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Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2853 - Small Entities (SEs) MAY 2020

DISCUSSION PROBLEMS
1. The Securities and Exchange Commission (SEC) has b. A small entity which is a subsidiary of a foreign
issued SEC Memorandum Circular No. 05 (2018) parent company which will be moving towards
adopting, as part of its financial reporting rules and IFRS or IFRS for SMEs pursuant to the foreign
regulations, the Philippine Financial Reporting country’s published convergence plan.
Standards For Small Entities (PFRS for SEs). This is in c. A small entity, either as a significant joint venture
line with the corporate regulator’s or associate, is part of a group that is reporting
a. Run After Tax Evaders initiatives under full PFRS or PFRS for SMEs.
b. Public Private Partnership initiatives d. A small entity which has a short term projection
c. Build Build Build initiatives that show that it will breach the quantitative
d. Ease of Doing Business initiatives thresholds set in the criteria for a small entity.
The breach is not expected to be significant and
2. In accordance with SEC Memorandum Circular No. 5 continuing.
Series of 2018, small entities are those that:
I. Have total assets of between P3M to P100M or 8. Which of the following small entities may apply the full
total liabilities of between P3M to P100M PFRS or PFRS for SMEs?
II. Are not required to file financial statements under a. A small entity which is a branch office or regional
Part II of SRC Rule 68 operating headquarter of a foreign company
III. Are not in the process of filing their financial reporting under the full IFRS or IFRS for SMEs.
statements for the purpose of issuing any class of b. A small entity which has been preparing financial
instruments in a public market statements using full PFRS or PFRS for SMEs and
IV. Are not holders of secondary licenses issued by has decided to liquidate.
regulatory agencies c. Both a and b.
d. Neither a nor b.
a. I, II, III and IV c. I and IV only
b. I, II and III only d. I only
9. In relation to the change in financial reporting
framework of a small entity, the determination of what
3. The following are common characteristics of medium-
is “significant and continuing” shall be based on
sized, small and micro entities, except
management’s judgment taking into consideration
a. Are not required to file financial statements under
relevant qualitative and quantitative factors. As a
Part II of SRC Rule 68
general rule, what would be considered as significant?
b. Are not in the process of filing their financial
a. 20% or more of the consolidated total assets.
statements for the purpose of issuing any class of
b. 20% or more of the consolidated total liabilities.
instruments in a public market
c. Either a or b.
c. Are not holders of secondary licenses issued by
d. Neither a nor b.
regulatory agencies
d. Are not public utilities
10. If a small entity that uses the PFRS for SEs in a current
year breaches the floor or ceiling of the size criteria at
4. An entity with total assets of below P3 million is
the end of that current year, and the event that caused
considered as
the change is not considered “significant and
a. Large entity c. Small entity
continuing”, the entity
b. Medium-sized entity d. Micro entity
a. Should transition to the applicable financial
reporting framework in the next accounting period.
5. Which of the following entity shall apply the PFRS for
b. Should transition to the applicable financial
SEs?
reporting framework in the current accounting
a. Finance company
period.
b. Insurance company
c. Should transition to the applicable financial
c. Securities brokers/dealers
reporting framework from the previous accounting
d. A non-publicly accountable entity with total
period.
liabilities of P3 million.
d. Can continue to use the same financial reporting
framework it currently uses.
6. Small entities who have operations or investments that
are based or conducted in a different country with a
11. The PFRS for SEs was developed in response to
different functional currency should apply
feedback of small entities that PFRS for SMEs is too
a. Full PFRS c. PFRS for SEs
complex to apply. The PFRS for SEs allows small
b. PFRS for SMEs d. Either a or b
entities to comply with the financial reporting
requirements without undue cost or burden by
7. The following SMEs shall be exempt from the
I. Reducing choices for accounting treatment
mandatory adoption of the PFRS for SEs and may
II. Eliminating topics that are not generally relevant to
instead apply, as appropriate, the full PFRS or the
small entities
PFRS for SMEs, except
III. Simplifying methods for recognition and
a. A small entity which is a subsidiary of a parent
measurement
company reporting under the full PFRS or PFRS for
IV. Reducing disclosure requirements
SMEs.

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a. I, II, III and IV c. I and III only a. Cash


