ifrs for smes similarities and differences

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


What is current tax for SMEs?

A. Tax payable in respect of the taxable loss for the current or past periods.

B. Tax refundable in respect of the taxable profit for the current or past periods

C. Tax payable in respect of the taxable profit for the current or past periods.

D. Tax payable in respect of the taxable profit for the current or future periods.

Answer: C

Current Taxes

IFRS for SMEs Full IFRS

Definition

The amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for the current period.[IFRS for SMEs Glossary].

Same as IFRS for SMEs.[IAS 12.5]



Which of the following will result in a deferred tax?

A. When the entity failed to withhold tax on employee’s compensation income.

B. When the cost of the asset or liability is different from the tax base

C. When the carrying amount of the asset or liability differs from the tax base.

D. When BIR refuses to take remitted tax

Answer: C

Section 29 Income TaxDeferred Taxes


Definition of deferred

tax liabilities /

assets

The amounts of income taxes payable (potentially recoverable) in future in respect of taxable (deductible) temporary differences (and the carry-forward of unused tax losses and tax credits).[IFRS for SMEs Glossary]



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.

A. Statement 1 is true, statement 2 is false

B. Statement 1 is false, statement 2 is true

C. Both statements are true

D. Both statements are false

Answer: C


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.


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?

A. Tax Liability

B. Tax Asset

C. Either Tax asset or liability

D. Neither Tax Asset or Liability

Answer: D

Section 29 Income TaxDeferred Tax

SME Section 29.16 Full IFRS Section 12.15

Recognition

An entity shall not recognize a deferred tax asset or liability for temporary differences associated with unremitted earnings from foreign subsidiaries, branches, associates and joint ventures to the extent that the investment is essentially permanent in duration, unless it is apparent that the temporary difference will reverse in the foreseeable future.

For taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, a deferred tax liability shall be recognised in accordance with paragraph 39.


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?

A. Transaction date

B. Reporting date

C. Remittance date

D. Valentine’s day <3

Answer: B


Current Taxes IFRS for SMEs Full IFRS

Measurement

Current tax liabilities (assets) for the current and prior periods and related tax expense (income) are measured at the amount expected to be paid to (recovered from) the taxationauthorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the reportingdate. Current taxes are not discounted.[IFRS for SMEs 29.6, 29.23-29.24]

Similar to IFRS for SMEs except thatIAS 12 is silent on the discounting current tax.[IAS 12. 46, 12.53]


Deferred tax assets and liabilities are discounted using the prevalent market rate.

A. Always true

B. Sometimes true

C. Never true

D. IDK KMN.

Answer: C

Section 29 Income TaxDeferred Taxes


Recognition and

Measurement

Deferred tax assets and liabilities are measured using the tax rates (and tax laws) that apply or have been (substantively) enacted by the reporting date. Deferred tax assets and liabilities are not discounted. Where an entity is subject to different tax rates depending on different levels of taxable income, deferred tax assets and liabilities are measured at the average tax rate applicable to the periods in which it expects the temporary differences to reverse.[IFRS for SMEs 29.18, 29.19, 29.21-29.24].

Same as IFRS for SMEs.[IAS 12.47, 49, 53]


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.

A. False

B. True

C. Tralse

D. Brian Huang, ano’ng sagot?

Answer: B

Section 29 Income TaxValuation Allowance

SME Section 29.21 Full IFRS

Recognition

An entity 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.

The concept of ‘valuation allowance’ is not applicable. Instead, a deferred tax asset is only recognized to the extent that it is probable that there will be sufficient future taxable profit to enable recovery of the deferred tax asset. The net carrying amount of deferred tax asset is likely to be the same, but full IFRS does not request the disclosure of a valuation allowance.


Where will SME recognize tax expense in relation to a discontinued segment?

A. As part of continuing operations in the comprehensive income

B. As part of discontinued operations in the comprehensive income

C. As part of other comprehensive income

D. As a component of equity

Answer: B


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.


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?

A. Perpetual-moving average amount of all possible outcomes

B. Probability-weighted average amount of three most probable outcomes

C. Probability-weighted average amount of all possible outcomes

D. Amount of the most probable outcome

Answer: C


Other Topics


Uncertain tax

position

An entity recognizes the effect of the possible outcomes of a review by the tax authorities. It is measured using the probability weighted average amount of all the possible outcomes, assuming that the tax authorities will review the amounts reported and have full knowledge of all relevant information.[IFRS for SMEs 29.8, 29.24]

There is no specific guidance under IAS 12. In practice, management records the liability measured as either a single best estimate or a weighted average probability of the possible outcomes, if the likelihood is greater than 50%.


