PAS 34: INTERIM REPORTING

• ENTITIES COVERED BY INTERIM REPORTING STANDARDS

1. Certain companies required by Securities Exchange and Commission (SEC) & the Philippine Stock Exchange (PSE)
to publish interim FS⁴⁵
2. Certain companies that elect to publish an interim financial report.
• INTERIM FINANCIAL REPORT
An interim financial report means a financial report containing either a complete set of FS or set of condensed FS for an interim
period ⁴⁶. As a minimum requirement, an interim financial report should include the following components:
1. Condensed balance sheet
2. Condensed income statement
3. Condensed statement showing either all changes in equity or ‘comprehensive income’⁴⁷
4. Condensed cash flow statement
5. Selected explanatory notes
Basic and diluted earnings per share should be presented on the face of an income statement , complete or condensed , for
an interim period.
• SELECTED EXPLANATORY NOTES⁴⁸
An enterprise should include the following information, a minimum, in the notes to its interim FS, if material and if not disclosed
elsewhere in the interim financial report:
1. A statement that the same accounting policies and methods of computation are followed in the interim FS as compared with
the most recent annual FS or, if those policies or methods have been changed , a description of the nature and effect of the
change.
2. Explanatory comments about the seasonality or cyclicality of interim operations
3. The nature and amount of items affecting assets, liabilities, equity , net income or cash flow as that are unusual because of
their nature, size and incidence.
4. The nature of amount of changes in estimates of amounts reported in prior interim periods of the current financial year o r
changes in the estimates of amounts reported prior financial years if those changes have current interim period.
5. Issuances, repurchase and repayments of debt and equity securities
6. Dividend paid (aggregate or per share) separately for ordinary shares and other shares
7. Segment revenue and segment result for business segments or geographical segments, whichever is the primary basis of
segment reporting.
8. Material events subsequent to the end interim period that have not been reflected in the FS for the interim period
9. The effect on changes in composition of the enterprise during the interim period , including business combinations, acquisitions
or disposal of subsidiaries and long-term investments, restructurings , and discontinued operations.
10. changes in contingent liabilities or contingent assets since that last annual BS date.
• PERIODS for which INTERIMS FS are REQUIRED to be PRESENTED.
Interim reports should include interim FS for periods as follows:
1. Balance sheet as of the end of the current interim period and a comparative BS as of the end of the immediately preceding
financial year.
2. Income statements for the current interim period and cumulatively for the current financial year to date , with comparative
income statements for the comparable interim periods (current and year-to –date) of the immediately preceding financial
year.
3. Statement showing changes in equity cumulatively for the current financial year to date , with comparative statement for
the comparable year-to-date period of the immediately preceding the financial year.
4. Cash flow statement cumulatively for the current financial year to date , with a comparative statement for the comparable
year-to-date period of the immediately preceding financial year.

⁴⁵ The SEC and PSE require companies covered by the reportorial requirements of Revised Securities A ct to file quarterly interim
financial reports within 45 days after the end of each of the first three quarters. Also, the SEC requires companies covered by the
Rules on Commercial Papers and Financing Act to file quarterly financial reports within 45 days after each year-end.
⁴⁶An interim period is a financial reporting period shorter than a full financial year . Interim financial reports may be presented
monthly, quarterly, or semiannually.
⁴⁷Comprehensive income is to include all changes in equity , except contributions from and distributions to owners.
⁴⁸ An example of kinds of disclosures as required by PAS 34, par 17 are as follows:
(a) write-down of inventories to net realizable value and the reversal of such write-down
(b) recognition of loss from the impairment of PPE and intangibles and the reversal of such an impairment loss
(c) reversal of any provision for the costs of restructuring
(d) acquisitions and disposals of items of PPE
(e) commitments for the purchase of PPE
(f) litigations settlements
(g) corrections of fundamental errors in previously reported financial data
(h) any debt default or breach of a debt covenant that has not been corrected subsequently
(i) related party transactions.
PFRS 8 : OPERATING SEGMENTS
• RATIONALE (CORE PRINCIPLE)
An entity shall disclose information to enables the users of FS to evaluate the nature and financial effects of the business activities
In which it engages and the economic environments in which it operates.
• ENTITIES REQUIRED TO APPLY SEGMENT REPORTING STANDARDS (SCOPE)
1. Entities whose equity or debt securities in public securities market.
2. Entities that are group of companies (i.e., parent and subsidiaries ), PFRS 8 applies to the consolidated financial statements of the
Group only.
• OPERATING SEGMENTS
An operating segment is a component of an entity:
A.) That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating
to transactions with other components of the same entity).
B.) Whose operating results are regularly reviewed by the entity’s chief operating decision maker⁴⁹ to make decisions about resources
to be allocated to then segment and assess its performance, and
C.) For which discrete financial information is available.
• REPORTABLE SEGMENTS
An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:
A.) Its reported revenue , including both sales to external customers and intersegment sales or transfers , is 10% or more of the
combined revenue , internal and external, of all operating segments.
B.) The absolute amount of its reported profit or loss is 10% or more the greater, in absolute amount , of
(1) combined and reported profit of all operating segments that did not report a loss and (2) combined reported loss of all operating
segments that reported a loss.
C.)Its assets are 10% or more of the combined assets of all operating segments.
If the total external revenue reported by operating segments is less than 75 % of the entity’s revenue, additional operating segments
should, be identified as reportable segments , even if they do not meet the 10% thresholds , until at least 75% of entity’s revenue
is included in reportable segments.
• AGGREGATION OF OPERATING SEGMENTS
Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with core principle of
PFRS 8, the segments have similar economic characteristics, and the segments are similar in each of the following respects:
A.) The nature of the products and services
B.) The nature of the production processes
C.) The type or class of customer for their products and services.
D.)The methods used to distribute their products or provide their services
E.) If applicable, the nature of regulatory environment, for example, banking , insurance or public utilities.
• DISCLOSURE OF OPERATING SEGMENT INFORMATION
An entity shall disclose the following for each period for which an income statement is presented:
A.) General information⁵⁰about the reporting segment
B.) Information about segment profit or loss⁵¹, segment assets⁵²and segment liabilities.
C.) Reconciliations of the totals of segment revenue , segment profit or loss, segment assets , segment liabilities and other material
segment items to corresponding entity accounts.
• ENITY –WIDE DISCLOSURES
Entity wide disclosure is additional information that is required to be disclosed by all entities if such information is not provided as
part of the reportable segment information. An entity shall report information about: 1.) products and services, 2.) geographical areas
and 3.) major customers.
⁴⁹The chief operating decision maker identifies a function , not necessarily a manager with a specific title. That function is to allocate resources to
and assess the performance of the operating segments of an entity. (PFRS 8, par.7)
⁵⁰An entity shall disclose the following general information about an operating segment: (PFRS 8,par.22)
1. Factors used to identify the reportable segments , including the basis of organization .(e.g., whether the management has chosen to
organize the entity around differences in products and services have been aggregated.)
2.)Types of products and services from which each reportable segment drives its revenue.
⁵¹ An entity shall disclose the following about each reportable segment if the specified amounts are included in the measure of profit or
loss: (PFRS 8, par.23)
(a.)Revenues from external customers and transactions with other operating segments of the same entity
(b.)Interest revenue and interest expense
(c.)Depreciation and amortization
(d.)Material times of income and expenses and material noncash items other than depreciation and amortization
(e.)Interest in profit or loss of associates and joint venture accounted for by the equity method.
(f.) Income tax expense
⁵²An entity shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment
assets reviewed by chief operating officer: (PFRS 8, par.24)
(a.) The amount of investments in associates and joint venture accounted for the equity method, and
(b.)The amounts of additions to non-current assets other financial instruments , deferred tax assets, post –employment benefit asset
and rights arising under insurance contracts.

PAS 41: AGRICULTURE

• SCOPE & COVERAGE.
PAS 41 applies the following items, when they relate to agricultural activity:
1. Biological assets⁵³
2. Agricultural produce ⁵⁴at the point of harvest⁵⁵
3. Government grants⁵⁶ related to biological asset

PAS 41 does not apply to:

➢ Land related to agricultural activity , which are covered by PAS 16 (Property , Plant and Equipment ) and PAS 40 (Investment
Property).
➢ Intangible assets related to agricultural activity , which are covered by PAS 38 (Intangible Assets).
PAS 41 applies agricultural produce only at the point of harvest. Thereafter , PAS 2 Inventories or another standard shall be applied
; PAS 41 does not deal with the processing of agricultural activity , and the events taking place may bear some similarity to
biological transformation , processing of agricultural produce is not within the definition of agricultural activity ⁵⁷in PAS 41.
• EXAMPLES
Products that are the result of
Biological assets Agricultural produce processing after harvest
Sheep Wool Yarn , carpet
Trees in a plantation forest Logs ( Felled trees) Lumber
Cotton Thread, clothing
Plants Harvested cane Sugar
Dairy cattle Milk Cheese
Pigs Carcass Sauges,cured hams
Bushes Leaf Tea, curred tobacco
Vines Grapes Wine
Fruit Trees Picked Fruit Processed fruit
• RECOGNITION CRITERIA
 An entity shall recognize a biological asset or agriculture produce when:
A.) The entity control the asset as a result of past events;
B.) It is probable that the future economic benefits associated with the asset will flow to the entity ; and
C.) The fair value or cost of the asset can be measured reliably
• MEASUREMENT BASIS.
A BIOLOGICAL ASSET shall be measured on initial recognition and at each balance sheet date (reporting period ) at fair
value ⁵⁸ less cost to sell ⁵⁹.

