| First-time Adoption of IFRS | (r) First-time Adoption of IFRS These
consolidated financial statements for the year ended December 31, 2022, are the first the Company has prepared in accordance with IFRS.
The Company previously prepared its consolidated financial statements, up to and including December 31, 2021, in accordance with accounting
principles generally accepted in the United States (“US GAAP”). Accordingly,
the Company has prepared consolidated financial statements that comply with IFRS applicable for the year ended December 31, 2022, together
with the comparative period data for the year ended December 31, 2021. In preparing the consolidated financial statements, the Company’s
opening consolidated statement of financial position was prepared as at January 1, 2021, the Company’s date of transition to IFRS.
This note explains the principal adjustments made by the Company in restating its US GAAP consolidated financial statements. Exemptions
applied IFRS
1 allows first-time adopters certain exemptions from the retrospective application of certain requirements under IFRS. The Company has
applied the following exemptions: IFRS
3 Business Combinations has not been applied to either acquisitions of subsidiaries that are considered businesses under IFRS, or acquisitions
of interests in associates and joint ventures that occurred before January 1, 2021. The use of this exemption means that the US GAAP
carrying amounts of assets and liabilities, that are required to be recognized under IFRS, are their deemed cost at the date of the acquisition.
After the date of the acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition
under IFRS are excluded from the opening IFRS statement of financial position. The Company did not recognize any assets or liabilities
that were not recognized under US GAAP or exclude any previously recognized amounts as a result of IFRS recognition requirements. The
Company has not restated contracts that were completed before January 1, 2021, under IFRS 15 “Revenue from Contracts with Customers”.
A completed contract is a contract for which the Company has transferred all the goods and services identified in accordance with US
GAAP. The
Company assessed all contracts existing at January 1, 2021 to determine whether a contract contains a lease based upon the conditions
in place as at January 1, 2021 in accordance with IFRS 16 “Leases”. Lease liabilities were measured at the present value
of the remaining lease payments, discounted using the Company’s incremental borrowing rate at January 1, 2021. Right-of-use assets
were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating
to that lease recognized in the statement of financial position immediately before January 1, 2021. The lease payments associated with
leases for which the lease term ends within 12 months of the date of transition to IFRS and leases for which the underlying asset is
of low value have been recognized as an expense on either a straight-line basis over the lease term or another systematic basis. The
transition to IFRS 16 did not result in any material impact on the Company’s financial position as at December 31, 2021 and 2020,
or operation results for the year ended December 31, 2021, and therefore, no adjustment has been proposed accordingly. TRILLION
ENERGY INTERNATIONAL INC. Notes
to the Consolidated Financial Statements For
the years ended December 31, 2022 and 2021 (Expressed
in U.S. dollars)
2. Summary
of Significant Accounting Policies (continued) IFRS
1 allows an entity that used full cost accounting under its previous GAAP to elect, at the time of adoption to IFRS, to measure oil and
gas assets in the development and production phases by allocating the amount determined under the entity’s previous GAAP for those
assets to the underlying assets pro rata using a reasonable method as of that date. The costs of development and production assets have
been separately recorded by the Company for each group of assets. The Company has continued to apply its existing policy under US GAAP
as allowed by IFRS 6 to expense geological and geophysical costs as incurred. As
the Company elected the oil and gas assets IFRS 1 exemption, the asset retirement obligation (“ARO”) exemption available
to full cost entities was also elected. This exemption allows for the re-measurement of ARO on IFRS transition with the offset to accumulated
