Differences Between PFRS

for SMEs and Full PFRS

INVESTMENTS IN
ASSOCIATES

DEFINITION OF INVESTMENTS IN ASSOCIATES

PFRS for SMEs

An associate is an entity over which the
investor has significant influence, but
that is neither a subsidiary nor a joint
venture of the investor.
[IFRS for SMEs 14.2]

Full PFRS
Same as IFRS for SMEs.
[IAS 28.2]

SIGNIFICANT INFLUNCE

PFRS for SMEs

Significant influence is the power to
participate in the financial and operating
policy decisions of the associate but is
not control or joint control 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 clear evidence to the
contrary.
[IFRS for SMEs 14.3]

Full PFRS
Similar to IFRS for SMEs; in addition, IFRS gives the
following indicators of significant influence to be
considered
where the investor holds less than 20% of the voting
power of the investee:
Representation on the board of directors or equivalent
body.
Participation in policy-making processes.
Material transactions between the investor and the
investee.
Interchange of managerial personnel.
Provision of essential technical 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.
[IAS 28.6-26.8]

MEASUREMENT AFTER INITIAL RECOGNITION

PFRS for SMEs

Full PFRS

An investor may account for its

investments using one of the following:
The cost model (cost less any
accumulated impairment losses).
The equity method.
The fair value through profit or loss
model.
[IFRS for SMEs 14.4]

Investments in associates are accounted

for using the equity method.
Some exceptions are in place for
example, when the investment is
classified as held for sale.
[IAS 28.13]

COST MODEL

PFRS for SMEs

An investor measures its associates at
cost less any accumulated impairment
losses. All dividends are recognised in
the income statement.
The cost model is not permitted for an
investment in an associate that has a
published price quotation.
[IFRS for SMEs 14.5-14.7]

Full PFRS
Not permitted except in separate
financial statements.
[IAS 28.35]

EQUITY METHOD

PFRS for SMEs

An associate is initially recognised at the transaction
price (including transaction costs). The investor, on
acquisition of the investment, accounts for the difference
between the cost of the acquisition and its share of fair
value of the net identifiable assets as goodwill, which is
included in the
carrying amount of the investment.
The investors share of the associates profit or loss and
other comprehensive income are presented in the
statement of comprehensive income. Distributions
received from the associate reduce the carrying amount of
the investment.
In case of losses in excess of the investment, after the
investors interest is reduced to zero, additional losses are
provided for to the extent that
the investor has incurred legal or constructive obligations
or has made payments on behalf of the associate.
[IFRS for SMEs 5.5(c)(h), 14.8]

Full PFRS
Initial recognition is at cost. Cost is not
defined in IAS 28, Investments in
associates. In other standards it is
defined as including transaction costs,
except in IFRS 3 (revised), which
requires transaction costs in a business
combination to be expensed.
Entities may therefore choose whether
their accounting policy is to expense
transaction costs or to include them in
the cost of the investment.
[IAS 28.11, 28.23, 28.29-28.30]

EQUITY METHOD - CONTINUATION

PFRS for SMEs

Goodwill identified under equity
method is treated separately and
amortized.

Full PFRS
Goodwill is included in the carrying
value of the investment and is not
amortized.

Under the equity method, the

The impracticability exception is not
accounting policies of the associate is provided.
adjusted to that of the investor, unless
it is impracticable to do so.
The same requirement applies, but
the difference in dates is limited to 3
In applying the equity method, the
months and the difference should be
same reporting dates must be used,
consistent year-on-year.
except if it is impracticable to do so.