SME shall offset current or deferred tax assets and liabilities:

A. Only when it has legally enforceable right to set off the amounts

B. Only when it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously

C. SME shall not offset current or deferred tax asset and liabilities

D. Both a and b

Answer: D

Section 29 Income TaxOther Topics


Offsetting

Management offsets current tax assetsand current tax liabilities, or offsetsdeferred tax assets and deferred taxliabilities, only when it has a legallyenforceable right to set off the amountsand it intends either to settle on a net basis or to realize the asset and settlethe liability simultaneously.[IFRS for SMEs 29.29].

For the offsetting of current tax, same as IFRS for SMEs.For the offsetting of deferred tax, IAS 12 does not require a detailed time schedule of the reversal of each temporary difference. Rather, it requires to set off the assets and liabilities of the same taxable entity if and only if they relate to income tax levied by the same authority and the entity has a legal enforceable right to set off current tax assets against liabilities.[IAS 12.71, 74 and 75]


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


Definitions IFRS for SMEs Full IFRS

Events after the end of

the reporting

period

Events after the end of the reportingperiod are those events, favorableand unfavorable, that occur betweenthe end of the reporting period and thedate when the financial statements are authorized for issue.[IFRS for SMEs 32.2]



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


Definitions


Adjusting event

Adjusting events provide furtherevidence of conditions that existed atthe end of the reporting period andlead to adjustments to the financialstatements.[IFRS for SMEs 32.2(a), 32.5]

Same as IFRS for SMEs.[IAS 10.3(a)]


• 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


• 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


True or False:

Non-adjusting events are those that are indicative of conditions that arose after the end of the reporting period.

Answer: True


Definitions IFRS for SMEs Full IFRS

Non-adjusting

event

Non-adjusting events relate toconditions that arose after the end ofthe reporting period and do not lead toadjustments, only to disclosures in thefinancial statements.[IFRS for SMEs 32.2(b), 32.7]

Same as IFRS for SMEs.[IAS 10.3(b)]


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.


Which of the following statements is correct?

A. The financial statements shall be adjusted accordingly to reflect the dividend declaration since the condition already exists before the end of the reporting period

B. 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

C. 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

D. None of the above


Answer: B.

Dividends proposed or declared after the end of the reporting period are not recognized as a liability in the reporting period.


Recognition and Measurement IFRS for SMEs Full IFRS

Dividends

Dividends proposed or declared afterthe end of the reporting period are notrecognized as a liability in the reporting period.[IFRS for SMEs 32.8]

Similar as IFRS for SMEs.[IAS 10.12-10.13]


Management shall disclose all of the following, except:

A. Date when the financial statements were authorized for issue

B. The one who gave that authorization

C. If the entity’s owners or others have the power to amend the financial statements after issue, the fact shall be disclosed

D. All shall be disclosed

Answer: D


Recognition and Measurement IFRS for SMEs Full IFRS

Date of authorization

for issue

Management discloses the date on which the financial statements wereauthorized for issue and who gave that authorization. If the owners or other persons have the power to amend the financial statements after issue, this fact is also disclosed.[IFRS for SMEs 32.9]

Similar to IFRS for SMEs.[IAS 10.4-10.6]


Who is not a related party?

A. The party has control over the reporting entity

B. 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

C. The party is a member of the key management personnel of the reporting entity or its parent

D. The party is an associate of the entity

Answer: B


True or False:

Entities who have the same director or member of key management personnel are related parties.

Answer: False


General Principles IFRS for SMEs Full IFRS

Related party

A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity). The main categories of related parties are:• Subsidiaries.• Fellow subsidiaries.• Associates.• Joint ventures.• Key management personnel of theentity and its parent (which includeclose members of their families).• Parties with control or joint control or significant influence over the entity(which include close members oftheir families, where applicable).• Post-employment benefit plans. Related parties exclude finance providers and governments in the course of their normal dealings with the entity. There is also an exemption from the disclosure requirements where there is state control over the entity.[IFRS for SMEs 33.2]

Similar to IFRS for SMEs.[IAS 24.9]


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?