deficit. The
Company has elected the IFRS 1 exemption that allows the Company an exemption from applying IFRS 2 “Share-Based Payments”
to equity instruments which vested and settled before the Company’s transition date to IFRS. The
Company has elected the IFRS 1 exemption that allows the Company an exemption from applying IFRS 9 “Financial Instruments”
to financial instruments that were derecognized before the date of transition to IFRS on January 1, 2021. TRILLION
ENERGY INTERNATIONAL INC. Notes
to the Consolidated Financial Statements For
the years ended December 31, 2022 and 2021 (Expressed
in U.S. dollars)
2. Summary
of Significant Accounting Policies (continued) Reconciliation
of financial position as at January 1, 2021 (date of transition to IFRS) Summary of Reconciliation
of Financial Position
Notes US
GAAP (Audited)
Effect
of Transition to IFRS (Audited) IFRS (Unaudited)
ASSETS
Current
assets:
Cash
and cash equivalents $ 202,712 $ - $ 202,712
Account
receivables 773,311 - 773,311
Prepaid
expenses and deposits 24,302 - 24,302
Total
current assets 1,000,325 - 1,000,325
Oil
and gas properties, net 1,2,5 5,346,916 (3,122,443 ) 2,224,473
Exploration
and evaluation assets 1 - 3,122,443 3,122,443
Property
and equipment, net 128,257 - 128,257
Restricted
cash 11,763 - 11,763
Total
assets $ 6,487,261 $ - $ 6,487,261
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Current
liabilities:
Accounts
payable and accrued liabilities $ 1,496,510 $ - $ 1,496,510
Loans
payable - current 549,424 - 549,424
Lease
liability - current 12,116 - 12,116
Total
current liabilities 2,058,050 - 2,058,050
Asset
retirement obligation 2 4,010,624 5,344,798 9,355,422
Loans
payable 17,730 - 17,730
Convertible
debt 11,027 - 11,027
Derivative
liability 1,804,572 - 1,804,572
Lease
liability 27,693 - 27,693
Total
liabilities 7,929,696 5,344,798 13,274,494
Stockholders’
deficiency:
Common
stock 1,253 - 1,253
Additional
paid-in capital 3 27,508,468 (27,508,468 ) -
Share
premium 3 26,331,369 26,331,369
Notes and amounts receivable
for equity issued
Stock
subscriptions and stock to be issued 15,342 - 15,342
Shares to be cancelled
Obligation to Issue Shares
Warrant
and option reserve 3 - 1,177,099 1,177,099
Accumulated
other comprehensive loss (490,172 ) - (490,172 )
Accumulated
deficit (28,477,326 ) (5,344,798 ) (33,822,124 )
Total
stockholders’ deficiency (1,442,435 ) (5,344,798 ) (6,787,233 )
Total
liabilities and stockholders’ deficiency $ 6,487,261 $ - $ 6,487,261 TRILLION
ENERGY INTERNATIONAL INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2022 and 2021 (Expressed
in U.S. dollars)
2. Summary
of Significant Accounting Policies (continued) Reconciliation
of financial position as at December 31, 2021
Notes US GAAP (Audited) Restatement (Note 25) (Audited) Effect of Transition to IFRS (Audited) IFRS (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,026,990 $ - $ - $ 1,026,990
Accounts receivable 709,805 - - 709,805
Prepaid expenses and deposits 95,503 - - 95,503
Total current assets 1,832,298 - 1,832,298
Oil and gas properties, net 1,2,5 5,172,943 - (3,752,330 ) 1,420,613
Exploration and evaluation assets 1 - - 3,116,146 3,116,146
Property and equipment, net 147,134 - - 147,134
Restricted cash 5,438 - - 5,438
Total assets $ 7,157,813 $ - $ (636,184 ) $ 6,521,629
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 852,481 $ - $ - $ 852,481
Loans payable 630,534 - - 630,534
Lease liability 6,732 - - 6,732
Total current liabilities 1,489,747 - - 1,489,747
Asset retirement obligation 2 4,426,978 - 4,566,130 8,993,108
Loans payable 18,513 - - 18,513
Derivative liability 472,899 - - 472,899
Lease liability 8,592 - - 8,592
Total liabilities 6,416,729 - 4,566,130 10,982,859
Stockholders’ equity (deficiency):
Common stock 1,828 - - 1,828
Additional paid-in capital 3,4 33,295,413 3,064,400 (36,359,813 ) -
Share premium 3,4 - - 35,115,302 35,115,302
Notes and amounts receivable for equity issued (1,193,641 ) - - (1,193,641 )
Warrant and option reserve 3 - - 1,165,170 1,165,170
Shares to be cancelled 5,323 - - 5,323
Obligation to issue Shares 7,450 - - 7,450
Accumulated other comprehensive loss (847,412 ) - - (847,412 )
Accumulated deficit (30,527,877 ) (3,064,400 ) (5,122,973 ) (38,715,250 )
Total stockholders’ equity (deficiency) 741,084 - (5,202,314 ) (4,461,230 )
