Chapter 18: SMEs - Definition
PFRS for SMEs
Full PFRS
I.
Assets (Definition)
Same
Same
II.
Liabilities (Def’n)
Same
Same
III.
Equity
1. Issuance of Equity Shares
IV.
Equity instruments are measured Same except that full PFRS is t FV of the consideration not explicit but the application received or receivable (net of in practice is the same. direct issue cost).
Income
1. Recognition of Revenue
Revenue section covers all Same, however includes a revenue transactions within four separate standard for broad categories: construction Contracts 1. Sale of goods 2. Rendering of services 3. Use by others of entity’s resources (interest, royalties, etc.) 4. Construction Contracts
2. Government Grant
Measurement & Recognition
According to nature of grant: 1. Income recognized immediately upon receipt of grant with no specified future performance. 2. Income recognized when conditions are met. 3. Deferred income.
V.
Measurement 1. Capital and Income ApproachRecognition 2. Revenue recognized when conditions are met. 3. Revenue recognized when grant is receivable.
Expenses 1. Definition
Same
Same
2. Recognition
Same
Same
3. Borrowing Costs
Expensed outright
Costs directly attributable to acquisition-capitalized Other borrowing expensed
costs-
Chapter 19: SMEs - QUALITIES AND GENERAL FEATURES
I.
QUALITATIVE CHARACTERISTICS
FULL PFRS Fundamental qualitative characteristics Relevance Predictive Value Confirmatory Value Materiality Faithful Representation Completeness Neutrality Free from error Enhancing qualitative characteristics Understandability Comparability Verifiability Timeliness
II.
Principal qualitative characteristics Understandability Relevance Materiality Reliability Substance over form Prudence Completeness Comparability Timeliness Balance between benefit and cost
ELEMENTS OF FINANCIAL STATEMENTS
FULL PFRS Definition same with PFRS for SMEs Recognition same with PFRS for SMEs Measurement Present value Realizable value Historical cost Current cost
III.
PFRS FOR SMEs
PFRS FOR SMEs Definition same with full PFRS Recognition same with full PFRS Measurement Historical Cost Fair Value
GENERAL FEATURES
Full PFRS and PFRS for SMEs have the same provisions on the general features in the preparation of financial statements.
Chapter 21: SMEs - Statement of comprehensive income
Differences Components of other comprehensive income
Presentation of single statement of income and retained earnings
Full PFRS
PFRS for SMEs
-unrealized gain or loss on investment in equity instrument measured at FV thru P/L
----
-gain or loss translating the financial statement of foreign operation
Same
-revaluation surplus during the year
---
-unrealized gain or loss from derivative contracts designated as cash flow hedge
Same
-remeasurement of defined benefit plan
Same
Not Permitted
If the only change in equity are the results of the ff; -profit or loss -payment of dividends -prior period errors -changes in accounting policy
Chapter 22: SMEs-Notes to Financial Statements PFRS for SMEs
Full PFRS
1. Presentation in a systematic manner
Mandated (as far as practicable)
Mandated (as far as practicable)
2. Cross-reference between each item in the financial statements
Mandated
Mandated
3. Disclosure of information about key sources of estimation uncertainty.
Mandated
Mandated
4. Disclosure about judgment apart from those involving estimation.
Mandated
Mandated
5. Structure
same
same
6. Order of presenting the notes
same
same
7. Segment Reporting
Not required
Required
8. Earnings per share
Not required
Required
9. Interim financial reporting
Not required
Not required*
10. Related and unrelated parties classification
same
same
11. Related party disclosure
same
same
12. Key management personnel compensation
same
same
13. Events after the end of reporting period
same
same
14. Date of authorization for issue
same
same
*Some entities are required by SEC and Phil. Stock Exchange
Chapter 23: SMEs-ACCOUNTING CHANGES
Full PFRS
PFRS for SMEs
A. If there is an accounting standard related to a transaction, follow the standard. B. In the absence of an accounting standard, management shall consider the following sources from the hierarchy of guidance: 1. The requirements and guidance in PFRS on similar related issues 2. The definition, recognition criteria and measurement of assets, liabilities, income and expenses 3. Most recent pronouncement of other standard setting bodies, other accounting literature and accepted industry practices. II. Consistent application of accounting policies
Applicable
Applicable
I. Selection of Accounting Policies
(if the effect would be material)
Applicable
Applicable
Applicable
Applicable
Applicable
Not Applicable
same
same
III. Changes in accounting policies shall be treated: Retrospectively
same
same
prospectively, if it is impracticable to apply the new accounting policy retrospectively IV. Changes in accounting estimates shall be treated prospectively
same
same
same
same
V. Correction of prior period errors shall be treated retrospectively
same
same
Chapter 24 SMEs – INVENTORIES AND REVENUE INVENTORIES
Definition Measurement
Full PFRS
PFRS for SMEs
same
same
Lower of cost and net realizable Lower of cost and estimated value selling price less cost to complete and sell
Costs of purchase
same
same
Costs of conversion
same
same
Other costs
same
same
Cost formulas
same
same
Impairment
The loss on inventory writedown is a component of cost of goods sold rather than an impairment loss.
