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TB SMEs - Testbank SMEs

Updates in FRS (University of the Immaculate Conception)

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CHAPTER 66

SMALL AND MEDIUM-SIZED ENTITIES

Multiple choice
QUESTION 66-1Multiple choice (IFRS)

1. The IASB defines SMEs as entities that

a. Do not have public accountability.
b. Have public accountability and publish general purpose financial statements for external users.
c. Do not publish general purpose financial statements for external users.
d. Do not have public accountability and publish general purpose financial statements for external users.

2. All of the following entities is publicly accountable, except

a. An entity whose shares are traded in a public market.
b. An entity whose debt instruments but not the shares are traded in a public market.
c. An entity whose shares and debt instruments are traded in an "over-the-counter market".
d. An entity that is not in the process of issuing shares and debt instruments for trading in a public market.

3.Which approach is taken by the IASB in developing IFRS for SMEs?

a. The exemptions given to smaller entities are prescribed in the mainstream accounting standards
b. GAAP for SMEs is to be developed on a national basis
c. The standard is an independently developed set of standards
d. The standard is a simplified self-contained set of accounting principles that are based on full IFRS

ANSWER 66-1
1. d
2. d
3. d

QUESTION 66-2 Multiple choice (Philippine SEC)

L Which can be considered an SME?
a. A credit union with total assets of P3,000,000.
b. A broker with total liabilities of P3,000,000.
c. A bank with total assets of
d. None of these can be considered SME.

2. Which can qualify as an SME?

a. Finance entity
b. Insurance entity
c. Meralco
d. None of these can qualify as an SME

3. In the Philippines, which of the following entities is not an SME?

a. A nonpublicly accountable entity with total assets between and
b. A nonpublicly accountable entity with total liabilities between and
c. An entity that is not a holder of a secondary license issued by a regulatory agency
d. A public utility

4. Entities with total assets or total liabilities below the floor threshold of P3,000,000 are known as
a. Micro-business entities
b. Macro-business entities
c. Mediums-sized entities
d. Small entities

5.Micro-business entities can use which basis of accounting?

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a. Full PFRS
b. PFRS for SMEs
c. Another acceptable basis of accounting
d. Any of the three

6.Which of the following SMEs is not exempted from the mandatory adoption of the PFRS for SMEs?
a. Subsidiary of a parent reporting under full PFRS
b. Part of a group reporting under full PFRS
c. Subsidiary that is mandated to report under full PFRS
d. An entity with concrete plans to conduct an initial public offering within the next five years

7. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling of the size criteria at the end of
the current year, the entity is
a. Required to transition to full PFRS at the current year-end.
b. Required to transition to full PFRS at the current year-end if the event that caused the change is significant and
continuing.
c. Required to transition to full PFRS in the next year if the event that caused the change is significant and
continuing.
d. Not required to transition to full PFRS.

8.What is considered "significant" change in the size criteria that requires transition from the PFRS for SMEs to full
PFRS?
a. 20% or more of the total assets or total liabilities
b. 50% or more of the total assets or total liabilities
c. 10% or more of the total assets or total liabilities
d. No quantitative threshold can be made.

ANSWER 66-2

1. d 5. d
2. d 6. d
3. d 7. c
4. a 8. a

QUESTION 66-3 Multiple choice (IFRS)

1. This is defined as the "first annual financial statements in which an SME adopts Ihilippine Financial Reporting
Standards for SMEs".
a. IFRS financial statements
b. First financial statements that conform with IFRS for SMEs
c. Opening statement of financial position
d. First audited financial statements

2. An SME that presents first financial statements that conform with IFRS for SMEs is known as
a. An originating entity
b. A provisional presenter
c. A first-time adopter
d. An initial reporter

3.What is the date of transition to IFRS for SMEs?

a. The beginning of the latest period in the most recent annual financial statements under previous GAAP.
b. The end of the latest period in the most recent annual financial statements under previous GAAP.
c. The beginning of the earliest period for which an entity presents full comparative information under IFRS for
SMEs.
d: The end of the earliest period for which an entity presents full comparative information under IFRS for SMEs.

4. The statement of financial position at the date of transition to IFRS for SMEs is best described as

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a. Provisional statement of financial position

b. Closing statement of financial position
c. Opening statement of financial position
d. Originating statement of financial position

5. In the opening statement of financial position, which cannot be done by the first-time adopter of IFRS for SMEs?
a. Recognize all assets and liabilities whose recognition is required by IFRS for SMEs.
b. Recognize assets and liabilities required by full PFRS but IFRS for SMEs does not require such recognition.
c. Reclassify an item as one type of asset, liability or equity under the previous accounting framework but a different
type of asset, liability or equity under IFRS for SMEs.
d. Apply IFRS for SMEs in measuring all recognized assets and liabilities.

6. IFRS for SMEs contains exemptions for the restatement of the opening statement of financial position. What is
the basis for such exemptions?
a. Cost
b. Impracticability
c. Materiality
d. Relevance

7.The reconciliation of equity under the previous reporting framework to the equity under I FRS for SMEs is made
at
a. The date of transition to IFRS for SMEs
b. The end of current reporting period
c. The date of transition to IFRS for SMEs and at the end of current reporting period
d. The end of the preceding comparative period

8. The reconciliation of profit or loss under the previous reporting framework to the profit or loss under P FRS for
SMEs is made at
a. The date of transition to P FRS for SMEs
b. The end of current reporting period
c. The end of the preceding comparative period
d. No reconciliation of profit or loss is made

ANSWER 66-3
1.b 5.b
2.c 6.b
3.c 7.c
4.c 8.b

QUESTION 66-4 Multiple choice (IFRS)

1. Fair presentation in accordance with IFRS for SMEs is presumed to result from
a. Compliance with IFRS for SMEs by an entity that has public accountability.
b. Compliance with IFRS for SMEs, with additional disclosures where necessary, by an entity that has public
accountability.
c. Compliance with IFRS for SMEs by an entity that does not have public accountability.
d. Compliance with IFRS for SMEs, with additional disclosures where necessary, by an entity that does not have
public accountability.

2. An entity that is not publicly accountable must make an explicit and unreserved statement of compliance with the
IFRS for SMEs
a. If the entity complies with all the requirements of IFRS for SMEs.
b. If the entity complies with the vast majority of the requirements of IFRS for SMEs.
c. If the entity complies with the USA GAAP.
d. If the entity complies with full IFRS.

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3.Financial statements prepared by an SME must comply with the IFRS for SMEs. Which of the following
statements suitably describes the nature of the compliance with the Standard?
a. The accounting practices used are a mix of full IFRS and IFRS for SMEs
b. The accounting practices used are a mix of local GAAP and IFRS for SMEs
c. The accounting practices used are a mix of full IFRS and local GAAP
d. The SME has followed IFRS for SMEs in its entirety

ANSWER 66-4
1.d
2.a
3.d

QUESTION 66-5 Multiple choice (IFRS)

1. A complete set of financial statements for SMEs
a. Contains only a statement of financial position and an income statement.
b. Contains a statement of financial position, a single statement of comprehensive income, a statement of changes in
equity and a statement of cash flows.
c. Is similar to that provided for by full PFRS.
d. Is similar to that provided for by full PFRS except notes including accounting policies.

