SMEs – PART TWO

7/30/2019 SMEs PART TWO

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SMEsPART TWO


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Inventories


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Inventories

These are assets held for sale in the ordinary

course of business, in the process of

production for such sale, of in the form of

materials or supplies to be consumed in the

production process or in the rendering of

services.


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Inventories

Cost of purchase

Cost of conversion

Other costs


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COST FORMULAS


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COST FORMULAS

Standard cost

Retail method

Most recent purchase price


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Disclosures of inventories


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Disclosures of inventories

The accounting policies adopted in measuringinventories, including the cost formula used.

The total carrying amount of inventories and thecarrying amount in classification appropriate to the

entity. The amount of inventories recognized as an expense

during the period.

Impairment losses recognized and reversed in profit

or loss. The total carrying amount of inventories pledged as

security for liabilities.


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FINANCIAL INSTRUMENTS


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A contract that gives rise to a financial asset of

one entity and a financial liability or equity of

another entity.


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Basic Financial Instruments

Cash

Demand and Fixed Term deposits or bank

accounts

Trade accounts and notes receivable and

payable

Accounts payable in foreign currency Loans from bank and other third parties

Bonds and similar debt instrument


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Basic Financial Instruments

Commercial papers or commercial bills

Investments in nonputtable ordinary shares

Investments in nonconvertible and nonputtablepreference shares

Commitment to receive a loan if the

commitment cannot be net settled in cash Loans to or from subsidiaries or associates that

are due on demand


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Commercial paper

Unsecured and short-term debt instrument

issued by a large corporation.


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Puttable instrument

A financial instrument that gives the holder the

right to sell the instrument back to the issuer

for cash upon exercise of the put or is

automatically redeemed or purchased by the

issuer on the occurrence of an uncertain future

event or upon the death of the holder


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Conditions for basic financial

instrument

1. Returns to the holder are a fixed amount, a

fixed rate of return or a variable return that

throughout the life of the instrument is equal to

a single reference quoted or observable rate,

such as the London Interbank Offered Rate

(LIBOR) or Euro Interbank Offered Rate

(EURIBOR).


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instrument

2. There is no contractual provision that could by

its terms, result in the holder losing the

principal amount or any interest.


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instrument

3. Contractual provisions that permit the issuer-

debtor to prepay the debt instrument or permit

the holder-creditor to put it back to the issuer-

debtor before maturity are not contingent on

future events.


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instrument

4. There are no conditional returns or repayment

provisions contingent on future events.


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Outside the scope of PFRS for SMEs

Investments in subsidiaries, associates and

joint ventures.

Financial instruments that meet the definition

of an entitys own equity.

Leases

Employers rights and obligations underemployee benefit plans.


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Initial measurement

Illustration

An SME purchased nonputtable listed ordinary

shares for P500,000 cash. The entity paid

P10,000 broker transaction fees.


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Initial measurement

Entry:

Investment in ordinary shares 500,000

Transaction cost 10,000Cash 510,000


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Subsequent measurement:

a. Basic debt instruments are measured atamortized cost using the effective interest

method.


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b. Commitments to receive a loan are measuredat cost less impairment.


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c. Investments in nonputtable ordinary shares

and investments in nonconvertible andnonputtable preference shares are measured atfair value through profit or loss if the shares

are publicly traded. Otherwise, suchinvestments are measured at cost lessimpairment.


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Impairment of asset measured at

amortized cost

The impairment loss is the difference between

the carrying amount of the asset and the

present value of the estimated cash flows

discounted at the original effective interestrate.


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Impairment of asset 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.


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NOT BASIC FINANCIAL

INSTRUMENTS

Asset-backed securities, such collateralized

mortgage obligations, repurchase agreements

and securitized packages of receivables

Derivative contracts

Hedging instruments

Commitments to make a loan if the

commitment be net settled in cash


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Asset-backed security

Security whose value and income payments

are derived from and collateralized or

supported by a specified pool of underlying

assets.


