LEASES

A small entity shall apply the operating lease model. There is no finance lease for a small entity.

All rental receipts shall be recognized as rent income and all rental payments shall be recognized as rent
expense. A small entity shall account for all leases as operating lease.

INCOME TAX
A small entity shall make an accounting policy choice using either;

a. Taxes payable method - The small entity shall recognize a current tax liability for the tax payable
on taxable income for the current and past periods.
If the taxes payable method is followed the small entity is not required to recognize a
deferred tax asset or liability.

b. Deferred income taxes method - The small entity shall recognize a deferred tax liability for
future taxable amount and deferred tax asset for future deductible amount in addition to
current liability.

Measurement deferred tax

Deferred tax asset and liability shall be measured using the tax rates and laws that have been enacted
or substantively enacted at the reporting date.

Deferred tax asset and liability shall not be discounted.

The carrying amount of deferred tax asset shall be reviewed at every year-end.

The carrying amount of deferred tax asset shall be reduced to the extent that it is no longer probable
that future taxable income will be sufficient.

The deferred tax asset is presented as noncurrent asset and the deferred tax liability is presented as
noncurrent liability.

EMPLOYEE BENEFITS

Postemployment benefits are employee benefits other than termination benefits that are payable after
completion of employment.

Measurement of postemployment benefit

The accrual method is used in calculating the benefit obligation in accordance with the minimum
retirement benefit under R.A. 7641 or the Philippine Retirement Pay Law. However, any company policy
is followed if superior or higher than R.A. 7641.

The accrual approach is applied by calculating the expected liability as of reporting date using the
current salary of the employees and the years of service.
No consideration is made for changes in future salary and service period. Moreover, there is no
recognition of actuarial gains and losses. Only the defined contribution plan is followed by the small
entity.

EQUITY

Equity is the residual interest in the assets of an entity after deducting all of its liabilities.

Recognition and measurement

a. An entity shall measure the equity instruments at the amount of cash received.
b. If the payment is deferred and the time value of money is material, the initial measurement
shall be on a present value basis.
c. If the equity instruments are exchanged for resources other than cash, the equity instruments
shall be recognized at the fair value of the resources.
d. An entity shall account for the transaction cost as a deduction from equity, net of any related
income tax benefit.

An entity shall reduce equity for the amount of distributions or dividends to owners, net of any related
tax benefit.

SHARE-BASED PAYMENTS

A small entity distinguishes between cash settled and equity settled arrangement.

Measurement - Equity settled

For equity settled share-based payment transaction, a small entity shall measure the goods or services
received and the corresponding increase in equity with reference to the net asset value of the equity
instrument granted.

Net asset value is derived by dividing the total assets less liabilities by the number of shares outstanding
at measurement date.

net asset value is equivalent to the book value per share.

For transaction with employees, the net asset value of the equity instrument shall be measured at grant
date.

Measurement - cash settled

For cash settled share-based payment transaction, a small entity shall measure the goods or services
acquired and the liability incurred at the fair value of the liability.
Until the liability is settled, the entity shall remeasure the fair value of the liability at each reporting date
with any changes in fair value recognized in profit or loss for the period.
REVENUE

The accounting for revenue of a small entity shall be applied to the following transactions and events:
a. Sale of goods
b. Rendering of services c. Construction contract
c. Deposits or receivables yielding interest
d. Dividends from investment in shares not accounted for using the equity method

Revenue recognition

The recognition criteria include the following:

a. The probability that the economic benefit associated with the transaction will flow to the entity.
b. The revenue and cost can be measured reliably

Measurement of revenue

A small entity shall measure revenue at the fair value of the consideration received or receivable.

The fair value of the consideration received or receivable in after deducting the amount of any trade
discount, prompt payment settlement discount and volume rebate.

The fair value also takes into account the time value of money. A small entity shall apply the accrual
basis of recognizing revenue and expense.

TRANSITION TO PFRS FOR SMALL ENTITIES

In the operating statement of financial position at transition date, the small entity shall:
a. Recognize all assets and liabilities whose recognition is required by PFRS for Small Entities.
b. Not recognize assets and liabilities if PFRS for Small Entities 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 are a different type of asset, liability or component of
equity under the PFRS for Small Entities.
d. Apply PFRS for Small Entities in measuring recognized assets and liabilities.

The date of transition to PFRS for Small Entities is the beginning of the earliest period for which full
comparative information is presented in accordance with PFRS for Small Entities.

Reconciliations

A small entity shall make the following reconciliations the previous accounting framework and PFRS for
Smalt Entities:

1. Reconciliation of equity in accordance with previous accounting framework to the equity in

accordance with PFRS for Small Entities for both of the following dates:
a. Date of transition to PFRS for Small Entities
b. End of the latest period presented in the entity's most recent annual financial statements in
accordance with previous reporting framework.
2. Reconciliation of profit or loss determined in accordance with the previous reporting framework for
the latest period in the entity's most recent annual financial statements to the profit or loss determined
in accordance with PFRS for Small Entities for the same period.

PROBLEMS

Problem 30-1 Multiple choice (PFRS for SES)

1. Which is not within the definition of a small entity?

a. With total assets or total liabilities between P3,000,000 or P100,000,000

b. Not required to file financial statements under SEC Rule 68
c. Not in the process of filing financial statements for the purpose issuing equity instruments in a public
market
d. Holder of a secondary license issued by regulatory agency

2. Which small entity is not exempted from the mandatory adoption of PFRS for Small Entities?

a. A small subsidiary of a parent under full PFRS

b. A small subsidiary of a foreign parent moving toward full IFRS
c. A small joint venture under full PFRS
d. A small entity preparing financial statements under full PFRS and has not decided to liquidate.

