PFRS for Micro, Small and Medium Entities (MSMEs)

Introduction
The FRSC approved on October 13, 2009, the adoption of IFRS for Small and Medium-Sized Entities
(SMEs) issued by the IASB as Philippine Financial Reporting Standards for Small and Medium–sized
Entities or PFRS for SMEs.
The SEC in its meeting on December 3, 2009, also resolved to adopt the PFRS for SMEs as part of
its rules and regulations under Securities Regulation Code Rule 68.
Revisions were made on August 19, 2019, under the (Revised SRC Rule 68 (Links to an external
site.))

Definition of SMEs ( IASB)

The IASB defines Small and Medium-sized Entities or SMEs as entities that:

• do not have public accountability and

• publish general purpose financial statements for external users.

Public Accountability
An entity has public accountability if:

• Its debt or equity instruments are traded in a public market or it is in the process of issuing
instruments for trading in a public market. (listed entities)
o Examples: domestic or foreign stock exchange, over-the-counter market, local
and regional market.

• It holds assets in a fiduciary capacity^ for a broad group of outsiders as one of its primary
businesses.
o Examples: banks, credit unions, insurance companies, securities dealers or
brokers, mutual funds, and investment banks.
• follows the full PFRS.

^holds and manage financial resources entrusted to them by a broad group of clients and customers not involved in the
management of the entity

General Purpose Financial Statements

• are intended to provide useful financial information to a wide range of users who are not in
the position to demand reports tailored to meet their particular needs, also known
as external users.
 MSMEs under Philippine Jurisdiction
Under Philippine Jurisdiction, the definition of MSMEs includes size criteria in terms of:

• Total Assets and

• Total Liabilities
Classification Size Criteria (Millions) Financial Reporting

Assets >350 M
Large and /or Public Entities or Full PFRS
Liabilities > 250 M

Assets > 100 M - 350 M

Medium-Sized Entities* or
Liabilities > 100 M - 250M PFRS for SMEs **

PFRS for SEs (Links to an external site.)

Assets 3M - 100M but if with foreign operations or investments

Small Entities* or shall adopt:

Liabilities 3M - 100M • full PFRS or

• PFRS for SMEs

Assets and Liabilities are can adopt

Micro Entities*
below 3M
• tax basis or
• PFRS for SEs

Classification of Business Entities according to size criteria -RSRC 68

*NOT required to file additional FS requirements under Part 2 of SEC Rule (applicable only to Public Entities)

Definition of MSMEs under the Revised Securities Regulation Code Rule 68

An entity is an MSME if:
a. its total assets and total liabilities are as described above.
b. are not required to file financial statements under Part 2 of SRC Rule 68.1: which pertains
to “Listed Entities” whose securities are traded in the exchange market, and
c. is not in the process of filing financial statements for the purpose of issuing any class of
instruments in a public market.
d. is not a holder of a secondary license issued by a regulatory agency (financial institutions) such as
:

• banks, investments houses,

• finance company, securities brokers or dealers,
• Mutual fund and pre-need company and that is not a public utility (electric, water,
communication, energy, and sewerage companies)

Exemption from PFRS for SMEs (SEC)**

Applicable to entities that meet any of the following criteria:
1. Subsidiary of a parent reporting under a full PFRS.
2. Subsidiary of a foreign parent that will be moving towards full IFRS
3. Subsidiary of a foreign parent that has been applying the standards for the non publicly
accountable entity for local reporting purposes and is considering moving to full PFRS to align its
policies to the expected move of its foreign to Full IFRS
4. With a short-term projection that it will breach the quantitative threshold (assets and liabilities) set
in the criteria for SMEs, which is expected to have a significant and continuing effect. = 20% or more
of total assets or total liabilities
5. Part of a group, as a significant joint venture or associate reporting under full IFRS.
6. It is a branch office of a foreign entity reporting under full IFRS.
7. With concrete plans to conduct an initial public offering within the next 2 years.
8. With a subsidiary that is mandated to report under full PFRS.
9. That has been preparing financial statements using full PFRS and has decided to liquidate its
assets.
**disclosed in the notes

