Mandouts

C,PA Page 1 of 13 | FAR Handouts No. 43

SMEs
REO CPA REVIEW KARIM G. ABITAGO, CPA
REAL EXCELLENCE ONLINE

SMALL AND MEDIUM SIZED ENTITIES (SMEs)

KARIM G. ABITAGO, CPA
LECTURE NOTES
BASIC CONCEPTS entities that:
defines "'small and medium-sized entities" or SMEs as
The International Accounting Standards Board
Do not have public accountability, and
Publish general purpose financial statements for external users.
An entity has public accountability if. for
or equity instruments are traded in a public market or it is in the process of issuing such instruments
Its debt
trading in public market.
outsiders as one of the primary businesses.
It holds assets in fiduciary capacity for a broad group of entities, securities dealers or brokers, mutual funds and
insurance
Tnis is typically the case for banks, credit unions,
investment banks.
as an entity:
The Philippine Securities and Exchange Commission defines medium-sized entity liabilities between P100,000,000 and
With total assets between P100,000,000 and P350,000,000, OR with total
P250,000,000. SRC Rule 68.1 pertains to "listed
That is not required to file financial statements under SRC Rule 68.1. This entities with assets of at least
entities" or entities whose securities are traded in an exchange market, and securities.
P50,000,000 and have 200or more holders each holding at least 100 shares ofa class of equity
the purpose of issuing any class of instruments in a
That is not in the process of filing financial statements for
public market.
That is not a holder of secondary license issued by a regulatory agency such as a bank (all types of banks), an
pre
investment house, afinance company, an insurance company, securities broker or dealer, a mutual fund and
needcompany.
That is not a public utility.
The Philippine Securities and Exchange Commission defines small entity as an entity:
With total assets between P3,000,000 and Pi00,000,000, OR with total liabilities between P3,000,000 and
P100,000,000.
That is not required to file financial statements under SRC Rule 68.1. This 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
P50.000.000and 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 a bank (alltypes of banks),an
investment house, afinance company, an insurance company, securities broker or dealer, a mutual fund and pre
need company.
That is not a public utility.
EXEMPTIONS FROM APPLYING PFRS FOR SMES
The Philippine SEC in a meeting on October 7, 2010 resolved to exempt from the mandatory adoption of the PFRS for
SMEs small and medium-sized entity that meets any of the following criteria:
1 It is a subsidiary of a parent reporting under full PFRS.
2. It is a subsidiary of a foreign parent that will be moving toward full lFRS pursuant to the foreign country's published
Convergence plan.
3 It is a subsidiary of a foreign parent that has been applying the standards for a non-publicly accountable entity for
local reporting purposes and is considering moving to full PFRS instead of the PFRS for SMEs.

REO CPA REVIEWPHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REO CPAREVIEW
(074) 6656774 0 0919 093 8620 [email protected]
 Page 2 of 13|FAR. Handou

KARIM G. ABITAGo
SN
REO CPAREVIEW
REAL EXCELLENCE ONLINE criteria for an SME
set inthe
the quantitative thresholds
4. It has short-term projections that show that it will breach under full PFRS.
and the breach is expected to be significant and continuing.
associate, which is reporting
5 It is part of a group, either as a significant joint venture or an
6 It is a branch office of a forign entity reporting under full IFRS.the next two years.
within
7 It has concrete plans to conduct an initial public offering
8 It has a subsidiary that is mandated to report under full PERS.
financial statements using full PERS and has decided to liguidate its assets.
9 It has been preparing
TRANSITIONS ceiling size criteria at the end of the
If an SME that uses the PFRS for SMEs in a current year breachesthe the floor and breacned or
required to transition to full PFRS in next vear if the ceiling threshold is
Current year, the entity shall be
another acceptable accounting basis if the floor threshold is breached.
the TOOr Ol
On the other hand, it an SME ceases to qualify as an
SME becauSe of its total assets or. liabilities falls below
accounting basis also in the next accounting period,
the size criteria, such entity may transition to another acceptable
unless the micro entity opts to still adopt the PFRS for SME.

MICRO-BUSINESS ENTITIES
floor threshold.
Micro -business entities are entities whose total assets or total liabilities are below the P3,000,000 preparation of financial
Micro-business entities have the option to use any of the following bases of accounting in the
statements:
a. Full PFRS
PFRS for SMEs
C. Another acceptable basis of accounting, such as income tax basis of accounting or cash basis of accounting.

