SMALL AND MEDIUM – SIZED ENTITIES

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

a. Do not have public accountability

b. Publish general purpose financial reports for external users.

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

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

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

SME under Philippine jurisdiction

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

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

Micro-business entities are entities whose total assets or total liabilities are below the P3,000,000
floor threshold. Micro-business entities have the option to use any of the following bases of
accounting in the preparation of financial statements:

a. Full PFRS
b. PFRS for SMEs
c. Another acceptable basis of accounting

Exemptions from PFRS for SMEs

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

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

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

Significant and continuing

If an SME that uses the PFRS for SMEs in a current year breaches the floor and ceiling size criteria at
the end of the current year, the entity shall be required to transition to full PFRS in the next year if
the ceiling threshold is breached or another acceptable accounting basis if the floor threshold is
breached.
This transition must be made provided the event that caused the change is considered “significant
and continuing”. As a general rule, 20% or more total assets or total liabilities would be considered
significant

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

First-time adopter

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

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

Date of transition

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

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

Opening statement of financial position

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

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

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

SIGNIFICANT DIFFERENCES BETWEEN PFRS FOR SMEs AND FULL PFRS

1. Qualitative characteristics of the financial statements of an SME

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

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

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

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

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

3. Statement of financial position

Same line items for SMEs and Full PFRS, except the following line items are not required for
SMEs:
a. Total of assets classified as held for sale
b. Total of liabilities included in disposal group classified as held for sale
 Full PFRS requires presentation of investments in associates but not investment in joint ventures.
PFRS for SMEs requires presentation of both investments in associates and investments in joint
ventures as separate line items.

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

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

a. When an entity apples an accounting policy retrospectively

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

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

4. Other of comprehensive income

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

Reclassified to profit or loss

a. Translation gain or loss or foreign operation

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

Reclassified to retained earnings

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

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

Reclassified to retained earnings.

a. Translation gain or loss of a foreign operation
b. Actuarial gain and loss – reporting actuarial gain or loss as OCI is optional because this may be
recognized in profit or loss.
 c. Revaluation surplus of property, plant and equipment

Reclassified to profit or loss

d. Change in fair value of hedging instrument

5. Natural and functional presentation of statement of comprehensive income

Same under Full PFRS and PFRS for SMEs.

6. Asset held for sale and discontinued operation

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

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

9. Basic financial instruments of SMEs

1. Cash,demand and fixed term deposits or bank accounts
2. Trade accounts and notes receivable and loans receivable
3. Commercial papers or commercial bills – unsecured and sort-term debt investment
4. Investments in nonputtable ordinary shares
5. Investments in nonconvertible and nonputtable preference shares
6. Commitment to receive a loan if the commitment “cannot be net settled” in cash
7. Accounts payable in local and foreign currency
8. Loans from bank and other third parties
9. Bonds and similar debt instrument
10. Loans to or from subsidiaries or associates that are due on demand

A commitment to receive a loan a firm commitment by the bank to provide credit to the entity.
The entity has the option to borrow or the bank may require the entity to borrow.
 That investment in ordinary shares and nonconvertible preference shares is nonputtable:
a. When the entity does not have an option to sell the shares back to the issuer for cash.
b. Then there is no arrangement that could result in the shares being automatically sold or
returned to the issuer because of a future event.

10. Not basic financial statements instrument of SMEs

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

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

a. Investments in subsidiaries, associates and joint ventures

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

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

a. Returns to the holder are a fixed amount or a variable amount that throughout the life of the
instrument is equal to a single fixed amount.
b. No contractual provisions that could result in the holder losing the principal amount and the
interest
c. Contractual provisions that permit the debtor to prepay the instrument are not contingent on
future events.
d. The payment or repayment of principal and interest must be unconditional

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

12. Initial measurement of basis financial instruments.

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

13. Subsequent measurement of basic financial instruments

a. Basic debt instruments are measured at amortized cost using the effective interest method
b. Commitment to receive a loan is measured at cost less impairment
c. Investments in nonputtable ordinary shares and investments in nonconvertible and
nonputtable preference shares are measured at fair value through profit or loss if the shares
are publicly traded, or if the fair value can be measured reliably without undue cost or effort

If the shares are not publicly traded or if the fair value cannot be measured reliably without
undue cost or effort, such investments are measured at cost less impairment.

