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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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EXCEL PROFESSIONAL SERVICES, INC.

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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EXCEL PROFESSIONAL SERVICES, INC.
28. Which statement is correct regarding measurement
after recognition of investment property in accordance
with Section 11 of PFRS for SEs?
a. An entity is required to use the cost model.
b. An entity has a choice to use either the cost model
or the fair value model.
c. Investment property whose fair value cannot be
measured reliably without undue cost or effort
shall be measured using the cost-depreciation-
impairment model.
d. 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.
29. Which statement is correct regarding measurement
after recognition of property, plant and equipment
(PPE) in accordance with Section 12 of PFRS for SEs?
a. An entity is required to use the cost model.
b. An entity has a choice to use either the cost model
or the fair value model.
c. PPE whose fair value cannot be measured reliably
without undue cost or effort shall be measured
using the cost-depreciation- impairment model.
d. PPE 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.
30. PFRS for SEs is similar to PFRS for SMEs in relation to
accounting for
a. Investment property
b. Property, plant and equipment
c. Intangible assets
d. Leases
31. Section 16 of PFRS for SEs applies to
a. Executory contracts
b. Provision for depreciation, impairment of assets
and uncollectible receivables
c. Contingent assets and contingent liabilities
d. None of these
32. PFRS for SEs is similar to PFRS for SMEs in relation to
accounting for
a. Equity c. Borrowing costs
b. Revenue d. All of these
33. Section 18 of PFRS for SEs applies to accounting for
revenue arising from
I. Sale of goods
II. Rendering of services
III. Construction contracts in which the entity is the
contractor
IV. Deposits or receivables yielding interest
V. Dividends from investments in shares of stock that
are not accounted for using the equity method
a. I, II, III, IV and V c. I and II only
b. I, II and III only d. I only
34. In accordance with Section 20 of PFRS for SEs, 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
a. Net asset value of the equity instruments granted.
Net asset value is derived by dividing the total
assets of the entity less any liabilities, by the
number of shares outstanding at measurement
date.
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b. Fair value of the goods or services received, unless
that fair value cannot be estimated reliably.
c. Fair value of the equity instruments granted, if fair
value of the goods or services received cannot be
estimated reliably.
d. Par value of equity instruments granted.
35. In accordance with Section 22 of PFRS for SEs, for
defined benefit plans, an entity is required to
a. Calculate the expected liability as of reporting date
using the current salary of the entitled employees
and the employees' years of service, without
consideration of future changes in salary rates and
service periods.
b. See each period of service as giving rise to an
additional unit of benefit entitlement and measure
each unit of benefit entitlement separately to build
up the final obligation.
c. Either a or b.
d. Neither a nor b.
36. Which statement is correct regarding measurement of
biological assets in accordance with Section 27 of PFRS
for SEs?
a. An entity is required to use the current market
price model.
b. An entity has a choice to use either the current
market price model or the cost model.
c. Biological assets whose fair value cannot be
measured reliably without undue cost or effort
shall be measured using the cost-depreciation-
impairment model.
d. Biological assets whose fair value can be measured
reliably without undue cost or effort shall be
measured at their current market price or the
probable selling price to willing buyers at each
reporting date with changes in current market
price recognized in profit or loss.
37. In accordance with Section 28 of PFRS for SEs, an
entity shall account for a non-monetary government
grant by
a. Not recognizing the non-monetary grant.
b. Recognizing the non-monetary grant at fair value.
c. Either a or b.
d. Neither a nor b.
38. In accordance with Section 29 of PFRS for SEs, an
entity can be a first-time adopter of PFRS for SEs
a. Only once c. Only thrice
b. Only twice d. Without limit
39. The trial balance of Entity S (a small entity) included
the following assets:
Cash P 500,000
Accounts receivable 3,000,000
Inventories (at cost) 5,100,000
Investment in shares (at cost) 900,000
Property, plant and equipment 8,000,000
Additional information:
• The probable selling price of inventories to willing
buyers as of reporting date is P5,000,000.
• The shares held as investment are traded in an
active market. Fair value as of reporting date is
P950,000.