2. In accordance with IFRS for SMEs, an entity must present additional line items in a statement of financial
position when
a. Such presentation is relevant to an understanding of the entity's financial position.
b. Such presentation is a generally accepted practice in the sector in which the entity operates.
c. Such presentation is required by the tax authorities of the jurisdiction in which the entity operates.
d. Such presentation is relevant to an understanding of the entity's financial position and financial performance.

3. In accordance with IFRS for SMEs, the financial statement that presents the assets, liabilities and equity at a point
in time
a. Must be titled the statement of financial position
b. Must be titled the balance sheet
c. Could be titled the statement of financial position or the balance sheet
d. Could be titled the statement of financial position, the balance sheet or any other title that is not misleading

ANSWER 66-5
1.c
2.a
3.d

QUESTION 66-6 Multiple choice (IFRS)

1. All of the following are considered line items in the statement of financial position of an SME, except
a. Biological assets carried at fair value
b. Investments in joint venture
c. Investment properties carried at cost
d. Total of assets of disposal group classified as held for sale

2. Which of the following must not be included in the statement of financial position of an SME?
a. Contingent asset
b. Property, plant and equipment
c. Intangible assets
d. Investment property at fair value through profit or loss

3. Which of the following is required to be shown as line item for an SME but not under full IFRS?
a. Inventory
b. Property, plant and equipment
c. Financial asset

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d. Investment in joint venture

4. All of the following are considered line items in the statement of financial position of an SME, except
a. Provisions
b. Non-controlling interest
c. Equity attributable to the owners of parent.
d. Revaluation surplus related to intangible assets

ANSWER 66-6
1.d
2.a
3.d
4.d

QUESTION 66-7 Multiple choice (IFRS)

1. Which of the following should be recognized in the comprehensive income of an SME?
a. Gain and loss from discontinued operation
b. Gain and loss from translation of a foreign operation
c. Gain on remeasuring equity investment at FVOCI
d. Extraordinary gain and loss

2. The PFRS for SMEs mentions the following components of other comprehensive income, except
a. Gain and loss on hedging instrument
b. Revaluation surplus of property, plant and equipment
c. Actuarial gain and loss of defined benefit plan
d. All of these are SME component of OCI

3. Which of the following can an SME elect as an accounting policy choice to recognize in other comprehensive
income or in profit or loss?
a. Revaluation surplus of property, plant and equipment
b. Gain and loss from translation a foreign operation
c. Actuarial gain and loss of defined benefit plan de Gain and loss on hedging instrument

4. Which component of OCI of an SME is reclassified to profit or loss?

a. Change in fair value of hedging instrument
b. Revaluation surplus of property plant and equipment
c. Translation gain and loss
d. Actuarial gain and loss

ANSWER 66-7
1.b
2.d
3.c
4.a

QUESTION 66-8 Multiple choice (IAA)

1. Which method is required for reporting change in accounting policy?
a. Cumulative effect approach
b. Retrospective approach
c. Prospective approach
d. Averaging approach

2. Which of the following is not treated as a change in accounting policy?

a. A change from FIFO inventory valuation to average cost
b. A change from direct writeoff method of recognizing bad debt expense to allowance method

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c. A change from cost model to fair value model in measuring investment property
d. A change to a new IFRS requirement

3. Which statement about accounting changes is correct?

a. Changes in accounting policy are always handled in the current or prospective period.
b. Prior year statements should be restated for changes in accounting estimate.
c. A change from expensing certain costs to capitalizing such costs due to a change in the period benefited should be
handled as a change in accounting estimate.
d. Correction of a prior period error should be an adjustment to current year net income.

4. Prior years’ statements are not restated for

a. Changes in accounting policy
b. Changes in estimates
c. Corrections of errors
d. All of these require retrospective restatement

ANSWER 66-8
1.b
2.b
3.c
4.b

QUESTION 66-9 Multiple choice (IFRS)

1. Inventories are defined as
a. Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of
materials or supplies to be constituted in the production process or in the rendering of services.
b. Assets held for sale, in the process of production, or in the form of materials or supplies to be consumed in the
production process.
c. Tangible assets held for sale in the ordinary course of business, in the process of production, or in the form of
materials or supplies to be consumed in the production process or in the rendering of services.
d. All of these define inventories.

2. Inventories must be measured by an SME at

a. Cost
b. The lower of cost and estimated selling price less cost to complete and dispose
c. The lower of cost and fair value less cost to complete and dispose
d. The most recent purchase price

3. Under PFRS for SMEs, if the estimated selling price less cost to complete and sell is lower than cost of inventory,
the write-down is recognized
a. As an impairment loss
b. As component of cost of goods sold
c. Either as an impairment loss or a component of cost of goods sold
d. Directly in retained earnings

4. Consumable supplies to be consumed in the production process are accounted for as

a. Inventory
b. Property, plant and equipment
c. Investment property
d. Intangible asset

5. A retailer of perishable produce seeks to avoid obsolescence by arranging the produce in such a way that
customers are most likely to purchase the oldest inventory first. The cost formula that is more appropriate
for the entity is
a. FIFO

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b. LIFO
c. Weighted average
d. Specific identification

6. A property developer must classify properties that it holds for sale in the ordinary course of business as
a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property

7. An SME may use techniques for measuring cost of inventories if the results approximate cost. Accepted
techniques include all of the following, except
a. Standard cost
b. Retail method
c. Most recent purchase price
d. Gross profit method

8. An entity must assign the cost of inventories by

a. The LIFO cost formula.
b. Specific identification of individual costs for inventories that are not ordinarily interchangeable.
c. Specific identification of individual costs for inventories that are ordinarily interchangeable.
d. The FIFO cost formula.

ANSWER 66-9
1.a 5.a
2.b 6.a
3.a 7.d
4.a 7.b

QUESTION 66-10 Multiple choice (IFRS)

1. All of the following are considered basic financial instruments, except
a. Cash
b. Investment in bonds
c. Accounts receivable
d. Investment in convertible preference shares

2. All of the following are considered basic financial instruments, except

a. Demand and fixed-term deposits
b. Option and forward contracts
c. Loans from subsidiaries that are due on demand de A debt instrument that becomes payable on demand if the
issuer defaults on interest or principal payment.

3. For a basic financial instrument measured at cost less impairment, the impairment loss is
a. The difference between the carrying amount of the asset and the best estimate of the amount that would be
received if the asset were sold.
b. The difference between the carrying amount of the asset and the present value of estimated future cash flows at
market rate.
c. The difference between the carrying amount and fair value of the asset.
d. The decline in fair value of the asset.

4. It is a financial instrument that gives the holder the right to sell the instrument back to the issuer or is
automatically redeemed or purchased by the issuer on the occurrence of a future uncertain event.
a. Puttable instrument
b. Commercial paper
c. Commitment to receive a loan
d. Debt instrument

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5. Which of the following statements is true in relation to the subsequent measurement of basic financial
instruments?
a. Basic debt instruments shall be measured at amortized cost using the effective interest method.
b. Investments in nonconvertible nonputtable preference shares that are publicly traded shall be measured at fair
value through profit or loss.
c. Investments in nonputtable ordinary shares that are not publicly traded or whose fair value cannot be measured
reliably without undue cost or effort shall be measured at cost less impairment.
d. All of these statements are true in relation to subsequent measurement of basic financial instruments.