AGRICULTURAL PRODUCE harvested from an entity’s biological assets shall be measured at the point of harvest at its fair
value less estimated costs to sell.

Any gain or loss⁶⁰on the initial recognition of biological assets at fair value less costs to sell and any changes in the fair value
less costs to sell of biological assets during the reporting period is included in profit or loss for the period. All costs r elated
to biological assets that are measured at fair value are recognized in profit or loss when incurred to purchase biological assets.

Any gain on the initial recognition of agricultural produce at fair value less costs to sell will be included in the profit o r loss
for the period to which it relates.

⁵³Biological assets are living animals and plants.

⁵⁴Agricultural produce is the harvested product of the entity’s biological assets.
⁵⁵Harvest is the detachment of produce form biological assets or the cessation of a biological asset’s life processes.
⁵⁶Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain
conditions relating to the operating activities of the entity. (PAS 20)
⁵⁷Agricultural activity is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce , or into
additional biological assets(Examples of agricultural activity are raising livestock, annual or perennial cropping,
cultivating orchards and plantation , floriculture , aquaculture , including fish farming); biological transformation relates to the
processes of growth, degeneration, production, and procreation that can cause changes in qualitative or quantitative nature of
biological asset.
⁵⁸Fair value is the amount for which an asset could be exchanged, or liability settled, between knowledgeable , willing parties in an
arm’s length transaction.
⁵⁹Cost to sell are the incremental costs directly attritubutable to the disposal of an asset; examples are commissions to brokers and
dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes and duties; cost to sell exclude
financing charges, transport and other costs necessary to get assets to a market.
⁶⁰A loss may rise on initial recognition of a purchased biological asset as their fair value less estimated point-of-sale costs are likely to
be less than the purchase price plus any transaction and transportation costs; a gain may arise on initial recognition of a biological
asset, such as when a calf is born. (PAS 41, par.27)

• GUIDELINES IN DETERMINING FAIR VALUE

➢ In deciding on the fair value for a biological asset or agricultural produce, it is possible to group together items in accordance with, for
example, their age or quality.
➢ Entities often contract to sell their biological assets or produce at a future date. These contract prices do not necessarily represent value.
The fair value of a biological asset or agricultural produce is not necessarily adjusted because of the existence of contract.
➢ If an active market⁶¹ exist for a biological asset or an agricultural produce, the quoted price in that market is the appropriate basis for
determining the fair value of that asset.
➢ If an entity has an access to different active markets, the entity uses the most relevant one.
➢ If an active market does not exist, then the following methods can be used to determine fair value:
A.) The most recent market transaction price
B.) Market prices similar for assets with adjustment to reflect differences; and
C.) Any sector benchmark such as the value of cattle per kilogram or value of a farmland per hectare.
➢ In some cases, the entity can use the present value of expected net cash flow from the asset discounted at a current market pretax rate.
➢ In some cases, costs may an indicator for fair value , especially where little biological transformation has taken place or the impact of
biological transformation on the price is not expected to be significant.

• ABSENCE OF FAIR VALUE

There is a presumption that fair value can be measured reliably for a biological asset⁶²
 However, this presumption can be rebutted for a biological asset that, when first recognized, does not have a quoted price in an active market
and for which other valuation methods are clearly inappropriate and unreliable. In this case, the biological asset shall be measured at its cost
less any accumulated depreciation and impairment losses⁶³

Unlike a biological asset, agriculture produce is always assumed to have a measurable fair value.

• CHNAGES IN FAIR VALUE.

The fair value less costs to sell of a biological asset can change due to both:
1.) PHYSICAL changes, and
2.) PRICE changes in the market.

An entity is encouraged (but not required) to have separate disclosure of physical and price changes that is useful in appraising current period
performance and future prospect , particularly when there is a production cycle of more than one year.

Biological transformation results in a number of types of physical change - - growth , degeneration, production, and procreation , each of
which is observable and measurable . Each of those physical changes has a direct relationship to future economic benefits. A change in fair
value of biological asset due to harvesting is also physical change.

Agricultural activity is often exposed to climatic , disease, and other natural risks. If an event occurs and given rise to a material item of an
income or expense, the nature and amount of that item are disclosed in accordance with PAS 1 Presentation of Financial Statements. Examples
of such an event include an outbreak of a virulent disease, a flood, a severe drought or frost, and a plague of insects.

• GOVERNMENT GRANTS
An unconditional government grant related to a biological asset measured at its fair value less costs to sell shall be recognized as income when
the government grant becomes receivable.

If a government grant related to a biological asset measured at its fair value less costs to sell is conditional , including where a government
grant requires an entity not to engaging specified agricultural activity , an entity shall recognized the government grant as income when the
conditions attaching to the government grant are met.

If a government grant related to biological asset measured at its cost less any accumulated depreciation and impairment losses, then PAS 20
(Accounting for Government Grants and Disclosure of Government Assistance) is applied.

⁶¹An active market is a market where all the following conditions exist:
a.)The items traded within the market are homogenous;
b.) Willing buyers and sellers can normally be found at any time ; and
c.)Prices are available to the public
⁶²In a noncurrent biological asset meets the criteria to be classified as held for sale or is included in a disposal group in accordance with PFRS 5,then
it is presumed that the fair value can be measured reliably (PAS 41, par.30)
⁶³In determining the cost, accumulated depreciation and accumulated impairment losses, an entity considers PAS 2 Inventories, PAS 16 Property,
Plant & Equipment and PAS 36 Impairment of Assets (PAS 41, par.33)

PFRS 3: BUSINESS COMBINATIONS

• DEFINITION
A business combination is a transaction or other event in which an acquirer⁶⁴ obtains control of one or more businesses.
• ACQUISITION METHOD
An entity shall account for each business combination by applying the acquisition method . Applying the acquisition method
requires.
 ➢ Identifying the acquirer
➢ Determining acquisition date
➢ Recognizing and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in
the acquiree ; and
➢ Recognizing and measuring goodwill or a gain from a bargain purchase.
RECOGNITION PRINCIPLE.
On the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired , the liabilities
assumed and any non-controlling interest in the acquiree. Contrary to PAS 37 (see related notes on page 9) , PFRS 3 requires
that an acquirer shall recognize a contingent liability assumed in a business combination if it is a present obligation that arises
from the past events (even if it is not probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and it’s fair value can measured reliably.
MEASURMENT PRINCIPLE
The acquirer shall measurer the identifiable assets acquired and the liabilities assumed at their acquisition date FAIR
VALUES. Few exemptions are:
➢ The acquire shall measure an acquired non-current asset or disposal group that is classified as held for sale at the
acquisition date at their fair value less costs to sell in accordance with PFRS 5 (see related notes on page 6).
➢ The acquire shall measure the value of a reacquired right recognizes as an intangible asset on the basis of the remaining
contractual term of the related contract regardless o whether market participants would consider potential contractual
renewals in determining its fair value.
• GOODWILL.
On the acquisition date, the acquirer shall recognize GOODWILL⁶⁹measured as the excess of consideration transferred over the
net of acquisition –date amounts of the identifiable assets acquired and liabilities assumed.
• BUSINESS COMBINATION ACHIEVED IN STAGES
An acquirer sometimes obtains control of an acquiree in which it was held an equity interest immediately before the
acquisition date. PFRS refers to such a transaction as a business combination achieved in stages , sometimes also referred to
as a STEP ACQUISITION.
In a business combination achieved in stages, the acquirer shall measure its previously held equity interest in the acquirer
at its acquisition-date fair value and recognize the resulting gain or loss, if any , in profit or loss.
• BUSINESS COMBINATION ACHIEVED WITHOUT THE TRANSFER OF CONSIDERATION.
The acquisition method of accounting for a business combination applies to business combinations where an acquirer obtains
control of an acquiree without transferring consideration or where business combinations are achieved by contract alone in
stapling arrangement.