In accordance with the PFRS for Small Entities, Entity
S should report total assets of
a. P17,400,000 c. P17,500,000
b. P17,450,000 d. P17,550,000
- now do the DIY drill -
FAR.2853
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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EXCEL PROFESSIONAL SERVICES, INC.
LECTURE NOTES
PFRS for Small Entities Section by Section Summary
Preface
Some of the key simplifications introduced by the PFRS for
Small Entities are as follows:
• Inventories are to be subsequently valued at the
lower of cost and market value,
• Investment properties can be carried either at cost or
at fair value, depending on the policy choice made by
the entity.
• There is no concept of "finance lease".
• There is no accounting for onerous contracts.
• 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 net asset value of the equity
instruments granted. Net asset value is derived by
dividing the total assets of the entity less any
liabilities, by the number of shares outstanding at
measurement date.
• For defined benefit plans, an entity is required to use
the accrual approach in calculating benefit obligations
in accordance with Republic Act (RA) 7641, The
Philippine Retirement Pay Law, or company policy (if
superior than RA 7641). Accrual approach is applied
by calculating the expected liability as of reporting
date using the current salary of the entitled
employees and the employees' years of service,
without consideration of future changes in salary rates
and service periods.
• Entities are given a policy choice of not recognizing
deferred taxes in the financial statements.
• Biological assets can be carried either at cost or at
current market price, depending on the policy choice
made by the entity.
• Prior period adjustments are just captured in the
opening balance of the current year, but with
appropriate disclosures.
Section 1 – Scope
PFRS for SEs is intended for use by small entities as
defined by the Philippine SEC.
Entities who have operations or investments that are
based or conducted in a different country with a different
functional currency shall not apply PFRS for SEs and
should instead apply the full PFRS or PFRS for SMEs.
Exemption from mandatory adoption of the PFRS for Small
entities and may instead apply, as appropriate, the full
PFRS or PFRS for SMEs:
1. A small entity which is a subsidiary of a parent
company reporting under the PFRS or PFRS for SMEs;
2. A small entity which is a subsidiary of a foreign parent
company which will be moving towards IFRS or IFRS
for SMEs pursuant to the foreign country’s published
convergence plan;
3. A small entity, either as a significant joint venture or
associate, is part of a group that is reporting under
the PFRS or PFRS for SMEs;
4. A small entity which is a branch office or regional
operating headquarter of a foreign company reporting
under the IFRS or IFRS for SMEs;
5. A small entity which has a short term projection that
show that it will breach the quantitative thresholds set
in the criteria for a small entity. The breach is
expected to be significant and continuing due to its
long-term effect on the company’s asset or liability
size;
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6. A small entity which has been preparing financial
statements using PFRS or PFRS for SMEs and has
decided to liquidate; and
7. Such other cases that the Commission may consider
as valid exceptions from the mandatory adoption of
PFRS for SMEs.
Section 2 – Concepts and Pervasive Principles
• Objective of SEs' financial statements: To provide
information about financial position, performance, cash
flows
• Basic recognition concept – An item that meets the
definition of an asset, liability, income, or expense is
recognised in the financial statements if:
o it is probable that future benefits associated with
the item will flow to or from the entity, and
o the item has a cost or value that can be measured
reliably
• Measurement requirements are generally set out in the
individual sections. However guidance on fair value
relevant to several sections is included in this section.
• Offsetting of assets and liabilities or of income and
expenses is prohibited unless expressly required or
permitted
Section 3 – Financial Statement Presentation
Components of financial statements
1. A statement of financial position
2. A statement of income
3. A statement of changes in equity
4. A statement of cash flows
5. Notes to financial statements
Statements of income and changes in equity can be
combined if the only changes to equity arise from profit or
loss, payment of dividends, corrections of prior period
errors, and changes in accounting policy.
Disclosures
Disclosure of information about key sources of
estimation uncertainty and judgments NOT
mandatory.
Section 4 – Subsidiaries
The section covers:
• accounting policies available for a parent company
with investment in a subsidiary;
• procedures for preparing consolidated financial
statements; and
• guidance on separate financial statements.
Accounting policy choice to:
a) consolidate its subsidiaries; or
b) account for its subsidiaries using the equity
method as described in Section 9 - Investments
in Associates.