b. I, II and III only d. I only b. Trade receivables and payables
c. Loans receivable and payable
12. Simplifications introduced by PFRS for SEs include d. Investments in convertible preference shares
a. Entities are given a policy choice of not recognizing
deferred taxes in the financial statements. 20. In accordance with Section 6 of PFRS for SEs, a
b. Prior period adjustments are just captured in the financial asset or liability is measured initially at
opening balance of the current year, but with a. Transaction price, including transaction costs
appropriate disclosures. b. Transaction price, excluding transaction costs
c. For defined benefit plans, an entity is required to c. Fair value, including transaction costs
use the accrual approach in calculating benefit d. Fair value, excluding transaction costs
obligations in accordance with Republic Act (RA)
7641, The Philippine Retirement Pay Law, or 21. In accordance with Section 6 of PFRS for SEs,
company policy (if superior than RA 7641). investments in shares that are traded in an active
d. All of these. market shall be measured subsequently at
a. Cost c. Lower of a or b
13. Which the following topics in PFRS for SMEs apply to b. Fair value d. Amortized cost
small entities?
a. Finance leases c. Hedge accounting 22. In accordance with Section 7 of PFRS for SEs, a
b. Onerous contracts d. None of these financial asset or liability is measured initially at
a. Transaction price, including transaction costs
14. Items of other comprehensive income of small entities b. Transaction price, excluding transaction costs
include c. Fair value, including transaction costs
I. Some gains and losses arising on translating the d. Fair value, excluding transaction costs
financial statements of a foreign operation.
II. Some actuarial gains and losses. 23. In accordance with Section 7 of PFRS for SEs, financial
III. Changes in revaluation surplus. instruments within the scope of the section shall be
IV. Some changes in fair values of hedging measured subsequently at
instruments. a. Cost
b. Amortized cost
a. I, II, III and IV c. II and IV only
c. Fair value though profit or loss
b. II, III and IV only d. None of them
d. Fair value through other comprehensive income
15. Section 2 of PFRS for SEs Concepts and Pervasive
24. In accordance with Section 8 of PFRS for SEs,
Principles provides guidance on
Inventories are required to be measured at the
I. Objective of financial statements
a. Lower of cost and net realizable value.
II. Information provided by the financial statements
b. Lower of cost and estimated selling price less costs
III. Recognition of the elements of financial statements
to complete and sell.
IV. Use of accrual basis
c. Lower cost or market value.
V. Fair value of an asset
d. Lower of cost and fair value less costs to sell.
VI. Offsetting of the elements of financial statements
a. I, II, III, IV, V and VI c. I, III and VI only 25. In accordance with PFRS for SEs, ‘market value’ is
b. I, II, III, IV and VI only d. I and III only a. The amount for which an asset could be
exchanged, a liability settled or an equity
16. In accordance with Section 3 of PFRS for SEs, which of instrument granted could be exchanged, between
the following financial statements is not applicable to a knowledgeable, willing parties in an arm’s length
small entity? transaction.
a. Statement of financial position b. The amount obtainable from the sale of an asset or
b. Statement of comprehensive income cash-generating unit in an arm’s length transaction
c. Statement of changes in equity between knowledgeable, willing parties, less the
d. Statement of cash flows costs of disposal.
c. The price paid to acquire the asset.
17. In accordance with Section 4 of PFRS for SEs, an entity d. The probable selling price to willing buyers as of
shall account for all its investments in subsidiaries reporting date.
using
I. Cost model 26. In accordance with Section 9 of PFRS for SEs, an
II. Equity method investor shall account for all its investments in
III. Fair value model associates using
IV. Consolidation method I. Cost less impairment model
II. Equity method
a. I, II, III or IV c. II or IV only III. Fair value model
b. I or II only d. IV only
a. I, II or III c. I only
18. In accordance with Section 5 of PFRS for SEs, which of b. I or II only d. II or III only
the following requires restatement of comparative
information? 27. In accordance with Section 10 of the PFRS for SEs, a
a. Change in accounting estimates venturer shall account for all its investment in ventures
b. Change in accounting policies using
c. Correction of prior period errors I. Cost model
d. None of these II. Equity method
III. Fair value model
19. In accordance with Section 6 of PFRS for SEs, basic
a. I, II or III c. I only
financial instruments exclude
b. I or II only d. II or III only

