IFRS for SMEs Similarities and Differences

1. IFRS for SMEsSimilarities and Differences Section 29 Income Tax Section 32 Events after the End of the Reporting Period Section 33 Related Party Disclosures Section 34 Specialised Activities Batiles. Belandres. Lam. Liwanag. Palafox

2. Section 29 Income Tax What is current tax for SMEs? • Tax payable in respect of the taxable loss for the current or past periods. • Tax refundable in respect of the taxable profit for the current or past periods • Tax payable in respect of the taxable profit for the current or past periods. • Tax payable in respect of the taxable profit for the current or future periods. Answer: C

3. Section 29 Income Tax

4. Section 29 Income Tax Which of the following will result in a deferred tax? • When the entity failed to withhold tax on employee’s compensation income. • When the cost of the asset or liability is different from the tax base • When the carrying amount of the asset or liability differs from the tax base. • When BIR refuses to take remitted tax Answer: C

5. Section 29 Income Tax

6. Section 29 Income Tax Statement 1: If the amount already paid exceeds the amount due for those periods, the excess is recognized as an asset Statement 2: Unpaid current tax for current and prior periods is recognized as a liability. • Statement 1 is true, statement 2 is false • Statement 1 is false, statement 2 is true • Both statements are true • Both statements are false Answer: C

7. Section 29 Income Tax Section 29.4 (SME) and 12.12 (Full IFRS): An entity shall recognize a current tax liability for tax payable on taxable profit for the current and past periods. If the amount paid for the current and past periods exceeds the amount payable for those periods, the entity shall recognize the excess as a current tax asset.

8. Section 29 Income Tax Without apparent reversion in the foreseeable future, what will an entity recognize for taxable temporary differences associated with unremitted earnings from foreign subsidiaries, branches, associates and joint ventures? • Tax Liability • Tax Asset • Either Tax asset or liability • Neither Tax Asset or Liability Answer: D

9. Section 29 Income Tax

10. Section 29 Income Tax An entity shall measure a current tax liability (asset) at the amounts it expects to pay (recover) using the tax rates and laws that have been enacted or substantively enacted by which date? • Transaction date • Reporting date • Remittance date • Valentine’s day <3 Answer: B

11. Section 29 Income Tax

12. Section 29 Income Tax Deferred tax assets and liabilities are discounted using the prevalent market rate. • Always true • Sometimes true • Never true • IDK KMN. Answer: C

13. Section 29 Income Tax

14. Section 29 Income Tax SMEs shall recognize a valuation allowance against deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered based on current or future taxable profit. • False • True • Tralse • Brian Huang, ano’ngsagot? Answer: B

15. Section 29 Income Tax

16. Section 29 Income Tax Where will SME recognize tax expense in relation to a discontinued segment? • As part of continuing operations in the comprehensive income • As part of discontinued operations in the comprehensive income • As part of other comprehensive income • As a component of equity Answer: B

17. Section 29 Income Tax Section 29.27 (SME) An entity shall recognize tax expense in the same component of total comprehensive income (i.e. continuing operations, discontinued operations, or other comprehensive income) or equity as the transaction or other event that resulted in the tax expense.

18. Section 29 Income Tax Assuming tax authorities will review the amounts and reported and have full knowledge of all relevant information, what will an entity use to measure current and deferred tax assets and liabilities? • Perpetual-moving average amount of all possible outcomes • Probability-weighted average amount of three most probable outcomes • Probability-weighted average amount of all possible outcomes • Amount of the most probable outcome Answer: C

19. Section 29 Income Tax

20. Section 29 Income Tax SME shall offset current or deferred tax assets and liabilities: • Only when it has legally enforceable right to set off the amounts • Only when it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously •  SME shall not offset current or deferred tax asset and liabilities • Both a and b Answer: D

21. Section 29 Income Tax

22. Section 32 Events after the End of the Reporting Period True or False: Events after the end of the reporting period as contemplated by the IFRS for SMEs are those events occurring between the end of the reporting period and the date where the financial statements are authorized for distribution. Answer: True

23. Section 32 Events after the End of the Reporting Period

24. Section 32 Events after the End of the Reporting Period True or False: Adjusting events provide evidence of conditions that existed at the end of the reporting period and lead only to disclosures in the financial statements. Answer: False

25. Section 32 Events after the End of the Reporting Period

26. Section 32 Events after the End of the Reporting Period • Is it an adjusting event?An entity gives warranties at the time of sale to purchasers of its products. On 31 December 20X5 an entity assessed its warranty obligation to be P100,000. Immediately before the 31 December 20X5 annual financial statements were authorized for issue, the entity discovered a latent defect in one of its lines of products (ie a defect that was not discoverable by reasonable or customary inspection). As a result of the discovery, the entity reassessed its estimate of its warranty obligation at 31 December 20X5 at P150,000. Answer: Yes