Separate financial statements refers to:
a) An investor’s financial statements that are presented
in addition to consolidated financial statements; or
b) An investor’s financial statements that are presented
as the company’s only financial statements because it
has taken an exemption from consolidation or from
applying the equity method
Accounting policy election for investments in
subsidiaries in separate financial statements:
a) at cost less impairment, or
b) at equity method (using the procedures in
Section 9 - Investments in Associates).
FAR.2853
EXCEL PROFESSIONAL SERVICES, INC.
Any entity should provide the following disclosures:
• method used to account for its subsidiaries.
• listing and description of all subsidiaries, including
their names, carrying amounts, and the proportion of
ownership interests held in each subsidiary.
• any difference in the reporting date of the financial
statements of the parent and its subsidiaries
In addition to a - c above, an entity that chose the
equity method should disclose separately any
dividends received from the subsidiaries and its
share of the profit or loss of such subsidiaries.
Section 5 – Accounting Policies, Estimates and Errors
Selection of accounting policies and use of other guidance
When PFRS for Small Entities does not address a
transaction, other event or condition, management uses its
judgment in developing and applying an accounting policy
that results in information that is relevant and reliable.
If there is no relevant guidance, management considers
the following sources, in descending order:
a) the requirements and guidance of PFRS for Small
Entities dealing with similar and related issues, and
b) the definitions, recognition criteria and measurement
concepts for assets, liabilities, income and expenses
and the pervasive principles in Section 2.
Management may also consider the requirements and
guidance in PFRS for Small and Medium-sized Entities
(PFRS for SMEs) dealing with similar and related issues.
Change in accounting policies
An entity shall account for changes in accounting
policy as follows:
a) Applied to the carrying amounts of assets and
liabilities at the beginning of the current period.
Any cumulative effect shall be recognized as an
adjustment to the opening balance of retained
earnings (or other component of equity, as
appropriate) of the current period.
b) Comparative information shall not be restated.
Changes in accounting estimates
Changes in accounting estimates are recognized
prospectively by including the effects in profit or loss in the
period that is affected.
If the change in estimates gives rise to changes in assets,
liabilities or equity, it is recognized by adjusting the
carrying amount of the related asset, liability or equity in
the period of change.
Correction of errors
An entity shall correct material prior period errors as
follows:
• No restatement of comparatives
• Adjustments are recognized against opening
balance of current year retained earnings (or
other component of equity)
Disclosures
Change in accounting policy/correction of error
• the nature of the change or prior period error
and the amount of adjustments to the carrying
amounts of assets and liabilities at the
beginning of the current period and any
cumulative effect recognized as an adjustment
to the opening balance of equity;
• in the notes, for each financial statement line
item affected in the prior period, the amount of
the necessary adjustment and the adjusted
amount had the new accounting policy or
correction been applied in the prior period.
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Change in estimate
• nature and amount of a change in an accounting
estimate that has an effect in the current period
Section 6 – Basic Financial Instruments
Covers:
a) cash;
b) the following receivables and payables subject to
certain requirements:
i. bank deposits;
ii. trade receivables and payables;
iii. loans receivable and payable;
iv. notes receivable and payable; and
c) investments in non-convertible preference shares and
non-puttable ordinary shares.
Initial measurement
Transaction price (including transaction costs) unless the
arrangement constitutes a financing transaction, in which
case, the financial asset or financial liability at the present
value of the future payments discounted at a market rate
of interest for a similar debt instrument.
Subsequent measurement
• Debt instruments are measured at amortized cost
using the effective interest method
• Investments in shares shall be carried at cost
less impairment, unless the investment in
shares are traded in an active market, which
shall be measured at the lower of cost or fair
value, with changes in fair value recognized in
profit or loss.
Impairment of financial assets measured at cost or
amortized cost
• An entity shall recognize impairment loss if there is
objective evidence of impairment
• Impairment loss is the difference between the asset’s
carrying amount and the present value of cash flows
(for assets measured at amortized cost) or best
estimate of selling price (for assets measured at cost).
