Chapter 18: SMEs - Definition

PFRS for SMEs Full PFRS

I. Assets (Definition) Same Same

II. Liabilities (Defn) Same Same

III. Equity

1. Issuance of Equity Equity instruments are measured Same except that full PFRS is
Shares t FV of the consideration not explicit but the application in
received or receivable (net of practice is the same.
direct issue cost).

IV. Income

1. Recognition of Revenue section covers all Same, however includes a

Revenue revenue transactions within four separate standard for
broad categories: construction Contracts

1. Sale of goods
2. Rendering of services
3. Use by others of entitys
resources (interest,
royalties, etc.)
4. Construction Contracts
2. Government Grant

Measurement & According to nature of grant: Measurement

Recognition
1. Income recognized 1. Capital and Income
immediately upon receipt ApproachRecognition
of grant with no specified 2. Revenue recognized
future performance. when conditions are
2. Income recognized when met.
conditions are met. 3. Revenue recognized
3. Deferred income. when grant is receivable.
V. Expenses

1. Definition Same Same

2. Recognition Same Same

3. Borrowing Costs Expensed outright Costs directly attributable to

acquisition-capitalized

Other borrowing costs- expensed

 Chapter 19: SMEs - QUALITIES AND GENERAL FEATURES

I. QUALITATIVE CHARACTERISTICS

FULL PFRS PFRS FOR SMEs

Fundamental qualitative characteristics Principal qualitative characteristics

Relevance Understandability
Predictive Value Relevance
Confirmatory Value Materiality
Materiality Reliability
Faithful Representation Substance over form
Completeness Prudence
Neutrality Completeness
Free from error Comparability
Enhancing qualitative characteristics Timeliness
Understandability Balance between benefit and cost
Comparability
Verifiability
Timeliness

II. ELEMENTS OF FINANCIAL STATEMENTS

FULL PFRS PFRS FOR SMEs

Definition Definition
same with PFRS for SMEs same with full PFRS
Recognition Recognition
same with PFRS for SMEs same with full PFRS
Measurement Measurement
Present value Historical Cost
Realizable value Fair Value
Historical cost
Current cost

III. 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 Full PFRS PFRS for SMEs

Components of other -unrealized gain or loss on ----

comprehensive income investment in equity instrument
measured at FV thru P/L

-gain or loss translating the Same

financial statement of foreign
operation

-revaluation surplus during the ---

year

-unrealized gain or loss from Same

derivative contracts designated
as cash flow hedge

-remeasurement of defined Same

benefit plan

Presentation of single Not Permitted If the only change in equity are

statement of income and the results of the ff;
retained earnings
-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 Mandated (as far as practicable) Mandated (as far as practicable)
manner

2. Cross-reference between Mandated Mandated

each item in the financial
statements

3. Disclosure of information Mandated Mandated

about key sources of
estimation uncertainty.

4. Disclosure about judgment Mandated Mandated

apart from those involving
estimation.

5. Structure same same

6. Order of presenting the same same

notes

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 same same

parties classification

11. Related party disclosure same same

12. Key management same same

personnel compensation

13. Events after the end of same same

reporting period

14. Date of authorization for same same

issue

*Some entities are required by SEC and Phil. Stock Exchange

 Chapter 23: SMEs-ACCOUNTING CHANGES

Full PFRS PFRS for SMEs

I. Selection of Accounting Policies

A. If there is an accounting Applicable Applicable

standard related to a
transaction, follow the (if the effect would be material)
standard.
B. In the absence of an
accounting standard,
management shall
consider the
following sources from the
hierarchy of guidance:
1. The requirements and Applicable Applicable
guidance in PFRS on similar
related issues
2. The definition, recognition
criteria and measurement of
assets, liabilities, income Applicable Applicable
and expenses
3. Most recent pronouncement
of other standard setting
bodies, other accounting Applicable Not Applicable
literature and accepted
industry practices.
II. Consistent application of same same
accounting policies

III. Changes in accounting policies same same

shall be treated: Retrospectively

prospectively, if it is impracticable same same

to apply the new accounting policy
retrospectively
IV. Changes in accounting same same
estimates shall be treated
prospectively

V. Correction of prior period same same

errors shall be treated
retrospectively
 Chapter 24 SMEs INVENTORIES AND REVENUE

INVENTORIES

Full PFRS PFRS for SMEs

Definition same same

Measurement 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 The excess of the carrying

is a component of cost of goods amount over the selling price less
sold rather than an impairment cost to complete and dispose
loss. 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

I. Financial Instrument

a. Definition same same

1. Financial Assets same same

2. Financial Liabilities same same

3. Equity Instruments Under the scope of the Outside the scope of the standard
standard

b. Categorization No distinction as to basic Distinguishes basic financial

financial instruments and instruments and financial
financial instruments not instruments not qualifying as
qualifying as basic financial basic financial instruments
instrument

c. Examples Financial Instruments Basic financial instruments

includes: includes:

a. Cash or currency and a. Cash

cash in bank b. Demand and fixed term
b. Receivables deposits
(accounts, notes, c. Trade accounts and notes
loans, and bonds) receivable
c. Investments in equity d. Loans receivable
instruments issued by e. Commercial papers or
other entities commercial bills
d. Payables (accounts, f. Investments in
notes, loans, and nonputtable ordinary
bonds) shares
e. Preference shares g. Investments in
with mandatory nonconvertible and
redemption date nonputtable preference
f. Ordinary and shares
preference share h. Commitment to receive a
capital loan if the commitment
g. Warrants or options cannot be net settled in
cash
 i. Accounts payable
j. 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 same same