COMPARISONS
FULL PFRS PFRS for SMEs PFRS for SMALL ENTITIES
CONCEPTUAL FRAMEWORK
1. Qualitative Characteristics
More detailed Less detailed Non
2. Measurement
" Historical Cost and Updated Value " Historical Cost and Fair Value Historical Cost and Fair Value
LA,WV, STNFINANCIAL STATEMENTS PREPARATION
3. Presentationof additional statement of financial position (third balance sheet)
Required to be prepared under Not applicable. Not applicable
certain circumstances
4. Presentation of statement of comprehensive income
Under PAS 1,statement of Under PFRS for SME,If an entity PFRS for Small Entities does not
comprehensive income is always has no items of other bave the concept of ofher
presented, as part of the complete Comprehensive income it may comprehensive income and does
set of financial statements, either presentonly an income statement, .not require entifies to present a
as a single or two-statement or present statement of statement of comprehensive
presentation comprehensive income in which income.
the bottom line is labelled profitor
loss
5. Components of OCI and OCL
PAS 1enumerates the following The following are the components of NOT APPLICABLE
components of OC: OCl under the PFRS for SMEs:
Changes in revaluation surplus Changes in revaluation surplus
Unrealized gain and losses on Some actuarial gains and losses

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.re0cpareview.ph REO CPAREVIEW
(074) 665 6774 00916 840 0661
[email protected]
AGO, C REO CPA REVIEW Page 3 of 13|FAR Handouts No. 43

S C
REAL EXCELLENCE ONLINE
KARIM G. ABITAGO, CPA
SMES

changes in fair values of FVOCI

investments Some changes in fair values of
Remeasurements of the net hedging instruments
defined benefit liability (asset) Some gains and losses arising
from translating the financial
Gains and losses arising from statements of a foreign operation
translating the financial statements
of a foreign operation
Effective portion of gains and
losses on hedging instruments ina
cash flow hedge
Changes in fair value of a financial
liability designated at FVPL that
are attributable to changes in
credit risk
Changes in the time value of
option when the option's intrinsic
value and time value are
separated and only the changes in
the intrinsic value is designated as
the hedging instrument
Changes in the value of the
forward element of forward
contracts when separating the
forward element and spot element
of a forward contract and
designating as the hedging
instrument only the changes in the
spot element, and changes in the
value of the foreign currency basis
spread of a financial instrument
when excluding it from the
designation of that financial
instrument as the hedging
instrument.
Minimum line items of statement of financial position
Explicitly stated under section 4 of
Explicitly stated under PAS1 PFRS for SMEs Not explicitly stated
position
7. Prescribed order of presentation of items in the statement of financial
Current-Noncurrent presentation or Current-Noncurrent presentation or
order of liquidity
Not explicitly stated
order of liquidity
8. Earnings per share
Required presentation under PAS Omittedunder PFRS for Small
Omitted under PFRS for SME
33 FOR IBUC EnTIY Entities
9. Presentation of Statement of Changes in Equity
PAS 1requires that a statement of If the only changes to equity in the If the only changes to equity in the
changes in equity shall always be current period or any comparative , Current period or any comparative
presented as part of the complete. period presented in the financial period presented in the financial
set of financial statements. statements arise from profitar statements arise from profit or
loss, payment of dividends, loss, payment of dividends,
Çorrections of prior period errors, corrections of prior period errors,

REO CPA REVIEVW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REO CPA REVIEW

(074) 665 6774 Q0916 840 0661 [email protected]