Derecognition of financial asset
Financial asset is derecognized when:
• the contractual rights to the cash flows from the
financial asset expire or are settled; or
• the entity transfers to another party substantially all
of the risks and rewards of ownership of the financial
asset.
Derecognition of financial liability
Financial liability is derecognized when it is extinguished -
i.e., when the obligation specified in the contract is
discharged, is cancelled or has expired.
Section 7 – Other Financial Instruments
Initial measurement
At fair value, which is normally the transaction price.
Subsequent measurement
• Fair value with changes in fair value recognized in
profit or loss.
• Equity instruments that are not publicly traded and
whose fair value cannot be measured reliably are
measured at cost less impairment.
• Hedge of variable interest rate risk of a recognized
financial instrument, foreign exchange risk or
commodity price risk in a firm commitment or highly
probable forecast transaction - effective portion
recognized in hedging reserve (equity account)
while ineffective portion is recognized in profit
or loss.
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EXCEL PROFESSIONAL SERVICES, INC.
Derecognition
Similar with basic financial instruments.
Section 8 – Inventories
Measurement
Initially measured at cost (cost of purchase, cost of
conversion, and other directly attributable costs)
Cost formulas
The cost of inventories, other than those measured using
specific identification, by using the first-in, first-out (FIFO)
or weighted average cost formula. Last-in, first-out
method (LIFO) is not permitted.
Subsequent measurement
Lower of cost or market value
Disclosures
An entity shall disclose the following:
• the accounting policies adopted in measuring
inventories, including the cost formula used;
• the total carrying amount of inventories and the
carrying amount in classifications appropriate to the
entity;
• the amount of inventories recognized as an expense
during the period;
• impairment losses recognized or reversed in profit or
loss in accordance with Section 21 - Impairment of
Assets; and
• the total carrying amount of inventories pledged as
security for liabilities.
Section 9 – Investments in Associates
Measurement
Option to apply:
• Cost model; or
• Equity method
Cost model
Measured at cost less any accumulated impairment losses.
All dividends are recognized in the income statement.
Equity method
An associate is initially recognized at the transaction price
(including transaction costs) and is subsequently adjusted
to reflect the investor’s share of the profit or loss of the
associate.
Distributions received from the associate reduce the
carrying amount of the investment.
Notional purchase price allocation
On acquisition, an investor shall account for any difference
between the cost of acquisition and the investor’s share of
the fair values of the net identifiable assets of the
associate.
Equity pick-up shall be adjusted for additional depreciation
or amortization of the associate’s depreciable or
amortizable assets (including goodwill) on the basis of
difference between fair value and carrying amount on
acquisition date.
Disclosures
• Name of the associate; principal place of business;
ownership interest, accounting policy, and carrying
amount
• If accounting policy is cost method - amount of
dividends and other distributions recognized as
income
• If accounting policy is equity method - share of profit
or loss, and fair value of investment if there are
published price quotations.
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Section 10 – Joint Arrangements
Classification
Classified either as (a) joint venture; or (b) joint
operations, depending on the rights and obligations of the
parties to the arrangement
Joint operations
Investor account for rights and obligations by recognizing
its own assets, liabilities, revenue, and expenses, as well
as its share of assets, liabilities, revenue, expenses,
held/earned/incurred jointly from the joint operation.
Joint venture - measurement
Option to apply:
• Cost model; or
• Equity method
Transactions between a venturer and a joint venture
Gains and losses on contribution or sales of assets to a
joint venture are recognized only on the portion
attributable to the interests of the other venturers
provided the assets are retained by the joint venture and
significant risks and rewards of ownership have been
transferred.
Disclosures
• Name and type of joint arrangement; principal place
of business, ownership interest
• For joint venture - accounting policy elected, carrying
amount, fair value of investment if equity method is
used and there are published price quotations,
amount of dividends recognized in income if cost
method is used
Section 11 – Investment Property
Recognition and measurement
Initially measured at cost. The cost of a purchased
investment property comprises its purchase price and any
directly attributable expenditures.
Subsequent measurement, option to apply:
• Cost model
• Fair value Model
Cost model
Investment properties are carried at cost less accumulated
depreciation and any accumulated impairment losses.
