CERTYNEX IFRS ACADEMY

Telvanor exchanges, with no cash adjustment, its broadcasting licence for the North region for the South region licence held by a competitor. The North licence provides stable and recurring advertising revenue; the South licence, in a developing territory, is expected to generate later and more volatile revenue. Both licences have a fair value of 400,000, and the difference between the cash flow profiles is significant relative to that value. Which analysis complies with IAS 38?

The exchange lacks commercial substance, because both assets are licences of the same nature and the same fair value, which leaves Telvanor's position unchanged.

The exchange has commercial substance: the risk, timing and amount of the cash flows of the licence received differ significantly from those of the licence given up.

Commercial substance can only be established by calculating the entity-specific value from pre-tax cash flows.

Commercial substance always requires a detailed calculation of the discounted cash flows of both licences, even when the difference between them is obvious.