FAIR VALUE

PFRS for SMEs

An associate is initially recognised at the
transaction price (excluding transaction
costs). Changes in fair value are recognised
in profit or loss.
The best evidence of the fair value is a
quoted price in an active market.
If the market is not active, an entity
estimates fair value by using a valuation
technique. If the fair value cannot be
measured reliably, the investor uses the cost
model.
[IFRS for SMEs 11.27, 14.9]

Full PFRS
Not permitted except in separate
financial statements.
[IAS 28.35]

SEPARATE FINANCIAL STATEMENTS

PFRS for SMEs

Where separate financial statements of a
parent are prepared (this is not
required), management adopts a policy
of accounting for all its associates
either:
At cost less impairment, or
At fair value through profit or loss.
[IFRS for SMEs 9.26]

Full PFRS
Similar to IFRS for SMEs; in addition,
investments are accounted for in
accordance with IFRS 5 when they are
classified as held for sale.
[IAS 27.38]

CLASSIFICATION AND PRESENTATION

PFRS for SMEs

An investor classifies investments
in associates as non-current assets.
Associates are presented as a line item
on the balance sheet.
[IFRS for SMEs 4.2(j), 14.11]

Full PFRS
Similar to IFRS for SMEs; however,
only those associates accounted for
using the equity method are presented
as a line item.
[IAS 1.54(e), 28.38]

ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEs

Full PFRS
Guidance on significant influence.
Consequences when an investment
ceases to be an associate.
Profit and loss from upstream and
downstream transactions.
Impairment losses.
Acquisition of an investment in an
associate.

DISCLOSURE TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEs

Its accounting policy
Carrying amount
Fair value of investment (if
there are published quotations)
Dividend income (for cost
method)

Full PFRS
Reasons why an associate is not accounted
for using the equity method
Summarized financial information of
associates not accounted for using the equity
method
Share of any discontinued operations of
associates (separately presented)
Share of changes directly recognized in
associates equity
Share of contingent liabilities incurred
jointly with other investors
Any contingent liabilities that may arise
because the investor is severally liable for all
or part of the liabilities of the associate.

DISCLOSURE TO NOTES TO FINANCIAL STATEMENTS cont

PFRS for SMEs

Full PFRS
Reasons why an associate is not
accounted for using the equity
method
Summarized financial information
of associates not accounted for
using the equity method
Share of any discontinued
operations of associates (separately
presented)
Share of changes directly
recognized in associates equity
Share of contingent liabilities
incurred jointly with other investors
Any contingent liabilities that may
arise because the investor is
severally liable for all or part of the
liabilities of the associate.

INVESTMENTS PROPERTY

DEFINITION OF INVESTMENT PROPERTY

PFRS for SMEs

Investment property is a property (land
or building, or part of a building, or
both) held by the owner or by lessee
under a finance lease to earn rentals or
for capital appreciation or both.
A property interest held for use in
the production or supply of goods or
services or for administrative purposes
is not an investment property.
[IFRS for SMEs 16.1]

Full PFRS
Same as IFRS for SMEs. Accounting
result likely to be the same.
[IAS 40.5]

INITIAL MEASUREMENTS

PFRS for SMEs

The cost of a purchased investment
property is its purchase price plus
any directly attributable costs such as
professional fees for legal services,
property transfer taxes and other
transaction costs. Borrowing costs are
recognised as an expense.
[IFRS for SMEs 16.5, 25.2]

Full PFRS
Similar to IFRS for SMEs except for
borrowing costs that are directly
attributable to the acquisition,
construction or production of a
qualifying asset are required to be
capitalised as part of the cost of that
asset.
[IAS 40.20-40.24]

SUBSEQUENT MEASUREMENTS

PFRS for SMEs

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.
[IFRS for SMEs 16.7-16.8]

Full PFRS
Management may choose as its
accounting policy to carry all its
investments properties at fair value or
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.
[IAS 40.30]

FAIR VALUE

PFRS for SMEs

Gains and losses arising from changes
in the fair value of investment property
are recognised in profit or loss.
[IFRS for SMEs 16.7]

Full PFRS
Same as IFRS for SMEs.
[IAS 40.33-40.55]

FAIR VALUE CONTINUATION..