 Page 4 of 13 | FAR Hando
REO CPA REVIEW KARIM G. ABITAGo
REAL EXCELLENCE ONLINE
SN
IF AFFECIS onH THE R.E)
and changes in accaunting policy, and changes in accountingpolicy
the entity may present a single the entity may present a single
statement of income and statement of income and
retained earnings in place of retained earnings in place of
statement of changes in equity. statement of changes inequity.
10. Preparation of statement of cash flows
PAS 7 encourages the use of PFRS for SMEs does notexplicitly PFRS for Small Entities does not
direct method. stated its encouragement of the explicitly statedits encouragement
use of direct method of the use of direct method
11. Notes to financial statements
Numerous, detailed and complex Reduced and simplified Simple and minimal
With disclosures of judqments and With disclosures of judgments and No disclosures of judgments and
key estimates key estimates key estimates
REVENUE RECOGNITION
12. Recognition of revenue
PFRS 15 requires application of a PFRS for Small Entities requires a
EIVE-STEP principle for revenue PFRS for SMEs requires a simpler
recognition principle of "transfer of risk and simpler principle of "transfer of risk
rewards" for revenue recognition and reward_" for revenue
recognition
NON-CURRENT ASSET HELD FORSALE
13. Recognition and measurement of NCAHES
NCAHFS is accounted for under No similar classification are
PFRS 5. No similar classification are
provided under PERS for SMEs. provided under PFRS for Small
Entities
OPERATING SEGMENTS
14. Disclosure of Operating segments information
PERS 8 require listed entities to Since PFRSfor SMEs does not Since PFRS for Small Entities
disclose such information. apply to listed entities, it does nÍt does not apply to listed entities, it
require disclosure of such does not require disclosure of such
information. information.
INTERIM FINANCIAL REPORTING
15. Condensed financial statements
PAS 34 provides guidance in the PFRS for SMEs does not include PFRS for Small Entities does not,
preparation of condensed financial similar provisions. include similar provisions.
statements for interim reporting.
FINANCIAL INSTRUMENTS
16. Classification of financial instruments
Under PFRS 9, financial Under PFRS for SMEs, financial Under PFRS for Small Entities,
instruments are classified as either instruments are classified as either financial instruments are classified
amortized, FVOClor FVPL basic or non-basiç. as either basic or non-basjc.
Under PFRS for SMEs, examples
of basic financial instruments are:
1. Cash
2. Demand and fixed term
deposits in bank
3. Trade accounts and notes
receivable

REO CPAREVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REO CPAREVIEW
www.reocpareview.ph
(074) 665 6774 00916 840 0661 [email protected]
 43
Page 5 of 13 | FAR Handouts No.
oCPA REVIEW KARIM G. ABITAGO, CPA
REAL EXCELLENCE ONLINE SMEs

4 Loans receivable
5
6
Commercial papers
Investments in nonputtable
ordinary shares
7 Investments in
nonconvertible and
nonputtable preference
shares
8 Commitment to receive a
loan if the commitment
cannot be net settled in
cash
9 Accounts payable in local
and foreign currency
10. Loans from bank and other
third parties
Bonds and similar debt
11.
instrument
12. Loans to or from
subsidiaries or associates
that are due on demand.

17. Subsequent measurement Debt instruments - Amortized

Debt instruments - Amortized cost
FVPL- FV Cost
Equity instruments
FVOCI- FV
Publicly traded or FVcan be Equity instruments
FAC - Amortized Cost measured reliably- Fair value Publicly traded or FV can be
measured reliably- Fair value
Others - cost less impairment
Others - cost less impairment
assets to be mneasured at FVPL
18. Designation of financial PFRS for Small Entities does not
permitted to designate " PFRS for SMEs does not include
Entities are at an such option. include an such option.
financial assets to be measured
FVPL 0f doing so eliminates
accounting mismatch
INVESTMENT IN ASSOCIATE AND JOINT VENTURE

19. Choice of acCOunting policy Cost model At Cost less impairment

Equity Method
Eair value, model At Equity method
Equity method
Investment AcCount
20. Implicit Goodwill- Subsumed in
Included in the carrying amount Goodwill is recognized and sh¡ll Goodwill is recognized and shall
accounted for separately. be amortized over its estimated be amortized over its estinated
and not
Neither nor separate impairment useful life. useful life,
testing of the goodwill is permitted. If the useful life cannot be Ifthe useful life cannot be
determined, the life shall base on determined, the life shall base on
management's estimate but shall management's estimate_but shall.
not exceed 10 year_. not exceed 10 year_.
21. Difference in reporting periods
Under PAS 28, the difference between The PFRS for SME does not provide The PFRS for SmallEntities does not
the end of reporting period of the such similar provision. provide such similar provision.
associate and that of the investor shall

REO CPA REVIEW PHILIPPINES Effectiveness. Eficiency. Convenience

www.reocpareview.ph REO CPA REVIEW

(074) 665 6774 @0916 840 0661 [email protected]

 Page 6 of 13 | FAR Handout

REO CPAREVIEW KARIM G. ABITAGO,

SM
REAL EXCELLENCE ONLINE
not exceed 3 months.