The excess of the carrying amount over the selling price less cost to complete and dispose shall be recognized as impairment loss.
REVENUE PFRS for SMEs and full PFRS share the same principles for the recognition of revenue from sale of goods, rendering of services, interest, royalties, dividends and other significant type of revenue.
CHAPTER 25: SMEs – BASIC FINANCIAL INSTRUMENTS
Full PFRS
PFRS for SMEs
same
same
1. Financial Assets
same
same
2. Financial Liabilities
same
same
I. Financial Instrument a. Definition
3. Equity Instruments
Under the scope of the standard
Outside the scope of the standard
b. Categorization
No distinction as to basic financial instruments and financial instruments not qualifying as basic financial instrument
Distinguishes basic financial instruments and financial instruments not qualifying as basic financial instruments
c. Examples
Financial Instruments includes:
Basic financial instruments includes:
a. Cash or currency and cash in bank b. Receivables (accounts, notes, loans, and bonds) c. Investments in equity instruments issued by other entities d. Payables (accounts, notes, loans, and bonds) e. Preference shares with mandatory redemption date f. Ordinary and preference share capital g. Warrants or options
a. Cash b. Demand and fixed term deposits c. Trade accounts and notes receivable d. Loans receivable e. Commercial papers or commercial bills f. Investments in nonputtable ordinary shares g. Investments in nonconvertible and nonputtable preference shares h. Commitment to receive a loan if the commitment cannot be net settled in cash
i. j.
Accounts payable Loans from banks and other third parties k. Bonds and similar debt instrument l. Loans to or from subsidiaries or associates that are due on demand d. Initial Measurement 1. Transaction price (cost less impairment) 2. FV through P/L
same
same
same
same
3. Amortized Cost
same
same
1. Transaction Price (cost less impairment) 2. FV through P/L
same
same
same
same
3. Amortized Cost
same
same
same
same
e. Subsequent Measurement
f.
Impairment of Asset 1. Measured at amortized cost 2. Measured at cost less impairment
3. Reversal of impairment
The difference between the carrying amount of asset and present value of estimated future cash flows discounted at market rate of interest for similar asset same
Chapter 26 SMEs – ASSOCIATE
The difference between the carrying amount of asset and the best estimate of the amount that would have received if assets were sold
same
PFRS for SMEs
Full PFRS
Definition
same
same
Significant Influence
It is the power to participate in the financial and operating policy decision of the associate but is not control or joint venture over those policies. It is presumed to exist when the investor holds at least 20% of the investee’s voting power. It is presumed not to exist when less than 20% is held. These presumptions may be rebutted if there is a clear evidence to the contrary.
Similar to PFRS for SMEs but in addition, full PFRS give the following indicators of significant influence to be considered where the investors hold less than 20% of the voting power of the investee:
An investor may account for all of its investments in associate using any one of the following:
Only equity method is used to account for an investments in associate. Some exceptions: When the investments is classified as held for sale.
Measurement after initial recognition
a) Cost Model b) Equity Method c) Fair Value Model
Representation of BDO Participation in policy making process Material transaction between the investor and the investee Interchange of managerial personnel Provision of essential information The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has significant influence
Areas covered under full PFRS but not in PFRS for SMEs include the following: a) Guidance on significant influence b) Consequences when an investment ceases to be an associate c) Profit and loss from upstream and downstream transaction.
Chapter 27: SMEs - Investment Property
Definition
PFRS for SMEs Same
FULL PFRS
Initial Measurement Purchase Price Directly Attributable Costs Borrowing Costs
PFRS for SME’s
Same Same
Same Same
Recognized as expense
Required to be Capitalized Management may choose as its accounting policy to carry all its investment properties at cost. However, when an investment property is held by a lessee under an operating lease, the entity follows the fair value model for all its investment properties. Same Treatment of PPE following AIS16
Subsequent Measurement
Investment property is carried at fair value if its fair value can be measured reliably without undue cost or effort. Otherwise, the cost model is used.
Fair value Cost Model
Same Treatment of PPE following PFRS for SMEs Section 17. Same
Transfers
Full PFRS Same
Same
PROPERTY, PLANT AND EQUIPMENT
1. Definition of PPE
-same-
-same-
2. Initial and subsequent measurement
Either cost model or revaluation model
Cost model only
3. Noncurrent asset held for sale
Measured at the lower of carrying amount and fair value less cost to sell – Presented separately and no longer depreciated
Does not address noncurrent asset held for sale - Not separately presented
4. Depreciation method, useful life, residual value, depreciation of significant components, impairment and derecognition GOVERNMENT GRANT
-same-
-same-
1. Recognition of government grant
Recognize when there is reasonable assurance that the entity will comply with specific conditions
Recognize when conditions are actually satisfied
2. Matching of income with expenses or cost
Government grant is recognized as income over the periods necessary to match the grant with the related cost for which it is intended to compensate
Does not allow an entity to match the grant with the expense for which it is intended to compensate or the cost of the asset that is used to finance
3. Presentation of grants relating to asset
Grant related to asset may be treated either as deferred income or a reduction in the carrying amount of the asset
Grant is a deferred income until the conditions are actually satisfied
Capitalized as part of the cost of the asset if borrowing cost is directly attributable to acquisition, construction or production of a qualifying asset, otherwise, it shall be expensed as incurred
Expensed as incurred
BORROWING COST 1. Recognition of borrowing cost
Does not permit capitalization of interest even if it is directly attributable to the acquisition, construction or production of a qualifying asset
CHAPTER 28: SME’s – PROPERTY, PLANT AND EQUIPMENT Government Grant and Borrowing Cost
CHAPTER 30: SMEs-IMPAIRMENT OF ASSETS PFRS for SMEs
Full PFRS -same-
Assets with the following
In addition excludes the following assets:
exceptions: •Deferred tax assets.