3. The financial statements of a small entity include all of the following, except

a. Statement of financial position

b. Statement of income
c. Statement of retained earnings
d. Statement of cash flows

4. The statements of income and changes in equity of a small entity can be combined if the only
changes arise from all of the following, except

a. Net income
b. Payment of dividend
c. Change in accounting estimate
d. Change in accounting policy

5. Which is an adjustment of the opening balance of retained earnings?

a. Change in accounting policy

b. Change in accounting estimate
c. Change in accounting policy and prior period error
d. Change in accounting estimate and prior period error
Problem 30-2 Multiple choice (PFRS for SEs)

1. Which is not a basic financial instrument of a small entity?

a. Cash in bank
b. Accounts receivable
c. Note payable
d. Investment in convertible preference shares

2. Basic financial instruments are initially measured at

a. Transaction price including transaction cost

b. Transaction price excluding transaction cost
c. Amortized cost
d. Present value of future payments

3. Which statement is incorrect about subsequent measurement of basic financial instruments?

a. Debt instruments are measured at amortized cost using effective interest

b. Investment in untraded shares are carried at cost less impairment
c. Investment in traded shares are measured fair value
d. Investment in traded shares are measured at the lower of cost or fair value

4. For debt instrument at amortized cost, the impairment loss is

a. Excess of carrying amount over the present value of cash flows

b. Excess of present value of cash flows over carrying amount
c. Excess of carrying amount over fair value
d. Excess of fair value over carrying amount

5. For financial asset measured at cost less impairment. the impairment loss is the excess of

a. Carrying amount over the best estimate of selling price

b. Best estimate of selling price over carrying amount
c. Carrying amount over the fair value
d. Fair value over best estimate of selling price

Problem 30-3 Multiple choice (PFRS for SEs)

1. Inventories of a small entity are measured at

a. Fair value
b. Market value
c. Lower of cost or market value
d. Lower of cost or net realizable value
2. All investments in associate of a small entity are accounted for using

a. Cost model
b. Equity method
c. Either cost model or equity method
d. Fair value model

3. All investment properties of a small entity are subsequently measured using

a Cost model
b. Fair value model
c. Either cost model or revaluation model
d. Either cost model or fair value model

4. A small entity shall apply which accounting policy for property, plant and equipment?

a. Cost model
b. Fair value model
C. Either cost model or fair value model
d. Either cost model or revaluation model

5. Which statement is incorrect with respect to government grant of a small entity?

a. Unconditional monetary grant is recognized in income when receivable.

b. Conditional monetary grant is recognized in income only when the performance condition is met.
c. Monetary grant is recognized as liability before recognition criteria are met.
d. Nonmonetary grant shall not be recognized.

6. What is the treatment of borrowing cost of a small entity?

a. Expensed as incurred
b. Capitalized
c. May be expensed or capitalized depending on circumstances
d. Not recognized

7. A small entity shall measure intangible asset using

a. Cost model
b. Fair value model
c. Revaluation model
d. Either cost model or fair value model

8. How is impairment loss of an asset recognized?

a. Excess of carrying amount over recoverable amount

b. Excess of recoverable amount over carrying amount
C Excess of carrying amount over fair value less cost of disposal
d. Excess of carrying amount over value in use

9. Biological asset of a small entity is measured using

a. Cost mode!
b. Current market price model
c. Either cost model or fair value model
d. Either cost model or current market price model

10. Agricultural produce of a small entity is measured at

a. Current market price at the point of harvest

b. Current market price less cost of disposal at the point of harvest
c. Fair value at the point of harvest
d. Fair value less cost of disposal at the point of harvest

Problem 30-4 Multiple choice (PFRS for SEs)

1. What is the measurement of a provision?

a. Best estimate at reporting date

b. Best estimate at settlement date
c. Present value of future payment
d. Midpoint of the range

2. A small entity shall account for a lease using

a. Operating lease model

b. Finance lease model
c. Either operating lease or finance lease
d. Operating lease for lessee and finance lease for lessor

3. A small entity shall account for income tax using

a. Taxes payable method

b. Deferred income taxes method
c. Either taxes payable method or deferred income taxes method
d. Neither taxes payable method nor deferred income taxes method

4. Deferred tax asset or liability shall be measured at

a. Current tax rate

b. Expected future tax rate
c. Enacted future tax rate
d. Average annual tax rate
5. A small entity shall account for postemployment benefit using

a. Accrual method
b. Cash method
c. Either accrual method or cash method
d. Either accrual method or projected benefit method

6. The benefit obligation of small entity is calculated under

a. RA 7641
b. Company policy
c. Company policy if higher than R.A. 7641
d. Qualifying insurance policy

7. Equity instruments are measured at

a. The amount of cash received

b. Present value for deferred payment
c. Fair value of noncash consideration received
d. All of these are used in measuring equity instruments

8. Equity settled share-based payment transactions are measured at

a. Net asset value

b. Fair value
c. Liquidation value
d. Assessed value

9. Cash settled share-based payment transactions are measured at

a. Fair value of liability at reporting date

b. Net asset value of liability at reporting date
c. Fair value of liability at reporting date and remeasured at date of settlement
d. Net asset value of liability at reporting date and remeasured at date of settlement

10. The revenue of small entity from sale of goods is measured at

a. Fair value of consideration received or receivable

b. Fair value of consideration received or receivable less trade discount, prompt payment discount
and volume rebate
c. Cash received less trade discount
d. Present value of consideration