University of San Carlos

School of Business and Economics

Department of Accountancy

IRC 1 Theory of Accounts and Practical Accounting 1

PFRS for SMEs- Part 1 CPA2

Small and Medium – Sized Entities (PFRS for SMEs)

An SME is defined as an entity that:

a. Does not have public accountability and
b. Publishes general-purpose financial statements for external users.

Public accountability is further defined as an entity that:

a. Has debt or equity instruments traded in a public market (or it is in the process of issuing such instruments)
Or
b. Holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

SRC Rule 68

A. Small and medium-sized entities (SMEs) are those that meet all of the following criteria:
(1) Total assets of between P3M to P350 Million or total liabilities of between P3M to P250 Million. If the entity is a parent company, the said
amounts shall be based on the consolidated figures;
(2) Are not required to file financial statements under Part II of SRC Rule 68;
(3) Are not in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market; and
 (4) Are not holders of secondary licenses issued by regulatory agencies.

B. SMEs shall use as their financial reporting framework the Philippine Financial Reporting Standards for SMEs (“PFRS for SMEs”) as adopted by the
Commission. However, the following SMEs shall be exempt from the mandatory adoption of the PFRS for SMEs and may instead apply, at their option, the
PFRS:

1) An SME which is a subsidiary of a parent company reporting under the PFRS;

2) An SME which is a subsidiary of a foreign parent company which will be moving towards International Financial Reporting Standards (“IFRS”)
pursuant to the foreign country’s published convergence plan;
3) An SME which is a subsidiary of a foreign parent company and has been applying the standards for a non-publicly accountable entity for local
reporting purposes. It is considering moving to PFRS instead of the PFRS for SMEs in order to align its policies with the expected move to full
IFRS by its foreign parent company pursuant to its country’s published convergence plan;
4) An SME, either as a significant joint venture or associate, is part of a group that is reporting under the PFRS;
5) An SME which is a branch office or regional operating headquarter of a foreign company reporting under the IFRS;
6) An SME which has a subsidiary that is mandated to report under the PFRS;
7) An SME which has a short term projection that show that it will breach the quantitative thresholds set in the criteria for an SME. The breach is
expected to be significant and continuing due to its long-term effect on the company’s asset or liability size;
8) An SME which has a concrete plan to conduct an initial public offering within the next two (2) years;
9) An SME which has been preparing financial statements using PFRS and has decided to liquidate;
10) Such other cases that the Commission may consider as valid exceptions from the mandatory adoption of PFRS for SMEs.

C. An SME availing of any of the above-mentioned grounds for exemption shall provide a discussion in its notes to financial statements of the facts supporting
its adoption of the PFRS instead of the PFRS for SMEs.

D. If an SME that uses the PFRS for SMEs in a current year breaches the floor or ceiling of the size criteria at the end of that current year, and the event that
caused the change is considered “significant and continuing”, the entity shall transition to the applicable financial reporting framework in the next accounting
period. If the event is not considered “significant and continuing”, the entity can continue to use the same financial reporting framework it currently uses.
E. The determination of what is “significant and continuing” shall be based on management’s judgment taking into consideration relevant qualitative and
quantitative factors. As a general rule, 20% or more of the consolidated total assets or total liabilities would be considered significant.

Small Entities

Small Entities are entities with total assets between P3,000,000 and P100,000,000 or total liabilities between P3,000,000 and P100,000,000. Small entities shall
apply the PFRS for Small Entities beginning on or after January 1, 2019.

The PFRS for Small Entities was approved by the FRSC on December 31, 2017 and by the Board of Accountancy and PRC on February 20, 2018.

Micro-business Entities

Microbusiness entities are entities whose total assets or total liabilities are below the P3,000,000 floor threshold. Micro-business entities have the option to use
any of the following bases of accounting in the preparation of financial statements:
a. Full PFRS
b. PFRS for SMEs
c. Another acceptable basis of accounting

SMEs
Qualitative characteristics
The qualitative characteristics of financial statements listed in the
standard are:
• Understandability
• Relevance
• Materiality
• Reliability
• Substance over form
• Prudence
• Completeness
 • Comparability
• Timeliness
• Balance between benefit and cost.