6. Which of the following in an SME's statement of financial position is a financial asset or financial liability?
a. A liability for an amount due to a supplier for a past receipt of goods
b. An asset for a prepayment made to a supplier for the rent of a machine for two months
c. A liability for a fine for the late payment of income tax by the entity
d. All of these are financial instruments

7. All of the following financial assets are basic financial instruments of an SME, except
a. Cash
b. Trade receivables
c. A five percent holding in nonputtable ordinary shares of another entity.
d. A thirty percent holding in nonputtable ordinary shares of another entity where the investee is classified as an
associate of the entity.

8. All of the following financial instruments are basic financial instruments of an SME, except
a. Investments in nonconvertible nonputtable preference shares
b. Financial instruments that meet the definition of an entity's own equity
c. A fixed-interest fixed-term loan from a bank
d. Investments in nonputtable ordinary shares

9. All of the following are considered basic financial instruments of an SME, except
a. Accounts payable in foreign currency
b. Loan from associate due on demand
c. Investment in convertible debt
d. A debt instrument with a fixed rate of return

10. Which of the following statements reflects the accounting for financial instruments under IFRS for SMEs?
a. All financial instruments must be measured at fair value
b. Reversal of an impairment loss is not allowed
c. All amortized cost instruments must be tested for impairment
d. All financial instruments must be measured at amortized cost

ANSWER 66-10
1.d 6.a
2.b 7.d
3.a 8.b
4.a 9.c
5.d 10.c

QUESTION 66-11 Multiple choice (IFRS)

1. An associate is
a. An entity over which the investor has significant
b. An entity over which the investor has joint control
c. An entity over which the investor has significant influence or joint control and that is not a subsidiary.
d. An entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint
venture.

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2. An SME shall account for investments in associate after initial recognition using
a. Cost model
b. Equity method
c. Fair value model
d. Any one of the cost model, equity method and fair value model and using the same accounting policy for all
investments in associates

3. Which statement is true in relation to the initial measurement of investment in associate?

a. Under the cost model, the investment in associate is initially measured at the transaction price plus transaction
cost.
b. Under the equity method, the investment in associate is initially measured at the transaction price plus transaction
cost.
c. Under the fair value model, the investment in
associate is initially measured at the transaction price excluding transaction cost.
d. All of these statements are true.

4. Under the cost model, the investment in associate is subsequently measured at

a. Cost
b. Cost less accumulated impairment loss
c. Fair value
d. Fair value less cost of disposal

5. Under the fair value model, the investment in associate is subsequently measured at
a. Cost less accumulated impairment loss
b. Equity
c. Fair value less cost of disposal
d. Fair value

6. Investments in associates must be tested for impairment if the entity uses

a. The cost model, equity method or fair value model
b. The cost model or the equity method
c. The cost model or the fair value model
d. The equity method or the fair value model

7. An SME owns 30% of the ordinary shares that carry voting rights at a general meeting of shareholders. In the
absence of evidence to the contrary, the SME
a. Has significant influence over the investee.
b. Has significant influence over the investee, provided that it does not have joint control over the investee.
c. Has significant influence over the investee, provided that it does not have control over the investee.
d. Has significant influence over the investee, provided that it does not have control or joint control over the
investee.

8. Which of the scenarios would not lead to the presumption that an entity has significant influence?
a. Holding directly 20% or more of the voting power of the investee.
b. Holding indirectly, through a subsidiary, 20% or more of the voting power of the investee.
c. Holding indirectly, through a joint venture, 20% or more of the voting power of the investee.
d. Holding directly 10% of voting power of the investee and holding indirectly, through a subsidiary, 10% of the
voting power of the investee.

ANSWER 66-11
1.d 5.d
2.d 6.b
3.d 7.d
4.b 8.c

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QUESTION 66-12 Multiple choice (IFRS)

1. Investment property is defined as
a. Land or a building, or part of a building, or both held for sale in the ordinary course of business.
b. Land or a building, or part of a building, or both held to earn rentals only.
c. Land or a building, or part of a building, or both held for capital appreciation only.
d. Land or a building, or part of a building, or both held to earn rentals or for capital appreciation or both.

2. An SME operates a bed and breakfast from a building it owns. The SME also provides the guests with other
services including housekeeping, satellite television and broadband internet access. The daily room rental is
inclusive of these services. Furthermore, upon request, the entity conducts tours of the surrounding area for the
guests. Tour services are charged for a fee separately. The SME should account for the building as
a. Inventory
b. Investment property
c. Property, plant and equipment
d. Basic financial instrument

3. An SME must measure tan investment property after initial recognition

a. At either fair value or the cost-depreciation impairment model and using same accounting policy for all
investment property.
b. At either fair value or the cost-depreciation impairment model elected item by item.
c. At fair value.
d. At fair value, for property whose fair value can be measured reliably without undue cost or effort on an ongoing
basis and the cost-depreciation impairment model for all other investment property.

4. A building is held by a subsidiary to earn rentals under an operating lease from the parent. The Parent
manufactures products in the rented building. The fair value of the building can be measured reliably without undue
cost or effort on an ongoing basis. What is the accounting treatment of the building?
a. Accounted for as property, plant and equipment by the subsidiary and an investment property by the group
b. Accounted for as property, plant and equipment
c. Accounted for as investment property
d. Accounted for as an investment property by the subsidiary and property, plant and equipment by the group

5. What is the presentation of investment property accounted for using the cost model?
a. Property, plant and equipment
b. Separate class of property, plant and equipment
c. Investment property with no distinction
d. Separate line item as investment property at cost less accumulated depreciation and impairment

ANSWER 66-12
1.d
2.c
3.d
4.d
5.d

QUESTION 66-13 Multiple choice (IFRS)

1.What is the definition of property, plant and equipment
a. Tangible assets held for sale in the ordinary course of business.
b. Tangible assets held to earn rentals or for capital appreciation or both.
c. Tangible assets held for use in the production or supply of goods or services and expected to be used during more
than one reporting period.
d. Tangible assets held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes and expected to be used during more than one reporting period.

2. An SME shall measure property, plant and equipment after initial recognition using
a. Cost model

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b. Revaluation model
c. Cost model and fair value model
d. Cost model and revaluation model

3. What depreciation method is most appropriate for the significant part of an aircraft?
a. Straight line method for all parts of the aircraft.
b. Production method based on air miles flown for the jet engine and straight line method for all other parts of the
aircrafts
c. Production method based on air miles flown for all parts of the aircraft.
d. Diminishing balance method for all parts of the aircraft.

ANSWER 66-13
1.d
2.d
3.b

QUESTION 66-14 Multiple choice (IFRS)

1. An entity shall measure government grant at
a. The amount of cash received
b. The amount of cash received or receivable
c. The fair value of the asset received or receivable
d. NIL

2. An SME must recognize a government grant that does not impose specified future performance conditions
a. In income when the grant proceeds are receivable.
b. In income over the periods necessary to match it with the related costs.
c. By applying an approach depending upon the accounting policy adopted by the entity.
d. In retained earnings.

3. An SME must recognize a government grant that imposes specified future performance conditions
a. In income when the grant proceeds are receivable.
b. In income over the periods necessary to match it with the. related costs.
c. In income only when the performance conditions are met.
d. In other comprehensive income.