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Derivative contracts

The options, rights, warrants, forward

contracts, futures contracts and interest rate

swaps that are net settled in cash


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Hedging instrument

The derivative whose fair value or cash flows

would be expected to offset the changes in fair

value or cash flows of the hedged item


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NOT BASIC FINANCIAL

INSTRUMENTS

Initial measurement

Not basic financial instruments are measured

at FAIR VALUE, THROUGH PROFIT OR

LOSS


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NOT BASIC FINANCIAL

INSTRUMENTS


Equity instruments that are not publiclytraded and whose fair value cannot otherwise

be measured reliably

Contracts linked to such instruments that, if

exercised, will result in delivery of such

instruments


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INVESTMENT IN

ASSOCIATES

An associate is an entity over which the

investor has significant influence but is neither

a subsidiary nor a joint venture of the investor


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Significant influence

The power to participate in the financial and

operating policy decisions of the associate but

is not control or joint control those policies.


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INVESTMENT IN

ASSOCIATES

Measurement:

Cost model

Equity method Fair value model


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Cost model

The investment in associate is initially

measured at transaction price including

transaction cost


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Equity method

The investment is adjusted to reflect the

investors share in profit or loss and other

comprehensive income of the associate


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Fair value model

The investment is measured at fair value with

changes in fair value recognized in profit or

loss


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Financial statement presentation

Disclosures

a. The accounting policy for the investments in

associates

b. The carrying amount of investments in

associates

c. The fair value of investments accounted for

using the equity method for which there is a

published price quotation.


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INVESTMENT PROPERTY

Use in the production or supply of goods or

services or for administrative purposes, or

Sale in the ordinary course of its business


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INVESTMENT PROPERTY

EXAMPLES

A building that is rented out to independent

parties under an operating lease

A tract of land acquired as a long-term

investment


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INVESTMENT PROPERTY

EXAMPLES

A building that is rented out under an

operating lease and the entity provides

cleaning, security and maintenance services

A tract of land held for an undetermined future

use


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INVESTMENT PROPERTY

Initial recognition

The cost of purchased investment propertycomprises its purchase price and any directly

attributable expenditure such as legal and

brokerage fees, property transfer taxes and

other transaction cost.


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Transfer

The SME shall transfer property to or from

investment property only when the property

meets or ceases to meet the definition of

investment peoperty.


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PROPERTY, PLANT AND

EQUIPMENT

Held for use in the production or supply of

goods or services, for rental to others, or for

administrative purposes, and

Expected to be used during more than one

period


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PROPERTY, PLANT AND

EQUIPMENT

Initial measurement

Purchase price, including legal and brokerage

fees, import duties, and nonrefundable

purchase taxes.

Any directly attributable cost to bringing the

asset to the location and condition necessary

for it to be capable of operating in a manner

intended by management

O A A


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PROPERTY, PLANT AND

EQUIPMENT

Initial measurement

Initial estimate of dismantling cost and

restoration cost for which the entity has a

present obligation

PROPERTY PLANT AND


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PROPERTY, PLANT AND

EQUIPMENT

Subsequent measurement

Shall measure after initial recognition at cost

less accumulated depreciation and any

accumulated impairment losses.


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GOVERNMENT GRANTS

Assistance by government in the form of a

transfer of resources to an entity in return for

past or future compliance with specified

conditions relation to the operating activities of

the entity


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BORROWING COSTS

Interest expense calculated using the effective

interest method

Finance charges in respect of finance leases

recognized

Exchange differences arising from foreign

currency borrowings to the extent that they are

regarded as an adjustment to interest costs


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IMPAIRMENT OF ASSET

Occurs when the carrying amount of an asset

exceeds its recoverable amount

Recognized immediately in profit or loss


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INTANGIBLE ASSET

It is separable, meaning it is capable of being

separated or divided from the entity and sold,

transferred, licensed, rented or exchanged,

either individually or together with a relatedcontract, asset or liability


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INTANGIBLE ASSET

It arises from contractual or other legal rights,

regardless of whether those rigs are

transferable or separable from the entity or

from other rights and obligations

SMEs – PART TWO

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