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28. Which statement is correct regarding measurement b. Fair value of the goods or services received, unless
after recognition of investment property in accordance that fair value cannot be estimated reliably.
with Section 11 of PFRS for SEs? c. Fair value of the equity instruments granted, if fair
a. An entity is required to use the cost model. value of the goods or services received cannot be
b. An entity has a choice to use either the cost model estimated reliably.
or the fair value model. d. Par value of equity instruments granted.
c. Investment property whose fair value cannot be
measured reliably without undue cost or effort 35. In accordance with Section 22 of PFRS for SEs, for
shall be measured using the cost-depreciation- defined benefit plans, an entity is required to
impairment model. a. Calculate the expected liability as of reporting date
d. Investment property whose fair value can be using the current salary of the entitled employees
measured reliably without undue cost or effort and the employees' years of service, without
shall be measured at fair value at each reporting consideration of future changes in salary rates and
date with changes in fair value recognized in profit service periods.
or loss. b. See each period of service as giving rise to an
additional unit of benefit entitlement and measure
29. Which statement is correct regarding measurement each unit of benefit entitlement separately to build
after recognition of property, plant and equipment up the final obligation.
(PPE) in accordance with Section 12 of PFRS for SEs? c. Either a or b.
a. An entity is required to use the cost model. d. Neither a nor b.
b. An entity has a choice to use either the cost model
or the fair value model. 36. Which statement is correct regarding measurement of
c. PPE whose fair value cannot be measured reliably biological assets in accordance with Section 27 of PFRS
without undue cost or effort shall be measured for SEs?
using the cost-depreciation- impairment model. a. An entity is required to use the current market
d. PPE whose fair value can be measured reliably price model.
without undue cost or effort shall be measured at b. An entity has a choice to use either the current
fair value at each reporting date with changes in market price model or the cost model.
fair value recognized in profit or loss. c. Biological assets whose fair value cannot be
measured reliably without undue cost or effort
30. PFRS for SEs is similar to PFRS for SMEs in relation to shall be measured using the cost-depreciation-
accounting for impairment model.
a. Investment property d. Biological assets whose fair value can be measured
b. Property, plant and equipment reliably without undue cost or effort shall be
c. Intangible assets measured at their current market price or the
d. Leases probable selling price to willing buyers at each
reporting date with changes in current market
31. Section 16 of PFRS for SEs applies to price recognized in profit or loss.
a. Executory contracts
b. Provision for depreciation, impairment of assets 37. In accordance with Section 28 of PFRS for SEs, an
and uncollectible receivables entity shall account for a non-monetary government
c. Contingent assets and contingent liabilities grant by
d. None of these a. Not recognizing the non-monetary grant.
b. Recognizing the non-monetary grant at fair value.
32. PFRS for SEs is similar to PFRS for SMEs in relation to c. Either a or b.
accounting for d. Neither a nor b.
a. Equity c. Borrowing costs
b. Revenue d. All of these 38. In accordance with Section 29 of PFRS for SEs, an
entity can be a first-time adopter of PFRS for SEs
33. Section 18 of PFRS for SEs applies to accounting for a. Only once c. Only thrice
revenue arising from b. Only twice d. Without limit
I. Sale of goods
II. Rendering of services 39. The trial balance of Entity S (a small entity) included
III. Construction contracts in which the entity is the the following assets:
contractor Cash P 500,000
IV. Deposits or receivables yielding interest Accounts receivable 3,000,000
V. Dividends from investments in shares of stock that Inventories (at cost) 5,100,000
are not accounted for using the equity method Investment in shares (at cost) 900,000
a. I, II, III, IV and V c. I and II only Property, plant and equipment 8,000,000
b. I, II and III only d. I only Additional information:
• The probable selling price of inventories to willing
34. In accordance with Section 20 of PFRS for SEs, for buyers as of reporting date is P5,000,000.
equity-settled share-based payment transactions, an • The shares held as investment are traded in an
entity shall measure the goods or services received, active market. Fair value as of reporting date is
and the corresponding increase in equity, with P950,000.
reference to the
a. Net asset value of the equity instruments granted. In accordance with the PFRS for Small Entities, Entity
Net asset value is derived by dividing the total S should report total assets of
assets of the entity less any liabilities, by the a. P17,400,000 c. P17,500,000
number of shares outstanding at measurement b. P17,450,000 d. P17,550,000
date.
- now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL


1. In accordance with SEC Memorandum Circular No. 5 8. Which of the following is not peculiar to small entities?
Series of 2018, small entities are those that are: a. Measurement of inventories at the lower cost or
a. Required to file financial statements under Part II market value.
of SRC Rule 68 b. Measurement of property, plant and equipment
b. In the process of filing their financial statements using fair value model.
for the purpose of issuing any class of instruments c. Measurement of equity-settled share-based
in a public market payment transactions at net asset value of the
c. Holders of secondary licenses issued by regulatory equity instruments granted.
agencies d. None of these.
d. None of these
9. A small entity may report which of the following in its
2. An entity that is required to file financial statements statement of financial position?
under Part II of SRC Rule 68 shall use as its financial a. Finance lease liability
reporting framework b. Provision for onerous contract
a. Full PFRS c. PFRS for SEs c. Deferred tax liability
b. PFRS for SMEs d. Income tax basis d. None of these

3. An entity that is in the process of filing their financial 10. In accordance with Section 23 of PFRS for SEs, an
statements for the purpose of issuing any class of entity shall account for income taxes using
instruments in a public market shall use as its financial a. The taxes payable method
reporting framework b. The deferred income taxes method
a. Full PFRS c. PFRS for SEs c. Either a or b
b. PFRS for SMEs d. Income tax basis d. Neither a nor b

4. An entity that is a holder of secondary license issued 11. Which of the following applies to small entities?
by a regulatory agency shall use as its financial a. Revaluation of assets
reporting framework b. Actuarial gains and losses
a. Full PFRS c. PFRS for SEs c. Reclassification adjustments
b. PFRS for SMEs d. Income tax basis d. None of these