Elements of financial statements

• In the statement of financial position, the elements are defined as assets, liabilities and equity.
• For the purposes of performance, the elements described are income and expenses.

Recognition of elements
The underlying recognition criteria of the elements of financial statements are that:
• It is probable that any future economic benefit associated with the item will flow to or from the entity
• The item has a cost or value that can be measured reliably.
The standard further considers the probability of future economic benefit and reliability of measurement. Thereafter, the recognition of assets, liabilities,
income, expense and total comprehensive income/profit and loss is considered.

Accrual basis
An entity must prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

Compliance
Entities that apply this standard must claim compliance with IFRS for SMEs. In extremely rare circumstances when management concludes that compliance
with the standard would be so misleading that it would conflict with the objective of financial statements of SMEs, they must depart from the standard. Special
disclosures are required.

Going concern
Entities are required to make an assessment as to whether they are a going concern. Any material uncertainties regarding going concern need to be disclosed.
If the financial statements are not prepared on a going concern basis, this fact and the basis of preparation needs to be disclosed.
 PFRS for SMEs vs. Full PFRS

Preparation and Presentation of Financial Statements

Item PFRS for SMEs FULL PFRS
A complete set of financial statements includes:
•A statement of financial position
•A statement of comprehensive income
• A statement of changes in equity
• A statement of cash flows
A complete set of financial statements includes: • Notes comprising significant accounting policies and
• A statement of financial position other explanatory information
• A statement of comprehensive income (or a separate income • A statement of financial position at the beginning of
Complete set of statement and statement of comprehensive income) the earliest comparative period when a retrospective
financial statements • A statement of changes in equity change in accounting policy, restatement or
• A statement of cash flows reclassification occurs.
• Notes comprising significant accounting policies and other explanatory • The following items are required to be presented under
information. Full PFRS but not required under PFRS for SMEs;
a. Total assets classified as held for sale
b. Total liabilities included in disposal group classified
as held for sale

A statement of income and retained income may be presented in place of None

the statement of comprehensive income and statement of changes in
Statement of income equity, if the only changes to equity comprise profit or loss, payment of
and retained earnings dividends, corrections of prior year errors and changes in accounting
policy.
 If the statement of income and retained earnings is presented, it
must include:
• Retained earnings at the beginning of the period
• Dividends declared during the period
• Restatements of retained earnings for corrections or errors and changes
in accounting policy
• Retained earnings at the end of the period.
Under Full PFRS, the components of OCI include

Reclassified to profit or loss

Under PFRS for SMEs, the components of OCI include: a. Translation gain or loss of foreign operation
b. Unrealized gain or loss on derivative contract as
Reclassified to profit or loss: a cash flow hedge
a. Change in fair value of hedging instrument c. Unrealized gain or loss in debt investment
Other
measured at FV – OCI
Comprehensive
Reclassified to retained earnings
Income
a. Translation gain or loss of foreign operation Reclassified to retained earnings:
b. Actuarial gain and loss- reporting actuarial gain and loss as OCI is a. Unrealized gain or loss on equity investment
optional because this may be recognized in profit or loss measured at GV OCI
c. Revaluation surplus of PPE b. Remeasurements of defined benefit plan
c. Revaluation surplus
d. Change in FV attributable to credit risk of
financial liability designated at FVPL.