⁶⁴ An acquirer is the entity that obtains control of the acquiree; the acquiree is the business or businesses that the acquirer
contains control of an business combination.
⁶⁵Control is the power to govern the financial and operating policies of an entity or business so as to obtain benefits from its
activities. Control is presumed to exist when an entity acquires more than one-half of another entity’s voting rights.
⁶⁶Business is an integrated set of activities and assets that is capable of being conducted and managed for purpose of providing
return in the form of dividends , lower costs or other economic benefits directly to investors or other owners, members or
participants.
⁶⁷Acquisition method of business combination is previously known as the purchase method.
⁶⁸Acquisition date is the date on which the acquirer obtains control of the acquiree.
⁶⁹Under paragraph 32 of PFRS 3, GOODWILL is equal to the excess of (A) over (B) below;
(A) The aggregate (total) of:
➢ The consideration transferred, which shall be calculated as the sum of the sum of the acquisition-date 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. (Examples of potential forms of consideration include cash, other
assets, contingent consideration , ordinary or preference equity instruments)
➢ The amount of any non-controlling interest in the acquiree
➢ In a business combination achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree
(B)The net of acquisition of the identifiable assets acquired and the liabilities assumed.
Occasionally, an acquirer makes a BARGAIN PURCHASE, which is a business combination in which (B) exceeds (A) above . In
which case, the acquirer shall recognize the resulting GAIN in profit or loss on the acquisition date, after making
reassessment whether it has correctly identified all of the assets acquired and liabilities assumed. (PFRS 3,par.3)
PAS 27: CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
1. Consolidated financial statements are the financial statements of a group presented as those of a single economic
entity; consolidated FS shall include all subsidiaries of the parent.
2. A group is parent and all of its companies while a parent is an entity that has one or more subsidiaries.
3. A subsidiary⁷⁰is an entity that is controlled by another entity (parent).
4. Control is presumed to exist even when the parent owns half or less of the voting power of an entity but has the power:
➢ over more than half of the voting rights by virtue of an agreement with other investors.
➢ to govern the financial and operating policies of entity under a statute or an agreement .
➢ to appoint or remove the majority of the members of the board of directors or equivalent governing body.
➢ to cast majority of votes at meetings of the board of directors or equivalent governing body.
The existence and effect of potential voting rights currently exercisable or convertible (e.g., share warrant, share call
options, convertible securities to ordinary shares) are considered when assessing whether an entity has the power to
govern the financial and operating policies of another entity.
5. Consolidated FS shall include all domestic and foreign subsidiaries⁷¹of then parent , even if subsidiaries are engaged
in business activities dissimilar from those of other entities within the group.
6. A parent need not present consolidated FS if and only if:
➢ The parent itself is a wholly-owned subsidiary, or partially-owned subsidiary and its other owners do not object to the
parent not presenting consolidate FS.
➢ The parent’s debt and equity instruments are not traded in a public market- a domestic or foreign stock exchange or an
over-the-counter market.
➢ Then parent did not file or is not in the process of filling its FS with a securities and exchange commission or other regulatory
body for the purpose of issuing any class of instruments in a public market.
➢ The ultimate or any intermediate parent of the parent produces consolidated FS available for public use that comply with
PFRS.
A parent that is exempted from presenting consolidated FS may present separate FS as it’s only FS⁷²
7. In preparing consolidated FS, the following consolidation procedures are normally followed:
➢ The FS of the parent and its subsidiaries are combined in on a line by line basis by adding together like items of assets,
liabilities, equity , income, and expenses.
➢ Intergroup balances and transactions including income and expenses , are eliminated in full.
➢ When FS used in consolidation are drawn up from different reporting dates, adjustments should be made for the effects of
significant transactions or other events that occur between those dates and the date of the parent’s FS.In any case, the
difference between reporting dates should be no more than three months.
➢ Consolidated FS should be prepared using uniform accounting policies for like transactions and other events similar
circumstances.
➢ Non-controlling interest ⁷³shallbe presented in the consolidated statement of financial position within equity , separately
from parent shareholder’s equity. Non-controlling interests in the profit or loss of the group should also be separately
presented.
➢ Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control⁷⁴are accounted for a equity
transactions (i.e., transactions with owners in their capacity as owners.)
8. In the parent’ separate FS, investments in subsidiaries (including investments in jointly controlled entities and associates ) shall be
accounted for either:
➢ At cost⁷⁵, or
➢ In accordance with PAS 39 on financial instruments
The same accounting (policy) shall be applied for each category of investment; investments in subsidiaries , jointly
controlled entities and associates that are classified as held for sale shall be accounted for under PFRS 5. (see related
notes on page 6)
 ⁷⁰The definition of ‘subsidiary’ under PAS 27 includes unincorporated entities like partnerships.
⁷¹Under SIC Interpretations 12, special purpose entities shall be consolidated when the substance of the relationship between
an entity and the special purpose entities are controlled by that entity. A subsidiary are classified as ‘ held for sale’ if control
is likely to be temporary with the view of the disposal within twelve months form acquisition and management is actively
seeking buyer.
⁷²Separate financial statements are these presented by parent in which the investments are accounted for on the basis of the
direct equity interest rather than on the basis of the reported and net assets of subsidiary.
⁷³Non-contorlling interest is used to be known as’ minority’ interest.
⁷⁴A parent can lose control of subsidiary with or without a change in absolute or relative ownership levels. This could occur
as result of a contractual agreement or in two or more arrangements.
⁷⁵PAS 27 (as amended May 2008) states that “an entity shall recognize a dividend form a subsidiary , jointly controlled entity,
associate in profit or loss in its separate financial statements when its right to receive the dividend is established”.
Consequently, the requirement to separate the retained earnings of an entity into pre-acquisition and post-acquisition
components as a method for assessing whether a dividend is a recovery of its associated has been removed

PAS 21: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES⁷⁶

1. The objective of PAS 21 is to prescribe how to include foreign currency transactions and foreign operations on the financial
statements of an entity and how to translate financial statements from a certain functional currency⁷⁷into the presentation
currency⁷⁸ -- the principal issues are:
➢ Which exchange rate(s) to use, and
➢ How to report the effects of changes in exchange rates⁷⁹in the financial statements
2. FOREIGN CURRENCY TRANSACTIONS⁸⁰
➢ Initial Recognition
A foreign currency transaction should be recorded initially at the exchange rate at the date of the transaction. The use
of averages is permitted if they are a reasonable estimate of actual.
➢ Reporting on Subsequent Balance Sheet Dates
• Foreign currency monetary amounts should be reported using the CLOSING RATE⁸¹
• Non-monetary items carried at historical cost should be reported using the exchange rate at the date of
transaction.
• Non-monetary items carried at fair value should be reported at the rate that existed when the fair values were
determined.
➢ Recognition of Exchange Differences⁸²
• Exchange differences arising when monetary items⁸³are settled or when monetary items are translated at rates
different from those at which they were translated when initially recognized are reported in profit or loss in the
period.
• Exchange differences arising on the monetary items that form part of the reporting entity’s net investment⁸⁴ in a
foreign operation, in a separate component of equity; upon disposal of the net investment, they will be recognized
in profit or loss.
• If gain or loss on a non- monetary item is recognized directly in equity (for example, a property revaluation under
PAS 16), any foreign exchange component of that gain or loss is also recognized directly in equity.
• An exchange loss on foreign currency debt used to finance the acquisition of an asset could no longer be added
to the carrying amount of the asset even if the loss resulted from a severe devaluation of a currency which there
against which there was no practical means of hedging.

3. FOREIGN CURRENCY FINANCIAL STATEMENTS TRANSLATION

The results and financial position of an entity⁸⁶are translated into a different presentation currency using the following
procedures:
• Assets and liabilities for each balance sheet presented are translated at the CLOSING RATE at the date of that
balance sheet⁸⁷
• Income and expenses for each income statement are translated at exchange rates at the dates of the transactions⁸⁸
 • All resulting exchange differences are recognized as a separate component of equity.

⁷⁶PAS 21 excludes from its scope foreign currency derivatives that are within the scope of PAS 39 Financial Instruments
Recognition and Measurement. Similarly, the material on hedge accounting has been moved to PAS 39.
⁷⁷Functional currency is the currency of the primary economic environment which the entity operates. The primary economic
environment in which an entity operates is normally the one in which it primarily generates and expends cash.
⁷⁸Presentation currency is the currency in which financial statements are presented by the reporting entity.
⁷⁹Exchange rate is the ratio of exchange for two currencies.
⁸⁰A foreign currency transaction that is denominated or requires settlement in a foreign currency, including transactions arising
when an entity:
• buy or sells goods or services whose prices is denominated in a foreign currency.
• borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency
• acquires and disposes of assets, or incurs or settles liabilities, denominated in a foreign currency
⁸¹Closing rate is the spot exchange rate at the balance sheet date.
⁸²Exchange difference is the difference resulting from translating a given number of units of one currency into another currency
at different exchange rates.
⁸³Monetary items are unit of currency held and assets and liabilities to be received and paid in a fixed or determinable number
of units of currency.
⁸⁴Net investment in a foreign operation is the amount of the reporting entity‘s interest in the net assets of that operation.
⁸⁵Foreign operation is an entity that is subsidiary, associate, joint venture or branch of a reporting entity, whose activities
are based in a country other than of the reporting entity.
⁸⁶This refers to an entity whose functional currency of a hyperinflationary economy.
⁸⁷This would include any good will arising on the acquisition of a foreign operation and any fair value adjustments to the
carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as part of the as sets
and liabilities of the foreign operation.
⁸⁸For practical reasons, the use of average rate for the period may be used as translation basis. However, if the exchange
rates fluctuate significantly, the use of the average rate for a period is inappropriate.

4. DISPOSAL OF A FOREIGN OPERATION

When a foreign operation is disposed, the cumulative amount of the exchange differences deferred in the separate
component of equity relating to that foreign operation shall be recognized in profit or loss when the gain or loss on disposal
is recognized.

5. CONVENIENCE TRANSLATIONS.
Sometimes, an entity displays its financial statements or other financial information in a currency that is different from either
its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates. This is
sometimes called a convenience translation. A result of making a convenience translation is that the resulting information to
distinguish it from the PFRS. In this case, the following disclosures are required:
• Clearly identify the information as supplementary information to distinguish it from the information that complies
with PFRS.
• Disclose the currency in which the supplementary information displayed.
• Disclose the entity’s functional currency and the method of translation used to determine the supplementary
information.
When an entity presents its financial statements in a currency in that is different from its functional currency, it may
describe those financial statements as complying with PFRS only if they comply with all the requirements of each applicable
Standard and Interpretation.

6. DISCLOSURE REQUIREMENTS.
• The net amount of exchange differences recognized in profit or loss.
• Net exchanges differences classified in a separate component of equity and reconciliation of the amount of such
exchange differences at the beginning and end of the period.
 • When the presentation currency is different from the functional currency, disclose that fact together with the functional
currency and the reason for using a different presentation currency.
• A change in the functional currency of either the reporting entity or a significant foreign operation and the reason
therefore

PAS 29: FINANCIAL REPORTING IN HYPERFLATIONARY ECONOMIES

1. The objective of PAS 29 is to establish specific standards for enterprises reporting in the currency of a hyperflationary
economy, so that the financial information provided is meaningful.