First-time Adoption of PFRS for SMEs

• A first time-adopter of PFRS for SMEs is an entity that presents the first annual F/S that
conform with PFRS for SMEs (regardless of whether the previous accounting framework
was full PFRS or another set of GAAP)

• The date of transition to PFRS for SMEs is the beginning of the earliest period for which full
comparative information is presented in the first annual F/S that conforms with PFRS for
SMEs.
o The PFRS for SMEs is effective for annual periods beginning on or after Jan. 1,
2010
 o Example: 1st FSs-PFRS for SME's - 12/31/2020; Date of transition - 01/1/2019

• A first-time-adopter requires full retrospective application of PFRS for SMEs at the

reporting date for the entity’s first annual F/S. The adjustments shall be made directly
in Retained Earnings or another category of equity.

• Mandatory exceptions to the retrospective application for the following transactions:

A first-time adopter does not change the accounting followed previously for any of the following
transactions:
1. Derecognition of financial assets and financial liabilities
2. Hedge accounting
3. accounting estimates
4. Discontinued operations and
5. measuring non-controlling interest.

The SME shall make the following reconciliations in the F/S:

• Reconciliation of Equity under the previous reporting framework to PFRS for SMEs.

a. Transition date
b. End of the latest period presented in the entity’s most recent annual F/S

• Reconciliation of the profit or loss under the previous reporting framework to PFRS for
SMEs for the same period.

The transition from PFRS for SMEs to full PFRS

• If during the current year the SME breaches the floor and ceiling criteria at the end of the
current year.
• The change should be significant and continuing. = 20% or more of total assets or total
liabilities

Qualitative Characteristics

• Understandability – financial information must be comprehensible or intelligible if it is to

be most useful. (Users must have a reasonable knowledge of business and economic
activities)
• Relevance – capacity of the information to influence economic decisions.
 • Materiality- information is material if its omission or misstatement could influence the
economic decision that users make on the basis of the financial information about the
entity.
• Reliability – the quality of information must be free from bias and error and faithfully
represents the financial statements.
• Substance over form – if there is a conflict between the economic substance and its legal
form. The economic substance shall prevail.
• Prudence –exercise care and caution when dealing with uncertainties in the measuring
process (conservatism).
• Completeness- relevant information should be presented in a way that facilitates
understanding and avoids erroneous implications. (Notes)
• Comparability – ability to note points of likeness and differences. (within or across entities)
• Timeliness – information must be available in time to influence economic decision.
• The balance between benefit and cost-benefit derived from the information should
exceed its costs.

General Features of the Financial Statements

Full PFRS and PFRS for SMEs have the same provisions on the general features in the preparation
of financial statements such as:

• Fair presentation and compliance with PFRS for SMEs must be explicitly stated in the
notes.
• Going Concern - the entity is continuing in operation indefinitely
• Accrual basis -income is recognized when earned; expenses are recognized when
incurred.
• Materiality and aggregation – an entity shall present separately :
1. each material class of similar items
2. items of dissimilar nature or function unless they are material
• Offsetting – there shall be no off-setting against :
1. Assets and Liabilities
2. Income and expenses unless required by another PFRS.
• Frequency of reporting – at least annually, but if there is a change in the end of the
reporting period, an entity shall disclose the:
o period covered by the F/S
o reason for using a shorter or longer period
o the fact that amounts presented in the F/S are not comparable
• Comparable information – shall be disclosed with respect to
o amounts reported in the previous and current period
o narrative and descriptive information (relevant to understanding current
period’s F/S)
• Consistency of presentation – accounting methods and practices applied shall be on a
uniform basis from one period to another. A change in the presentation and classification of
items is allowed only when:
o it is required by another PFRS
o when the change will demonstrate a more appropriate presentation and
classification.
The Complete Set of Financial Statements for MSE
• Statement of Financial Position
• A single Statement of Comprehensive Income (with separate sections for profit or loss and
other comprehensive income
• OR
a separate Income statement and a separate Statement of Comprehensive Income
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to the financial statements

Additional Information in the F/S

That should be displayed prominently:

1. Name of the entity and any change in its name

2. Whether the F/S covers the individual entity or a group of entities
3. The date of the end of the reporting period and the period covered by the financial
statements.
4. The presentation currency.
5. The level of rounding, if any, used in presenting amounts in the financial statements