4. An SME must recognize government grant received before the income recognition criteria are satisfied
a. In income when the grant proceeds are received
b. In equity
c. As a liability
d. As component of other comprehensive income

ANSWER 66-14
1.c
2.a
3.c
4.c

QUESTION 66-15 Multiple choice (IFRS)

1. Borrowing costs do not include
a. Interest incurred on bank overdraft
b. Incremental administrative fee incurred in connection with loan
c. Finance charge related to finance lease
d. Dividends declared to equity holders

2. An SME must recognize all borrowing costs

a. As an expense when incurred.

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b. As capitalizable when directly attributable to a qualifying asset.

c. In retained earnings.
d. In other comprehensive income.

3. An SME shall capitalize all of the following as cost of property, plant and equipment, except
a. Transport cost
b. Loan raising cost
c. Installation cost
d. Nonrefundable purchase tax

4. Which of the following is a disclosure requirement in relation to borrowing cost under PFRS for SMEs?
a. Borrowing cost capitalized during the period
b. Segregation of qualifying assets
c. Capitalization rate used
d. Total finance costs recognized as expense

ANSWER 66-15
1.d
2.a
3.b
4.d

QUESTION 66-16 Multiple choice (IFRS)

1. An SME must measure intangible assets after initial recognition
a. At fair value.
b. At fair value or at cost less any accumulated amortization and any accumulated impairment losses for all items in
the same class of intangible
asset.
c. At fair value or at cost less any accumulated amortization and any accumulated impairment losses on an item by
item basis.
d. At cost less any accumulated amortization and any accumulated impairment loss.

2. The useful life of the intangible asset of an SME is considered to be

a. Either finite or indefinite
b. Finite
c. Indefinite
d. Ten years

3. An SME acquired a trademark that has a remaining legal life of five years but is renewable every ten years at
little cost. The useful life of the trademark is
a. Five years
b. Based on the best estimate of management but not exceeding 10 years
c. Fifteen years
d. Indefinite

4.Under PFRS for SMEs, the cost of an intangible asset at initial recognition is measured at fair value when
a. It is internally generated.
b. It is acquired as part of business combination.
c. It is acquired by way of government grant.
d. It is acquired as part of business combination or acquired by way of government grant.

5. What is the accounting for research and development

a. All research and development costs are capitalized.
b. All research and development costs are expensed

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c. All research costs are expensed when incurred and all development costs are capitalized when certain criteria are
met.
d. All research costs are capitalized when certain criteria are met and all development costs are expensed when
incurred.

6. On January 1, 2010, an SME (a publisher) acquired a competitor's publishing title at certain amount. On January
1, 2013, the entity commenced publishing using the new title. On December 31, 2017, the entity decided to sell the
publishing title and took actions that make the sale within 12 months highly probable. The publishing title was sold
on December 31, 2018. The entity should account for the publishing title as
a. An intangible asset from January 1, 2010 to December 31, 2017 and as an inventory from December 31, 2017 to
the date of disposal on December 31, 2018.
b. An item of inventory from January 1, 2010 to the date of disposal on December 31, 2018.
c. An intangible asset from January 1, 2010 to the date of disposal on December 31, 2018.
d. An intangible asset from January 1, 2010 to December 31, 2017 and as noncurrent asset held for sale from
December 31, 2017 to December 31, 2018.

ANSWER 66-16
1.d 4.d
2.b 5.b
3.d 6.c

QUESTION 66-17 Multiple choice (IFRS)

1. Which of the following arrangements is accounted for in accordance with PFRS for SMEs on leases?
a. Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts patents and
copyrights.
b. Agreements that transfer the right to use assets even though substantial services by the lessor may be called for in
connection with the operation or maintenance of such assets.
c. Leases to explore for minerals, oil, natural gas and similar non-regenerative resources.
d. Onerous operating leases.

2. An SME entered, as lessee, into a five-day non-cancelable lease of a motor vehicle that has an economic life of
five years and nil residual value. Lease payments are on a daily basis. At the end of the lease term, the lessee returns
the motor vehicle to the lessor. The lease is accounted for
a. As a finance lease
b. As an operating lease
c. Either as a finance lease or an operating lease
d. Neither as a finance lease nor an operating lease

3. Depreciation of a leased machine is

I. Recognized by the lessee where the lessor and the lessee have classified the lease as finance lease.
Il. Recognized by the lessor where the lessor and the lessee have classified the lease as an operating lease.
a. I only
b. II only
c. Either I or II
d. Neither I nor II

4. A lessee that paid a certain amount to a broker for arranging a finance lease must
a. Account for the fee as an expense in the period in which the fee was incurred.
b. Include the fee in the cost of the leased asset,
c. Defer recognition of the expense and recognize the fee on the straight line method over the lease term.
d. Include the fee in the principal lease liability.

5. An SME enters as lessee into a two-year lease in respect of a machine that has an economic life of four years with
nil residual value. Rent per year is payable yearly in advance. The lessee holds an option to acquire the machine for
a nominal amount. The option is exercisable at the end of the lease term when the fair value of the machine is

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expected to be very much higher than the nominal amount. At the commencement of the lease term, the lessor
should
I. Derecognize the machine and recognize a lease receivable.
Il. Continue to recognize the carrying amount of the machine subject to the lease as an item of property, plant and
equipment.
a. I only
b. Il only
c. Both I and II
d. Neither I nor II

ANSWER 66-17
1.b
2.b
3.c
4.b
5.a

QUESTION 66-18 Multiple choice (IFRS)

1. What is the formula in computing equity?
a. Investments by owners plus retained earnings minus distributions to owners
b. Investments by owners plus accumulated losses minus distributions to owners
c. Investments by owners
d. Investment by owners plus retained earnings plus distribution to owners

2. What is the measurement of equity shares issued?

a. Fair value of cash or other resources received or receivable
b. Fair value of cash or other resources received or receivable plus direct issue costs
c. Fair value of cash or other resources received or receivable less direct issue costs
d. Fair value of equity shares issued less direct issue costs

3. An entity shall account for the transaction cost of an equity transaction as

a. An expense immediately
b. A deduction from equity
c. An addition to equity
d. A deduction from retained earnings

4. An entity shall reduce equity for

a. Amount earned through profitable operations and
retained for use in operations.
b. Share split
c. Amount of distributions to owners.
d. Amount of bonus issue.
5. When entity distributes noncash asset as dividend to the owners. the entity shall
a. Not recognize liability
b. Recognize a liability equal to the fair value of the asset to be distributed.
c. Recognize a liability equal to the carrying amount of the asset to be distributed.
d. Do nothing.

6.Which statement is true in relation to issue of shares?

a. If the equity instruments are issued before the entity receives cash, the entity shall present the amount receivable
as an offset to equity and not as an asset.
b. If the entity receives cash before the equity instruments are issued and the entity cannot be required to repay the
cash, the entity shall recognize an increase in equity to the extent of the cash received.
c. To the extent that the equity instruments have been subscribed but not issued and the entity has not yet received
the cash, the entity shall not recognize an increase in equity.
d. All of these statements are true.

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ANSWER 66-18
1.a 4.c
2.c 5.b
3.b 6.d

QUESTION 66-19 Multiple choice (IFRS)

1. An entity shall recognize the goods or services received in a share-based payment transaction
a. Only when the share-based payment is cash-settled
b. When the entity receives the goods or services.
c. Only when the vesting period ends.
d. Only on the date that the equity instruments are granted.

2. If share options granted to employees under a share-based payment transaction vest immediately
a. The entity should defer recognition of the services rendered by the employees.
b. The entity should record a liability.
c. The employees are unconditionally entitled to the share-based payments.
d. The entity should account for the services when these are rendered by the employees during the vesting period.