INVENTORIES
22. Subsequent Measurement iDDLE GnoUni
Lower of cost and net realizable Lower of cost and net realizable Lower of cost or market yalue.
value (NRV) value (NRV) The market value is defined as
the current replacementcost
of the inventory, as long as the
market price does not exceed
net realizable value; also, the
market price shall not be less
than the net realizable value,
less the normal profit margin.
AGRICULTURE
23. Bearer plants BEARER PUHnT -BIOLOLILAL RSEJ
Bearer plants are excluded from There is no equivalent provision There is no equivalent provision
the scope of PAS 41 and are under PFRS for SME under PFRS for Small Entities
classified as PPE under PAS 16
24. Measurement of biological assets
PAS 41 requires biological assets If the fair value of a class of An entity that engaged in
tobe measured at fair valueless biologicalasset is readily agricultural activity has an
cost to sell. determinable without undue option to measure its
There is a rebuttable presumption cost or effort, use the fair biological assets applying
that fair value can be measured value through profit or loss either CURRENT PRICE
reliably for a biological asset. Only model. MODELOrcosT MODEL
when that presumption is rebutted If the fair value is not readily An entity shall measure a
on initial recognition that an entity determinabje, or is biological asset on initial
is permitted to measure its determinable oniy with undue recognition and at each
biologicalasset at cost less cost or effort, measure the reporting date at its current
accumulated depreciation less biological assets at cost less market pric or the probable
accumulated impairment losses. and accumulated depreciation seling pric to willingbuyers
and impairment. as of reporting date.
Under cost model, The entity
shall measure a biological
asset at cost less any
accumulated depreciation and
any accumulated impairment
losses
INTANGIBLE ASSETS
25. AccOunting for research and development costs
Under PAS 38, R&D costs are " .Under PFRS for SMEs,R&D costs .Under PFRS for Small Entities,
generaly expensed. However, are recognized as expenses. The R&Dcosts are recognized as
development costs may be standard does not provide expenses. The standard does not
capitalized as intarngible asset if conditions for capitalization of R&D provide conditions for capitalization
certain conditions are met. COsts. of R&D costs.
26. Amortization of intangible assets
Under PAS 38, only intangibl Under PFRSfor SMEs, all Under PFRS for SmallEntities, all
assets with finite life are amortized. intangible assets shall be intangible assets shall be
considered to have a finite life, considered to have a finite life.
Ifthe life cannot be established If the life cannot be established

REOCPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.re0cpareview.ph REO CPAREVIEW
O (074) 665 6774 00916 840 0661 [email protected]
ndouts Page 7 of 13 | FAR Handouts No. 43

REO CPA REVIEW

REAL EXCELLENCE ONLINE
KARIM G. ABITAGO, CPA
SMEs

reliably, the life shall be reliably, the life shall be

determined based on
determined based on
management's best estimate but management's best estimate but
shall not exceed 10 years.
shal not exceed 10 years.
27. Annual reviewof depreciation or amortization, useful life and residual value.
C
PAS 16 and PAS 38 requires an Under PFRS for SMEs, entity shall Under PFRS for Small Entities, entity
entity to review at least at each review only if there are indicators that shall review only if there are indicators
there have been changes since the that there have been changes since
financial year-end. most recent annual reporting. the most recent annual reporting.
28. Accounting for Goodwill
Under PAS 36, goodwill arising Under PFRS for SMEs, after initial Under PFRS for SmallEntities,
from a business combination shall recognition, the acquirer shall after initial recognition, the acquirer
not be amortized but rather tested measure goodwill acquired in a shall measure goodwillacquired in
business combination at cost less a business combination at cost
for impairment at least annually. less accumulated depreciation and
accumulated depreciation and accumulated impairment losses.
accumulated impairment losses.
If the useful life cannot be
If the useful life cannot be
established reliably, the life the life established reliably, the life the life
shall be determined based on shall be determined based on
management's best estimate but management's best estimate but
shall not exceed 10 years.
shall not exceed 10 years.
GOVERNMENT GRANTS

29. Classification of government grants The standard does not provide

Under PAS 20, government grants The standard does not provide
such classifications Such classifications
are classified as either grant
related to asset or grant related to
income
30. Recognition of government grants
Under PFRS for SMEs, an Under PERS for Small
Under PAS20, a government Entities, an entity shall
grant is recognized in income over entity shall recognize
the periods necessary to match it monetary government grants recognize monetary
with the related costs for which it is as follows: government grants as follows:
intended to compensate, ona a) A grant that does not impose a) A grant that does not impose
systematic basis. specified future performance specified future performance
conditions on the recipient is conditions on the recipient is
recognized in income whn recognized in income when
the grant proceeds are the grant proceeds are
receivable, receivable.
b) A grant that imposes specified b) A grant that imposes specified
future performanCe conditigns future performance conditions
on the recipient is recognized on the recipient is recognized
in income only when the in income only when the
performance conditions are performance conditions are
met. met.
c) Grants received before the c) Grants received before the
revenue recognition criteria revenue recognition criteria
are satisfied are recognized as are satisfied are recognized as
aliability. a liability.