Fair value model
Changes in fair value is recognized in profit or loss.
If a reliable measure of fair value is no longer available
without undue cost or effort, it will be accounted for under
the cost model. Carrying amount at date of change
becomes the cost.
Transfers
Transfer to or from investment properties applies when the
property meets or ceases to meet the definition of an
investment property.
Disclosures
• Under cost model, depreciation method, useful lives,
gross carrying amount and accumulated depreciation,
reconciliation of the carrying amount;
• Under fair value model, whether independent valuer
was involved, method and significant assumptions
used in valuation, reconciliation of carrying amount;
and
• Existence and carrying amount of property with
restricted title or was used as a security.
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Section 12 – Property, Plant and Equipment
Measurement
Initially measured at cost which includes:
• Purchase price
• Any directly attributable costs to bring the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
Subsequent measurement, option to apply:
• Cost model
• Fair value Model
Depreciable amount and depreciation period
The depreciable amount is allocated over its useful life.
Change in residual value or useful life is accounted for as a
change in estimate
Depreciation method
• The depreciation method is reviewed if there is an
indication that there has been a significant change
since the last annual reporting date.
• Change in the depreciation method is accounted for as
a change in estimate.
Fair value model
• Changes in fair value is recognized in profit or loss.
• If a reliable measure of fair value is no longer
available without undue cost or effort, it will be
accounted for under the cost model. Carrying amount
at date of change becomes the cost.
Derecognition
• Derecognize on disposal or when no future economic
benefits are expected from its use or disposal.
Disclosures
• Under cost model, depreciation method, useful lives,
gross carrying amount and accumulated depreciation,
reconciliation of the carrying amount;
• Under fair value model, whether independent
valuer was involved, method and significant
assumptions used in valuation, reconciliation of
carrying amount; and
• Existence and carrying amount of property with
restricted title or was used as a security.
Section 13 – Intangible Assets Other than Goodwill
Recognition and measurement
Initially measured at cost and subsequently accounted for
a cost model.
Useful life
Useful life is considered finite.
If an entity is unable to make a reliable estimate of the
useful life of an intangible asset, the life shall be
determined based on management’s best estimate but
shall not exceed ten (10) years.
Classification
Intangibles acquired through business combination must
be identified and accounted for by:
(a) separately recognizing the intangible asset as an
identifiable asset; or
(b) subsuming into goodwill
Disclosures
• Depreciation method, useful lives, gross carrying
amount and accumulated depreciation, reconciliation
of the carrying amount; line item in the income
statement where amortization was included; and
• Existence and carrying amount of asset with restricted
title or was used as a security.
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Section 14 – Business Combinations and Goodwill
Accounting
All business combinations shall be accounted for by
applying the purchase method.
Goodwill
After initial recognition, the acquirer shall measure
goodwill acquired in a business combination at cost less
accumulated amortization and accumulated impairment
losses.
An entity shall amortize goodwill on a systematic basis
over its useful life. The life shall be determined based on
management’s best estimate but shall not exceed ten (10)
years.
Disclosures
Disclosure requirements under paragraph 288-289 apply.
Section 15 – Leases
Classification
No distinction between finance and operating lease.
Measurement
All receipts/payments are recognized as
income/expense as earned/incurred .
Section 16 – Provisions and Contingencies
Initial recognition
An entity shall recognize a provision only when:
a) the entity has an obligation at the reporting date as a
result of a past event;
b) it is probable (i.e., more likely than not) that the
entity will be required to transfer economic benefits in
settlement; and
c) the amount of the obligation can be estimated reliably
A contingent liability is either a possible but uncertain
obligation or a present obligation that is not recognized
because it fails to meet one or both of the conditions b or c
above.
Measurement
An entity shall measure a provision at the best estimate of
the amount required to settle the obligation at the
reporting date.
Disclosures
Provisions
• Reconciliation of the account; description of the
nature of obligation and expected amount/timing of
payment; indication of uncertainties about the timing
and amount; expected reimbursements.
Contingent liabilities (if not remote)
• Description of nature of the contingent liability; if
practicable, an estimate of financial effect, and
possibility of reimbursement.