3. For equity-settled share-based payment transactions, an entity shall measure the goods or services received
a. Always at the fair value of goods and services received.
b. Always at the fair value of the equity instruments issued.
c. At the cost of goods and services provided by employees.
d. At the fair value of the goods or services received unless the fair value cannot be estimated reliably.

4. In measuring the fair value of shares and the related goods or services received, an entity
a. Must always use observable market price of the entity's own share.
b. Uses observable market price but only for nonemployee share-based transaction.
c. Uses price established by the entity's directors for that type of share-based transaction.
d. Uses observable market price and other measures according to a measurement hierarchy.

5. For a cash-settled share-based payment transaction for employee services, the entity should
a. Recognize in profit or loss the cash paid out to the employees in the final year.
b. Recognize in profit or loss the cash paid out to the employees over the vesting period.
c. Recognize in profit or loss the estimate of the cash to be paid out to the employees over the vesting period.
d. Recognize in profit or loss the grant date fair value of the liability over the vesting period.

6. For share-based payment transaction offering a choice of settling the transaction in cash or by transfer of equity
instrument, the entity should account for the transaction as
a. Cash-settled share-based payment transaction.
b. Cash-settled share-based payment transaction unless the entity has a past practice of settling by issuing equity
instrument.
c. Cash-settled share-based payment transaction unless the option to settle in cash has no commercial substance.
d. Cash-settled share-based payment transaction unless the entity has a past practice of settling by issuing equity
instrument or the option to settle in cash has no commercial substance.

ANSWER 66-19
1.b
2.c
3.d
4.d
5.c
6.d

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QUESTION 66-20 Multiple choice (IFRS)

1. Specialized activities of an SME include all, except
a. Agriculture
b. Service concession
c. Exploration and evaluation of mineral resources
d. Insurance

2. The exploration expenditure incurred by an SME in exploration and evaluation activities is classified as
a. Tangible asset as an item of property, plant and equipment
b. Intangible asset
c. Either tangible asset or intangible asset
d. Neither tangible asset nor intangible asset

3. An SME shall measure subsequently the intangible exploration and evaluation asset using
a. Cost model
b. Fair value model
c. Either cost model or fair value model
d. Revaluation model

4. On the part of the private operator, the infrastructure asset shall be recognized as
a. Property, Plant and Equipment
b. Financial Asset
c. Intangible asset
d. Either financial asset or intangible asset

5. The infrastructure asset in a service concession recognized as financial asset shall be measured at

a. Amortized cost
b. Fair value through profit or loss
c. Fair value through other comprehensive income
d. Amortized cost, fair value through profit or loss, or fair value through other comprehensive income

6. Which is not addressed in IFRS for SMEs?

a. Earnings per share
b. Provisions and contingencies
c. Liabilities and equity
d. Revenue

7. Which accounting treatment is not allowed under the IFRS for SMEs?
a. Weighted average method for inventory
b. Equity method for associates
c. Revaluation model for intangible assets
d. Temporary difference approach for deferred taxation

8. Which of the following is not simplification of an accounting practice allowed by the IFRS for SMEs?
a. Goodwill and other indefinite life intangible asset are amortized over the useful life.
b. SMEs do not have to derecognize a financial asset when the entity transfers to another party substantially all of
the risks and rewards of the asset.
c. A simplified calculation is allowed if measurement of defined benefit obligation involves undue cost or effort.
d. The cost model is permitted for investment in associate.

ANSWER 66-20
1.d
2.c
3.a
4.d

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5.d
6.a
7.c
8.b

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SMALL AND MEDIUM – SIZED ENTITIES

Definition
The IASB describes “small and medium – sized entities” or SMEs as entities that:

a. Do not have public accountability

b. Publish general purpose financial reports for external users.

Public accountability
An entity has public accountability if:
a. Its debt or equity instruments are traded in a public market or it is in the process of issuing such
instruments for trading in public market, for example, domestic or foreign stock exchange. Over-the-
counter market, local and regional market.
b. It holds assets in fiduciary capacity for a broad group of outsiders as one of its primary business.

This is typically the case for banks, credit unions, insurance companies, securities dealers or brokers,
mutual funds and investment banks.

However, if such entities do so for reasons “incidental to a primary business” the entities are “not
publicly accountable”

SME under Philippine jurisdiction

The definition of SME is set forth in SEC En Bank Resolution dated August 13, 2009 as follows:
SME is an entity:

a. With total assets between P3,000,000 and P350,000,000, OR with total liabilities between
P3,000,000 and P250,000,000.
b. This is not required to file financial statements under SRC Rule 68.1. This SRC Rule 68.1 pertains
to :listed entities” whose shares are traded in a public market.
c. That is not in the process of filing financial statements for the purpose of issuing any class of
instruments in a public market.
d. That is not a holder of a secondary license issued by a regulator agency such as a bank (all types
of banks). An investment house, a finance company, an insurance company, securities broker or
dealer, a mutual fund and pre-need company.
e. That is not a public utility.

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Micro-business entities

Micro-business 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

Exemptions from PFRS for SMEs

The Philippine SEC on October 7, 2010 resolved to exempt from the mandatory adoption of PFRS for
SMEs small and medium-sized entity that meets any of the following criteria:

1. It is subsidiary of a parent company reporting under full PFRS.

2. It is a subsidiary of a foreign parent company that will be moving towards IFRS pursuant to the
foreign country’s published convergence plan
3. It is a subsidiary of a foreign parent company that has been applying the standards for a
nonpublicly accountable entity for local reporting purposes, and is considering moving to full
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. It has short-term projections that show that it will be breach the quantitative thresholds set in
the criteria for an SME, and the breach is expected to be significant and continuing due to its
long-term effect on the entity’s asset or liability size.
5. It is part of a group, either as a significant joint venture or an associate, that is reporting under
full PFRS.
6. It is a branch office of a foreign entity reporting under full IFRS
7. It has concrete plans to conduct an initial public offering within the next two years.
8. It has a subsidiary that is mandated to report under full PFRS
9. It has been preparing financial statements using full PFRS and has decided to liquidate its assets.

Significant and continuing

If an SME that uses the PFRS for SMEs in a current year breaches the floor and ceiling size criteria at
the end of the current year, the entity shall be required to transition to full PFRS in the next year if
the ceiling threshold is breached or another acceptable accounting basis if the floor threshold is
breached.

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This transition must be made provided the event that caused the change is considered “significant
and continuing”. As a general rule, 20% or more total assets or total liabilities would be considered
significant

Effective date
An entity that meets the definition of SME shall apply the PFRS for SMEs for annual period beginning
January 1, 2010.

First-time adopter

A first-time adopter of the PFRS for SMEs is an entity that presents the first annual financial
statements that conform with the PFRS for SMEs regardless of whether the previous accounting
framework was full PFRS or another set of generally accepted accounting principles.

First-time adoption required full retrospective application of the PFRS for SMEs effective at the
reporting date for an entity’s first annual financial statements that conform with PFRS for SMEs.

Date of transition

The date of transition to PFRS for SMEs is the beginning of the earliest period for which full
comparative information is presented in accordance with the PFRS for SMEs in the first annual
financial statements that conform with PFRS for SMEs.

