CHAPTER 24: SME’s DEFINITION

Problem 24-1

1. D
Explanation: The International Accounting Standards Board defines small and medium-sized
entities or SMEs as entities that:
a. Do not have public accountability, and
b. Publish general purpose financial statements for external users
2. A
Explanation: The International Accounting Standards Board defines small and medium-sized
entities or SMEs as entities that:
a. Do not have public accountability, and
b. Publish general purpose financial statements for external users
3. D
Explanation: An entity has public accountability if:
 The debt or equity instruments of the entity are traded in a public market
 The entity is in the process of issuing debt or equity instruments for trading in public
market, for example, domestic or foreign stock exchange, over-the-counter market, local
and regional market
 The entity holds assets in fiduciary capacity for a broad group of outsiders as one of its
primary business

Based on the information above only letter d is not publicly accountable

4. D
Explanation: The IASB developed the Standards from full IFRS Accounting Standards. The
Standard was based on the 1989 Framework for the Preparation and Presentation of Financial
Statements (1989 Framework) and the principles and requirements in full IFRS Accounting
Standards.

Problem 24-2

1. D
Explanation: The Philippine Securities and Exchange Commission defines SME as an entity:
 With total assets between P3,000,000 and P350,000,000 or with total liabilities between
P3,000,00 and P250,000,000
 That is not required to file financial statements under SRC Rule 68.1
The SRC Rule 68.1 pertains to listed entities or entities whose securities are traded in an
exchange market, and entities with assets of at least P50,000,000 and have 200 or more
holders each holding at least 100 shares of a class of equity securities.
 That is not in the process of filing financial statements for the purpose of issuing any
class of instruments in a public market.
  That is not a holder of secondary license issued by a regulatory agency such as bank (all
types of banks), an investment house, a finance company, an insurance company,
securities broker or dealer, a mutual fund and pre-need company
 That is not a public utility.
2. D
Explanation: It was defined by the SEC that an SME is one that is not a holder of secondary
license issued by a regulatory agency such as bank (all types of banks), an investment house, a
finance company, an insurance company, securities broker or dealer, a mutual fund and pre-
need company

3. A
Explanation: Micro-business entities are entities whose total assets or total liabilities are below
the P3,000,000 floor threshold.
4. C
Explanation: If an SME that uses the PFRS for SMEs in a current year breaches the floor and
ceiling size criteria at the end of the current year, the entity shall be required to transition to full
PFRS in the next year if the ceiling threshold is breached or another acceptable accounting basis
if the floor threshold is breached. This transition must be made provided the event that caused
the change is considered significant and continuing.
5. A
Explanation: As a general rule, 20% or more of total assets or total liabilities would be
considered significant.

Problem 24-3

1. B
Explanation: First annual financial statements that conform with IFRS for SMEs is what a First-
time adopter of IFRS for SMEs present, regardless of whether the previous accounting
framework was full IFRS or another set of generally accepted accounting principles.
2. C
Explanation: The date of transition to IFRS for SMEs is the beginning of the earliest period for
which full comparative information is presented in accordance with IFRS for SMEs in the first
annual financial statements that conform with IFRS for SMEs
3. C
Explanation: The opening statement of financial position is the statement of financial position
on the date of transition to PFRS for SME’s
4. B
Explanation: In the opening statement of financial position, a first-time adopter shall:
 Recognize all assets and liabilities whose recognition is requires by PFRS for SMEs
 Not recognize as assets or liabilities if the PFRS for SMEs does not permit such
recognition
 Reclassify items that it recognized under the previous accounting framework as one
type of asset, liability or component of equity, but a different type of asset, liability or
equity under PFRS or SMEs
 Apply PFRS for SMEs in measuring all recognized assets and liabilities.