Business Combinations and Group Financial Statements

Item PFRS for SMEs FULL PFRS
Section 19 Business Combinations and Goodwill IFRS 3 Business Combinations
Cost-based Fair value based
Cost of business The cost of a business combination is the aggregate of: The cost of a business combination is not separately
combination • The fair values of the assets given, liabilities incurred or assumed, and defined. However, a component of the measurement of
equity instruments issued by the acquirer plus any goodwill or gain from a bargain purchase is the
• Any costs directly attributable to the business combination. consideration transferred, which is calculated as the
sum of the fair values of the assets transferred by the
acquirer, the liabilities incurred by the acquirer to
former owners of the acquiree and the equity interests
issued by the acquirer.
Non-controlling Where the acquirer obtains less than a 100% interest in the acquiree, a non- IFRS requires any NCI in an acquiree to be recognised,
interests controlling interest (NCI) in the acquiree is recognised at the NCI’s but provides a choice of two methods for measuring
proportion of the net identifiable assets, liabilities and provisions for NCI arising in a business combination:
contingent liabilities of the acquire at their attributed fair values at the date • Option 1, to measure the non-controlling interest at its
of acquisition; no amount is included for any goodwill relating to the NCI. acquisition-date fair value
• Option 2, to measure the non-controlling interest at
the proportionate share of the value of net identifiable
assets acquired.
Measurement of Goodwill is initially measured at cost. Goodwill is amortised in accordance Goodwill acquired in a business combination is not
goodwill with the principles of amortisation of intangible assets in Section 18. If a amortised. The acquirer has to test it for impairment
reliable estimate of the useful life of goodwill cannot be made the life is annually, or more frequently if events or changes in
presumed to be 10 years. circumstances indicate that it might be impaired.
Disposal of The difference between the proceeds from the disposal of the subsidiary and If a parent loses control, gain or loss shall be computed
subsidiaries its carrying amount as of the date of disposal is recognised in the as follows:
consolidated statement of comprehensive income (or the income statement,
if presented) as the gain or loss on the disposal of the subsidiary. 1. The aggregate of; FV of any consideration
received, FV retained non-controlling
The carrying amount of investments if any, shall be accounted for using an investment and the carrying amount of NCI,
appropriate standard. less;
2. The carrying amount of the former subsidiary’s
assets and liabilities.
 The remaining interest, if any, shall be accounted for in
accordance with appropriate standards.

Section 15 Investments in Joint Ventures PFRS 11 Joint Arrangement

Jointly Controlled Operation – same with PAS 31 Joint Operation – line by line accounting of the
underlying assets and liabilities
Jointly Controlled Assets – same with PAS 31 Joint Operation – line by line accounting of the
underlying assets and liabilities
Joint Controlled Entity, methods to be used: Joint Venture – Equity Method

1. Cost Model
2. Equity Model
3. Fair Value Model

Section 14 Investments in Associates

Measurement An investor must account for all of its investments in associates using one
of the following:
• The cost model (investment is measured at cost less any accumulated
impairment losses). This model may not be used for investments for which
there is a published price quotation, in which case the fair value model must
be applied.
• The equity method (investment is initially measured at transaction price
and subsequently adjusted to reflect the investor’s share of profit or loss and
other comprehensive income of the associate).
• The fair value model (investment is initially measured at transaction price
and subsequently remeasured to fair value at each reporting date, with
changes in fair value recognised in profit or loss). Cost model may be applied
to investments for which it is impracticable to measure fair value without
undue cost or effort
Discontinuing the If an investor loses significant influence over an associate as a result of a fullOn loss of significant influence, the investor must
equity method or partial disposal, it must derecognise that associate and recognise in profit measure at fair value any investment the investor
or loss the difference between: retains in the former associate.
• The sum of the proceeds received plus the fair value of any retained interest The investor must recognise in profit or loss any
• The carrying amount of the investment in the associate at the date difference between:
significant influence is lost. • The fair value of any retained investment and any
proceeds from disposing of the part interest in the
Thereafter, the investor accounts for any retained interest as a financial asset associate
using Section 11 and Section 12, as appropriate. • The carrying amount of the investment at the date
when significant influence is lost.
If an investor loses significant influence for reasons other than a partial
disposal of its investment, the investor regards the carrying amount of the The investment is accounted for in accordance with IAS
investment at that date as a new cost basis and accounts for the investment 39 and the fair value of the investment at the date when
using Sections 11 and 12, as appropriate. it ceases to be an associate is regarded as its fair value on
initial recognition as a financial asset.
 University of San Carlos
School of Business and Economics
Department of Accountancy