5. Which of the following entity shall apply the PFRS for 12. In accordance with Section 6 of PFRS for SEs,
SEs? investments in shares that are not traded in an active
a. Bank c. Mutual fund market shall be measured subsequently at
b. Investment house d. None of these a. Cost less impairment
b. Fair value
6. An entity with total assets of P3 million and total c. Lower of a or b
liabilities of P2.5 million shall use as its financial d. Amortized cost
reporting framework
a. PFRS for SMEs c. Income tax basis 13. Which of the following Specialized Activities of SMEs
b. PFRS for SEs d. Either b or c apply to small entities?
a. Service concession arrangements
7. Which of the following is not a simplification introduced b. Extractive activities
by the PFRS for SEs? c. Agriculture
a. Inventories are to be subsequently valued at the d. None of these
lower of cost and market value.
b. Investment properties can be carried either at cost
or at fair value, depending on the policy choice
made by the entity.
c. Biological assets can be carried either at cost or at
current market price, depending on the policy
choice made by the entity.
d. For equity-settled share-based payment
transactions, an entity shall measure the goods or
services received, and the corresponding increase
in equity, with reference to the par value of the
equity instruments granted. - done -

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LECTURE NOTES
PFRS for Small Entities Section by Section Summary 6. A small entity which has been preparing financial
statements using PFRS or PFRS for SMEs and has
Preface decided to liquidate; and
Some of the key simplifications introduced by the PFRS for 7. Such other cases that the Commission may consider
Small Entities are as follows: as valid exceptions from the mandatory adoption of
• Inventories are to be subsequently valued at the PFRS for SMEs.
lower of cost and market value,
• Investment properties can be carried either at cost or Section 2 – Concepts and Pervasive Principles
at fair value, depending on the policy choice made by • Objective of SEs' financial statements: To provide
the entity. information about financial position, performance, cash
• There is no concept of "finance lease". flows
• There is no accounting for onerous contracts. • Basic recognition concept – An item that meets the
• For equity-settled share-based payment transactions, definition of an asset, liability, income, or expense is
an entity shall measure the goods or services recognised in the financial statements if:
received, and the corresponding increase in equity, o it is probable that future benefits associated with
with reference to the net asset value of the equity the item will flow to or from the entity, and
instruments granted. Net asset value is derived by o the item has a cost or value that can be measured
dividing the total assets of the entity less any reliably
liabilities, by the number of shares outstanding at • Measurement requirements are generally set out in the
measurement date. individual sections. However guidance on fair value
• For defined benefit plans, an entity is required to use relevant to several sections is included in this section.
the accrual approach in calculating benefit obligations • Offsetting of assets and liabilities or of income and
in accordance with Republic Act (RA) 7641, The expenses is prohibited unless expressly required or
Philippine Retirement Pay Law, or company policy (if permitted
superior than RA 7641). Accrual approach is applied
by calculating the expected liability as of reporting Section 3 – Financial Statement Presentation
date using the current salary of the entitled Components of financial statements
employees and the employees' years of service, 1. A statement of financial position
without consideration of future changes in salary rates 2. A statement of income
and service periods. 3. A statement of changes in equity
• Entities are given a policy choice of not recognizing 4. A statement of cash flows
deferred taxes in the financial statements. 5. Notes to financial statements
• Biological assets can be carried either at cost or at
current market price, depending on the policy choice Statements of income and changes in equity can be
made by the entity. combined if the only changes to equity arise from profit or
• Prior period adjustments are just captured in the loss, payment of dividends, corrections of prior period
opening balance of the current year, but with errors, and changes in accounting policy.
appropriate disclosures.
Disclosures
Section 1 – Scope Disclosure of information about key sources of
PFRS for SEs is intended for use by small entities as estimation uncertainty and judgments NOT
defined by the Philippine SEC. mandatory.

Entities who have operations or investments that are Section 4 – Subsidiaries


based or conducted in a different country with a different The section covers:
functional currency shall not apply PFRS for SEs and • accounting policies available for a parent company
should instead apply the full PFRS or PFRS for SMEs. with investment in a subsidiary;
• procedures for preparing consolidated financial
Exemption from mandatory adoption of the PFRS for Small statements; and
entities and may instead apply, as appropriate, the full • guidance on separate financial statements.
PFRS or PFRS for SMEs:
1. A small entity which is a subsidiary of a parent Accounting policy choice to:
company reporting under the PFRS or PFRS for SMEs; a) consolidate its subsidiaries; or
2. A small entity which is a subsidiary of a foreign parent b) account for its subsidiaries using the equity
company which will be moving towards IFRS or IFRS method as described in Section 9 - Investments
for SMEs pursuant to the foreign country’s published in Associates.
convergence plan;
3. A small entity, either as a significant joint venture or Separate financial statements refers to:
associate, is part of a group that is reporting under a) An investor’s financial statements that are presented
the PFRS or PFRS for SMEs; in addition to consolidated financial statements; or
4. A small entity which is a branch office or regional b) An investor’s financial statements that are presented
operating headquarter of a foreign company reporting as the company’s only financial statements because it
under the IFRS or IFRS for SMEs; has taken an exemption from consolidation or from
5. A small entity which has a short term projection that applying the equity method
show that it will breach the quantitative thresholds set
in the criteria for a small entity. The breach is Accounting policy election for investments in
expected to be significant and continuing due to its subsidiaries in separate financial statements:
long-term effect on the company’s asset or liability a) at cost less impairment, or
size; b) at equity method (using the procedures in
Section 9 - Investments in Associates).