14. Impairment of basic financial instruments

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

15. Investments in associates

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

Under the model, the investment in associates is initially measured at the transaction price
including transaction cost, subsequently, the investor shall measure the investment in associates
at cost less any accumulated impairment losses.
 However, the cost model is not permitted if the investment in associates has a published price
quotation in which case, the fair value model is used.

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

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

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

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

16. Investment property

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

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

17. Property, plant and equipment

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

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

18. Government grant

a. Under full PFRS, a government is recognized when there is a reasonable assurance that the
entity will comply with the specified conditions.
 Under the PFRS for SMEs, a government grant is recognized when the conditions are actually
satisfied.

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

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

19. Borrowing costs

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

20. Intangible assets

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

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

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

21. Research and development costs

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

22. Impairment of assets

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

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

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

23. Provision and contingencies

Same principles for both PFRS SMEs and full PFRS.

24. Defined benefit liability

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

b. Actuarial gains and losses

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

c. Past service costs

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

25. Deferred tax asset and liability

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

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

28. Share-based payment transactions

Under full PFRS, the share options shall be measured at fair value on date of grant.
However, if the fair value of the share options cannot be measured reliably, the intrinsic value of
the share options is used. The intrinsic value is the excess of the market price of the share over
the option price.

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

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

30. Exploration and evaluation of mineral resources

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

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

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

31. Reconciliations required

1. Reconciliation of equity under the previous accounting basis to the equity under PFRS for
SMEs both at the:
 a. Date of transition to PFRS for SMEs
b. End of current reporting period
2. Reconciliation of profit or loss under the previous accounting basis to the profit or loss under
PFRS for SMEs at end of current reporting period.

MULTIPLE CHOICE-SMEs

1. The IASB defines SMEs as entities that

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

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

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

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

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

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

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

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

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

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

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

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

9. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling of the size
criteria at the end of the current year, the entity is
a. Required to transition to full PFRS at the current year-end.
b. Required to transition to full PFRS at the current year-end if the event that caused the
change is significant and continuing.
c. Required to transition to full PFRS in the next year if the event that caused the change
is significant and continuing
d. Not required to transition to full PFRS.
10. All of the following can be done by a first-time adopter of PFRS for SMEs in the opening
statement of financial position, except
a. Recognize all assets and liabilities whose recognition is required by PFRS for SMEs.
b. Recognize all assets and liabilities required by full PFRS but the PFRS for SMEs does not
require such recognition.
c. Reclassify items that it recognized under a previous accounting framework as one type
of asset, liability or equity but a different type of asset, liability or equity under PFRS
for SMEs.
d. Apply PFRS for SMEs in measuring all recognized assets and lialibities.

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

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

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

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

a. Translation gain or loss from foreign operation
b. Actuarial gain or loss
c. Revaluation surplus of property, plant and equipment
d. Change in fair value of the hedging instrument
15. Under PFRS for SMEs, if the selling price less cost to complete and sell is lower than cost
of inventory, the write down is recognized.
a. As an impairment loss
b. As component of cost of goods sold
c. As other expense
d. Directly in retained earnings

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

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

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

19. Which of the following statements reflects the accounting for financial instruments under
IFRS for SMEs?
a. All financial instruments must be measured at fair value
b. Reversal of an impairment loss is not allowed
c. All amortized cost instruments must be tested for impairment
d. All financial instruments must be measured at amortized cost
20. An SME shall account for investments in associates after initial recognition using
a. Cost model or fair value model and using the same accounting policy for all
investments in associates.
b. Cost model or fair model and the model can be elected on an investment-by-
investment basis.
c. Cost model, equity method or fair value model and using the same accounting policy
for all investments in associates.
d. Cost model, equity method or fair value model and the model can be elected on an
investment-by-investment basis.

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

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

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

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

24. An SME must recognize a government grant that imposes specified future performance
conditions
a. Income when the grant proceeds are receivable
 b. In income over the periods necessary to match it with the related costs for which it is
intended to compensate on a systematic basis.
c. In income only when the performance conditions are met.
d. None of the above.

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

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

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

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

29. Under PFRS for SMEs, which statement in relation to defined benefit obligation is true?
a. Past service costs are recognized as expense immediately when incurred.
b. Actuarial gains and losses are recognized immediately in full wither in profit or loss, or
as component of other comprehensive income.
 c. The defined benefit liability is the excess of the present value of the defined benefit
obligation over the fair value of plan assets at year-end.
d. All of these statements are true.

30. Under PFRS for SMEs, a deferred tax asset

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

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

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

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

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

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