IRC 1 Theory of Accounts and Practical Accounting 1

PFRS for SMEs Part 2 CPA2

Elements of Financial Position

Item PFRS for SMEs Full PFRS

Section 13 Inventories PAS 2 Inventories
Inventory Write- An SME shall measure inventories at the Lower of cost and estimated selling Under Full PFRS, inventories are measured at LCNRV,
down price less cost to complete and sell. If the estimated selling price less cost to if the NRV is lower than cost, the writedown is
complete and sell is lower than cost, the writedown is recognized as recognized as component of COGS
IMPAIRMENT LOSS
Section 17 Property, Plant and Equipment IAS 16 Property, Plant and Equipment
Initial measurement An entity measures an item of property, plant and equipment at initial An item of property, plant and equipment that qualifies
recognition at its cost. Cost includes: for recognition as an asset is measured at its cost. The
a) Its purchase price cost comprises:
b) Any costs directly attributable to bringing the asset to the a) Its purchase price
location and condition necessary for it to be capable of b) Any costs directly attributable to bringing the asset
operating in the manner intended by management to the location and condition necessary for it to be
c) The initial estimate of the costs of dismantling and removing capable of operating in the manner intended by
the item and restoring the site on which it is located. management
 Borrowing costs do not form part of the cost of an item of c) The initial estimate of the costs of dismantling and
property, plant and equipment. removing the item and restoring the site on which it is
located.

Subsequent An entity must measure all items of property, plant and equipment after Property, plant and equipment may be valued using
measurement initial recognition at cost less any accumulated depreciation and any either:
accumulated impairment losses. a) The cost model (cost less accumulated amortisation
and impairment losses)
Amendment or
However, it has been amended Par. 17.5, it permits PFRS for SMEs to use b) The revaluation model (revalued amount less
cost model or revaluation model. accumulated amortisation and impairment losses).
An entity must apply that policy to an entire class of
property, plant and equipment.
Factors such as a change in how an asset is used, significant unexpected wear The residual value and the useful life of an asset must be
and tear, technological advancement and changes in market prices may reviewed at least at each financial year-end.
indicate that the residual value or useful life of an asset has changed since
the most recent annual reporting date. If such indicators are present, an
entity must review its previous estimates and, if current expectations differ,
amend the residual value, depreciation method or useful life.
Section 16 Investment Property IAS 40 Investment Property
Scope Only investment property whose fair value can be measured This standard must be applied in the recognition,
reliably without undue cost or effort on an ongoing basis is measurement and disclosure of investment property.
accounted for in accordance with this section. All other
investment property is accounted for as property, plant and
equipment in accordance with Section 17 Property, Plant
and Equipment.
Subsequent Investment property whose fair value can be measured reliably Investment property may be carried at either:
measurement without undue cost or effort must be measured at fair value at
 each reporting date with changes in fair value recognised in profit • Cost less accumulated amortisation and impairment
or loss. losses or
• Revalued amount less accumulated amortisation and
impairment losses.
Amendment
The investment property whose fair value cannot be measured reliably on
an ongoing basis is presented as a separate line item investment property
carried at cost less accumulated deprecation and impairment losses.

Under Old PFRS for SMEs, you should account it as PPE.