2. RESTATEMENT OF FINANCIAL STATEMENTS.

• The basic principle in PAS 29 is that financial statements of an entity that reports in the currency of a
hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date.
• Restatements are made by applying a general price index. Items such monetary items that are already stated at the
measuring unit at the balance sheet date are not restated. Other items acquired or incurred and the balance sheet
date.
 • A gain or loss on the net monetary position is included in net income .It should be disclosed separately.

3. The Standard does not establish an absolute rate at which hyperinflation is deemed to arise - - but allows judgment
as to when restatement of financial statements becomes necessary. Characteristics of the economic environment
of a country which indicate the existence of hyperinflation include:
• The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign
currency. Amounts of local currency held are immediately invested to maintain purchasing power.
• The general population regards monetary amounts not in terms of the local currency but in terms of a relatively
stable foreign currency. Prices may be quoted in that currency;
• Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power
during the credit period ,even if the period is short ; and
• The cumulative inflation rate over three years approaches, or exceeds , 100%
4. When an economy ceases to be hyperinflationary and an enterprise discontinues the preparation and presentation of
financial statements in accordance with PAS 29, it should treat the amounts expressed on the measuring unit current
at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements.

5. DISCLOSURE REQUIREMENTS
• Gain or loss on monetary items
• The fact that financial statements and other period data have been restated for changes in the general
purchasing power of the reporting currency
• Whether the financial statements are based on historical cost or current cost approach
• Identity and level of the price index at the balance sheet date and moves during the current and previous
reporting period.

PAS 7: STATEMENT OF CASH FLOWS⁸⁹

• SCOPE
All entities regardless of the nature of activities should prepare a cash flows statement and present it as an integral part
its financial statements.
• BENEFITS
A cash flow statement, when in conjunction with rest of the financial statements, provides additional information to
users of FS:
1. A better insight into the financial structure of an entity , including its liquidity and solvency , and its ability to affect the
amounts and timing of cash flows in order to adapt to changing circumstances and opportunities.
2. Enhanced information for purposes of evaluating changes in assets, liabilities, and equity of an entity.
3. The statement enhances the comparability of reporting operating performance by different entities because it
eliminates the effects of using different accounting treatments for similar transactions.
4. The statement serves as indicator of the amount, timing and reasonable certainty of future cash flows.
• PRESENTATION
The cash flow statement shall report cash flows during the period classified by operating, investing and financing
activities:
1. OPERATING ACTIVITIES – are the principal revenue producing activities of an entity and other activities
that are not investing or financing activities. Cash flows from operating activities⁹⁰generally results from the
transactions and other events those enter into the determination of profit or loss⁹¹
2. INVESTING ACTIVITES- are the acquisition and disposal of long-term assets and other investments not include in cash
equivalents. ‘Investing ‘cash flows represent the extent to which expenditures have been resources intended to
generate future income and cash flows.
3. FINANCING ACTIVITIES-are activities that result in changes in size and composition of contributed equity and borrowings
of the entity.
An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts
in its cash flows statement with the equivalent items reported on the balance sheet.
• DIRECT vs. INDIRECT METHOD
 An entity shall report cash flows from operating activities using either direct or indirect method:
1. DIRECT METHOD- major classes of gross cash receipts and gross cash payments are disclosed.
2. INDIRET METHOD- profit or loss is adjusted for the effects of the transactions of a non-cash nature ,any deferrals
and accruals of past or future operating cash receipts or payments, and items of income and expense associated with
investing or financing cash flows⁹².
• INTERESTS and DIVIDENDS.
Cash flows from interest s and dividends received and paid shall each be disclosed separately each shall be classified in a
consistent manner from period to period using the following guidelines:
1. INTEREST PAID. Interest paid is usually classified as operating cash flows because it enters into the determination of
profit or loss .Alternatively it may be classified as financing cash flows because it is a cost of obtaining financial
resources.
2. INTEREST and DIVIDENDS RECEIVED. Interest and dividends received are usually classified as operating cash flows
because they enter into the determination of profit or loss. Alternatively, both may be classified as investing cash flows
because they are both represent returns on investments.
3. DIVIDENDS PAID. Dividends are paid usually classified as financing cash flows because they represent costs of obtaining
financial resources. Alternatively, dividends paid may be classified a s a component of cash flows from operating
activities in order to assist users to determine the ability of man entity to pay dividends out of operating cash flows.
• NON-CASH TRANSACTIONS
Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a cash
flow statement. Such transactions shall be disclosed elsewhere in the financial statements (e.g., notes to the financial
statements) in a way that provides all the relevant information about these investing and financing activities. Examples are:
1. The acquisition of assets either by assuming directly related liabilities or by means of a finance lease.
2. The acquisition of an entity by means of an equity issue , and
3. The conversion of debt to equity

⁸⁹Cash flows are inflows and outflows of cash and cash equivalents .Cash comprises of cash on hand and demand deposits.
Cash equivalents are short-term l, highly liquid investment that are readily convertible to known amounts of cash and which
are subject to a significant risk of change in value.
⁹⁰An entity may hold securities and loans for trading purposes, in which case they are similar to inventory acquired specially for
resale. Therefore, cash flows arising from the purchase and sale of trading securities are classified as operating activities. Similarly cash
and loans made by financial institutions are usually classified as operating activities since they relate to the main revenue-producing
activity of that entity.
⁹¹Some transactions, such as the sale of an item of plant give rise to gain or loss that is included in the determination of profit or loss
However, the flows relating to such transactions are cash flows from investing activities. Cash flows arising from taxes on income
shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
⁹²Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the revenue
expenses disclosed in the income statement and the changes during the period in inventories and operating receivables and payables.
PAS 33: EARNINGS PER SHARE (EPS)
• OBJECTIVE.
The objective of PAS 33 is to prescribe principles for the determination and presentation of EPS, so as to improve
comparisons of performance among different entities in the same reporting period and among different reporting periods
for the same entity.
• SCOPE.
The EPS standards shall be applied by:
1. Entities whose ordinary shares⁹³or potential ordinary shares⁹⁴are publicly traded.
2. Entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets.
3. Entities that voluntarily elect to disclose on EPS in financial statements.
• PRESENTATION.
An entity should present on the face of the income statement both basis and diluted EPS. Basic and diluted EPS must be
presented with equal prominence for all periods presented, even if the amounts are negative (i.e., loss per share).
• BASIC EARNINGS PER SHARE.
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the weighted
average number of ordinary shares outstanding (the denominator)during the period.
1. EARNINGS.⁹⁵
For the purpose of calculating basic EPS, the amounts attributable to ordinary equity holders shall be adjusted for the
tax amount of preference dividends⁹⁶and other similar effects of preference shares classified as equity.
2. SHARES.
For the purpose of calculating basic EPS, the number of ordinary shall be the weighted average number of ordinary
shares outstanding for the period. The weighted average number of ordinary shares outstanding during the period is
the number of ordinary outstanding at the beginning of the period, adjusted by the number of ordinary shares
issued⁹⁷ and bought back during the period multiplied by a time-weighting factor⁹⁸
In this case of ordinary shares issued or reduce without a corresponding changes in resources ⁹⁹, the number of
ordinary shares is adjusted for the proportionate change in the number or ordinary shares outstanding if the event had
occurred at the beginning of the earliest period presented (i.e., the calculation of the basic and diluted EPS for all
periods presented shall be adjusted retrospectively¹⁰⁰).
• DILUTED EARNINGS PER SHARE.
1. EARNINGS.
For the purpose of calculating diluted EPS, the ‘earnings used in computing basic EPS shall be adjusted by the after tax-
effect of:
a.) any dividends related to diltutive¹⁰¹potentila ordinary shares deducted from the earnings
b.) any interest recognized in the period related to dilutive potential ordinary shares
c.) any change in earnings that would result from the conversion of dilutive potential ordinary shares
2. SHARES
In computing diluted EPS, the ordinary shares shall be the weighted average number of ordinary shares outstanding
for the plus the weighted average number of ordinary shares that would have been issued on the conversion of all the
dilutive shares¹⁰²into ordinary shares.

⁹³An ordinary shares are an equity instrument that is a subordinate to all other classes of equity instruments. It is usually known
as ‘common’ stock under the Philippine Corporation Code.
⁹⁴A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. Examples
include convertible bonds, convertible preferences shares, options and warrants. Options and warrants are financial
instruments that give the holder the right to purchase ordinary shares.
⁹⁵Earnings are calculated after all expenses including taxes and if, any minority interest.
⁹⁶The after-tax amount of preference dividends that is deducted from the earnings are:
a.) the preference dividends on non-cumulative preference shares declared for the period and
b.) the preference dividends on cumulative preference shares for the period whether or not dividends have been declared.
⁹⁷Contingently issuable shares treated as outstanding and are included in the calculation of the basic EPS only from the date
necessary conditions are satisfied .Contingently issuable ordinary shares are ordinary shares issuable for free or little
consideration upon the satisfaction of specified conditions in a contingent share agreement. A contingent share agreement is
an agreement to issue shares that is dependent on the satisfaction of specified conditions.
⁹⁸’Time-weighted –factor’ is the number of days of shares are outstanding as a proportion of total number of days for the
period.
⁹⁹Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced , without corresponding change
in resources .Examples include: (a) capitalization or bonus issue (i.e., stock dividend) and (b) a share split or reverse split share
(consolidation of shares).
¹⁰⁰In addition, basic and diluted EPS of all periods presented shall be adjusted for the effects of errors and adjustments
resulting from changes in accounting policies accounted for prospectively.
¹⁰¹Dilution is a reduction of EPS or an increase in loss per share resulting from the assumption that convertible instruments
are converted, options and warrants are exercised, or ordinary shares are issued upon fulfillment of certain conditions
¹⁰²Contract that require the entity to repurchase own shares , such written put option, which give the holder the contractual
right to sell ordinary shares at a specified price, are reflected in the calculation of diluted EPS if the effect is dilutive.