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Any entity should provide the following disclosures: Change in estimate


• method used to account for its subsidiaries. • nature and amount of a change in an accounting
• listing and description of all subsidiaries, including estimate that has an effect in the current period
their names, carrying amounts, and the proportion of
ownership interests held in each subsidiary. Section 6 – Basic Financial Instruments
• any difference in the reporting date of the financial Covers:
statements of the parent and its subsidiaries a) cash;
b) the following receivables and payables subject to
In addition to a - c above, an entity that chose the certain requirements:
equity method should disclose separately any i. bank deposits;
dividends received from the subsidiaries and its ii. trade receivables and payables;
share of the profit or loss of such subsidiaries. iii. loans receivable and payable;
iv. notes receivable and payable; and
Section 5 – Accounting Policies, Estimates and Errors c) investments in non-convertible preference shares and
Selection of accounting policies and use of other guidance non-puttable ordinary shares.
When PFRS for Small Entities does not address a
transaction, other event or condition, management uses its Initial measurement
judgment in developing and applying an accounting policy Transaction price (including transaction costs) unless the
that results in information that is relevant and reliable. arrangement constitutes a financing transaction, in which
case, the financial asset or financial liability at the present
If there is no relevant guidance, management considers
value of the future payments discounted at a market rate
the following sources, in descending order:
of interest for a similar debt instrument.
a) the requirements and guidance of PFRS for Small
Entities dealing with similar and related issues, and
Subsequent measurement
b) the definitions, recognition criteria and measurement
• Debt instruments are measured at amortized cost
concepts for assets, liabilities, income and expenses
using the effective interest method
and the pervasive principles in Section 2.
• Investments in shares shall be carried at cost
Management may also consider the requirements and less impairment, unless the investment in
guidance in PFRS for Small and Medium-sized Entities shares are traded in an active market, which
(PFRS for SMEs) dealing with similar and related issues. shall be measured at the lower of cost or fair
value, with changes in fair value recognized in
Change in accounting policies profit or loss.
An entity shall account for changes in accounting
policy as follows: Impairment of financial assets measured at cost or
a) Applied to the carrying amounts of assets and amortized cost
liabilities at the beginning of the current period. • An entity shall recognize impairment loss if there is
Any cumulative effect shall be recognized as an objective evidence of impairment
adjustment to the opening balance of retained • Impairment loss is the difference between the asset’s
earnings (or other component of equity, as carrying amount and the present value of cash flows
appropriate) of the current period. (for assets measured at amortized cost) or best
b) Comparative information shall not be restated. estimate of selling price (for assets measured at cost).

Changes in accounting estimates Derecognition of financial asset


Changes in accounting estimates are recognized Financial asset is derecognized when:
prospectively by including the effects in profit or loss in the • the contractual rights to the cash flows from the
period that is affected. financial asset expire or are settled; or
• the entity transfers to another party substantially all
If the change in estimates gives rise to changes in assets, of the risks and rewards of ownership of the financial
liabilities or equity, it is recognized by adjusting the asset.
carrying amount of the related asset, liability or equity in
the period of change. Derecognition of financial liability
Financial liability is derecognized when it is extinguished -
Correction of errors i.e., when the obligation specified in the contract is
An entity shall correct material prior period errors as discharged, is cancelled or has expired.
follows:
• No restatement of comparatives Section 7 – Other Financial Instruments
• Adjustments are recognized against opening
balance of current year retained earnings (or Initial measurement
other component of equity) At fair value, which is normally the transaction price.

Disclosures Subsequent measurement


Change in accounting policy/correction of error • Fair value with changes in fair value recognized in
• the nature of the change or prior period error profit or loss.
and the amount of adjustments to the carrying • Equity instruments that are not publicly traded and
amounts of assets and liabilities at the whose fair value cannot be measured reliably are
beginning of the current period and any measured at cost less impairment.
cumulative effect recognized as an adjustment • Hedge of variable interest rate risk of a recognized
to the opening balance of equity; financial instrument, foreign exchange risk or
• in the notes, for each financial statement line commodity price risk in a firm commitment or highly
item affected in the prior period, the amount of probable forecast transaction - effective portion
the necessary adjustment and the adjusted recognized in hedging reserve (equity account)
amount had the new accounting policy or while ineffective portion is recognized in profit
correction been applied in the prior period. or loss.