REO PA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REO CPA REVIEW
(074) 665 6774 @0916 840 O661 [email protected]
 Handouts
Page 8of 13 | FAR
KARIM G. ABITAGO, C
SME
REO CPAREVIEW
REAL EXCELLENCE ONLINE
BORROWING COSTS
Small Entities, all
Under FPRS for recognized as
31. Core principle
Under PAS 23, borrowing costs Under FPRS for SME, all borrowing costs are they are
borrowing costs are recognized as in the period
expense
that are directly attributable to the
acquisition, construction or expense in the period they are incurred.
production of a qualifying asset incurred.
form part of the cost of the asset.
Other borrowing costs are
expensed IMPAIRMENT OF ASSETS

not state a
32. Value in use computation PFRS for SMEs does
Under PAS 36, when computing PFRS for SMEs does not state,a specific time limit before
value in use, cash flow projections specific time limit before extrapolation is required.
extrapolation is required.
shall cover a maximumperiod of5
years, unless a longer period can
be justified. Cash flow
assumptions beyond the 5-year
limit shallbe extrapolated.
33. Presentation of Impaiment Loss Recognized in P&L NO REV'N= hoCr
Recognized in P&L, unless carried Recognized in P&L, unless carried
at revalued amount
at revalued amount
34. Reversal of impairment loss on goodwill No reversal is allowed Reversal of impairment loss on,
No reversal is allowed goodwill in profit or loss is allowed

EMPLOYEE BENEFITS

35. Defined contribution plans

Under PFRS for SMEs, obligations There is no definedcontribution
Under PAS 19, obligations under plan under PFRS for Small
defined contribution plans may be under defined contribution plan
need not be discounted, Entities.
discounted if they do not full due
wholly within 12 months.
36. Measurement of defined benefit plan Under PFRS for SMEs, the An entity should account for
PAS 19 requires the use of the the post-employment benefit
projected unit credit method when projected unit credit method shall plan using the accru¡l
be used only if the entity is able to
measuring its obligations on a approaçh in accordance with
defined benefit plan. do so without undue cost or effort. the minimum retirement
Actuarial gains and losses are
recognized fully either in profit or benefits required under
loss or other comprehensive Republic Act (RA) No. 7641,
income. There is an accounting otherwise known as The
Philippine Retirement Pay
policy choice.
Law, or company policy if
superior than that provided by
RA7641
LEASES

37. Classification of leases

Operating and Finance Lease Operating and Finance Lease No classification provided
38. Accounting for leases by lessee

REO CPA REVIE PHILIPPINES Effectiveness. Efficiency. Convenience

REOCPA REVIEW
www.re0cpareview.ph
(074) 665 6774 Q0916 840 0661 [email protected]
buts Ne
Page 9 of 13 | FAR Handouts No. 43
REO CPA REVIEW KARIMG. ABITAGO, CPA
REAL EXCELLENCE ONLINE SMEs

Under PFRS 16, a lessee Under PFRS for SME, lessee

Under PFRS for Small Entities.
accounts for a lease by GR:FL classifies alease into a finance lease payments are recOgnizedas
recognizing a right-of-use asst lease or an operating lease and expense by lessee.
and a lease liability (general account them accordingly.
recognition finance lease GR: oL
classification) E:FL
39. Sale and leaseback
Under PFRS 15, both the seller Uses the concept of PAS 17, the No provision for sale and
lessee and buyer-lessor determine old lease standard. leaseback transaction
if the transfer of asset qualifies as GR: OL
a sale. GR:FL:: L E:FL
EVENTS AFTER THE REPORTING PERIOD
40. Declaration of dividends after the reporting period Non-adjusting event and disclosed
Non-adjusting event and disclosed Non-adjusting event and disclosed
only but the entity has an option of only but the entity has an option of
only. presenting dividend as a
presenting dividend as,a
retained
Segregated componentof segregated component of retained
earnings at the end of reporting earnings at the end of reporting
period (appropriation of retained period (appropriation of retained
earnings) earnings)
RELATED PARTY DISCLOSURES