Thus, if the first-time adopter presents the first annual financial statements in conformity with the
PFRS fpr SMEs on December 31, 2016 on comparative basis, the date of transition to PFRS for SMEs is
January 1, 2015.

Opening statement of financial position

The opening statement of financial position is the statement of financial position as of the date of
transition to the PFRS for SMEs. In the opening statement of financial position, a first-time adopter
shall:

a. Recognize all assets and liabilities whose recognition is required by the PFRS and SMEs.
b. Not recognize as assets o r liabilities if the PFRS for SMEs does not permit such recognition.
c. Reclassify items that it recognized under the previous accounting framework as one type of asset,
liability or component of equity, but a different type of asset, liability or equity under the PFRS for
SMEs.

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d. Apply the PFRS for SMEs in measuring all recognized assets and liabilities.

The resulting adjustments arising from transactions, other events and conditions before the date of
transition to PFRS for SMEs shall be recognized directly in retained or another category of equity, if
appropriate.

SIGNIFICANT DIFFERENCES BETWEEN PFRS FOR SMEs AND FULL PFRS

1. Qualitative characteristics of the financial statements of an SME

1. Understandability 6. Prudence
2. Relevance 7. Completeness
3. Materiality 8. Comparability
4. Reliability 9. Timeliness
5. Substance over form 10. Balance between benefit and cost

The “fundamental” qualitative characteristics under full PFRS are relevance and faithful
representation. The “enhancing” qualitative characteristics are understandability, comparability,
verifiability and timeliness.

2. Components of financial statements- basically similar to full PFRS

When the only changes to the equity are a result of profit or loss, payment of dividends, prior
periods errors, changes in accounting policy, an SME is permitted but not required to present a
“single statement of income and retained earnings” instead of both a statement of
comprehensive income and statement of changes in equity.

Under Full PFRS, a statement of changes I equity is always required. A single statement of income
and retained earnings is prohibited under FULL PFRS

3. Statement of financial position

Same line items for SMEs and Full PFRS, except the following line items are not required for
SMEs:
a. Total of assets classified as held for sale
b. Total of liabilities included in disposal group classified as held for sale

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Full PFRS requires presentation of investments in associates but not investment in joint ventures.
PFRS for SMEs requires presentation of both investments in associates and investments in joint
ventures as separate line items.

Paragraph 4.2 of PFRS for SMEs is amended to include as a separate line item investment
property carried at cost less accumulated depreciation and impairment.

Under full PFRS, a third statement of financial position as at the beginning of the earliest
comparative period shall be prepared:

a. When an entity apples an accounting policy retrospectively

b. When an entity makes a retrospective restatement
c. When an entity reclassifies items in its financial statements

The “ third statement of financial position” is not required under PFRS for SMEs.

4. Other of comprehensive income

Under full PFRS, the components of other comprehensive income include:

Reclassified to profit or loss

a. Translation gain or loss or foreign operation

b. Unrealized gain or loss on derivative contract as a cash flow hedge
c. Unrealized gain or loss on debt investment measured at FVOCI

Reclassified to retained earnings

a. Unrealized gain or loss on equity investment measured at FVOCI
b. Remeasurements of defined benefit plan
c. Revaluation surplus
d. Changes in fair value attributable to the credit risk of financial liability designated at FVPL/

Under PFRS for SMEs, the components of other comprehensive income include:

Reclassified to retained earnings.

a. Translation gain or loss of a foreign operation
b. Actuarial gain and loss – reporting actuarial gain or loss as OCI is optional because this may be
recognized in profit or loss.

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c. Revaluation surplus of property, plant and equipment

Reclassified to profit or loss

d. Change in fair value of hedging instrument

5. Natural and functional presentation of statement of comprehensive income

Same under Full PFRS and PFRS for SMEs.

6. Asset held for sale and discontinued operation

The PFRS for SMEs does not address noncurrent asset held for sale and discontinued operation.

7. Full PFRS and PFRS for SMEs have the same provisions with regard to notes to financial
statements, related parties, events after the end of reporting period, accounting changes and
prior period errors.
8. Inventories
An SME shall measure inventories at the lower of cost and estimated selling price less cost to
complete and sell
If the estimated selling price less cost to complete and sell is lower that cost, the write down is
recognized as impairment loss.
Under full PFRS, inventories are measured at LCNRV. If the NRV is lower than cost, the writedown
is recognized as component of cost of goods sold.

9. Basic financial instruments of SMEs

1. Cash,demand and fixed term deposits or bank accounts
2. Trade accounts and notes receivable and loans receivable
3. Commercial papers or commercial bills – unsecured and sort-term debt investment
4. Investments 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 a loan 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.

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That 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. Then there is no arrangement that could result in the shares being automatically sold or
returned to the issuer because of a future event.

10. Not basic financial statements instrument of SMEs

a. Asset-backed securities, such collateralized mortgage obligations, repurchase agreements and
securitized packages of receivables
b. Derivative contracts
c. Hedging instruments
d. Commitment to make a loan to another entity
e. Commitment to receive a loan if the commitment can be net settled in cash

The following instruments are outside the scope of PFRS for SMEs:

a. Investments in subsidiaries, associates and joint ventures

b. Financial instruments that meet the definition of an entity’s own equity
c. Leases
d. Employers right and obligations under employee benefit plans
e. Contract for contingent consideration in a business combination
f. Insurance contract
g. Share-based payment transaction
h. Reimbursement asset

11. Conditions for a debt instrument to be classified as basic financial instrument

a. Returns to the holder are a fixed amount or a 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 the
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

In summary, debt investment is basic when the creditor is assured of the payment of the
principal and the fixed amount of interest without any conditions.

12. Initial measurement of basis financial instruments.

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The PFRS for SMEs provides that basic financial instruments(basic financial assets and financial
liabilities) are initially measured at the transaction price, including transaction costs.
However, if the instrument is measured at fair value through profit or loss, the transaction cost is
expensed immediately

13. Subsequent measurement of basic financial instruments

a. Basic debt instruments are measured at amortized cost using the effective interest method
b. Commitment to receive a loan is measured at cost less impairment
c. 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 shares 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.

14. Impairment of basic financial instruments

All amortization cost instruments must be tested for impairment.
The PFRS for SMEs provides that for a basic financial instruments measured at cost less
impairment, the impairment loss is the difference between the carrying amount of the asset and
the Best estimate of the amount that would be received if the asset were sold.
Under full PFRS, the impairment loss is the difference between the carrying amount and the
present value of estimated future cash flows discounted at market rate of interest for similar
asset.
For basic financial instrument measured at amortized cost, both full PRFS and PFRS for SMEs
provide that the impairment loss is the difference between carrying amount and the present
value of cash flows using the original effective rate.

15. Investments in associates

Full PFRS – Investment in associates are accounted for using the equity method.
SMEs – SMEs shall account for investments in associates using any of the cost model, the equity
method or fair value model and using the same accounting policy for all investments in associates

Under the model, the investment in associates is initially measured at the transaction price
including transaction cost, subsequently, the investor shall measure the investment in associates
at cost less any accumulated impairment losses.

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However, the cost model is not permitted if the investment in associates has a published price
quotation in which case, the fair value model is used.

All dividends and other distribution received are recognized as income without regard whether
the dividends are from preacquisition or postacquisition retained earnings of the associate.

Under the equity method, the investment account is initially recognized at the transaction
price, including transaction cost. Subsequently, the investment is adjusted to reflect the
investor’s share in profit or loss and other comprehensive income of the associate.