Section 18 Intangible Assets other than Goodwill IAS 38 Intangible Assets

Recognition An entity may recognise an intangible asset if it is probable that there are
An intangible asset is recognised if, and only if, it is
expected future economic benefits, a reliably measurable cost/value and it
probable that there are expected future benefits and cost
that can be reliable measured.
does not result from expenditure incurred internally on an intangible asset.
Initial Measurement Initial measurement is dependent on the manner in which the Initial measurement is dependent on the manner in
intangible asset is acquired: which the
• Separate acquisition — at cost intangible asset is acquired:
• Business combination — at fair value at the acquisition date • Separate acquisition — at cost
• Government grant — at the fair value of the grant • Business combination — at fair value at the acquisition
• Exchange of assets — at the fair value of the asset or cost when the date
transaction lacks commercial substance or fair values cannot be reliably • Government grant — at the fair value of the grant or
measured. at the nominal amount
• Exchange of assets — at the fair value of the asset or
cost when the transaction lacks commercial substance
or fair values cannot be reliably measured.
Subsequent Intangible assets are measured at cost less accumulated amortisation and Intangible assets may be carried at either:
measurement impairment losses. • Cost less accumulated amortisation and impairment
losses or
 • Revalued amount less accumulated amortisation and
impairment losses.
Amortisation Intangible assets must be amortised over there useful lives. If the Intangible assets must be assessed as to whether they
useful life is not determinable then it is presumed to be 10 years. have a finite or an indefinite life. Intangible assets with
finite lives are
amortised over their useful lives. Those with an
indefinite life is
not amortised and subject to an annual impairment test.
Review of The entity will consider at each reporting date whether there are The entity will review at each reporting date whether
amortisation any indicators that there has been a change in useful life, residual there has
amount or amortisation method. If there is an indicator, this will been a change in useful life, residual amount or
be adjusted as a change in estimate. amortisation
method.
Section 27 Impairment of Assets IAS 36 Impairment of Assets
General principles An entity must recognise an impairment loss immediately in An impairment loss must be recognised immediately in
profit or loss. profit or loss, unless the asset is carried at revalued
amount in accordance with another standard. Any
impairment loss of a revalued asset must be treated as a
revaluation decrease in accordance with that other
standard.

Section 29 Income Tax IAS 12 Income Taxes

Amendment
Full PFRS and the amended PFRS for SMEs are now the same in the matter
of accounting for income tax.
 Section 11 Basic Financial Instruments PFRS 9 Financial Instruments
Section 12 Other Financial Instrument Issues
An entity makes a policy choice to either:
• Comply with Section 11 Basic Financial Instruments and Section 12 Other
Financial Instruments Issues of IFRS for SMEs
Accounting policy or
• Use the recognition and measurement provisions of IAS 39 Financial
Instruments: Recognition and Measurement and apply the disclosure
requirements of IFRS for SMEs.
Section 11 Basic Financial Instruments
Section 12 Other Financial Instrument Issues
Scope Section 11 applies to all basic financial instruments except for:
• Investments in subsidiaries associates and joint ventures
• Financial Instruments that meet the definition of the entity’s own equity
• Leases
and
• Employers’ rights and obligations under employee plans.

Section 12 applies to all financial instruments except for:

• Basic financial instruments in Section 11
• Interests in subsidiaries, associates and joint ventures
• Employers’ rights and obligations under employee benefit
plans
• Rights under insurance contracts (with certain exceptions)
• Own equity instruments
• Leases (with certain exceptions)
• Contracts for contingent consideration in a business
combination.
Embedded There is no concept of embedded derivatives under
derivatives IFRS for SMEs.
Classification Basic Financial Instruments of SMEs
1. Cash, demand and fixed term deposits or bank accounts
2. Trade accounts and notes receivables and loans receivables
3. Commercial papers or comical bills – unsecured and short-term debt
investment
4. Investment in nonputtable ordinary shares
5. Investments in nonconvertible and nonputtable preference shares
6. Commitment to receive a loan if the commitment “cannot be net
settled” in cash
7. Accounts payable in local and foreign currency
8. Loans from bank and other third parties
9. Bonds and similar debt instrument
10. Loans to or from subsidiaries or associates that are due on demand

A commitment to receive loan is a firm commitment by the bank to provide

credit to the entity. The entity has the option to borrow or the bank may
require the entity to borrow.