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Derecognition Section 10 – Joint Arrangements


Similar with basic financial instruments. Classification
Classified either as (a) joint venture; or (b) joint
Section 8 – Inventories operations, depending on the rights and obligations of the
Measurement parties to the arrangement
Initially measured at cost (cost of purchase, cost of
conversion, and other directly attributable costs) Joint operations
Investor account for rights and obligations by recognizing
Cost formulas its own assets, liabilities, revenue, and expenses, as well
The cost of inventories, other than those measured using as its share of assets, liabilities, revenue, expenses,
specific identification, by using the first-in, first-out (FIFO) held/earned/incurred jointly from the joint operation.
or weighted average cost formula. Last-in, first-out
method (LIFO) is not permitted. Joint venture - measurement
Option to apply:
Subsequent measurement • Cost model; or
Lower of cost or market value • Equity method

Disclosures Transactions between a venturer and a joint venture


An entity shall disclose the following: Gains and losses on contribution or sales of assets to a
• the accounting policies adopted in measuring joint venture are recognized only on the portion
inventories, including the cost formula used; attributable to the interests of the other venturers
• the total carrying amount of inventories and the provided the assets are retained by the joint venture and
carrying amount in classifications appropriate to the significant risks and rewards of ownership have been
entity; transferred.
• the amount of inventories recognized as an expense
during the period; Disclosures
• impairment losses recognized or reversed in profit or • Name and type of joint arrangement; principal place
loss in accordance with Section 21 - Impairment of of business, ownership interest
Assets; and • For joint venture - accounting policy elected, carrying
• the total carrying amount of inventories pledged as amount, fair value of investment if equity method is
security for liabilities. used and there are published price quotations,
amount of dividends recognized in income if cost
Section 9 – Investments in Associates method is used
Measurement
Option to apply: Section 11 – Investment Property
• Cost model; or Recognition and measurement
• Equity method Initially measured at cost. The cost of a purchased
investment property comprises its purchase price and any
Cost model
directly attributable expenditures.
Measured at cost less any accumulated impairment losses.
All dividends are recognized in the income statement.
Subsequent measurement, option to apply:
Equity method • Cost model
An associate is initially recognized at the transaction price • Fair value Model
(including transaction costs) and is subsequently adjusted
to reflect the investor’s share of the profit or loss of the Cost model
associate. Investment properties are carried at cost less accumulated
depreciation and any accumulated impairment losses.
Distributions received from the associate reduce the
carrying amount of the investment. Fair value model
Changes in fair value is recognized in profit or loss.
Notional purchase price allocation If a reliable measure of fair value is no longer available
On acquisition, an investor shall account for any difference without undue cost or effort, it will be accounted for under
between the cost of acquisition and the investor’s share of the cost model. Carrying amount at date of change
the fair values of the net identifiable assets of the becomes the cost.
associate.
Equity pick-up shall be adjusted for additional depreciation Transfers
or amortization of the associate’s depreciable or Transfer to or from investment properties applies when the
amortizable assets (including goodwill) on the basis of property meets or ceases to meet the definition of an
difference between fair value and carrying amount on investment property.
acquisition date.
Disclosures
Disclosures • Under cost model, depreciation method, useful lives,
• Name of the associate; principal place of business; gross carrying amount and accumulated depreciation,
ownership interest, accounting policy, and carrying reconciliation of the carrying amount;
amount • Under fair value model, whether independent valuer
• If accounting policy is cost method - amount of was involved, method and significant assumptions
dividends and other distributions recognized as used in valuation, reconciliation of carrying amount;
income and
• If accounting policy is equity method - share of profit • Existence and carrying amount of property with
or loss, and fair value of investment if there are restricted title or was used as a security.
published price quotations.

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EXCEL PROFESSIONAL SERVICES, INC.