•Inventories. Scope
•Employee benefits assets. •Deferred acquisition costs •Financial assets.
Formula
•Investment property carried at fair value
• Intangibles arising from contractual rights under insurance contracts.
• Biological assets carried at fair value less estimated cost to sell
• Non-current assets classified as held for sale in accordance with PFRS 5
-same-
-same-sameUnless the asset is carried at revalued amount in accordance with another standard. In this case, the impairment loss is treated as a revaluation decrease in accordance with that other standard.
Impairment losses
-same-
Internal and External Indicators
-same-
-same-
Measuring Recoverable amount
-same-
-same-
Definition of Fair Value less cost to sell and Value in
-same-
-same-
use Cash Generating Unit (CGU)
-same
-same-
Goodwill is allocated to the CGUs that Goodwill acquired in a business are expected to benefit from the synergies combination is allocated to the CGUs of the combination. that are expected to benefit from the If such allocation is not possible and the synergies of the combination. Allocation of goodwill
reporting entity has not integrated the acquired business, the acquired entity is measured as a whole when testing goodwill impairment. If such allocation is not possible and the acquired business is integrated, the entire group is considered when testing goodwill impairment.
Goodwill is tested for impairment at the lowest level at which it is monitored by management. CGUs may be grouped for testing, but the grouping cannot be higher than an operating segment
The following assets are tested for impairment irrespective of whether there is indication of impairment: Annual assessment of indicators
Assets (including goodwill) are tested for impairment when there is an indication that the asset may be impaired. The existence of impairment indicators is assessed at each reporting date
•Intangible assets with an indefinite useful life or an intangible asset not yet available for use. •Goodwill. All other assets: same as PFRS for SMEs
Reversal of Impairment
-same-
CHAPTER 34: SMEs- Income Tax Section 29- Income Tax
-same-
Principles
PFRS for SMEs
1. Scope -all domestic and foreign taxes that are based on taxable profits. -includes withholding taxes that are payable by a subsidiary, associate or joint venture on distributions to the reporting entity.
2. Current Tax Liability
3. Current Tax Asset ( Prepaid Income Tax)
4. Withholding tax on dividends
5. Kinds of Temporary Differences: 5.1 Deferred Tax Asset -presentation (noncurrent asset) -recognition: deductible temporary difference carryover of net operating loss valuation allowance 5.2 Deferred Tax Liability -presentation (noncurrent liability) -recognition:
taxable temporary difference exception: 1. initial recognition of Goodwill resulting from a business combination 2. initial recognition of assets and liabilities in a transaction that is not a business combination and affects neither accounting nor taxable income 3. undistributed profit/ unremitted earnings from foreign
FULL PFRS
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
x
√
√
√
√
√
√
√
√
√
√*
√
√
- intraperiod tax allocation
√
√
- interperiod tax allocation
√
√
subsidiaries, branches, associates and joint ventures to the extent that investment is essentially permanent in duration
note: *same prohibition applies, but can be either domestic or foreign investments
6. Measurement (future enacted tax rate)
7.Allocation for tax expense
8. Offsetting** - current tax asset and current tax liability
√
√
- deferred tax asset and deferred tax liability
√
√
Note: **
Conditions(SMEs): Offsetting is allowed to current and deferred tax asset and liability if all are met: a. When the entity has a legally enforceable right to set off the amounts. b. When the entity intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Conditions(FULL): Offsetting is allowed to deferred tax asset and liability: a. The deferred tax asset and the deferred tax liability relate to income taxes levied by same tax authority.
b. The entity has a legal enforceable right to set off a current tax asset against current tax liability.
Chapter 35: SMEs – Equity and Share –Based payment From the book of Sir Valix: 1. The PFRS for SMEs and full PFRS are PRACTICALLY THE SAME with respect to the recording of equity instruments, treasury share, compound financial instrument, dividends and other related equity matters. 2. Share options PFRS for SMEs - must be measured at fair value on the date of grant - the intrinsic value of share options is not mentioned as an alternative FULL PFRS - Shall be measured at fair value at the date of grant - If the fair value of the share option cannot be measured reliably, the intrinsic value of the share option is used