Accounting for BOT transactions

Build/operate/transfer transactions (commonly called “BOT” transactions) give the guarantee the right to
construct or to buy and operate certain public work. BOT transactions typically occur under a long term contract to construct
infrastructure projects such as roads, rail roads, bridges, viaducts, dams, airports, tunnels, etc., which take several years to
complete.
These transactions are usually entered to as a means for the government to finance the construction of a public work.
The grantee receives from the grantor the right to carry out the specific project and be suitably remunerated. In this case,
the remuneration received normally comprises the payment for the construction costs incurred and a profit margin.
Sometimes the grantee is entitled to operate the public works projected after its completion in order to generate
income .The operating incomes enables the grantee recover the construction costs and the operating and maintenance
expenses and to earn profit margin. The grantee normally would also be allowed to recover any amount that was paid to
the government for the cession rights. At the end of the term of the cession the project assets and operating rights are
transferred to the grantor.

Costs
Costs incurred for the construction of public works might include:
(A) Materials used in the construction of the project, depreciation of fixed assets used in the work
(B) Labor cist related directly to the specific contract, i.e. costs of labor on the construction site, including supervision
(C) Indirect costs such as insurance, technical assistance, and indirect construction expenses
(D) General or overhead costs such as administrative expenses or financial costs.
Accounting for income earned form a concession
The operating revenues earned under BOT contract should be recognized when it is possible to generate income through
the provision of services, usually to third parties, and when the related costs and expenses have been incurred or can be
estimated. Otherwise, payments received from the governments and others should be deferred liabilities (deferred or
unearned income) and revenues should not be accrued into the profit and loss accounts for the accounting period.

When the grantee has the right to receive income from the operation of public work after it construction, the
construction costs incurred should be charged to fixed assets accounts (e.g., road construction where the income is
 generated form the right to collect tolls. In one of the largest BOT transactions in history, the grantees responsible for the
construction of the tunnel which links the United Kingdom and France have until the year 2041 to recover their investment
through the operations before they to turn the operations back to the grantors of the operating rights.

Income for the construction of public should be recognized using the ‘percentage of completion’ method of accounting for
construction projects if the amounts earned can be reasonably accurately estimated during the period of construction. As
alternative, if the amounts earned can reasonably accurately, the grantee may use the complete method of accounting,
which would mean that construction earrings would be recognized upon the conclusion of the construction phase of the
contract when the work has been completed to satisfaction for the government. These two methods of accounting are
accrual methods, which mean that recording of income, would be made when the earned according to the principles
described in this paragraph regardless of when accounts become billable to the government for cash flow purposes – either
on an interim basis or on completion of the project.

To achieve proper matching of costs incurred and revenues earned, all preconstruction and construction costs should
be capitalized when incurred (meaning paid or an obligation incurred to make payments at a later date) into asset accounts
in the records of the grantee. Such amount would then be transferred to accounting period profit or loss accounts when the
related income is earned on the accrual basis. If this method of accounting is followed, the profit and loss in the years of
concession operations might show only the expenses incurred, and thus losses; and the year in which revenues are received
in cash would show the earnings, which might not have been earned exclusively in that year. Of course, if all of the
construction is completed and the revenues are earned in the same accounting period, there would be no violation of the
generally accepted concept of the matching principle of accounting.

In applying the ‘percentage of completion’ method of construction accounting, there are two ways which may used
to estimate the revenues earned during accounting periods:
(a) Cost incurred during the year as a percentage of the total estimated costs of the project; and.
(b) Revenue recognized on the basis of a technical report on the extent of the project completion.
The percentage of the proportion of completion in method (b) should be applied to the amount of total revenue set forth in the
concession agreement. Also, related pre-construction and construction period cost s should be charged to the same accounting
period’ s profit or loss accounts, whether or not such costs have been actually paid in cash. However, for large and
complex public works, particularly those with sub-projects of variable durations, it may be difficult to use one single percentage
of completion with respect to the entire project. In this situation the ratio of costs incurred over year total costs of the works is
the best method to applied to the total agreed revenues for the construction phase. The use of either these two
method permits the income to be distributed among the periods in which the work is performed, or the costs are incurred, and
results in a more accurate economic measurement overtime of net income.

Accounting for advance payments

Cash advances received for services to be performed in the future should recorded as liabilities since payments represent an
obligation of an enterprise to perform services at a later date. If for some reason this is not possible, the advances would have to
be returned under normal circumstances. Advances received which exceed the income earned in the period should remain
under the ‘liabilities’ section of the accounts until the services are rendered or the advance payments have been returned.

Provision for losses

When a loss is incurred under a contract, whether from construction or from operation of the project, it should be immediately
recognized by the grantee as an expense in the current accounting period.

Transfer to the public works assets to the grantor following the termination of the concession agreement
When the agreement states the grantee should not fully or partially reimbursed for the assets transferred to the government
at the end of the contract period, the grantee’s compensation is the revenues from the operation of the concession .In this case,
the assets should be depreciated down to their net realizable value, if any at the conclusion of the contract .Generally, the net
book value upon disposal will be equal to the amount of the repayment since the rate of depreciation must take into account the
residual value of the concession assets. Any difference from what was the recorded would be recognized as a gain
or loss from the revision of an estimate in the accounting period when determinable. If the contract state that the asset should
be transferred at fair value any difference between that amount and the net book value is recorded in the profit and loss account.

Disclosures
In addition to the appropriate disclosures referred to in previous paragraphs, the notes to financial statements of concessions
for the construction of public works should include the total value of the assets, the stage of completion at the balance sheet
date, and the method adopted recognize revenues.

IFRIC 12: Service Concession Arrangements

Service concessions arrangements are arrangements whereby a government or other body grants contract for the supply of
public services - - such as roads, energy distribution, prisons or hospitals – to private operators. The objective of this project
IFRIC is to clarify how certain aspects of existing IASB literature are to be applied to service concession arrangements.
Two Types of Service Concession Arrangements
IFRIC 12 draws a distinction between two types of service concession arrangement:
1.) The operator receives a financial asset, specifically an unconditional contractual right to receive cash or other
financial asset from the government in return for constructing or upgrading the public sector asset.
2.) The operator receives an intangible assets – a right to charge for use of the public sector asset that it constructs or
upgrades .A right to charge users is not an unconditional right to receive cash because the amounts are contingent on
the extent to which the public uses the service.
IFRIC 12 allows for the possibility that both types of arrangement may exist within a single contract: to the extent that the
government has given an unconditional guarantee of payment for the construction of the public sector asset, the operator has
financial asset; to the extent that the operator has to rely on the public using the service in order to obtain payment, the
operator has an intangible asset.

Accounting – Financial asset model

The operator recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or another
financial asset from or at the direction of the grantor for the construction services. The operator has an unconditional right to
receive cash if the grantor contractually guarantees to pay the operator
(a) specified or determinable amounts or
(b) the shortfall, if any, between amounts received from the users of the public service and specified or determinable
amounts received from the users of the public service and specified or determinable amounts, even if payments is
contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.
The operators measure the financial asset at fair value.

Accounting- Intangible asset model

The operator recognized intangible assets to the extent that it receives a right (a license) to charge users of the public service. A
right to charge users to the public is not an unconditional right to receive cash because the amounts are contingent on the
extent that the public uses the service.
The operator measures the intangible asset at fair value.

Operating revenue
The operator of a service concession arrangement recognizes and measures revenue in accordance with PASs 11 and 18 for the
services it performs.

Effective Date
IFRIC 12 is effective for annual periods beginning on or after 1 January 2008.
 PRFS for Small & Medium Entities (SMEs)

HISTORICAL BACKGROUND
The Philippine Financial Reporting Standards for Small & Medium Entities (PFRS for SMEs) is the answer to the long-felt need
for the standards of financial reporting for small and medium-size entities, which a consequence do not have to comply with full
PFRS. Many of the principles in full PFRS for recognizing and measuring assets, liabilities, income and expenses have been
simplified, topics that are not relevant to small and medium entities (SMEs) have been omitted , and the required disclosure
have been significantly reduced.

In the Philippines, FRSC (Financial Reporting Standards Council) and SEC (Securities and Exchange Commission) set the rules
and regulations pertinent o financial reporting SMEs:
✓ 13 October 2009 – FRSC adopts “PFRS for SMEs” form IFRS for SMEs” issued in July 2009 by IASB.
✓ 3 December 2009 –Philippine SEC adopts “PFRS for SMEs” as a part of its rules and regulation.
✓ 1 January 2010 – Effective date of application of “PFRS for SMEs” in the Philippines.
WHAT ARE SMALL & MEDUIM ENTITIES?
This common question of someone studying PFRS for SMEs for the first time. SMEs are known by variety of terms, including small
& medium-sized entities (SMEs), private entities, and non-publicly accountable entities (NPAEs). Consider the following definition
provided by Section 1 of the PFRS for SMEs:

“SMALL & MEDUIM ENTITIES” ARE ENTITIES THAT:

(a) Do not have public accountability
(b) Publish general purpose financial statement for external users

An entity has public accountability if:

(a) Its debts or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading
in a public market ( a domestic or foreign stock exchange or an over-the-counter market , including local and regional
markets ),or
(b) It holds the assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically
the case for banks, credit unions, insurance companies, securities brokers/dealers mutual funds and investment banks.