Comparison with Full PFRS

• a single statement of income and retained earnings is not allowed under full PFRS
• under full PFRS, the 3rd statement of financial position (not mandatory for SMEs) as at
the beginning of the earliest comparative figure shall be prepared when an entity:
o applies an accounting policy retrospectively
o makes a retrospective statement
o reclassifies items in its FSs

The Statement of Financial Position for MSEs

• may still be called a "balance sheet"

There is no prescribed format . However, the following lines should be presented at the minimum:
1. Cash and Cash equivalents
2. Trade and Other receivables
3. Financial Assets, excluding amounts shown under 1 and 2 and Investment in Associates
4. Inventories
5. Property, Plant, and equipment
6. Investment Property at carrying value and at Fair Value through Profit or Loss
7. Intangible Assets
8. Biological assets at carrying value and at Fair Value through Profit or Loss
9. Investment in Associates
10. Investment in Joint Ventures (not included in Full PFRS)
11. Trade and other payables
12. Financial liabilities excluding amounts shown in # 10 and current tax asset and current tax
liabilities
14. Current tax assets and current tax liabilities
15. deferred tax assets and deferred tax liabilities (always classify as non-current)

16. Provisions
17. Non-controlling interest
18. Equity attributable to the owners of the parent.

Additional line items or headings shall be presented when such presentation shall be relevant to the
understanding of the entity’s Statement of Financial Position.

Exempted
The following items are not to be presented under PFRS for SMEs:

• Total of assets classified as held for sale

• Total Liabilities included in a disposal group classified as held for sale

Additional line items or headings shall be presented when such presentation shall be relevant to the
understanding of the entity’s Statement of Financial Position.

Differences in Presentation

• The 3rd statement of Financial Position is for Full PFRS only***

• Investment in Joint Ventures is for MSEs only.
• MSEs have free choice of presentation of the subclassifications of line items presented
either in the Statement of Financial Position or in the Notes.

A third statem ent of financial positi on is req uired to be pr esented if the entity retr os pec tively applies an acc ounti ng policy, restates i tems , or recl assifi es items, and those adjustm ents had a m aterial effect on the i nformati on in the statement of fi nancial positi on at the beginning of the com parativ e period.
A third statem ent of financial positi on is req uired to be pr esented if the entity retr os pec tively applies an acc ounti ng policy, restates i tems , or recl assifi es items, and those adjustm ents had a m aterial effect on the i nformati on in the statement of fi nancial positi on at the beginning of the com parativ e period.

*** required to be presented if the entity retrospective applies:

• an accounting policy
• restates or reclassifies items
• or adjustments

that had a material effect on the information in the Statement of the Financial Position at the
beginning of the comparative year.
Statement of Comprehensive Income for MSEs
Includes the following:

• Components of Profits or Loss (Total Income less Expenses)

• Components of other Comprehensive Income
o Gain on loss in translation of foreign exchange
o actuarial gain or loss on defined benefit plan
o Change in fair value of hedging instrument that was effective in offsetting
expected cash flows of the hedged item.
• Revaluation surplus from the revaluation of Property, Plant, and Equipment

Presentation of Comprehensive Income

Either of the following:

• A single statement of comprehensive income - presents all items of income and expenses
recognized in the period including components of other comprehensive income.

• Two Statements –is an income statement which presents separately:

1.
o all items of profits or loss
o all items of comprehensive income

Note:

• A change from a single statement approach to the two (2) statement approach is
a “change in accounting policy”.
• PFRS for SMEs and full PFRS have the same provisions on the presentation of the
total comprehensive income

Two (2) Formats for the Analysis of Expenses

• Natural Presentation - classified according to nature

• Functional presentation -classified according to function

1.
o cost of sales
o selling expenses
o administrative expenses

Note:

• PFRS for SMEs and full PFRS have the same provisions on the analysis of expenses
by nature and by function
Line Items in the SCI

• Revenues
• Finance cost
• Share of Profit or Loss of Associate and Joint venture
• Income tax expense
• Single amount comprising discontinued operations
• Profit or loss ( excluding other comprehensive income)
• Each component of other comprehensive income (classified by nature)
• Share in other comprehensive income of associate and joint venture
• Comprehensive Income

Note:

• PFRS for SMEs and full PFRS have practically the same line items in the statement
of Comprehensive Income

The MSE shall disclose separately the following items in the SCI:

• Profit or loss for the period attributable to non-controlling interest and owners of the parent.
• Total comprehensive income attributable to non-controlling interest and owner's of the
parent.