(cost less
impairment)
2. FV through P/L same same

3. Amortized Cost same same

e. Subsequent
Measurement
1. Transaction Price same same
(cost less
impairment)
2. FV through P/L same same

3. Amortized Cost same same

f. Impairment of Asset

1. Measured at same same

amortized cost
2. Measured at cost less The difference between the
impairment carrying amount of asset and
present value of estimated
future cash flows discounted
at market rate of interest for
similar asset
The difference between the
carrying amount of asset and the
best estimate of the amount that
would have received if assets
were sold

3. Reversal of same same

impairment
 Chapter 26 SMEs ASSOCIATE
PFRS for SMEs
Definition same
Significant It is the power to participate in the
Influence 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 investees 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.
Measurement after An investor may account for all of its
initial recognition investments in associate using any one of
the following:
a) Cost Model
b) Equity Method
c) Fair Value Model
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.
Full PFRS
same
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:
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
Only equity method is used to
account for an investments in
associate. Some exceptions: When
the investments is classified as held
for sale.
 Chapter 27: SMEs - Investment Property

PFRS for SMEs Full PFRS

Definition Same Same
Initial Measurement
Purchase Price Same Same
Directly Attributable Same Same
Costs
Borrowing Costs Recognized as expense Required to be
Capitalized
Subsequent Investment property is Management may
Measurement carried at fair value if choose as its
its fair value can be accounting policy to
measured reliably carry all its investment
without undue cost or properties at cost.
effort. Otherwise, the However, when an
cost model is used. investment property is
held by a lessee under
an operating lease, the
entity follows the fair
value model for all its
investment properties.
Fair value Same Same
Cost Model Treatment of PPE Treatment of PPE
following PFRS for following AIS16
SMEs Section 17.
Transfers Same Same

PROPERTY, PLANT AND EQUIPMENT
1. Definition of PPE
2. Initial and subsequent
measurement
3. Noncurrent asset held for
sale
4. Depreciation method,
useful life, residual value,
depreciation of significant
components, impairment
and derecognition
GOVERNMENT GRANT
1. Recognition of
government grant
2. Matching of income with
expenses or cost
3. Presentation of grants
relating to asset
BORROWING COST
1. Recognition of borrowing
cost
FULL PFRS
-same-
Either cost model or
revaluation model
Measured at the lower of
carrying amount and fair
value less cost to sell
Presented separately and no
longer depreciated
-same-
Recognize when there is
reasonable assurance that
the entity will comply with
specific conditions
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
Grant related to asset may be
treated either as deferred
income or a reduction in the
carrying amount of the asset
Capitalized as part of the cost
of the asset if borrowing cost
is directly attributable to
PFRS for SMEs
-same-
Cost model only
Does not address noncurrent
asset held for sale - Not
separately presented
-same-
Recognize when conditions are
actually satisfied
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
Grant is a deferred income
until the conditions are actually
satisfied
Expensed as incurred
 acquisition, construction or
production of a qualifying
asset, otherwise, it shall be
expensed as incurred
Does not permit capitalization
of interest even if it is directly
attributable to the acquisition,
construction or production of a
qualifying asset

CHAPTER 28: SMEs 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
exceptions: assets:
Deferred tax assets. Inventories.
Employee benefits assets. Deferred acquisition costs
Scope
Financial assets. Intangibles arising from
Investment property carried at fair contractual rights under insurance
value contracts.

Biological assets carried at fair value Non-current assets classified as

less estimated cost to sell held for sale in accordance with
PFRS 5

Formula -same- -same-

-same-

Unless the asset is carried at revalued

amount in accordance with another
Impairment losses -same- standard. In this case, the impairment
loss is treated as a revaluation
decrease in accordance with that
other standard.
 Internal and
External -same- -same-
Indicators

Measuring
Recoverable -same- -same-
amount

Definition of Fair
Value less cost to
-same- -same-
sell and Value in
use

Cash Generating
-same -same-
Unit (CGU)

Goodwill is allocated to the CGUs that

are expected to benefit from the Goodwill acquired in a business
synergies of the combination. combination is allocated to the CGUs
that are expected to benefit from the
If such allocation is not possible and the synergies of the combination.
Allocation of reporting entity has not integrated the
acquired business, the acquired entity is Goodwill is tested for impairment at
goodwill measured as a whole when testing the lowest level at which it is
goodwill impairment. If such allocation monitored by management. CGUs
is not possible and the acquired business may be grouped for testing, but the
is integrated, the entire group is grouping cannot be higher than an
considered when testing goodwill operating segment
impairment.

The following assets are tested for

impairment irrespective of whether

Assets (including goodwill) are tested there is indication of impairment:
Annual for impairment when there is an
Intangible assets with an indefinite
indication that the asset may be
assessment useful life or an intangible asset not
impaired. The existence of impairment
yet available for use.
of indicators indicators is assessed at each reporting
date Goodwill.

All other assets: same as PFRS for

SMEs
 Reversal of
-same- -same-
Impairment

CHAPTER 34: SMEs- Income Tax

Section 29- Income Tax

Principles PFRS for SMEs FULL PFRS

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 x
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
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

- intraperiod tax allocation

- interperiod tax allocation

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