The Securities and Exchange Commission, in its En Banc Resolution dated August 13, 2009, adopted a definition of ‘small &
medium entities’ that includes a size criterion:

“An entity is an SME if:

(a) The entity has total assets of between P 3 million and 350 million or total liabilities of between P 3million and 250 million.
(b) It is not required to file financial statements under SRC Rule 68.1;
(c) It is not the process of filling its financial statements for the purpose of issuing any class of instruments in a public market;
(d) It is not a holder of secondary license issued by a regulatory agency , such as bank (all types of bank), an investment
house ; a finance company, an insurance company , a securities broker/ dealer, a mutual fund and a pre-need company ;
and
(e) It is not a public utility”

PRFS for SMEs vs. FULL PRFS

With the adoption of PFRS for SMEs, the term “PFRS” shall now be composed of two groups of financial reporting standards:

FULL PFRS
PRFS
PRFS for SMEs
The PRFS for SMEs was developed by:
• extracting fundamental concepts in the Conceptual Framework and principles from full PFRS
• considering modifications appropriate on the basis of users ‘ needs and cost –benefit consideration

It is important to note that while the PFRS for SMEs is mainly patterned after full PRFS. PFRS for SMEs is completely stand-alone
set of standards .The only fallback option to full PFRS is the option to use PAS 39 instead of the financial instruments sections of
PFRS for SMEs. There are certain standards in full PFRS that were not include as part of PFRS for SMEs: segment reporting, interim
reporting, earnings per share and assets held for sale

The PFRS for SMEs has a total of 35 sections, organized by topic. No bold front was used (unlike full PFRS) and it is simplified.

NOTES TO THE REVIEWEES

✓ The following section of lecture notes is not exhaustive enumeration of the standards contained in the PFRS for SMEs;
they are mere highlights of each of the thirty-five 35 sections of the PFRS for SMEs.
✓ Variations and deviations from full PFRS as well as exclusive or unique standards for SMEs are highlighted boxes.

SECTION 1: Small & Medium Sized and Entities

• SMEs are used as a financial reporting standards council is entities that are not publicly accountable, and publish general
purpose financial statements for external users.
• Listed companies may not used PFRS for SMEs no matter what how small they are.
• If publicly accountable entity uses PFRS for SMEs, its financial statements shall not be described as conforming to the PFRS
for SMEs – even if law or regulation in its jurisdiction permits or requires PFRS for SMEs to be used publicly accountable
entities.
• A subsidiary whose parent uses full PFRS is not prohibited from using this PFRS for SMEs in its own FS if that subsidiary by
itself does not have public accountability.
• If a subsidiary’s FS are described as conforming to the PFRS for SMEs, it must comply with all the provisions of this PFRS.

SECTION 2: Concepts and Pervasive Principles

• The objective of FS is to provide information about the financial position , performance and cash flows of an entity
• Financial statements also show the results of stewardship of management- the accountability of management resources
entrusted to it.
• Qualitative characteristics of FS: under stability, relevance, materiality, reliability substance over form, prudence, completeness,
comparability, timeliness, and balance between benefit and cost.

• Elements of financial position: asset, liability and equity

• Elements of performance : income and expenses
• Recognition criteria : probable and measurable
• An entity shall not recognize a contingent asset as asset. however, when the flow of future economic benefits to entity is
virtually certain, then the related asset is not a contingent asset, and its recognition is appropriate.
• A contingent liability is either a possible but uncertain obligation present obligation that is not contingent liability as a
liability as a liability, except for contingent liabilities of an acquire in business combination (based on section 19 Business
Combinations and Goodwill).
 • Two measurement bases : historical cost and fair value
• Amortized historical cost is the historical cost of an asset or liability plus or minus that portion of its historical cost
previously recognized as expense or income.
• The requirement for recognizing and measuring assets, liabilities, income and expenses in PFRS for SMEs are based
on pervasive principles that are derived from the Conceptual Framework of Accounting and from full PFRS.
• An entity shall prepare it financial statements , except for cash flow information , using the accrual basis of accounting
• An initial recognition, an entity shall measure assets and liabilities at historical cost unless a PFRS for SMEs requires initial
measurement on another basis such as fair value.
• An entity measures basic financial assets and basic financial liabilities (as defined in Section 11 on Basic Financial
Statements) at amortized cost less impairment except for investments in non-convertible and non-puttable preference
and ordinary shares at the publicly traded or whose fair value can otherwise be measured reliably, which are measured
at fair value with changes in fair value recognized in profit or loss.
• An entity generally, measures all other financial assets and financial liabilities at fair value, with changes in fair value
recognized in profit or loss, unless PFRS for SMEs requires or permits measurement on another basis such as cost or
amortized cost.
• Most non-financial assets that an entity recognized at historical cost are subsequently measured on other measurement
bases. For example:
(a) An entity measures property, plant and equipment at the lower of depreciated cost and recoverable amount.
(b) An entity measures inventories at the lower of cost selling price is less cost to complete and sell.
(c) An entity recognized an impairment loss relating to non-financial assets that are use or held for sale.
Measurement of assets at those lower amounts is intended to ensure that an asset that are in use or held for sale
amount greater than the entity expects to recover from the sale or use of that asset.
• For the following types of financial assets, PFRS for SMEs permits or requires measurement at fair value :
(a) Investments in associates and joint ventures that an entity measures at fair value ( based on Section 14 and 15
respectively)
(b) Investments property that an entity measures at fair value (based on Section 16)
(c) Agricultural assets (biological assets and agricultural produce at point of harvest) that an entity measures at fair
value less estimated costs to sell (based on Section 34)
• An entity not offset assets and liabilities, or income and expenses, unless required or permitted by PFRS for SMEs.

SECTION 3: Financial Statement Presentation

• The application of PFRS for SMEs with additional disclosures when necessary is presumed to result in FS that achieve a fair
presentation of then financial position, financial performance and cash flows of SMEs.
• Financial statements shall not be described as complying with PFRS for SMEs unless they comply with all the requirements
of this PFRS.
• A complete set of FS shall include of the following :
(a) Statement of Financial Position (balance sheet)
(b) Either a singles Statement of Comprehensive Income (showing profit or loss and items of other comprehensive
income”) or two statements : income statements & statement comprehensive income
(c) Statement of Changes in Equity
(d) Statement of Cash Flows
(e) Notes, comprising summary of significant accounting policies and other explanatory information
• If an entity has no items of other comprehensive income (OCI), it can present only an Income Statement, it may present a
Statement of Comprehensive Income in which the bottom line is “profit or loss”.
• If only changes to equity arises from profit or loss payments of dividends , corrections of prior period errors and changes
in accounting policy , the entity may present a single Statement of Income and Retained Earnings .(See Section 6)
• The only OCI items under PFRS for SMEs are:
✓ Some foreign exchange translation gain and losses (See Section 30)
✓ Some changes in fair values of hedging instruments (See Section 12)
✓ Some actuarial gains and losses (See Section 28)

SECTION 4: Statement of Financial Position

 • PFRS for SMEs allows this report to be called the “Balance Sheet”.
• The minimum lines items for SMEs are basically the same as full PFRS, except that non-current assets held for sale is not
among the minimum line items of the balance sheet for SMEs.
• Current/non-current distinction is not required if entity concludes liquidity approach (ascending or descending) is better.
• If an entity’s normal operating cycle is not clearly determinable its duration is assumed to be 12 months
• PFRS for SMEs does not prescribe sequence or format in which items are to be presented; it simply provides a list of
minimum items that are sufficiently different in nature or function to warrant separate presentation in the statement of
financial position.

SECTION 5: Statement of Comprehensive Income and Income Statements

• Single –statement approach : Statement of Comprehensive Income shall include all items of income and expenses
recognized for the period
• Two –statement approach: The Income Statement shall display items considered in determining profit or loss and the
Statement of Comprehensive Income shall begin with profit or loss as its first line and shall displays items of OCI (See
SECTION 4) with the total comprehensive income as its bottom line.
• A change from the single statement approach to the tow-statement approach , or vice-versa, is a change in accounting
policy to which Section 10 applied.

SECTION 6: Statement of Changes in Equity and Statement Income and Retained Earnings
• Section 3 permits an entity to present a statement of income and retained earnings in place of statement of comprehensive
income and a statement of changes in equity if the only changes in equity arise from:
✓ Profit or loss
✓ Payment of dividends
✓ Correction of prior period errors
✓ Changes in accounting policy
• An entity shall present in the statement of income and retained earnings of the following information:
✓ Retained earnings (at the beginning of reporting period)
✓ Dividends declared and paid or payable (during the period)
✓ Restatement of retained earnings for corrections of prior period errors
✓ Restatement of retained earnings for changes in accounting policy.
✓ Retained earnings (at the end of the reporting period)

SECTION 7: Statement of Cash Flows

• Cash flows must be classified according to operating ,investing and financing activities
• An entity shall present cash flows from operating activities using either the direct or indirect method.