Note:

• No items of income or expenses shall be presented as extraordinary.

• Correction of errors and changes in accounting policies are presented as retrospective
adjustments of prior periods and not in profit or loss.

Statement of Changes in Equity

Includes the following:

• Total comprehensive income for the period

• For each component of equity
o the effects of retrospective application (changes in accounting policies)
o the retrospective restatement (correction of prior period errors)
• For each component of equity – a reconciliation between the carrying amount and the end
period, separately disclosing changes in:

1.
o Profit or loss
o each item of comprehensive income
o the amount of investments by and dividends and other distribution to owners
Note:
PFRS for SMEs and full PFRS have the same provisions in the preparation and presentation of the
Statement of Changes in Equity.

ABC Co.
Consolidated statement of changes in equity
As of December 31, 2020

If the only changes in equity during the periods presented arise from:

• profit or loss
• payment of dividends, correction of prior period errors and
• changes in accounting policies

PFRS for SMEs allows the entity to present a combined statement of comprehensive income and
retained earnings

Statement of Income and Retained Earnings

Includes the following:

1. Retained earnings, beginning

2. Dividends declared and paid or payable during the period
3. Restatement of R/E for correction of prior period errors
4. Restatement of R/E for changes in accounting policy
5. Retained earnings, ending

ABC Co.
Statement of Comprehensive Income and Retained Earnings
For the year ended 31 December 2020

Statement of Cash Flows

• Provides information about the changes in cash and cash equivalents for a reporting period
which separately shows the changes in three (3) activities:
o Operating
o Investing
o Financing
 • Cash flows from operating activities may be presented using two (2) methods:
o direct and
o indirect method

• Cash flows from investing and financing activities are reported separately :
o using the direct method only (gross cash receipts and gross cash payments)

Note:
PFRS for SMEs and full PFRS have the same provisions in the preparations and preparation of the
Statement of Cash Flows

Notes to the Financial Statements for MSEs

• provide a narrative description,
• provide a disaggregation of items presented in the financial statements
• provides information about items that do not qualify for recognition

The entity shall cross-reference each item in the financial statements to any related information in the
notes.

Structure of the Notes

• shall present information about the :

•
o basis of preparation of the F/S and
o the accounting policies applied
o Disclose information required by the PFRS for SMEs that is not presented
elsewhere in the F/S
• shall provide information that is not presented elsewhere in the F/S but is relevant to the
understanding of the information.

Order of Presenting the Notes

An MSE shall present the notes in the following order:

1. Statement of Compliance with PFRS for SMEs

2. Summary of Significant Policies Applied (accounting policies and accounting estimates)
3. Supporting information for items presented in the Financial Statements in the sequence in
which each line item is presented in the financial statements
4. Any other disclosures –basic information about the entity.
Note:

• PFRS for SMEs and full PFRS are the same in the matter of presenting the notes to the
Financial Statements
• PFRS for SMEs and full PFRS shall share the same:
o principles with respect to related party disclosures
o provisions for accounting and reporting events after the end of the reporting
period.
• the MSE shall disclose the date of authorization for the issue of the Financial Statement
and who gave the authorization.

Significant Differences in Accounting Treatments from Full

PFRS

PFRS SMEs:
1. Investment Property

• measured at Fair Value through Profit or Loss (FVPOL) without undue cost or effort
• includes interest in leased land and /or building held for rentals to others which the entity
chooses to classify as an investment property.
• All other investment property shall be measured at depreciated cost less impairment losses
and shall be classified as Property, Plant, and Equipment.

2. Property, Plant and Equipment, and Intangible Assets

• shall be measured using the cost model ( cost less accumulated depreciation and
accumulated impairment)
• the revaluation model is not applicable for an MSE.
• internally-generated intangibles such as research and development costs are expensed.
• All intangible assets including goodwill are subject to amortization.
• Goodwill and other intangibles with undetermined useful life are amortized over 10 years.