27. Section 32 Events after the End of the Reporting Period • Is it an adjusting event?The facts are the same as in the previous example. However, the latent defect was discovered on 31 March 20X6, after the 31 December 20X5 annual financial statements were authorized for issue. In April 20X6 the entity paid P150,000 to transfer the obligation to an independent third party. Answer: No

28. Section 32 Events after the End of the Reporting Period True or False: Non-adjusting events are those that are indicative of conditions that arose after the end of the reporting period. Answer: True

29. Section 32 Events after the End of the Reporting Period

30. Section 32 Events after the End of the Reporting Period Multiple Choice: During the period between the end of the reporting period and the authorization of financial statements for issuance, the board of directors of Corporation A has declared a cash dividend of PHP1,000,000.00 to shareholders of record as of the same date. Even before the end of the reporting period, the board has already been discussing the inevitable dividend declaration. Thus, the eventuality of a dividend declaration is already present at balance sheet date.

31. Section 32 Events after the End of the Reporting Period Which of the following statements is correct? • The financial statements shall be adjusted accordingly to reflect the dividend declaration since the condition already exists before the end of the reporting period • No adjustments in the financial statements is needed since the dividend declaration is recorded as a liability in the period in which it is declared • The cash dividend liability shall be recognized in the reporting and the succeeding period in proportion to the number of days that have passed since the end of the reporting date • None of the above

32. Section 32 Events after the End of the Reporting Period Answer: B. Dividends proposed or declared after the end of the reporting period are not recognized as a liability in the reporting period.

33. Section 32 Events after the End of the Reporting Period

34. Section 32 Events after the End of the Reporting Period Management shall disclose all of the following, except: • Date when the financial statements were authorized for issue • The one who gave that authorization • If the entity’s owners or others have the power to amend the financial statements after issue, the fact shall be disclosed • All shall be disclosed Answer: D

35. Section 32 Events after the End of the Reporting Period

36. Section 33 Related Party Disclosures Who is not a related party? • The party has control over the reporting entity • The party is a pre-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity • The party is a member of the key management personnel of the reporting entity or its parent • The party is an associate of the entity Answer: B

37. Section 33 Related Party Disclosures True or False: Entities who have the same director or member of key management personnel are related parties. Answer: False

38. Section 33 Related Party Disclosures

39. Section 33 Related Party Disclosures A private company considered an SME and owned by person A has made a transaction involving purchase of goods with his wife person B. Given that this is a related-party transaction, which of the following information is irrelevant for disclosure purposes? The number and value of the goods purchased The nature of relationship between persons A and B Any guarantees if the transaction was made on account The story behind how persons A and B met and fell in love with each other Answer: D

40. Section 33 Related Party Disclosures

41. Section 34 Specialised Activities True or False: Biological assets are assets that are living plants and animals, such as trees in a plantation, cultivated plants, sheep, cattle, etc., while agricultural produce are the harvested product of biological assets. Answer: True

42. Section 34 Specialised Activities

43. Section 34 Specialised Activities An entity shall measure a biological asset or agricultural produce when and only when all of the following are present except: • When the entity controls the asset as a result of past events • When it is probable that future economic benefits associated with the asset will flow to the entity • When the fair value is to be measured with prudence • When the fair value or cost of the asset can be measured reliably without undue influence Answer: C

44. Section 34 Specialised Activities True or False: Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. Answer: True

45. Section 34 Specialised Activities

46. Section 34 Specialised Activities A small company engaged in the business of extracting mineral resources has incurred an amount of PHP5,000,000.00 for its exploration activities, of which PHP3,000,000.00 is attributable to the purchase of drilling and sampling equipment. Which of the following statements is correct? • The drilling and sampling equipment can only be accounted for using the cost model • In addition to the cost model, the revaluation model can also be used for the recognition and subsequent measurement of the equipment • The PHP3,000,000.00 worth of exploration assets are subject to amortization and test of impairment • None of the above Answer: A

47. Section 34 Specialised Activities

48. Section 34 Specialised Activities True or False: In service concession arrangements, the grantor does not control any significant residual interest in the assets at the end of the term of the arrangement. Answer: False

49. Section 34 Specialised Activities

50. Section 34 Specialised Activities True or False: Guarantees by the government to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts is included in the category for service concession arrangements wherein the operator will receive a financial asset Answer: True