Dividends and other distributions received from the associate are recognized as reduction of
the carrying amount of the investment.

Under the fair value model, the investment in associate is initially measured at the transaction
price, excluding transaction cost. At each reporting date, the investment is measured at fair
value with changes in fair value recognized in profit or loss. If the fair value model is used, the
investment in associate is not tested for impairment.

16. Investment property

Full PFRS-investment property is measured at either cost of fair value. There is a choice.
SMEs-investment property is measured at fair value if the fair value can be measured reliably
without undue cost or effort on an ongoing basis. Otherwise, the cost model is used.

Paragraph 4.2 of PFRS for SMEs provides that such investment property is presented as a
separate line item ’’investment property at cost less accumulated depreciation and impairment’’.

17. Property, plant and equipment

PFRS for SMEs and full PFRS are now the same with respect to matters related to property, plant
and equipment such as measurement, depreciation method, useful life, residual value,
impairment and revaluation.

Paragraph 17.5 of PFRS for SMEs is amended to allow now the revaluation of property, plant and
equipment of an SME.

18. Government grant

a. Under full PFRS, a government is recognized when there is a reasonable assurance that the
entity will comply with the specified conditions.

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Under the PFRS for SMEs, a government grant is recognized when the conditions are actually
satisfied.

b. Under full PFRS, a government grant is recognized as income over the periods necessary to
match them with the related costs for which they are intended to compensate.
The PFRS for SMEs does not allow an entity to match the grant with the expense for which it
is intended to compensate of the cost of the asset that it is used to finance.

c. Under full PFRS, grant related to asset may be treated either as deferred income or a
reduction in the carrying amount of the asset.
There is no such option under the PFRS for SMEs.

19. Borrowing costs

Full PFRS- borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset must be capitalized as part of the cost the asset. All other
borrowing costs are expensed.
SMEs- al borrowing costs are expensed immediately when incurred.

20. Intangible assets

a. Under PFRS for SMEs, intangible assets are measured subsequently using either the cost
model only.
Under full PFRS, intangible assets are measured subsequently using either the cost model or
revaluation model. There is a choice under full PFRS.

b. Under PFRS for SMEs, the useful life of an intangible asset is considered to be finite. If the
useful life of an intangible asset cannot be estimated reliably, the useful life is determined by
the best estimate if management but not exceeding 10 years.
Under full PFRS, the useful life of an intangible asset is either finite or indefinite.

c. Under PFRS for SMES, ALL INTANGIBLE ASSETS , INCLUDING GOODWILL, ARE AMORTIZED.
Under full PFRS, intangible assets with finite useful life are amortized over the useful life and
intangible assets with indefinite useful life are not amortized but tested for Impairment.

21. Research and development costs

Under PFRS for SMEs, all research and development costs are expensed immediately when
incurred.

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Under full PFRS, research costs are expensed immediately when incurred. However,
development costs may be capitalized when specific criteria are met, particularly when
technological feasibility has already been established.

22. Impairment of assets

Under PFRS for SMEs, assets, including goodwill, are tested for impairment when there is an
indication that the asset may be impaired.

Under full PFRS, assets with a finite useful life are tested for impairment when there is an
indication that the asset may be impaired.

Goodwill, intangible asset with an indefinite useful life or an intangible asset not yet available for
use, are tested for impairment annually and when there is an indication that the asset may be
impaired:

23. Provision and contingencies

Same principles for both PFRS SMEs and full PFRS.

24. Defined benefit liability

a. Full PFRS- The defined benefit obligation is the excess of the present value of the defined
benefit obligation at year-end over the fair value of plan assets at year-end.
SMEs- The defined benefit obligation is the same under full PFRS.
The projected unit credit method is required to measure the defined benefit obligation and
the related expense if it is possible to do so without undue cost or effort.

b. Actuarial gains and losses

Full PFRS- acturial gains and losses are recognized in other comprehensive income.
SMEs- acturial gains and losses are recognized either in profit or loss or other comprehensive
income.

c. Past service costs

Full PFRS and SMEs- all past service costs are recognized immediately in profit or loss as
component of employee benefit expense.

25. Deferred tax asset and liability

PFRS for SMEs and full PFRS are now the same in accounting for income tax.

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26. Lease accounting

PFRS for SMEs and full PFRS (PAS17) are the same in relation to accounting for operating lease,
finance lease and sale and leaseback.

27. Equity
PFRS for SMEs and full PFRS are practically the same with respect to:
a. Issuance of equity instrument
b. Treasury shares
c. Compound financial instrument
d. Equity swap
e. Dividends

28. Share-based payment transactions

Under full PFRS, the share options shall be measured at fair value on 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.

Under PFRS for SMEs, he share options must be measured at fair value on the date of grant.
The intrinsic value is not mentioned as an alternative.

29. Specialized activities of an SME include agriculture, service concession and exploration and
evaluation of mineral resources.
PFRS for SMEs and full PFRS are practically the same for agriculture and service concession.

30. Exploration and evaluation of mineral resources

Under full PFRS, the exploration and evaluation asset whether tangible or intangible shall be
measured subsequently using either the cost model or revaluation model.

Under PFRS for SMEs, the intangible exploration and evaluation asset is measured using the cost
model only.

However, the tangible exploration and evaluation asset is measured using either cost model or
revaluation model.

31. Reconciliations required

1. Reconciliation of equity under the previous accounting basis to the equity under PFRS for
SMEs both at the:

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a. Date of transition to PFRS for SMEs

b. End of current reporting period
2. Reconciliation of profit or loss under the previous accounting basis to the profit or loss under
PFRS for SMEs at end of current reporting period.

MULTIPLE CHOICE-SMEs

1. The IASB defines SMEs as entities that

a. Do not have public accountability
b. Have public accountability and publish general purpose financial statements for
external users.
c. Do not publish general purpose financial statements for external users.
d. Do not have public accountability and publish general purpose financial statements for
external users.

2. Which of the following descriptions accurately describes the definition of an SME used by
the IASB?
a. Entities that have no public accountability
b. Entities that have a specified number of employees
c. Entities that have a certain statement of financial position total
d. Entities that have a certain annual turnover

3. All of the following entities are publicly accountable, except

a. An entity whose shares are traded in a public market.
b. An entity whose debt instrument but not its shares are traded in public market.
c. An entity whose shares and debt instruments are traded in an ‘’over-the-counter
market.
d. An entity that is not in the process of issuing its shares and debt instruments for
trading in a public market.

4. Which of the following approaches has the IASB taken in developing IFRS for SMEs?
a. The exemptions given to smaller entities are prescribed in the mainstream accounting
standards
b. GAAP for SMEs is to be developed on a national basis
c. The standard is an independently developed set of standards

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d. The standards is a simplified self-contained set of accounting principles that are based
on full IFRS

5. In the Philippines, which of the following is not an SME?

a. A nonpublicy accountable entity with total assets between P3,000,000 and P350,000
OR total liabilities between P3,000,000 and P250,000,000.
b. An entity that is not in the process of filing its financial statements for the purpose of
issuing any class of instruments in a public market.
c. An entity that is not holder of a secondary license is issues by a regulatory agency.
d. A public utility

6. Entities with total assets or total liabilities below the floor threshold of P3,000,000 are
known as
a. Micro-business entities
b. Macro-business entities
c. Medium-sized entities
d. Small entities

7. Which of the following is not addressed in IFRS for SMEs?

a. Earnings per share
b. Provisions and contingencies
c. Liabilities and equity
d. Revenue

8. Which accounting treatment is not allowable under IFRS for SMEs?

a. Weighted average method for inventory
b. Equity method for associates
c. Revaluation model for intangible assets
d. Temporary difference approach for deferred taxation

9. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling of the size
criteria at the end of the current year, the entity is
a. Required to transition to full PFRS at the current year-end.
b. Required to transition to full PFRS at the current year-end if the event that caused the
change is significant and continuing.
c. Required to transition to full PFRS in the next year if the event that caused the change
is significant and continuing
d. Not required to transition to full PFRS.