3. Biological Assets

• measured at Fair Value less Cost to Sell (reliably determined)

• all other biological assets shall be measured at Cost model (Cost less Accumulated
depreciation and impairment).
• Biological assets measured at FV shall be shown separately from the Cost model on the
face of the Statement of Financial Position.

4. Investment in Associates and Investment in Jointly Controlled entities – shall be measured

using the following :

• Cost model – for investments with no published price quotations and for investments for
which it is impracticable to measure reliably the fair value without undue cost or effort.
 o investor shall measure at Cost less accumulated Impairment losses
o dividends are reported as income.
• Fair value model – for investments with published price quotations and whose fair value
can be determined without undue costs or effort. (Purchase price)
o investment is initially measured at the purchase price and the transaction cost is
not capitalized.
o Change in fair value during the reporting period is taken to profit and loss
o dividends are reported as income.
• Equity model – investment is initially measured at the purchase price plus transaction
costs and changes proportionately with the change in equity of the associate
o Income/Carrying value of the investment is further adjusted for amortization of
goodwill and fair value adjustments.
o Dividends received from the associate- reduce the carrying amount of the
investment
o Impairment loss (taken to profit and loss)-decrease the investment balance.

5. Borrowing Cost – charged to expense

6. Defined Benefit Plans for employees'

• actuarial gains or losses shall immediately be recognized either as part of profit or loss or
other comprehensive income.
• past service cost shall immediately be recognized in profit or loss (as a component of
employee benefits expense)

7. Government Grant- recognized at fair value only when the conditions for the grant are actually
satisfied.
7. Retrospective application of changes in accounting policies and correction of prior period errors -
does not require an entity to present a statement of financial position at the beginning of the earliest
comparative period presented
8. Earnings per share – is not required to be presented on the face of the financial statements.

PFRS for SMALL ENTITIES

Even though PFRS for SMEs was considered the “simpler” framework (as opposed to full PFRS),
PFRS for Small Entities was designed to further simplify it for Small and Micro-businesses.

SIMILARITIES WITH PFRS FOR SMEs

PFRS for Small Entities and PFRS for SMEs, however, take off from the same set of general
principles, which include:
• Key concepts, such as :

• the “recognition of assets, liabilities, income, and expenses,”

• accrual basis of accounting and
• offsetting.
• The requirement to “present fairly the financial position, financial performance and cash flows of an
entity.”
• The key principles for financial statement presentation such as :

• the entity’s ability to continue as a going concern,

• consistency of presentation and classification of financial statement items from period to
period,
• disclosure of comparative information, materiality and aggregation and
• disclosures on accounting policies.

• Certain provisions of PFRS for SMEs such as:

• those for related party disclosures,

• changes in accounting estimates, and
• subsequent events, among others.

KEY DIFFERENCES FROM PFRS FOR SMES

PFRS for Small Entities

• does not have the concept of other comprehensive income and does not require entities
to present a statement of comprehensive income.
• does not provide for a list of minimum items to be presented in the statement of income,
(new financial reporting framework less prescriptive than PFRS for SMEs)
• does not require the disclosure of significant accounting judgments and estimates.
• don’t require small entities to restate the prior year’s balances, for changes in accounting
policies or correction of prior period errors,
o Any impact from the change in accounting policy or correction of errors will only
be reflected in the opening balances of the current year’s financial statements.

Accounting Treatments under PFRS for Small Entities

• Inventories are to be subsequently valued at the lower of cost and market value (i.e., the
probable selling price to willing buyers as of reporting date),
• Investment properties can be carried either at cost or at fair value, depending on the policy
choice made by the entity.
• There is no concept of "finance lease". All lease receipts (payments) are recognized as
income (expense)as earned (incurred).
• There is no accounting for onerous contracts (Links to an external site.). (Links to an
external site.)
• For equity-settled share-based payment transactions, an entity shall measure the goods or
services received, and the corresponding increase in equity, with reference to the net
asset value of the equity instruments, granted.
o Net asset value is derived by dividing the total assets of the entity less
any liabilities, by the number of shares outstanding at the measurement date.
• For defined benefit plans, an entity is required to use the accrual approach in calculating
benefit obligations in accordance with Republic Act (RA) 7641, The Philippine Retirement
Pay Law, or company policy (if superior than RA 7641).
 o The accrual approach is applied by calculating the expected liability as
of reporting date using the current salary of the entitled employees and the
employee's years of service, without consideration of future changes in salary
rates and service periods.
• Entities are given a policy choice of not recognizing deferred taxes in the financial
statements.
• Biological assets can be carried either at cost or at the current market price, depending on
the policy choice made by the entity.
• Prior period adjustments are just captured in the opening balance of the current year, but
with appropriate disclosures.

