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Finals Module Part 1
Finals Module Part 1
Finals Module Part 1
BLUE NOTES
58 L ENTITIES
Entities Medium-sized S
INTRODUCTION
ACCOUNTING CHANGES
PFRS for SMEs and Full PFRS (PAS 8) have the same If the PFRS for SMEs specifically addresses a transaction,
provisions and requirements with respect to the other event or condition, the SME shall apply the PFRS for
following: SMEs.
a. Selection of accounting policies However, the SME need not follow a requirement of the
b. Consistency of accounting policies PFRS for SMEs if the effect of doing so would not be
c. Changes in accounting policies material.
d. Changes in accounting estimates
e. Correction of prior period error
For SMEs, if there is no relevant guidance, management Under Full PFRS, in addition to the hierarchy of guidance
shall consider the following sources in descending order: for an SME, management may consider the following:
a. The requirements and guidance in PFRS on similar a. Most recent pronouncement of other standard setting
and related issues bodies
b. The definition, recognition criteria and b. Other accounting literature
measurement of assets, liabilities, income and c. Accepted industry practice
expenses
INVENTORIES
PFRS for SMEs and Full PFRS have practically the same provisions related to definition, measurement, cost of purchase,
cost of conversion, other cost and cost formulas for inventories.
REVENUES
PFRS for SMEs and Full PFRS share the same principles for the recognition of revenues from sale of goods, rendering of
services, interest, royalties, dividends and other significant type of revenues.
INVESTMENT IN ASSOCIATE
Methods of accounting for investments in associate
PFRS for SMEs Full PFRS
Can choose among the three method below to apply Only the equity method is allowed to be used.
for the entire investments:
a. Cost model
b. Equity method (Same w/ Full PFRS
c. Fair value model
INVESTMENT PROPERTY
PFRS for SMEs Full PFRS
On Subsequent Fair Value Model; Either fair value model
Measurement or cost model
if FV cannot be
measured reliably,
Cost-depreciation-
impairment model
Full PFRS and PFRS for SMEs have the same definition of property, plant and equipment and provide the same initial
measurement of an item of property, plant and equipment.
PFRS for SMEs Full PFRS
All items of PPE are subsequently measured at cost less An entity shall choose the cost model or revaluation
accumulated depreciation and any accumulated model as its accounting policy to an entire class of PPE.
impairment losses only.
They are same with respect to other matters related to PPE, such as depreciation method, useful life, residual value,
depreciation of significant components, impairment and derecognition.
It does not address noncurrent asset held for sale. A It addresses noncurrent asset held for sale.
plan to dispose of an item of PPE is an indicator of
impairment that triggers the calculation of the asset’s
recoverable amount for the purpose of determining
whether asset is impaired.
GOVERNMENT GRANT
PFRS for SMEs Full PFRS
A government grant is recognized when the conditions Government grant is recognized when there is a
are actually satisfied. reasonable assurance that the entity will comply with
the specified conditions.
It does not allow an entity to match the grant with the A government grant is recognized as income over the
expense for which it is intended to compensate or the periods necessary to match them with the related costs
cost of the asset that is used to finance. for which they are intended to compensate.
The government grant is a deferred income until the The government grant related to asset may be treated
conditions are actually satisfied. either as deferred income or a reduction in the carrying
amount of the asset.
BORROWING COSTS
PFRS for SMEs Full PFRS
An SME shall recognize all borrowing costs as expense of Borrowing costs that are directly attributable to the
the period when incurred. There is no capitalization of acquisition, construction or production of a qualifying
interest even if the interest is directly attributable to the asset shall be capitalized as part of the cost of the asset.
acquisition, construction or production of qualifying Borrowing costs that are not directly attributable to a
asset. qualifying asset shall be expensed when incurred.
It does not require any additional disclosure.
INTANGIBLE ASSETS
PFRS for SME Full PFRS
All research and development costs are expense when Research costs are expensed when incurred. However,
incurred. development cost may be capitalized when specific
criteria are met, particularly when technological
feasibility has already been established.
Measured subsequently using cost model only Cost model or revaluation model
All IA including goodwill, are amortized. IAs with finite life are amortized while IA with indefinite
life are not amortized but tested for impairment.
IAs are tested for impairment when there is an IAs with a finite useful life are tested for impairment
indication that the IA may be impaired. when there is an indication that the IA may be impaired.
IAs with indefinite useful life are tested for impairment
annually and when there is an indication that the IA may
be impaired.
IMPAIRMENT OF ASSETS
PFRS for SME Full PFRS
Full PFRS and PFRS for SMEs are practically the same with respect to the following:
a. Recognition and measurement of impairment loss
b. Definition of fair value less cost to sell and value in use
c. Internal and external indicators of impairment
d. Reversal of impairment
Assets, including goodwill, are tested for impairment Asset with a finite useful life are tested for impairment
when there is an indication that the asset may be when there is an indication that the asset may be
impaired. impaired.