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10. All of the following can be done by a first-time adopter of PFRS for SMEs in the opening
statement of financial position, except
a. Recognize all assets and liabilities whose recognition is required by PFRS for SMEs.
b. Recognize all assets and liabilities required by full PFRS but the PFRS for SMEs does not
require such recognition.
c. Reclassify items that it recognized under a previous accounting framework as one type
of asset, liability or equity but a different type of asset, liability or equity under PFRS
for SMEs.
d. Apply PFRS for SMEs in measuring all recognized assets and lialibities.

11. A nonpublicly accountable entity must make an explicit and unreserved statement of
compliance with the PFRS for SMEs
a. If the entity complies with all the requirements of PFRS for SMEs
b. If the entity complies with the vast majority of the requirements of PFRS for SMEs.
c. If the entity complies with the US GAAP.
d. If the entity complies with full PFRS.

12. Which of the following statements suitably describes the nature of the compliance with
the standard?
a. The accounting practices used are a mix of full IFRS and IFRS for SMEs
b. The accounting practices used are a mix of local GAAP and IFRS for SMEs
c. The accounting practices used are a mix of full IFRS and local GAAP
d. The SME has followed IFRS for SMEs in its entirely

13. An SME is permitted but not required to present a single statement of income and
retained earnings when changes in equity arise from
a. Profit or loss
b. Payment of dividends
c. Prior period errors and changes in accounting policies
d. All of these

14. Which component of OCI of an SME is reclassified to profit or loss?

a. Translation gain or loss from foreign operation
b. Actuarial gain or loss
c. Revaluation surplus of property, plant and equipment
d. Change in fair value of the hedging instrument

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15. Under PFRS for SMEs, if the selling price less cost to complete and sell is lower than cost
of inventory, the write down is recognized.
a. As an impairment loss
b. As component of cost of goods sold
c. As other expense
d. Directly in retained earnings

16. All of the following are considered basic financial instruments, except
a. Cash
b. Investment in bonds
c. As other expense
d. Directly in retained earnings

17. All of the following are considered basic financial instruments, except
a. Demand and fixed-term deposits
b. Option and forward contracts
c. Loans from subsidiaries that are due on demand
d. A debt instrument that becomes payable on demand if the issuer defaults on interest
or principal payment.

18. Which statement is true about subsequent measurement of basic financial instruments?
a. Basic debt instruments are measured at amortized cost using the effective interest
method.
b. Investments in nonputtable ordinary 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.
c. Investments in nonconvertible and nonputtable preference shares which are not
publicly traded or whose fair value cannot be measured reliably are measured at cost
less impairment.
d. All of these statements are true.

19. Which of the following statements reflects the accounting for financial instruments under
IFRS for SMEs?
a. All financial instruments must be measured at fair value
b. Reversal of an impairment loss is not allowed
c. All amortized cost instruments must be tested for impairment
d. All financial instruments must be measured at amortized cost

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20. An SME shall account for investments in associates after initial recognition using
a. Cost model or fair value model and using the same accounting policy for all
investments in associates.
b. Cost model or fair model and the model can be elected on an investment-by-
investment basis.
c. Cost model, equity method or fair value model and using the same accounting policy
for all investments in associates.
d. Cost model, equity method or fair value model and the model can be elected on an
investment-by-investment basis.

21. Which of the scenarios would not lead to the presumption that an entity exerts significant
influence over another entity?
a. Holding directly 20% or more of the voting power of the investee.
b. Holding indirectly, through a subsidiary, 20% or more of the voting power of the
investee.
c. Holding indirectly, through a joint venture, 20% or more of the voting power of the
investee.
d. Holding directly 10% of voting power of the investee and holding indirectly, through a
subsidiary, 10% of the voting power of the investee.

22. An SME must measure an investment property after initial recognition

a. At fair value or using the cost model and same accounting policy for all investment
property.
b. At fair value or using the cost model elected item by item.
c. A fair value.
d. At fair value, property whose fair value can be measured reliably without undue cost
or effort on an ongoing basis and the cost model for all other investment property
presented as a separate line item.

23. An SME must measure property, plant and equipment after initial recognition using
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model

24. An SME must recognize a government grant that imposes specified future performance
conditions
a. Income when the grant proceeds are receivable

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b. In income over the periods necessary to match it with the related costs for which it is
intended to compensate on a systematic basis.
c. In income only when the performance conditions are met.
d. None of the above.

25. An SME must recognize government grants received before the recognition criteria are
met
a. In income when the grant proceeds are received
b. In equity
c. As a liability
d. In other comprehensive income

26. Under the PFRS for SMEs, borrowing cost incurred that is directly attributable to the
construction of qualifying asset must be
a. Expensed in the period incurred
b. Capitalized as part of the cost of the asset
c. Either expensed or capitalized
d. Neither expensed nor capitalized

27. An SME must measure intangible assets after initial recognition using
a. Cost model
b. Fair value model
c. Revaluation model
d. Either cost model or revaluation model

28. What is the accounting for research and development costs incurred by an SME?
a. All research and development costs are capitalized.
b. All research and development costs are expensed when incurred.
c. All research costs are expensed when incurred and all development costs are
capitalized when certain criteria are met.
d. All research costs are capitalized when certain criteria met and all development costs
are expensed when incurred.

29. Under PFRS for SMEs, which statement in relation to defined benefit obligation is true?
a. Past service costs are recognized as expense immediately when incurred.
b. Actuarial gains and losses are recognized immediately in full wither in profit or loss, or
as component of other comprehensive income.

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c. The defined benefit liability is the excess of the present value of the defined benefit
obligation over the fair value of plan assets at year-end.
d. All of these statements are true.

30. Under PFRS for SMEs, a deferred tax asset

a. Is not recognized
b. Is recognized for all temporary differences
c. Is recognized when it is probable that taxable income will be available against which
the deferred tax asset can be used.
d. Is presented as a current asset.

31. Specialized activities of an SME include all of the following, except

a. Agriculture
b. Service concession
c. Exploration and evaluation of mineral resources
d. Insurance

32. Under PFRS for SMEs, any tangible exploration and evaluation asset is measured using
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model

33. The reconciliation of equity under the previous reporting framework to the equity under
PFRS for SMEs is made at
a. The date of transition to PFRS for SMEs
b. The end of current reporting period
c. The date of transition to PFRS for SMEs and at the end of current reporting period.
d. The end of the preceding comparative period.

34. The reconciliation of profit or loss under the previous reporting framework to the profit or
loss under PFRS for SMEs is made at
a. The date of transition to PFRS for SMEs
b. The end of current reporting period
c. The end of the preceding comparative period
d. No reconciliation of profit or loss is made

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