41. Key management personnelcompensation

Under PAS 24, an entity is Under PFRSfor SMEs, an entity is Under PFRS for Small Entities, an
required to disclose key required to disclose key entity is required to disclose key
management compensation in total management personnel management personnel
and for each of the following compensation in total only. compensation in total only.
categories: short-term employee
benefits, post-employment
benefits, termination benefits,
other long-termn benefits, share
based payments.

DISCUSSION EXERCISES
STRAIGHT PROBLEMS
1.
FAN CORP. has the following information in relation to its presentation of comprehensive income?
Revenue
2,000,000 1
Other income 300,000 0))
Cost of sales 1,200,000 (,2
Other expenses 150,000
Administrative expense 200,000 0
Distribution costs 180,000 8
Finance costs 40,000 (o
Loss from discontinued operations 100,000 (oL)
Exchange differences on translatingforeign operation credit 90,000 lk
Decrease in the fair value of hedging instruments 120,000 -ok
Increase in the fair value of FVOCI equity investmnents 90,000
The entity is subject to income tax rate of 30%.
REQUIREMENT: Compute FAN's total comprehensive income under: (1) Full PFRS; (2) PFRS for SMEs; (3) PFRS
for Small Entities. 530K 371K
(:0k)
(21k) (20)
REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
www.reocpareview.ph REO CPA REVIEW

(074) 665 6774 00916 840 0661 [email protected]

 Page 10of 13 | FAR Handou

REO CPAREVIEW KARIM G. ABITAGo.

REAL EXCELLENCE ONLINE
SM
2. On January 1, 2020, STOVE cORP acguired 30a of the ordinary shares of an investeeandTor paid dividendspusof
transaction cost of P 10,000. The iDvesteè recognized a net loss of P500,000 for(2020
P200,000 on December 31, 2020. The fair value of the Investment is P1.020.000 on December 31, 2020 and the
cost of disposal, is estimated at P40,000. There is no published price quotation for the investmentthen as in
REQUIREMENT: Under the following assumptions (1) Determine the carrying amount of investment
associate account on December 31.2020:(2) The net amount presented in profit or loss during z0z0
a) ASSuming the entity is an SME, determine the above reguirements under cost model, fair value mo0el aiio
equity model.
b) Assuming the entity is a Small Entity, determine the above requirements under cost model, talir yaue no
and equity model.
3
On January 2, 2020, RADIO CORP.Purchased 20,000 shares (20%) of DJ CORP's ordinary share for P4,500,000
The fair value of the net asset acquired is P4,200,000. During 2020, DJ reported the following in its stateme o
comprehensive income a P4,000,000 net incomè and a P500,000 revaluation surplus recognize at the end or trhe
year. DJ paid cash dividends of P3,000,000 on December 31, 2020. The entity uses the equity menod
accounting
REQUIREMENT: What is the carrying value of the investment as of December 31, 2020? under: (1) Full PFRS; (2)
PFRS for SMEs; (3) PFRS for Small Entities.
4. TV CORP. used the lower of cost or net realizable value method to value inventory. Data regarding the items in
work in process inventory are presented below:
Markers Pens Highlighters
Historical cost 240,000 188,000 300,000
Selling price 360,000 250,000 360,000
Estimated cost to complete 48,000 50,000 68,000
Replacement cost 208,000 168,000 318,000
Normal profit margin as a percentage of selling price 25% 25% 10%
REQUIREMENT: Determine the measurement of work-in-process inventory under (1) Full PFRS; (2) PFRS for
SMEs; (3) PFRS for Small Entities.
5. FARM CORP. is engaged in agricultural activities. In relation to such, the following information are presented:
Land related to agricultural activity P350,000
Consumable plants 110,000
Consumable animals 90,000
Bearer plants 130,000
Bearer animals 70,000
Agricultural produced after the point of harvest 60,000
Farm house related to agriculture 150,000
REQUIREMENT. Determine the amount to be presented as PPE and biological assets assuming the entity follows
(1) Full PFRS; (2) PFRS for SMEs; (3) PFRS for Small Entities.
6 CHARGER CORP. provided the following information in relation to its intangible assets:
On January 1, 2020, CHARGER acquired a patent at a cost of P600,000. The patent has a useful life of 15
years.
On April 1, 2020, CHARGER bought a trademark from POWERBANK CORP. for P3,000,000 The entity
retäined an independent consultant who estimated the trademark's life to be indefinite. The carrying amount
of the trademark was P1,500,000 on the books of POWERBANK CORP.
REQUIREMENT: Determine the carrying amount of intangible assets under (1) Full PFRS; (2) PFRS for SMEs: (3)
PFRS for Small Entities.