Section 12 – Property, Plant and Equipment Section 14 – Business Combinations and Goodwill
Measurement Accounting
Initially measured at cost which includes: All business combinations shall be accounted for by
• Purchase price applying the purchase method.
• Any directly attributable costs to bring the asset to the
Goodwill
location and condition necessary for it to be capable of
After initial recognition, the acquirer shall measure
operating in the manner intended by management.
goodwill acquired in a business combination at cost less
accumulated amortization and accumulated impairment
Subsequent measurement, option to apply:
losses.
• Cost model
• Fair value Model An entity shall amortize goodwill on a systematic basis
over its useful life. The life shall be determined based on
Depreciable amount and depreciation period management’s best estimate but shall not exceed ten (10)
The depreciable amount is allocated over its useful life. years.
Change in residual value or useful life is accounted for as a
change in estimate Disclosures
Disclosure requirements under paragraph 288-289 apply.
Depreciation method
• The depreciation method is reviewed if there is an Section 15 – Leases
indication that there has been a significant change Classification
since the last annual reporting date. No distinction between finance and operating lease.
• Change in the depreciation method is accounted for as
Measurement
a change in estimate.
All receipts/payments are recognized as
income/expense as earned/incurred .
Fair value model
• Changes in fair value is recognized in profit or loss.
Section 16 – Provisions and Contingencies
• If a reliable measure of fair value is no longer
available without undue cost or effort, it will be Initial recognition
accounted for under the cost model. Carrying amount An entity shall recognize a provision only when:
at date of change becomes the cost. a) the entity has an obligation at the reporting date as a
result of a past event;
Derecognition b) it is probable (i.e., more likely than not) that the
• Derecognize on disposal or when no future economic entity will be required to transfer economic benefits in
benefits are expected from its use or disposal. settlement; and
c) the amount of the obligation can be estimated reliably
Disclosures A contingent liability is either a possible but uncertain
• Under cost model, depreciation method, useful lives, obligation or a present obligation that is not recognized
gross carrying amount and accumulated depreciation, because it fails to meet one or both of the conditions b or c
reconciliation of the carrying amount; above.
• Under fair value model, whether independent
valuer was involved, method and significant Measurement
assumptions used in valuation, reconciliation of An entity shall measure a provision at the best estimate of
carrying amount; and the amount required to settle the obligation at the
• Existence and carrying amount of property with reporting date.
restricted title or was used as a security.
Disclosures
Provisions
Section 13 – Intangible Assets Other than Goodwill
• Reconciliation of the account; description of the
Recognition and measurement nature of obligation and expected amount/timing of
Initially measured at cost and subsequently accounted for payment; indication of uncertainties about the timing
a cost model. and amount; expected reimbursements.
Contingent liabilities (if not remote)
Useful life • Description of nature of the contingent liability; if
Useful life is considered finite. practicable, an estimate of financial effect, and
possibility of reimbursement.
If an entity is unable to make a reliable estimate of the
Contingent assets (if probable)
useful life of an intangible asset, the life shall be
• Description of nature of contingent asset and if
determined based on management’s best estimate but
practicable, estimate of financial effect.
shall not exceed ten (10) years.
Section 17 – Equity
Classification
Intangibles acquired through business combination must Recognition and measurement
be identified and accounted for by: • An entity shall measure the equity instruments at the
(a) separately recognizing the intangible asset as an amount of cash received.
identifiable asset; or • If payment is deferred and the time value of money is
(b) subsuming into goodwill material, the initial measurement shall be on a
present value basis.
Disclosures • If the equity instruments are exchanged for resources
• Depreciation method, useful lives, gross carrying other than cash, the equity instruments shall be
amount and accumulated depreciation, reconciliation recognized at the fair value of those resources.
of the carrying amount; line item in the income • An entity shall account for the transaction costs (i.e.,
statement where amortization was included; and incremental costs that are directly attributable to the
• Existence and carrying amount of asset with restricted issue) as a deduction from equity, net of any related
title or was used as a security. income tax benefit.

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EXCEL PROFESSIONAL SERVICES, INC.

Distribution to owners Section 21 – Impairment of Assets


• An entity shall reduce equity for the amount of General principles
distributions to its owners (holders of its equity If the recoverable amount of an asset is less than its
instruments), net of any related income tax benefits. carrying amount, impairment loss be recognized to reduce
the carrying amount of the asset to its recoverable
Section 18 – Revenue amount.
Recognition
The revenue section captures all revenue transactions from Measuring recoverable amount
the following transactions or events: The recoverable amount of an asset or a cash-generating
• Sale of goods. unit is the higher of its fair value less costs to sell and its
• Rendering of services; value in use.
• Construction contracts;
• Deposits or receivables yielding interest; and Fair value less costs to sell is the amount obtainable from
• dividends from investments in shares of stock that are the sale of an asset in an arm’s length transaction between
not accounted for using the equity method. knowledgeable, willing parties, less the costs of disposal.
Value in use is the present value of the future cash flows
Revenue recognition criteria for each of these categories
expected to be derived from an asset (or cash-generating
include the probability that the economic benefits
unit).
associated with the transaction will flow to the entity and
that the revenue and costs can be measured reliably.
Recognition of impairment loss
Additional recognition criteria apply within each broad
An entity shall recognize an impairment loss immediately
category.
in profit or loss.
Measurement
Measurement of revenue at the fair value of the Disclosures
consideration received or receivable is required. Amount of impairment loss recognized in profit or loss
during the period and the line item in the statement of
Disclosures income in which the impairment loss is included for each
• Accounting policies, including method to determine asset that was tested for impairment.
the stage of completion for transactions involving
rendering of services Section 22 – Employee Benefits
• Amount of revenue for each category (sale of goods,
rendering of services, interest, commissions) Measurement (post-employment benefit plan)
• For construction contracts - amount and method used Accrual method in calculating benefit obligations in
to determine contract revenue, methods used to accordance to RA7641 or company policy (if superior
determine percentage of completion, gross amount than RA7641). No consideration of changes in
due from/to customers. future salary rates and service periods
No recognition of actuarial gains/losses.
Section 19 – Borrowing Costs
Disclosures (post-employment benefit plan)
Recognition
Amount recognized in profit or loss as an expense for post-
All borrowing costs as an expense in profit or loss in the
employment benefit plans, the amount of its obligation,
period in which they are incurred.
and the extent of funding at the reporting date.
Disclosures
Disclosure requirements for financial liabilities apply. Section 23 – Income Tax
Recognition
Section 20 – Share-based Payment Policy choice to account for income taxes using
Recognition and measurement either
All transactions involving share-based payment are a) The taxes payable method, in which an entity shall
recognized as expenses or assets over any vesting period. recognize a current tax liability for tax payable on
taxable profit for the current and past periods
Distinguishes between cash-settled and equity-settled b) The deferred income taxes method, in which, the
arrangements. current and future tax consequences of transactions
For equity-settled awards, the value of goods or and other events are recognized.
services acquired must be recognized with reference
to the net asset value (total assets less liabilities Measurement of deferred tax
divided by outstanding shares) of the entity. Deferred tax assets/liabilities are measured using the tax
rates and laws that have been enacted or substantively
Disclosures enacted by the reporting date.
• Description, including terms and conditions, of each
share-based arrangement; An entity shall not discount deferred tax assets and
• Number and weighted-average prices of each group of liabilities
options outstanding, granted, forfeited, exercised,
expired, outstanding, and exercisable; The carrying amount of a deferred tax asset shall be
• For cash settled - information about how the liability reviewed at the end of each reporting period. An entity
was measured; shall reduce the carrying amount of a deferred tax asset to
• Information about modifications in share-based the extent that it is no longer probable that sufficient
arrangement, if any; taxable profit will be available.
• For Group-settled share-based plan - whether
expense is based on reasonable allocation and basis Presentation
for allocation; Tax expense (income) are recognized n profit or loss or
• Financial effect of share-based plans, including equity as the transaction or other event that resulted in
expense and liabilities arising thereof. the tax expense (income)