FULL SUPPORT FROM REGULATORS

• The new framework had drawn the support of the Board of Accountancy, which approved
the framework on 20 February 2018.
• The SEC has also shown its full support behind this initiative to ease the financial reporting
burden on micro and small entrepreneurs.
• On March 26, through Memorandum Circular (MC) No. 5 (Links to an external site.), the
SEC officially adopted the PFRS for Small Entities as “part of the SEC’s rules and
regulations on financial reporting.”
• To facilitate such an adoption, the SEC amended Part 1 of Section 2 of the Securities
Regulation Code (SRC) Rule 68 by providing the specific criteria that entities must meet
before they can be categorized as “small entities.”
• More specifically, entities that have total assets or total liabilities between P3 million to
P100 million, do not need to meet the requirements under Part II of SRC Rule 68, are not
listed or in the process of listing, and are not secondary licensees, shall use PFRS for
Small Entities as their financial reporting framework.
• Exemptions from mandatory adoption of this financial reporting framework were also
incorporated in the same section of the amended SRC Rule 68.

EFFECTIVITY OF THE NEW FRAMEWORK

• The new financial reporting framework is effective for annual periods beginning on or after
Jan. 1, 2019.
• While early adoption is permitted and highly encouraged, small entities should take note of
the full retrospective approach required upon initial adoption.
• However, this should not hinder small entities from adopting (and even early adopting) this
new framework considering its simplified requirements and the minimal costs and effort the
adoption will entail.
• For small and micro businesses, profit margins are often quite thin, and operating the
business usually requires significant time and effort for the business owners.
• The adoption of this new framework reduces the choices for accounting treatments,
eliminates non-relevant topics, simplifies recognition and measurement methods, and
reduces disclosure requirements.
• Furthermore, on an overall basis, its usage decreases the undue cost and burden in
complying with reportorial requirements.
 • This way, small and micro-businesses can worry less about the expense and effort needed
to ensure compliance, and instead, allocate valuable resources into the business of
growing the enterprise.

PFRS for SMEs PFRS for SEs

Inventories • Inventories are measured at the • Inventories are to be
lower of cost and net realizable subsequently valued at the
value lower of cost and market value
Investment Property • Measured at Fair Value through • Can be carried either at cost or
Profit or Loss (FVPOL) without at fair value, depending on the
undue cost or effort policy choice made by the
• Includes interest in leased land entity.
and /or building held for rentals to
others which the entity chooses to
classify as an investment property.
• All other investment property
shall be measured at depreciated
cost less impairment losses and
shall be classified as Property,
Plant, and Equipment.
Defined Benefit Plans • Actuarial gains or losses shall • An entity is required to use the
for employees immediately be recognized either accrual approach in calculating
as part of profit or loss or other benefit obligations in
comprehensive income. accordance with Republic Act
• Past service cost shall immediately (RA) 7641, The Philippine
be recognized in profit or loss (as Retirement Pay
a component of employee Law, or company policy (if
benefits expense) superior than RA 7641).
• The accrual approach is applied
by calculating the expected
liability as
of reporting date using the
current salary of the entitled
employees and the
employee's years of service,
without consideration of future
changes in salary rates and
service periods.