SECTION 8: Notes to Financial Statements

• An entity normally presents the notes in the following order:
(a) A statement that the FS have been prepared in compliance with the PFRS for SMEs
(b) A summary of significant accounting policies applied (including the measurement basis used in preparing the Fsand
other accounting policies used that are relevant to an understanding of the FS)
(c) Supporting information for items presented in the FS
(d) Any other disclosures
• An entity shall disclose information about judgments that management has made in the process of applying accounting
policies, key assumptions concerning future, and other key sources of estimation uncertainties.
SECTION 9: Consolidated and Separate Financial Statements
• A parent entity shall present consolidated financial statements in which it consolidates its investment in subsidiaries ;
consolidated financial statements shall include all subsidiaries of the parent.
• Consolidation of FS required when there is a parent subsidiary relationship ; except when :
✓ The subsidiary was acquired with intent to sell or to dispose within one year
✓ The parent itself is subsidiary and the ultimate or intermediate parent produces consolidated FS that comply
with full PFRS or PFRS for SMEs
• An entity shall prepare consolidated FS that include the entity and any Special Purpose Entities* that are controlled by
that entity.
 *SPECIAL PURPOSE ENTITIES (SPEs) are created to accomplish a narrow objective (e.g.,to effect a lease , indertake
research and development activities or securitize financial assets); SPEs may take the form of a corporation, trust,
partnership or unincorporated entity. SME’s are created with the legal arrangements that impose strict requirements
over the operations of the SPE.
• An entity shall present non-controlling interest in the consolidated statements of financial position within equity,
separately form the equity of the owners of then parent
• PFRS for SMEs does not acquire presentation of separate financial statements for the parent entity or for the individual
subsidiaries; If parent prepares separate FS and describes them as conforming to PFRS for SMEs.
• In the separate FS, the parent shall adopt a policy of accounting for its investment in subsidiaries either at:
(a) Cost less impairment or
(b) Fair value with changes in fair value recognized in profit or loss.

SECTION 10: Accounting Policies, Estimates and Errors

• An entity need not to follow a requirement in PFRS for SMEs if the effect of doing so would not be material.
• If PFRS for SMEs does not address an issue, an entity shall use judgment in developing an accounting policy that results
inn most relevant and reliable information. In making judgment, an entity shall refer to the:
(1) Requirements and guidance in PFRS for SMEs dealing with similar and related issues
(2) Concepts and pervasive principles in Section 2
(3) Requirements and guidance in full PFRS dealing with similar and related issues (not required)
• Change in accounting policy:
✓ If mandated , follow the transitional provisions
✓ If voluntary, effect retrospective application
• Change in accounting estimates is accounted for prospectively
• Correction of prior period error:
✓ By restating the comparative amounts for the prior period (s) presented which the error occurred,
✓ By adjusting the retained earnings at the beginning of the year of discovery of the error.

SECTION 11: Basic Financial Instruments

• In contrast to Section 12, Section 11 applies to basic financial instruments and is relevant to all entities. Section 12 applies
to other , more complex financial instruments and transactions; if an entity enters into only basic financial instruments
transactions then Section 12 is not applicable.
• An entity has the option PAS 39 instead of Section 11 and 12 ; however , even if PAS 39 is followed, use Section 11 and 12
for the required disclosures (not PFRS 7).
• Examples of basic financial instruments covered by Section 11 include:
✓ Cash
✓ Bank accounts (demand and fixed deposits)
✓ Commercial paper and bills
✓ Accounts, loans and notes receivable
✓ Accounts, loans and notes payable
✓ Bonds and debt instruments where return to the holder is fixed or referenced to an observable rate
✓ Investments in non-convertible and non-puttable ordinary preferences shares
✓ Commitments to receive a loan if the commitment cannot be net settled in cash
• THE AMORTIZED COST model is required for all basic financial instruments , excepts for investments is non-convertible and
non-puttable preferences shares and non-puttable ordinary shares that are publicly traded or whose fair value can be
measured reliably.
• When a financial asset or liability is recognized initially , an entity shall measure it at the transaction price (including
transaction cost except in the initial measurement of financial assets and liabilities that are measured at fair value through
profit or loss)
• At the end of each reporting period , an entity shall measure financial instruments as follows:
✓ Debt instruments – at amortized cost using the effective interest method.
✓ Commitments to receive a loan – at cost (which is sometimes nil) less impairment
✓ Investment in non-convertible preference shares and non-puttable ordinary or preference shares- at fair value (with
changes recognized through profit or loss) or cost less impairment (if fair value cannot be measured reliably)
• At the end of each reporting period, an entity shall asses whether there is an objective evidence of impairment, the entity
shall recognize an impairment loss in profit or loss immediately .Reversal of impairment losses in subsequent periods may
be affected as necessary.
SECTION 12: Other Financial Instrument Issues

• Examples of financial instruments covered by Section 12 include:

✓ Investments in convertible and puttable ordinary preference shares
✓ Options, rights , warrants , futures contracts, forward contracts and interest rate swaps that can be settled in cash or
by exchanging another financial instrument
✓ Financial instruments that qualify and are designated as hedging instruments
✓ Commitment to make a loan to another entity
✓ Commitments to receive a loan if the commitment cannot be net settled in cash
✓ Asset-backed securities such as mortgage obligations, repurchase agreements and securitized packages of
receivables.
• When a financial asset or liability under Section12 is recognized initially, an entity shall measure at its fair value which is
normally transaction price.
• At the end of each reporting period , an entity shall measure financial instruments within the scope of Section 12 at fair
value and recognize changes in fair value in profit or loss, except for equity instruments that are not publicly traded and
whose fair value cannot otherwise be measured reliably shall be measured at cost less impairment.
• If reliable measure of fair value is no longer available for an equity instrument that is not publicly traded but is measured
at fair value through profit or loss, its fair value at the last date the instrument at this cost less impairment until a reliable
measure of value becomes available.
• If specified criteria are met, an entity may designate a hedging relationship between a hedging instrument and hedged
item in such a way to qualify for hedge accounting.
SECTION 13: Inventories
• Measurement principle : Inventories are measured at lower of cost or net realizable value.(Net realizable value is selling
price less cost to complete and sell)
• Cost formulas include (a) specific identification method , (b) first-in, first-out (FIFO) method and (c) weighted average
method. Last-in, first-out method (LIFO) is not permitted.
SECTION 14: Investment in Associates
• Measurement principle : option use
(a) COST model-cost less impairment [ when there is published price quotation, use fair value model]
(b) EQUITY method
(c) FAIR VALUE model – fair value through profit or loss [ if impracticable , use cost model]
NOTE: cost model and fair value model are not allowed under PAS 28.
• An investor shall classify investments in associates as non-current assets

SECTION 15: Investment of Joint Ventures

• A joint venture is a contractual arrangement whereby tow or more parties undertake an economic activity that is subject
to joint control. Joint ventures can take the form of jointly controlled operations, jointly controlled assets, or jointly
controlled entities.
• Measurement principle : option use
(d) COST model-cost less impairment [ when there is published price quotation, use fair value model]
(e) EQUITY method
(f) FAIR VALUE model – fair value through profit or loss [ if impracticable , use cost model]
NOTE: cost model and fair value model are not allowed under PAS 31. PAS 31 allows the use of either the equity method or
proportionate consolidation method.

SECTION 16: Investment Property

• An entity shall measure investment property at its cost at its initial recognition.
• Investment property whose fair value can be measured reliably without undue cost or effort shall be measured at fair value
at each reporting date with changes in fair value recognized in profit or loss.
• An entity shall account for all other investment properties as property , plant and equipment using the cost-depreciation-
impairment model in Section 17

SECTION 17: Property, Plant and Equipment (PPE)

• An entity shall measure investment property at its cost at its initial recognition at its cost.
 • An entity shall measure all items of PPE at the BS date at cost less any accumulated depreciation and any accumulated
impairment losses. NOTE: the revaluation model in PAS 16 is not supported by this section.
• An entity shall allocate the depreciable amount of an asset on a systematic basis over its useful life
• Depreciation methods: straight-line method , diminishing balance method, units of production method.

SECTION 18: Intangible Assets other than Goodwill

• An entity shall measure an intangible asset initially at cost
• Internally generated intangibles shall not be recognized as intangible assets
• An entity shall measure intangibles at the BS date at cost less any accumulated amortization and any accumulated impairment
losses. NOTE: the revaluation model in PAS 38 is not supported by this section.
• An entity shall allocate the amortizable amount of intangible assets on a systematic basis over its useful life
• All intangible assets are considered to have been a finite useful life ; if an entity is unable to make a reliable estimate of the
useful life of an intangible asset, the life shall be presumed to be ten years.

SECTION 19: Business Combination and Goodwill

• All business combinations shall be accounted for by applying the purchase method.
The acquirer shall measure the cost of a business combination as the aggregate of:
(a) The fair values of assets given, liabilities incurred and equity instruments issued by the acquirer, in exchange for
control of the acquiree, plus
(b) Any costs directly attributable to the business combination.
• Any difference between the cost of the business combination and the acquirer’s interest in the net fair value of the identifiable
assets, liabilities and provisions for contingent liabilities recognized shall be accounted for as goodwill or negative goodwill.
• After initial recognition, the acquirer shall measure goodwill acquired in a business combination at cost less accumulated
amortization and accumulated impairment losses .
• If an entity is unable to make a reliable estimate of the useful life of goodwill, the life shall be presumed to be ten years.
• If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and provisions for contingent liabilities
recognized exceeds the cost of the business combinations (sometimes referred to as negative goodwill) the acquirer shall:
(a)reassess the identification and measurement of the cost of combination, and
(b) recognize immediately in profit or loss any excess remaining after that reassessment.

SECTION 20: Leases

• Classification of leases into finance and operating lease is similar to PAS 17

• A leases is classified as a finance lease if it transfers substantially all the risk and rewards incidental to ownership: otherwise
, it is classified as an operating lease.
• Under an operating lease, a lessee shall recognize lease payments under operating leases (excluding costs for services such
as an insurance and maintenance) as an expense on a straight-line basis .
• Under a finance lease, a leasee shall recognize the leased assets and lease liabilities at lower amount between the fair value
of the leased property and present value of minimum lease payments. Any initial direct costs of the lessee (incremental costs
that are directly attributable to negotiating and arranging a lease) are added to the amount recognized as an asset.
• A lessee shall apportion minimum lease payments between the finance charge and the reduction of the outstanding liability
using the effective interest method.