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EXCEL PROFESSIONAL SERVICES, INC.

Current/non-current distinction Section 27 – Biological Assets


Deferred tax assets (liabilities) should be classified as as Recognition
non-current assets (liabilities). An entity shall recognize a biological asset or agricultural
produce when, and only when:
Disclosures (a) the entity controls the asset as a result of past
Disclosure requirements applicable for current taxes events;
payable and deferred income tax method are enumerated (b) it is probable that future economic benefits associated
in paragraph 425 to 428. with the asset will flow to the entity; and
(c) the fair value or cost of the asset can be measured
Section 24 – Foreign Currency Translation reliably without undue cost or effort.
Reporting foreign currency transactions in the functional
currency Measurement
An entity shall recognize, in profit or loss in the period in Policy choice:
which they arise: (a) Cost model
• exchange differences arising on the settlement of (b) Current market price model (current market
monetary items; or price or the probable selling price)
• on translating monetary items at closing rates
Disclosures
Presentation currency Cost model
An entity shall translate its items of income and expense • a description of each class of its biological assets
and financial position into the presentation currency • the depreciation method used
• the useful lives or the depreciation rates used.
Disclosures • the gross carrying amount and the accumulated
The amount of an exchange gain or loss included in net depreciation at the beginning and end of the period.
income should be disclosed
Current market price model
Section 25 – Events After the End of the Reporting • a description of each class of its biological assets.
Period • the methods and significant assumptions applied in
• Adjust financial statements to reflect adjusting events determining the current market price
– events after the balance sheet date that provide • a reconciliation of changes in the carrying amount of
further evidence of conditions that existed at the end biological assets
of the reporting period.
• Do not adjust for non-adjusting events – events or Section 28 – Government Grants
conditions that arose after the end of the reporting Recognition and classification
period. For these, the entity must disclose the nature Distinguishes between monetary and non-monetary
of event and an estimate of its financial effect. grants
• If an entity declares dividends after the reporting
period, the entity shall not recognise those dividends Accounting policy option for non-monetary grants:
as a liability at the end of the reporting period. That is • no recognition; or
a non-adjusting event. • at fair value

Section 26 – Related Party Disclosures Disclosures


• Disclose parent-subsidiary relationships, including the Monetary grants
name of the parent and (if any) the ultimate • the nature and amounts of government grants
controlling party. • unfulfilled conditions and other contingencies attaching
• Disclose key management personnel compensation in to grants
total for all key management. Non-monetary grants
• Disclose the following for transactions between related • nature of the government grant and any
parties: unfulfilled conditions or contingencies
o Nature of the relationship • where fair value measurement is elected or fair
o Information about the transactions and value is voluntarily disclosed, valuation hierarchy
outstanding balances necessary to understand the must be applied and the financial statements
potential impact on the financial statements must describe how fair values were derived.
o Amount of the transaction
o Provisions for uncollectible receivables Section 29 – Transition to the Framework
o Any expense recognised during the period in • Apply PFRS for Small Entities to all recognized assets
respect of an amount owed by a related party and liabilities for current and comparative period
• An entity shall make the disclosures required by (restatement is required).
paragraph 453 separately for each of the following • Disclosure requirements include:
categories: • a description of the nature of each account affected
a) entities with control, joint control or significant with the change in accounting policy
influence over the entity; • reconciliations of its equity and profit or loss (previous
b) entities over which the entity has control, joint framework vs. PFRS for Small Entities)
control or significant influence; • Effective January 1, 2019, with early adoption
c) key management personnel of the entity or its permitted.
parent (in the aggregate); and
d) other related parties. J - end of FAR.2853 - J

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