Biological asset • Measured at Fair Value less Cost • can be carried either at cost or
to Sell (reliably determined) at the current market
• All other biological assets shall be price, depending on the policy
measured at Cost model (Cost less choice made by the entity.
Accumulated depreciation and
impairment).
 • Biological assets measured at FV
shall be shown separately from
the Cost model on the face of the
Statement of Financial Position
Investment in Use either the equity model or • Small entities can choose freely
Associates a. the cost model for investments between the cost model and the
with no published price fair value model.
quotations and measurement at
fair value is impracticable
b. The fair value model for
investments with published
quotations and fair value can be
determined reliably without
undue cost and effort
Investment in jointly Use either the equity model or • No such accounts are used, as
controlled entities a. the cost model for investments an entity with investment in
with no published price jointly controlled entities may
quotations and measurement at not qualify as small entity.
fair value is impracticable.
b. The fair value model for
investments with published
quotations and fair value can be
determined reliably without
undue cost and effort.

Under both fair value model and cost

model, dividends are reported as income
without regard to the source of
dividends.
Basic Equity • Designed as at Fair Value through • Initial measurement – at cost
investments (Neither profit or loss, for instruments with including transaction cost.
investments in published price quotations and • At reporting date, they are
associates nor Fair Value can be determined measured at the lower of cost or
investments in joint reliably without undue cost and fair value, with impairment
ventures) effort. taken to profit or loss.
• For instruments with no published
price quotations and Fair Value
can be determined only by
incurring undue cost and effort,
accounted for at cost. Subject to
impairment, which is taken in
profit or loss.
Employee Benefits Options may be exercised to treat • All employee benefits costs are
actuarial gains and losses in: taken to profit or loss, unless in
a. Profit or loss forms part of an asset account.
b. Partly in profit or loss and partly in
OCI
Leases • Accounts as finance lease when • Account for all leases as
the lease transfers substantially operating lease.
the risks and rewards of
ownership to the lessee.
Otherwise, record the lease as
operating lease (based on old PAS
16 under PFRS). However, under
operating leases, there is no
requirements to accounts for
lease payments under the
straight-line method.
Income taxes • Recognize a current tax liability if • Choice between accrual of:
the current tax payable exceeds a. Current tax only (payable or
the current tax paid at that point receivable)
in time. Recognize a current tax b. Current and deferred
asset when current tax paid income tax
exceeds current tax payable or the
entity has carried a loss forward Note: When b is opted, both the
from the prior year and this can current and deferred taxes are
be used to recover current tax in recognized in profit or loss.
the current year.
Borrowing Cots • Charged to expense • Charged to expense
Research and • Recognized as expense when • Recognized as expense when
Development costs incurred incurred
Debt Instruments • Initially recognized at transaction • Initially recognized at
price and subsequently amortized transaction price and
using the effective interest subsequently amortized using
method. the effective interest method.
• Impairment loss and reversal of • Impairment loss and reversal of
impairment are recognized based impairment are recognized
on objective evidence of based on objective evidence of
impairment and recovery, impairment and recovery,
respectively. respectively.
Intangible assets • Amortized based on • Amortized based on
whose estimated managements best estimate, but management’s best estimate,
useful life cannot be not to exceed 10 years but not to exceed 10 years
determined reliably
Disclosure • Substantially reduced • Substantially reduced
requirements
Prior period • Retrospective • Prior period adjustments are
adjustments application of changes in just captured in the opening
accounting policies and correction balance of the current year, but
of prior period errors with appropriate disclosures.
• Does not require an entity to
present a statement of financial
position at the beginning of the
earliest comparative period
presented
Property, Plant and • Shall be measured using the cost • An entity shall choose as its
Equipment model (cost less accumulated accounting policy either the cost
depreciation and accumulated model or the fair value model
impairment)
• The revaluation model is not
applicable for an MSE.
Equity-settled share- All share-based payment must be • For equity-settled share-based
based payment recognized. payment transactions, an
transactions Equity-settled: entity shall measure the goods
• Transactions with other than or services received, and the
employees are recorded at the corresponding increase
fair value of the goods and in equity, with reference to the
services received, if these can be net asset value of the equity
estimated reliably. instruments, granted.
• Transactions with employees or • Net asset value is derived by
where the fair value of goods and dividing the total assets of the
services received cannot be entity less any liabilities, by the
reliably measured are measured number of shares outstanding at
with reference to the fair value of the measurement date.
the equity instruments granted
Deferred taxes • If an asset or liability is expected • Entities are given a policy choice
to affect taxable profit if it of not
recovered or settled for its recognizing deferred taxes in
carrying amount, then a deferred the financial statements.
tax asset or liability is recognized