Contingent assets (if probable)
• Description of nature of contingent asset and if
practicable, estimate of financial effect.
Section 17 – Equity
Recognition and measurement
• An entity shall measure the equity instruments at the
amount of cash received.
• If payment is deferred and the time value of money is
material, the initial measurement shall be on a
present value basis.
• If the equity instruments are exchanged for resources
other than cash, the equity instruments shall be
recognized at the fair value of those resources.
• An entity shall account for the transaction costs (i.e.,
incremental costs that are directly attributable to the
issue) as a deduction from equity, net of any related
income tax benefit.
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Distribution to owners
• An entity shall reduce equity for the amount of
distributions to its owners (holders of its equity
instruments), net of any related income tax benefits.
Section 18 – Revenue
Recognition
The revenue section captures all revenue transactions from
the following transactions or events:
• Sale of goods.
• Rendering of services;
• Construction contracts;
• Deposits or receivables yielding interest; and
• dividends from investments in shares of stock that are
not accounted for using the equity method.
Revenue recognition criteria for each of these categories
include the probability that the economic benefits
associated with the transaction will flow to the entity and
that the revenue and costs can be measured reliably.
Additional recognition criteria apply within each broad
category.
Measurement
Measurement of revenue at the fair value of the
consideration received or receivable is required.
Disclosures
• Accounting policies, including method to determine
the stage of completion for transactions involving
rendering of services
• Amount of revenue for each category (sale of goods,
rendering of services, interest, commissions)
• For construction contracts - amount and method used
to determine contract revenue, methods used to
determine percentage of completion, gross amount
due from/to customers.
Section 19 – Borrowing Costs
Recognition
All borrowing costs as an expense in profit or loss in the
period in which they are incurred.
Disclosures
Disclosure requirements for financial liabilities apply.
Section 20 – Share-based Payment
Recognition and measurement
All transactions involving share-based payment are
recognized as expenses or assets over any vesting period.
Distinguishes between cash-settled and equity-settled
arrangements.
For equity-settled awards, the value of goods or
services acquired must be recognized with reference
to the net asset value (total assets less liabilities
divided by outstanding shares) of the entity.
Disclosures
• Description, including terms and conditions, of each
share-based arrangement;
• Number and weighted-average prices of each group of
options outstanding, granted, forfeited, exercised,
expired, outstanding, and exercisable;
• For cash settled - information about how the liability
was measured;
• Information about modifications in share-based
arrangement, if any;
• For Group-settled share-based plan - whether
expense is based on reasonable allocation and basis
for allocation;
• Financial effect of share-based plans, including
expense and liabilities arising thereof.
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Section 21 – Impairment of Assets
General principles
If the recoverable amount of an asset is less than its
carrying amount, impairment loss be recognized to reduce
the carrying amount of the asset to its recoverable
amount.
Measuring recoverable amount
The recoverable amount of an asset or a cash-generating
unit is the higher of its fair value less costs to sell and its
value in use.
Fair value less costs to sell is the amount obtainable from
the sale of an asset in an arm’s length transaction between
knowledgeable, willing parties, less the costs of disposal.
Value in use is the present value of the future cash flows
expected to be derived from an asset (or cash-generating
unit).
Recognition of impairment loss
An entity shall recognize an impairment loss immediately
in profit or loss.
Disclosures
Amount of impairment loss recognized in profit or loss
during the period and the line item in the statement of
income in which the impairment loss is included for each
asset that was tested for impairment.
Section 22 – Employee Benefits
Measurement (post-employment benefit plan)
Accrual method in calculating benefit obligations in
accordance to RA7641 or company policy (if superior
than RA7641). No consideration of changes in
future salary rates and service periods
No recognition of actuarial gains/losses.
Disclosures (post-employment benefit plan)
Amount recognized in profit or loss as an expense for post-
employment benefit plans, the amount of its obligation,
and the extent of funding at the reporting date.
Section 23 – Income Tax
Recognition
Policy choice to account for income taxes using
either
a) The taxes payable method, in which an entity shall
recognize a current tax liability for tax payable on
taxable profit for the current and past periods
b) The deferred income taxes method, in which, the
current and future tax consequences of transactions
and other events are recognized.