Total liabilities and stockholders’ equity (deficiency) $ 7,157,813 $ - $ (636,184 ) $ 6,521,629 TRILLION
ENERGY INTERNATIONAL INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2022 and 2021 (Expressed
in U.S. dollars)
2. Summary of Significant
Accounting Policies (continued) Reconciliation
of operation results for the year ended December 31, 2021
Notes US GAAP (Audited) Restatement (Note 25) (Audited) Effect of Transition to IFRS (Audited) IFRS (Unaudited)
Revenue
Oil and natural gas sales $ 3,700,727 $ - - $ 3,700,727
Cost and expenses
Production 2,617,118 - - 2,617,118
Depletion 5 233,798 - 181,888 415,686
Depreciation 31,768 - - 31,768
Accretion of asset retirement obligation 2 416,354 - (324,371 ) 91,983
Investor relations 914,770 - - 914,770
Stock based compensation 336,366 - - 336,366
General and administrative 2,248,164 - - 2,248,164
Total expenses 6,798,338 - (142,483 ) 6,655,855
Loss before other income (expenses) (3,097,611 ) - 142,483 (2,955,128 )
Other income (expenses)
Interest income 46,217 - - 46,217
Interest expense (126,027 ) - - (126,027 )
Finance cost (176,386 ) - - (176,386 )
Foreign exchange loss 25,669 - - 25,669
Loss on debt extinguishment 4 (238,724 ) - 79,341 (159,383 )
Change in fair value of derivative liability 1,473,638 (3,064,400 ) - (1,590,762 )
Gain on disposal of equipment 40,074 - - 40,074
Other expense 2,600 - - 2,600
Total other income (expenses) 1,047,061 (3,064,400 ) 79,341 (1,937,998 )
Net loss $ (2,050,550 ) $ (3,064,400 ) 221,824 $ (4,893,126 )
Loss per share $ (0.01 ) $ (0.02 ) - $ (0.03 )
Weighted average number of shares outstanding 158,166,108 - - 158,166,108
Other comprehensive loss
Foreign currency translation adjustments $ (357,240 ) $ - - $ (357,240 )
Comprehensive loss $ (2,407,790 ) $ (3,064,400 ) 221,824 $ (5,250,366 ) Notes
to the reconciliations The
reconciling items between US GAAP and IFRS presentation have no significant effect on the cash flows generated. Therefore, a reconciliation
of cash flows has not been presented above.
(1) Exploration
and evaluation assets (“E&E assets”) An
adjustment has been made to reclassify the presentation of the Company’s Bulgarian property as exploration and evaluation assets
as it is not a property under development or production, in accordance with IFRS. TRILLION
ENERGY INTERNATIONAL INC. Notes to the Consolidated Financial Statements For the years ended December 31, 2022 and 2021 (Expressed
in U.S. dollars)
2. Summary of Significant
Accounting Policies (continued)
(2) Asset
retirement obligation Under
US GAAP, the ARO was discounted at a rate of 10 5,344,798 0.93 1.49 4,566,130 As
a result of the change in discount rate, the ARO accretion expense decreased by $ 324,371
(3) Option
reserve and share premium Under
US GAAP, share-based payments were presented as additional paid-in capital. Upon transition to IFRS, a reclassification adjustment has
been made to separately present the amount related to share-based compensation of $ 1,177,099 1,040,779
(4) Loss
on convertible debt extinguishment Under
US GAAP, when conversion features have been bifurcated from the conversion debt host and accounted for as liabilities, no equity conversion
feature remains in the debt instrument. The liabilities for the debt and the conversion feature are extinguished in exchange for common
shares, the difference between the carrying value of the liabilities and the fair value of the common shares ae recorded as a gain or
loss. IFRS requires the entity to derecognize the liability component and recognize it as equity on conversion of a convertible instrument
and no gain or loss is recognized. As a result of the difference between the two accounting standards, for the year ended December 31,
2021, the loss on debt extinguishment decreased by $ 79,341
(5) Depletion The
Company is depleting its oil and gas properties over the proved reserves. IFRS requires an entity to include the estimated future costs
to develop the reserves in the calculation of depletion. The calculation of depletion under US GAAP did not include the estimated future
development costs as the Company applied Electronic Code of Federal Regulation Title 17 Section 210.4-1, Financial accounting and reporting
for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975, to exclude
the estimated future expenditures associated with a major development. As a result, oil and gas properties, net, increased by $ 181,888 181,888 |
