IFRS 16 adopted, half year report, modified retrospective approach, para C12 transitional disclosures, policies

Kinaxis Inc. – Half year report – 30 June 2018

Industry: software

[Note: this company produces quarterly reports]

Notes to Condensed Consolidated Interim Financial Statements (extract)

For the six months ended June 30, 2018 and 2017 (Expressed in thousands of U.S. dollars, except share and per share amounts) (Unaudited)

  1. Changes in significant accounting policies (extract 1)

(b) IFRS 16: Leases (“IFRS 16”):

Effective January 1, 2018, the Company early adopted IFRS 16, which specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major leases. The impact of the transition is shown in note 3(b)(i) below. The Company’s accounting policy under IFRS 16 is as follows:

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company has elected to apply the practical expedient to account for each lease component and any non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. Lease terms range from 2 to 6 years for offices and data centres. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.

(i) Impact of transition to IFRS 16

Effective January 1, 2018, the Company early adopted IFRS 16 using the modified retrospective approach and accordingly the information presented for 2017 has not been restated. It remains as previously reported under IAS 17 and related interpretations.

On initial application, the Company has elected to record right-of-use assets based on the corresponding lease liability. Right-of-use assets and lease obligations of $10,822 were recorded as of January 1, 2018, with no net impact on retained earnings. When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2018. The weighted-average rate applied is 5.5%.

The Company has elected to apply the practical expedient to account for leases for which the lease term ends within 12 months of the date of initial application as short-term leases.

The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after January 1, 2018.

The following table reconciles the Company’s operating lease obligations at December 31, 2017, as previously disclosed in the Company’s consolidated financial statements, to the lease obligations recognized on initial application of IFRS 16 at January 1, 2018.

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  1. Changes in significant accounting policies (extract 2)

(d) Impact of adopting IFRS 15 and 16:

The following tables summarize the impact of adopting IFRS 15 and IFRS 16 on the Company’s condensed consolidated interim statements of financial position as at June 30, 2018 and its interim statements of comprehensive income for the three and six months ended June 30, 2018. There was no material impact on the Company’s interim statements of cash flows for the three and six months ended June 30, 2018.

Impact on the condensed consolidated interim statements of financial position as at June 30, 2018:

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Impact on the condensed consolidated interim statements of comprehensive income for the three months ended June 30, 2018:

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Impact on the condensed consolidated interim statements of comprehensive income for the six months ended June 30, 2018:

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