PFRS for SMEs

Full PFRS

When the fair value of the IP is no

longer available without undue cost or
effort, the IP becomes PPE. This is a
change in circumstance, hence does not
constitute a change in accounting policy.

An entity may only account for IP at

cost in exceptional cases, where an
entity acquires IP, or when the existing
property first becomes IP after a change
in use, and the fair value of the property
cannot be reliably determined on a
continuing basis

COST MODEL

PFRS for SMEs

Full PFRS

The cost model is consistent with the

treatment of property, plant and
equipment (PPE). Investment properties
are carried at cost less accumulated
depreciation and any accumulated
impairment losses.
[IFRS for SMEs 16.8

Similar to IFRS for SMEs; however, full

IFRS refers to IAS 16, Property plant
and equipment.
[IAS 40.56]

RESIDUAL VALUE

PFRS for SMEs

The residual value of IP not capable of
being measured reliably without undue
cost or effort, and therefore accounted
for as PPE must be estimated and
considered when depreciating
Re-assessment is only applicable when
there is an indication of changes in
residual value, depreciation method, or
useful life

Full PFRS
The residual value of IP not capable of
being measured reliably without undue
cost or effort, and therefore accounted
for as PPE must be deemed zero
Annual re-assessment of the residual
value, depreciation method, or useful
life of an item of PPE is required.

MIXED USED

PFRS for SMEs

Mixed-use property should be separated
between investment property and PPE,
except where to do so would entail
undue cost or effort

Full PFRS
Portions of the property are only
accounted for separately if they can be
sold or leased out under finance lease
separately

SELF CONSTRUCTED INVESTMENT PROPERTY

PFRS for SMEs

Self-constructed IP to be classified as
PPE while under construction and IP
when ready for use

Full PFRS
Building under construction that is
intended as IP shall be classified as IP

TRANSFER

PFRS for SMEs

Transfer to or from investment
properties applies when the property
meets or ceases to meet the definition
of an investment property.
[IFRS for SMEs 16.9]

Full PFRS
IFRS includes further guidance on the
situations when a property can be
transferred to or from the investment
property category.
[IAS 40.57]

BORROWING COST

PFRS for SMEs

Borrowing costs for PPE are expensed
outright

Full PFRS
Borrowing costs for PPE are capitalized

ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEs

Full PFRS
Extensive guidance on transfers to and
from investment property.
Disposals.
Inability to determine fair value
reliably.

DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEs

Methods of determining the FV and
significant assumptions applied
The extent to which the FV was
determined by a qualified independent
valuer
Existence of restrictions on the
realizability of investment property
Contractual obligation to purchase,
construct, develop or maintain
investment property

Full PFRS
Criteria to distinguish between investment
property and owner-occupied property and
inventory
Methods, significant assumptions to determine
fair value
Extent to which independent valuer involved and
any adjustments to the valuation obtained
Rental income
Direct operating expenses
from investment property generating rental
income
from vacant investment property
Material contractual obligations, including
repairs, maintenance
Comparative information for all disclosures

DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS cont..

PFRS for SMEs

Full PFRS

An entity shall disclose a reconciliation of

the carrying amount of investment property,
showing separately:
Additions
FV adjustments
Transfers
Others

Fair value model

reconciliation
information on property for which fair
value cannot be determined
whether properties held under operating
leases have been classified as
investment property
Cost model
reconciliation
fair value, or
information on property for which fair
value cannot be determined

End of Presentation

Revaluation as Deemed Cost

EXEMPTIONS
An entity may elect to use a :previous accounting

policy revaluation of an item of property, plant, and

equipment, an investment property, or an
intangible asset at, or before, the date of transition
as its deemed cost at the revaluation date.

INTERPRETATIO
The carrying amount
N:

of the revaluated asset

becomes the initial measurement amount on the date
of transition.
If the valuation was done before the date of
transition, adjustments, such as depreciation, may be
required.