The investment in ordinary shares and nonconvertible preference shares is

nonputtable:
a. When the entity does not have an option to sell the shares back to
the issuer for cash
b. When there is no arrangement that could result in the shares being
automatically returned to the issuer because of a future event.
 Conditions for a debt instrument to be classified as basic financial
instrument
a. Returns to the holder a fixed amount or variable amount that
throughout the life of the instrument is equal to a single fixed
amount.
b. No contractual provisions that could result in the holder losing the
principal amount and interest
c. Contractual provisions that permit the debtor to prepay the
instrument are not contingent on future events
d. The payment or repayment of principal and interest must be
unconditional

Initial Measurement For Section 11, the PFRS for SMEs provides that basic financial instruments
are initially measured at the transaction price, including transaction costs.
However, the transaction costs are expensed immediately if the instrument
is subsequently measured at fair value through profit or loss.

For Section 12, nonbasic financial instruments, the PFRS for SMEs provides
that at initial recognition all financial instruments not qualifying as basic
financial instruments are measured at fair value, which is normally the
transaction price.
Subsequent Basic debt instruments are measured at amortized cost using the effective
measurement of interest method.
basic financial
instrument Investments in nonputtable ordinary shares and investments in
nonconvertible and nonputtable preference shares are measured at fair
value through profit or loss if the shares are publicly traded or if the fair
value can be measured reliably without undue cost or effort.
 If the share are not publicly traded or if the fair value cannot be measured
reliably without undue cost or effort, such investments are measured at cost
less impairment.
Impairment of basic All amortized cost instriments must be tested for impairment Under FULL PFRS the impairment loss is the difference
financial between the carrying amount and the present value of
instruments The PFRS for SMEs provides that for a basic financial instrument measured estimated future cash flows discounted at market rate of
at cost less impairment, the impairment loss is the differenc between the interest for similar asset.
carrying amount of the asset and the best estimate of the amount that would
be received if the asset were sold.
Section 28 Employee Benefits IAS 19R Employee Benefits
Defined benefit • Same principles
plans 1. Recognition and measurement of short-term employee benefits, defined contribution plans, other long-term employee
benefits and termination benefits
2. Many principles for the recognition and measurement of defined benefit plans
3. All past service costs are now recognized as expense immediately regardless of vesting
4. The defined benefit of liability is the net total of:
4.1 present value of benefit obligation at year-end
4.2 minus the fair value of plan assets at year-end
5. there is no more concept of expected return
• Different
1. Under full PFRS, all remeasurement of defined benefit plan are recognized through other comprehensive income

Under PFRS for SMEs, actuarial gain and loss are: recognized immediately in profit or loss; recognized immediately in other
comprehensive income. If the SME elected to recognize such actuarial gain and loss in other comprehensive income, the
amount is not subsequently recycled to profit or loss but transferred to retained earnings.

2. Under full PFRS, projected unit credit method must be used in measuring the defined liability
Under PFRS for SMEs, the projected unit credit method is used in measuring the defined benefit liability if the information
 that is needed to make such a calculation is already available or can be obtained without undue cost or effort. If this is not
the case, an alternative method is permitted in which future salary, future service and possible mortality between the reporting
date and the date employees are expected to begin receiving postemployment benefits are s

Section 34 Specialised Activities — Extractive IFRS 6 Exploration for and Evaluation of

Industries Mineral Resources
An entity that is engaged in the exploration for, evaluation or extraction of IFRS 6 specifies the accounting for exploration and
mineral resources accounts for expenditure on the acquisition or evaluation of mineral resources. It allows entities to
development of tangible or intangible assets by applying Section 17 develop an accounting policy for these costs without
Property, Plant and Equipment and Section 18 Intangible Assets other than specifically considering IAS 8 Accounting Policies,
Goodwill, respectively. Changes in Accounting Estimates and Errors, which
When an entity has an obligation to dismantle or remove an item, or to may allow entities to continue recognising assets on
restore the site, such obligations and costs are accounted for in accordance adoption of IFRS that would not otherwise be
with Section 17 Property, Plant and Equipment and Section 21 Provisions permitted.
and Contingencies.
Under PFRS for SMEs the tangible exploration and evaluation asset shall be Tangible or intangible, you may use cost model or
subsequently measured using cost model or revaluation model revaluation model.