Answer: D

A. The number and value of the goods purchasedB. The nature of relationship between persons A and BC.Any guarantees if the transaction was made on

accountD.The story behind how persons A and B met and fell in

love with each other


General Principles IFRS for SMEs Full IFRS

Disclosures

Where there have been related-party transactions, disclosure is made of the nature of the relationship, the amount of transactions, and outstanding balances and other elements necessary for a clear understanding of the financial statements (for example, volume and amounts of transactions, amounts outstanding and pricing policies).[IFRS for SMEs 33.9]

Similar to IFRS for SMEs[IAS 10.12]


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


Agriculture IFRS for SMEs Full IFRS

Definition

• Biological asset: a living animal or plant.• Agricultural produce: the harvested product of biological assets. [IFRS for SMEs Glossary]

Same as IFRS for SMEs.[IFRS Glossary]


An entity shall measure a biological asset or agricultural produce when and only when all of the following are present except:

A. When the entity controls the asset as a result of past events

B. When it is probable that future economic benefits associated with the asset will flow to the entity

C. When the fair value is to be measured with prudence

D. When the fair value or cost of the asset can be measured reliably without undue influence

Answer: C


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

Section 34 Specialised ActivitiesAgriculture


Recognition and

Measurement

An entity involved in agricultural activity measures biological assets at fair value less cost to sell where such fair value is readily determinable without undue cost or effort. Where fair value is not used, the entity measures such assets at cost less any accumulated depreciation and any accumulated impairment losses. The agricultural produce harvested from biological assets is measured at fair value less estimated costs to sell at the point of harvest. Gains or losses on initial recognitionand from change in fair value arerecognized in profit or loss of theperiod.[IFRS for SMEs 34.4-34.6, 34.8-34.9]

Similar to IFRS for SMEs; however,exemption from measurement at fairvalue is only allowed if the fair valuecannot be measured reliably. This is the case for biological assetsfor which market-determined prices orvalues are not available and for whichalternative estimates of fair value aredetermined to be clearly unreliable.In such cases, biological assets aremeasured at cost.[IAS 41.12-41.13, 41.26, 41.30]


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?

A. The drilling and sampling equipment can only be accounted for using the cost model

B. In addition to the cost model, the revaluation model can also be used for the recognition and subsequent measurement of the equipment

C. The PHP3,000,000.00 worth of exploration assets are subject to amortization and test of impairment

D. None of the above

Answer: A

Section 34 Specialised ActivitiesExtractive Industries


Recognition and

Measurement

An entity that is engaged in an extractive industry recognizes exploration expenditure on the acquisition or development of tangible/intangible assets by applying Sections 17 and 18.[IFRS for SMEs 34.11]

Exploration and evaluation assets are measured at cost. An entity may develop a policy to determine which expenditures are recognized as exploration and evaluation assets. Full IFRS restricts recognition of certain types of expenditures as an asset. [IFRS 6.8-6.9]


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

Section 34 Specialised ActivitiesService Concession Arrangements


Definition

An arrangement whereby a government or other public sector body contracts with a private operator to develop, operate and maintain infrastructure assets such as roads, prisons and hospitals. In those arrangements, the grantor controls and regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement.[IFRS for SMEs 34.12]

Similar to IFRS for SMEs; however,guidance is more detailed.[IFRIC 12.2]


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


True or False:

A single contract for service concession arrangements wherein an operator may receive both financial and intangible assets may exist.

Answer: True

Section 34 Specialised ActivitiesService Concession Arrangements


Categories and Accounting

The operator receives a financial asset or an intangible asset. The financial asset is recognized to the extent that the operator has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. The intangible asset is recognized to the extent that the operator receives a right (or license) to charge users of the public service. The financial and intangible assets are initially measured at fair value. They are subsequently measured in accordance with Section 11, ‘Basic financial instruments’, Section 12 ‘Other financial instruments issues’, and Section 18, ‘Intangible assets other than goodwill’, respectively.[IFRS for SMEs 34.13-34-15]

Same as IFRS for SMEs.[IFRIC 12.15-12.17, 23, 26]

The End

ifrs for smes similarities and differences

Documents

current tax asset

current tax liability

unpaid current tax

tax credits

tax refundable

tax basewhen

deferred tax asset

deferred tax liability