However the following asset are tested for impairment
annually and when there is an indication that the asset
may be impaired:
a. Goodwill
b. Intangible assets with an indefinite useful life or
an intangible asset not yet available for use.
PROVISIONS AND CONTINGENCIES
There are no significant differences between PFRS for SMEs and full PFRS with respect to provisions and
contingencies.
The PFRS for SMEs and full PFRS share the same principles for accounting and reporting provision and for disclosing
contingent liabilities and contingent assets.
LEASES
The PFRS for SMEs and Full PFRS are practically the same with respect to the accounting and reporting for leases.
The PFRS for SMEs applies to all leases, except the following:
Leases in the exploration industry
Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.
Investment property
Biological assets
Leases that could result in a loss to either party as a result of contractual terms that
assets, changes in foreign exchange rate or a default by one of the counterparties
are unrelated to changes in the price of leased
Onerous operating leases
EMPLOYEE BENEFITS
PFRS for SME Full PFRS
Actuarial gains and losses are recognized immediately in Actuarial gains and losses are recognized immediately in
full in either P/L or OCI full in OCI
The projected unit credit method is used in measuring The projected unit credit method must be used in
the defined benefit liability if the information that is measuring the defined benefit liability.
needed to make such a calculation is already available or
can be obtained without undue cost or effort.
All changes in the fair value of the plan assets are Interest income on plan assets is recognized in P/L.
recognized in P/L. Actual return on plan assets less interest income is
recognized in OCI
Full PFRS and PFRS for SMEs share the same principles for the recognition and measurement of the following:
a. Short-term employee benefits
b. Defined contribution plans
c. Other long-term employee benefits
d. Termination benefits
INCOME TAX
PFRS for SMEs share the same accounting principles with regards to accounting income tax except the following:
An SME shall not recognize a deferred tax asset or liability for temporary differences associated with unremitted
earnings from foreign subsidiaries, branches, associates and joint ventures to the extent that the investment is
future.
essentially permanent in nature, unless it Is apparent that the temporary differences will reverse in the foreseeable
An SME shall not recognize a deferred tax liability for temporary differences associated with initial recognition of goodwill.
Valuation allowance is recognized for a deferred tax The concept of valuation allowance is not applicable.
asset.
SME shall not recognize a deferred tax asset or liability Under Full PFRS, the same prohibition applies but it is
for temporary differences associated with unremitted applicable to all investment in subsidiaries, branches,
earnings from foreign investments in subsidiaries, associates and joint ventures, whether domestic or
branches, associates and joint venture to the extent that foreign.
the investments are essentially permanent in duration.
SHARE-BASED COMPENSATION
All principles are substantially the same between Full PFRS and PFRS for SMEs except that under the latter,
share options must be measured at fair value on the date of grant.
PFRS for SMEs and full PFRS practically have the same principles for the recognition and measurement of biological
assets and agricultural produce.
PFRS for SMEs shall subsequently measure the asset Under full PFRS, the asset shall be measured using
using the cost model only. either cost or fair value model
Full PFRS and PFRS for SMEs have the same provision on the recognition and measurement of a service concession.
PFRS for SMEs and full PFRS are the same in all aspects of accounting for an entity whose functional currency is the
currency of a hyperinflationary economy.
Note: The PFRS for SMEs does not establish an absolute rate at which hyperinflation is deemed to arise. Hyperinflationary condition is a
matter of judgment.
ADVANCE ACCOUNTING
Definition:
Joint controlled entity involves the establishment of an entity in which each venturer has an interest.
Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is
subject to joint control.
Joint controlled operation involves the use of the assets and other resources of the venturers rather than the
establishment of an entity.
Joint controlled asset involves the joint control and often the joint ownership by the venturers of one or more assets
contributed to or acquired for the purpose of the joint venture.
Combined FS are single set of FS of two or more entities controlled by a single investor.
Functional currency is the currency of the primary economic environment in which the entity operates.
Presentational currency or measurement currency is the currency in which the FS are presented.
Business combination is the bringing together of separate entities or businesses into one reporting entity.
Special purpose entity (SPE) is an entity created to accomplish a narrow objective like to effect a lease, to undertake
research and development activities or to securitize financial asset.
Accounting for a subsidiary acquired with the intention of selling or disposing of it within one year.
Either:
a. at Fair value(FV) which changes in FV recognized in profit or loss, if the FV can be measured reliably.
b. at cost less impairment loss, if the FV cannot be measured reliably.
Accounting for investment in subsidiaries, jointly controlled entities and associated in separate FS
a. At cost less impairment
b. at Fair value, with the change in FV recognized in P/L.
Identifies three type of joint venture, namely joint A joint arrangement is classified either as joint
controlled operation, JC asset and JC entity operation or joint venture.
All investment in JC entities are accounted for using the The investment in joint venture shall be accounted for
cost, equity or the fair value model using the equity method only
Transaction cost are included in the cost of combination Cost are expense immediately
Goodwill is amortized over its useful life which is Amortization of goodwill is not permitted
presumed to be 10 years if the entity is unable to make a
reliable estimate of the useful life