SECTION 21: Provision and Contingencies

• Most provisions of this Section are similar to PAS 36.
• An entity shall recognize provision as a liability and shall recognize the amount of the provision as in expense, unless another
section of the PFRS for SMEs requires the cost to be recognized as part of the cost of an asset such as inventories or property,
plant and equipment.

SECTION 22: Liabilities and Equity

 • Equity is the residual interest in the assets of an entity after deducting all it’s liabilities
• A liability is a present obligation of the resources embodying economic benefits.
• An entity shall recognize the issue of shares or equity instruments as equity when it issues those instruments and another
party is obliged to provide cash or other resources to the entity in exchange for the instruments.
• An entity shall account fir the transaction costs of an equity transaction as a deduction for equity, net of any related income
tax benefit.
• A capitalization or bonus issue (sometimes referred to as a stock dividend) is the issue of new shares to shareholders in
proportion to their existing holding. For example , an entity may give its shareholders one dividend or bonus share for every
five shares held.
• A share split (sometimes referred to as stock split) is the dividing of an entity’s existing shares into multiple shares. For
example, in a share split, each shareholder may receive one additional share for each share held. In some cases, the
previously outstanding shares are cancelled and replaced by new shares.
• Capitalization and bonus and issues and share splits do not change total equity.
• Treasury shares are the equity instruments of an entity that have been issued and subsequently reacquired by the entity.
An entity shall deduct from equity the fair value of the consideration given for the treasury shares. The entity shall not
recognize a gain or loss in profit or loss on the purchase, sale, issue or cancellation of treasury shares.

SECTION 23: Revenue

• Most provisions of this Section are similar to PAS 11 and 18.
• An entity shall measure revenue at the fair value of the consideration received or receivable.
• The percentage-of-completion method is used to recognize revenue from rendering services and from
construction contracts.
• An entity shall recognize revenue on the following bases:
✓ Interest shall be recognized using the effective interest method
✓ Royalties shall be recognized on an accrual basis in accordance with the substance of the agreement.
✓ Dividends shall be recognized when the shareholder’s right to receive payment is established.

SECTION 24: Government Grants

• Most provisions of this Section are similar to PAS 20.
• An entity shall measure grants at the fair value of the asset received or receivable.
• An entity shall recognize government grants as follows:
(a) A grant that does not impose specified future performance conditions on the recipient is recognized in income when
the grant proceeds are receivable.
(b) A grant that imposes specified future performance conditions on the recipient is recognized income only when the
performance conditions are met.
(c) Grants received before the revenue recognition criteria are satisfied are recognized as a liability.

SECTION 25: Borrowing Costs

• An entity shall recognize all borrowing costs as an expense in profit or loss in the period in which they are incurred.

SECTION 26: Share based Payment

• Most provisions of this Section are similar to PFRS 2.
• For equity-settled share-based payment transactions, an entity shall measure the goods or services received , and the
corresponding increase in equity , at the fair value of the goods or services received; if the fair value cannot be estimated
reliably, then the entity shall measure the value by reference to the fair value of the equity instruments granted.
• For cash-settled share-based payment transactions, an entity shall measure the goods and services acquired and liability
incurred at the fair value of the liability
• Some share-based payment transactions give either the entity or the supplier of those goods or services with a choice of
whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments. In such a case , the entity
shall account for the transaction as a cash-settled share-based payment transaction.

SECTION 27: Impairment of Assets

• This section is divided into two: (1) Impairment of inventories (2 ) Impairment of assets other than Inventories.
 • Impairment of Inventories:
✓ An entity shall assess at each reporting data whether any inventories are impaired.
✓ An entity measures impairment by comparing the carrying amount of each item of investor y with its selling price
less costs to complete and sell.
✓ If an item of inventory is impaired, the entity shall reduce the carrying amount of the inventory to its selling price
less costs to complete and sell, the reduction is an impairment loss and it is recognized immediately in profit or
loss.
• Impairment of assets other than Inventories;
✓ If the recoverable amount of an asst is less than it’s carrying amount, an entity shall reduce the carrying amount of
the asset to it’s recoverable amount.
✓ The recoverable amount of an asset or cash-generating unit is the higher of it’s fair value less costs to sell and it’s
value in use.
✓ An entity shall recognize an impairment loss immediately in profit or loss.

SECTION 28: Employee benefits

• A entity shall recognize the cost of all employee benefits to which it’s employees have become entitled as a result of service
rendered to the entity during the reporting period:
(a) As a liability, after deducting amounts that have been paid either directly to the employees or as a contribution to an
employee benefit fund.
b) As an expense, unless another section of PFRS for SME’s requires the cost to be recognized as part of the cost of an
asset.
• Employee benefits are classified as:
(a) Short-term employee benefits (e.g ,wages paid annual leave and short-term non-monetary benefits)
(b) Post-employment benefits (e.g, defined contribution plans and defined benefit plans)
(c) Other long-term employee benefits (e.g, long-term compensated absences such as sabbatical leave)
(d) Termination benefits
• Under defined benefit plans, an entity shall recognize all actuarial gains and losses in the period in which they occur, as
part of either (1) profit or loss or (2) other comprehensive income. As a consequence, the corridor approach under PAS 19
is not allowed.
SECTION 29: Income Tax
• An entity shall recognize a current tax liability for tax payable on taxable profit for the current and past periods. If the
amount paid for the current and past periods exceeds the amount payable for those periods, the entity shall recognize the
excess as a current tax asset.
• An entity shall recognize a deferred tax asset or liability for tax recoverable or payable in future periods as a result of past
transaction or events. Such tax arises from the difference between the amounts recognized for the entity’s assets and
liabilities and the recognition of those assets and liabilities by the tax authorities.
• Deferred tax assets and liabilities are classified as non-current.
• Discounting and offsetting of current tax assets and liabilities are not allowed.

SECTION 30: Foreign Currency Translation

• An entity shall record a foreign currency transaction by applying to the foreign currency amount the spot exchange rate
between the functional currency and the foreign currency at the date of the transaction.
• An entity shall translate it’s results and financial position into a different presentation currency using the following
procedures:
✓ Assets and liabilities shall be translated at the closing rate.
✓ Income and expenses shall be translated at the exchange rates at the dates of the transaction.
( The use of average rate is allowed if this approximates the exchange rates at the transaction dates)
✓ All resulting exchange differences shall be recognized in other comprehensive income.

SECTION 31: Hyperinflation

• All amounts in the financial statements of an entity whose functional currency is the currency of a hyperinflationary
economy shall be stated in term of the measuring unit current at the end of the reporting period (i.e, an entity shall prepare
general price level adjusted financial statements)
 • The restatement of financial statements requires the use of a general price index that reflects changes in general purchasing
power.
• Non-monetary items are restated while monetary items are not restated because they are expressed in terms of the
measuring unit current at the end of the reporting period.

SECTION 32: Events after the End of the Reporting Period

• Most provisions of this Section are similar to PAS 10. See page 8 of the TA Lecture Notes
• Two types of events after the reporting period:
✓ Type I Events (adjusting) – provide evidence of conditions existing at the end of the reporting period
✓ Type II Events (non-adjusting) – indicative of conditions arising after the end of the reporting period.

SECTION 33: Related Party Disclosures

• Most provisions of this Section are similar to PAS 24. See pages 7 and 8 of the TA Lecture Notes.
• In considering each possible related party relationship, an entity shall assess the substance of the relationship and
not merely the legal form.

SECTION 34: Specialized Activities

• This section provides guidance on financial reporting by SMEs involved in three types of specialized activities: (1) agriculture
(2) extractive activities (3) service concessions
• An entity engaged in agricultural activity shall determine it’s accounting policy for each class of it’s biological assets as
follows:
(a) The entity shall use the FAIR VALUE model for those biological assets for which fair value is readily determinable
without undue cost or effort.
(b) The entity shall use the COST model for all other biological assets.
Agricultural produce harvested from an entity’s biological assets shall be measured at it’s fair value less costs to sell at the
point of harvest.
• An entity engaged in the exploration for, evaluation or extraction of mineral resources (extractive activities) shall account
for expenditure on the acquisition or development of tangible or intangible assets for use in extractive activities by applying
Section 17 Property , Plant and Equipment and Section 18 Intangible Assets other than Goodwill, respectively
• Under a service concession arrangement, the private operator shall recognize a financial asset to extent that it has
unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the
construction services:
✓ The private operator shall measure the financial asset at fair value. Thereafter, it shall follow Section 11 Basic Financial
Instruments and Section 12 Other Financial Instrument Issues in accounting for the financial asset.
✓ The private operator shall recognize an intangible asset to the extent that it receives a right (a license to change users
of the public service. The operator shall initially measure the intangible asset at fair value. Thereafter, it shall follow
Section 18 in accounting for the intangible asset.

SECTION 35: Transition to the PFRS for SMEs

• A first-time adopter of PFRS for SMEs shall apply this section in it’s FS that conform to PFRS for SMEs.
• Section 35 requires an entity to prepare comparative FS Covering the current year and at least one prior year using PFRS for
SMEs.
• An entity’s date of transition to PFRS for SMEs is the beginning of the earliest period for which the entity present full
comparative information in accordance with PFRS for SMEs in it’s first FS that conform to PFRS for SMEs
• Section 35 cites many exemptions for restating specific items in it’s first PFRS-for-SME-based FS.
•

(END OF LECTURE NOTES ☺ )