REO CPAREVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REO CPAREVIEW
Www.reocpareview.ph
O (074) 665 6774 00916 840 0661 [email protected]
ndoAR
uts t
43
Page 11 of 13| FAR Handouts No.
KARIM G. ABITAGO, CPA

E REO CPA REVIEW SMEs

REAL EXCELLENCE ONLINE
renovation
loan of P24. 000,000 in order to finance specifically the
CORP. took out a 10%. Work on the
7. On January 1, 2020, LAPTOP started on the same date. The loan carried annual interest at 2020 and
work 31,
OT a building. The renovationcomplete on Qctober 31. 2020. The loan was repaid on Decembernot yet used Tor
Duilding was substantially earned in the period to October 31 on the
proceeds of the loan
P200,000 investment income was
under (1) Full
the renovation.
amount of borrowina cost to be included in the cóst of the building?
REQUIREMENT: What is the
PFRS; (2) PFRS for SMEs; (3) PFRS for ^mall Entities.
MULTIPLE CHOICE (THEORIES)
The IASB defines SMEs as entities that external users.
general purpose financial statements forstatements for external users.
1
A. Have public accountability and publish
do not publish general purpose financial
B. Do not have public accountability and publish general purpose financial statements for externalusers.
Do not have public accountability and publish general purpose financial statements for external and internal
Do not have public accountability and
Users.

2 Which of the folowing entities is "publicly accountable"?

market.
An entity whose shares are traded in a public
shares are traded in a public market.
II. An entity whose debt instruments but not the ard traded)in an "over-the-counter market".
An entity whose shares and debt instruments
and debt instruments for trading in apublic market.
IV An entity that is in the process of issuingshares 1, Il and IV only
A Iand llonly 1, II, IIl and IV
B I, Iland Ilonly
the application.of the PFRS for SMEs?
3 Which of the following statements is incorrect regarding qualifying entities need to adopt for the preparation
A The PFRS for SMEs is only the minimum st¡ndard that
and presentation of their financial statements.
SMEs are prohibited from applying the full PFRSs.
SMEs may nevertheless opt adopt the full PFRSS. the full PFRS.
D. have an option of applyingthe PFRS for SMEs in lieu of
Publicly accountable entities do not
4 Allof the following may-be classified as an SME, except C. Manufacturing entity
Commercial (bank)
B Food and beverage entity D. Merchandising entity
5 According to the size criteria of SEC, an SME i_ an entity:
With Total Assets With Total Liabilities
between P100,000,000 and P250,000,000
between P100,000,000 and P350,000,000
B. E between P3,000,000 and P100,000,000 between P3,000,000 and P100,000,000
C. between P3,000,000 and P100,000,000 between P3,000,000 and P150,000,000
D.
MiD below P3,000,000 below P3,000,000
6 Which can be considered an, `ME?
A. A bank with total assets of P350,000,000.
B A broker with total liabilities of P3,000,000.
Acredit unionwith total assets of P3,000,000.
An unlisted entity manufacturing electrical goods with total liabilities of P250,000.000.
7 Which of the following accounting provisions have been eliminatedin the PERS.forSMEs?
(1) Earnings per share (3) FVPL classification of investment in debt securities
Non-current assets held for sale (4) LCNRVmeasurement for inventories
1and 2 C. 3 and 4
1,2 and 4 D Land 4
8 Which of the following accounting provisions have been(eliminated in the PFRS for SmallEntities?
(1) Concept of OCI and OCL / (3) Segment reporting
(2) Interim reporting / (4) Finance and operating lease classification