While for an intangible asset, you can only use cost model

Section 20 Leasees PFRS 16 Lease Accounting

Lessor Accounting Same Same
Lessee Accoutning Under PFRS for SMEs, the lessee shall classify the lease as operating or Under PFRS 16, a lessee is equired to account for the
financed based on the transfer of risks and rewards incidental to ownership lease as a FINANCE LEASE
 However, the lessee may apply the operating lease
model if the lease terim is one year or less or if the
underlying asset is of low value in accordance with the
new lease standard.
Section 26 Share-based payment PFRS 2 Share based Payment
Measurment Under PFRS for SMEs the share options must be measured at fair value on Under full PFRS, the share options hsall be measured at
the date o grant. The intrinsic value is not mentioned as an alternative. fair value on the date of grant.

However if the fair value of the share options cannot be

measured reliably , the intrinsic value of the share
options is used. The intrinsic value is the excess of the
market price of the share over the option price.
 Elements of the Statement of Comprehensive Income

Section 23 Revenue IAS 18 Revenue

Item IAS 11 Construction Contracts
PFRS 15
Scope The section applies in accounting for revenue arising from the Place PFRS 15 here
following:
• The sale of goods
• The rendering of services
• Construction contracts in which the entity is the contractor
• The use by others of entity assets yielding interest, royalties
or dividends.

Section 30 Foreign Currency Translation IAS 21 The Effect of Changes in Foreign

Exchange Rates
Recognition of Exchange differences on monetary items are recognised in profit or loss for Exchange differences arising on the settlement of
exchange differences the period except for those differences arising on a monetary investment in monetary items or on translating monetary items at
a foreign entity (subject to strict criteria of what qualifies as net investment). rates different from those at which they were translated
In the consolidated financial statements, such exchange differences are on initial recognition during the period or in previous
recognised in other comprehensive income and reported as a component of financial statements are recognised in profit or loss in
equity. the period in which they arise. Exchange differences on
a monetary item that forms part of a net investment in
Recycling through profit or loss of any cumulative exchange a foreign operation are reclassified from equity to profit
differences that were previously recognised in equity on disposal or loss on disposal of the foreign operation.
of a foreign operation is not permitted.
 Section 25 Borrowing Costs IAS 23 Borrowing Costs
Recognition All borrowing costs are expensed in profit or loss in the period in Borrowing costs that are directly attributable to the
which they are incurred. acquisition, construction or production of a qualifying
asset as part of the cost of that asset are capitalised. All
other borrowing costs are expensed.
Section 24 Government Grants IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance
Recognition and An entity shall recognise government grants according to the nature of the Government grants, including non-monetary grants,
measurement grant as follows: shall not be recognised until there is a reasonable
assurance that:
• A grant that does not impose specified future performance conditions on • The entity will comply with the conditions attached to
the recipient is recognised in income when the grant proceeds are receivable the grants and
• A grant that is imposes specified future performance conditions on the • The grants will be received.
recipient is recognised in income only when the performance conditions are
met Government grants are recognised in profit or loss on a
• Grants received before the income recognition criteria are satisfied are systematic basis over the periods in which the entity
recognised as a liability and released to income when all attached conditions recognises as expenses the related costs for which the
have been complied with. grants are intended to compensate.

Grants are measured at the fair value of the asset received or receivable. A government grant that becomes receivable as
compensation for expenses or losses already incurred or
PFRS for SMEs does not allow an entity to match the grant with the expense for the purpose of giving immediate financial support to
it is intended to compensate or the cost of the asset that it is used to finance the entity with no future related costs shall be
recognised in profit or loss of the period in which it
Under PFRS for SMEs, the grant is a deferred income until the conditions becomes receivable.
are actually satisfied.
Grants in the form of the transfer of a non-monetary
asset can be measured either at the fair value of the asset
received or at nominal amount.