Measurement of deferred tax
Deferred tax assets/liabilities are measured using the tax
rates and laws that have been enacted or substantively
enacted by the reporting date.
An entity shall not discount deferred tax assets and
liabilities
The carrying amount of a deferred tax asset shall be
reviewed at the end of each reporting period. An entity
shall reduce the carrying amount of a deferred tax asset to
the extent that it is no longer probable that sufficient
taxable profit will be available.
Presentation
Tax expense (income) are recognized n profit or loss or
equity as the transaction or other event that resulted in
the tax expense (income)
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Current/non-current distinction
Deferred tax assets (liabilities) should be classified as as
non-current assets (liabilities).
Disclosures
Disclosure requirements applicable for current taxes
payable and deferred income tax method are enumerated
in paragraph 425 to 428.
Section 24 – Foreign Currency Translation
Reporting foreign currency transactions in the functional
currency
An entity shall recognize, in profit or loss in the period in
which they arise:
• exchange differences arising on the settlement of
monetary items; or
• on translating monetary items at closing rates
Presentation currency
An entity shall translate its items of income and expense
and financial position into the presentation currency
Disclosures
The amount of an exchange gain or loss included in net
income should be disclosed
Section 25 – Events After the End of the Reporting
Period
• Adjust financial statements to reflect adjusting events
– events after the balance sheet date that provide
further evidence of conditions that existed at the end
of the reporting period.
• Do not adjust for non-adjusting events – events or
conditions that arose after the end of the reporting
period. For these, the entity must disclose the nature
of event and an estimate of its financial effect.
• If an entity declares dividends after the reporting
period, the entity shall not recognise those dividends
as a liability at the end of the reporting period. That is
a non-adjusting event.
Section 26 – Related Party Disclosures
• Disclose parent-subsidiary relationships, including the
name of the parent and (if any) the ultimate
controlling party.
• Disclose key management personnel compensation in
total for all key management.
• Disclose the following for transactions between related
parties:
o Nature of the relationship
o Information about the transactions and
outstanding balances necessary to understand the
potential impact on the financial statements
o Amount of the transaction
o Provisions for uncollectible receivables
o Any expense recognised during the period in
respect of an amount owed by a related party
• An entity shall make the disclosures required by
paragraph 453 separately for each of the following
categories:
a) entities with control, joint control or significant
influence over the entity;
b) entities over which the entity has control, joint
control or significant influence;
c) key management personnel of the entity or its
parent (in the aggregate); and
d) other related parties.
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Section 27 – Biological Assets
Recognition
An entity shall recognize a biological asset or agricultural
produce when, and only when:
(a) the entity controls the asset as a result of past
events;
(b) it is probable that 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 without undue cost or effort.
Measurement
Policy choice:
(a) Cost model
(b) Current market price model (current market
price or the probable selling price)
Disclosures
Cost model
• a description of each class of its biological assets
• the depreciation method used
• the useful lives or the depreciation rates used.
• the gross carrying amount and the accumulated
depreciation at the beginning and end of the period.
Current market price model
• a description of each class of its biological assets.
• the methods and significant assumptions applied in
determining the current market price
• a reconciliation of changes in the carrying amount of
biological assets
Section 28 – Government Grants
Recognition and classification
Distinguishes between monetary and non-monetary
grants
Accounting policy option for non-monetary grants:
• no recognition; or
• at fair value
Disclosures
Monetary grants
• the nature and amounts of government grants
• unfulfilled conditions and other contingencies attaching
to grants
Non-monetary grants
• nature of the government grant and any
unfulfilled conditions or contingencies
• where fair value measurement is elected or fair
value is voluntarily disclosed, valuation hierarchy
must be applied and the financial statements
must describe how fair values were derived.
Section 29 – Transition to the Framework
• Apply PFRS for Small Entities to all recognized assets
and liabilities for current and comparative period
(restatement is required).
• Disclosure requirements include:
• a description of the nature of each account affected
with the change in accounting policy
• reconciliations of its equity and profit or loss (previous
framework vs. PFRS for Small Entities)
• Effective January 1, 2019, with early adoption
permitted.
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FAR.2853