REO CPAREVIEW PHILIPPINES Effectiveness. Eficiency. Convenience

www.re0cpareview.ph REO CPAREVIEW
(074) 665 6774 00916 840 0661 [email protected]
 Page 12 of 13 | FAR Handouts N
KARIM G. ABITAGO,
REO CPA REVIEW
REAL EXCELLENCE ONLINE SME
A 1and 2 1,2, 3 and 4
B 2 and 3 E 2 and 4
C. 1,2 and 3
determine the ncorrect statement.
n elatOn the preparation and presentationof financial statementsan income statement, or present statement of
A
S lal ddopt PFRS for SMEs bottom may present only comprehensive
COmprehensive income in which the line is labelled profit or loss if it has no other
income.
present statement of comprehensive Income.
B Entities that adopt PFRS for Small Entities are not reguired to retained earnings piabe
EntitiesS that adopt PFRS for SMEs may present a sinale statement of income and
of statement of changes in equity. preparation of its statement of casSn
PFRS for Small Entities encourages the use of direct method in the
flows.
statements, which OT tne
10. In relation to notes to financial statemnents, as an intearal part of the published financial
following has requires disclosure of judgments and estimates? PFRS for Small Entities
PAS 1 PFRS for SMEs
Yes Yes No
B No Yes No
Yes No No
D. Yes Yes Yes

11. Under PFRS for SMES and PFRS for Small Entities, financial instruments are classified as:
FVPL, FVOCIand at amortized cost
Basic and non-basic
Large, medium and small
D. FVPL Only
12. Allof the following finançial instruments are (basic financial instruments except
A. Investment in nonputtable ordinary shàres.
B. A
fixed-interest fixed-term loan from a bank.
Investment in nonconvertible and nonputtable preference shares.
Financial instrument that meets the definition of an entity's own equity.
According to PFRS for SMEs) investments in quoted equity instruments or those whose fair value can otherwise be
13.
measured reliably are measured at
Fair value with changes in fair value recognized in profit or loss (FVPL)
B. Fair value with changes in fair value recognized in other comprehensive income (FVOCI)
C. Amortized cost
D. A
or B
14. An SME shall account for investments in associate after initial recognition.using
A.
Either cost model or fair value model and using the same policy for all investments in associates.
Either cost model or fair value model and the model can be elected on an investment by investment basis.
B.
by
C. Any of the cost model, equity method or fair value model and the model can be elected on an investment
investment basis.
Any of the cost model, equity method or fair value model and using the same accounting policy for all
investments in associates.
Small Entities2
15. What is the subsequent measurement of inventories under PAS 2, PFRS for SMEs and PFRS for
PAS 2 PFRS for SMEs PFRS for Small Entities
LCNRV LCM LCM
LCNRV LCNRV LCM
LCNRV LCNRV LCNRV
D LCM LCNRV. LCM

REO CPAREVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REOCPA REVIEW
(074)665 6774 O0016 840 0661 [email protected]
 Page 13 of 13 | FAR Handouts No. 43
REO CPA REVIEW
REAL EXCELLENCE ONLINE KARIM G. ABITAG0), CPA
SMEs
16.
uer PFRS for SMEs and PFRS for Small Entities, bearer plants are
A) classified as
B. Biological assets
C. Property, plant and equipment
Either biological assets or PPE depending on the useful life of the asset
D.
Biological assets but with an option as PPE
17. S1:
Under PFRS for SMEs,_researchedand development costs are expensed with no capitalization option for
development costs.
Under PFRS for Small Entities, only intangible assets with finite life are amortized.
(A True, false False, false
8 False, true D True, true
18. Which of the following allows reversal of impairment loss of goodwill?
PAS 36 PFRS for SMEs PERS for Small Entities
A. Yes Yes No
B.
No No Yes
C. Yes No No
D. Yes Yes Yes
19. Which of the following statements is incorrect.regarding provisions of PFRS for SMEs?
A.
Anentity adopting PFRS for `MEs is not required to present additional balance sheet as of the beginning of
the preceding year under certain circumstances.
B.
An entity adopting PFRS for SMEs does not account for changes in fair values of investment in equity
securities in OCI or OCL.
Anentity adopting PFRS for SMEs is not required to present any operating segment information.
An entity adopting PFRS for SMEs is not required to account for derivatives and hedging transactions.
20. Which of the following items does not exist on the balance sheet of an SME?
A Investment property Biological assets
B Intangible assets Non-current assets held for sale
--END OF HANDOUTS

REOCPA REVIEWPHILIPPINES
Effectiveness. Efficiency. Convenience
www.reocpareview.ph REO CPAREVIEW
O (074) 665 6774 00916 840 0661
[email protected]