digital world. Investors see it as a great investment opportunity since the value of a digital coin like ‘bitcoin’ fluctuates over time. For instance, the value of bitcoin rose from USD32 in 2011 to USD19000 in 2017. However, recent price fluctuations and the lack of a regulated market has caused some uncertainty on how to account for crypto currencies. It is therefore important to understand its legal status and tax implications.

Legal Status of Cryptocurrency

The legal status of cryptocurrency is not yet fully established as it varies from country to country. According to SARS guidelines, cryptocurrencies are neither an official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.

Are cryptocurrencies taxable?

The short answer is Yes. The South African Revenue Service (SARS) stated in a guideline issued that it will apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties. Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).

Tax treatment

Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of “gross income” in the Act. Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”. Alternatively such gains may also be regarded as “capital” in nature, and be subjected to “capital gains tax”. Determination of whether an accrual or receipt is revenue or capital in nature is tested depending on the circumstances of each case.

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade. If the gain is recognised as capital in nature then base cost adjustments can also be made if falling within the CGT paradigm.

Classification of Gains or Losses

Gains or losses in relation to cryptocurrencies can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:

(i) A cryptocurrency can be acquired through so called “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms. By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger.

This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realized through either a normal cash transaction (as described in (ii) or a barter transaction as described in (iii) below.

(ii) Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions.

(iii) Goods or services can be exchanged for cryptocurrencies. This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.

Value Added Tax (VAT) implications

The 2018 annual budget review indicated that the VAT treatment of cryptocurrencies still needs to be reviewed. Pending policy clarity in this regard, SARS has directed that it will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.