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FAR.3047 - Small Entities (SEs) MAY 2021

DISCUSSION PROBLEMS
1. The Securities and Exchange Commission (SEC) has b. A small entity which is a subsidiary of a foreign
issued SEC Memorandum Circular No. 05 (2018) parent company which will be moving towards
adopting, as part of its financial reporting rules and IFRS or IFRS for SMEs pursuant to the foreign
regulations, the Philippine Financial Reporting country’s published convergence plan.
Standards For Small Entities (PFRS for SEs). This is in c. A small entity, either as a significant joint venture
line with the corporate regulator’s or associate, is part of a group that is reporting
a. Run After Tax Evaders initiatives under full PFRS or PFRS for SMEs.
b. Public Private Partnership initiatives d. A small entity which has a short-term projection
c. Build Build Build initiatives that show that it will breach the quantitative
d. Ease of Doing Business initiatives thresholds set in the criteria for a small entity.
The breach is not expected to be significant and
2. In accordance with SEC Memorandum Circular No. 5 continuing.
Series of 2018, small entities are those that:
I. Have total assets of between P3M to P100M or 8. Which of the following small entities may apply the full
total liabilities of between P3M to P100M PFRS or PFRS for SMEs?
II. Are not required to file financial statements under a. A small entity which is a branch office or regional
Part II of SRC Rule 68 operating headquarter of a foreign company
III. Are not in the process of filing their financial reporting under the full IFRS or IFRS for SMEs.
statements for the purpose of issuing any class of b. A small entity which has been preparing financial
instruments in a public market statements using full PFRS or PFRS for SMEs and
IV. Are not holders of secondary licenses issued by has decided to liquidate.
regulatory agencies c. Both a and b.
d. Neither a nor b.
a. I, II, III and IV c. I and IV only
b. I, II and III only d. I only
9. In relation to the change in financial reporting
framework of a small entity, the determination of what
3. The following are common characteristics of medium-
is “significant and continuing” shall be based on
sized, small and micro entities, except
management’s judgment taking into consideration
a. Are not required to file financial statements under
relevant qualitative and quantitative factors. As a
Part II of SRC Rule 68
general rule, what would be considered as significant?
b. Are not in the process of filing their financial
a. 20% or more of the consolidated total assets.
statements for the purpose of issuing any class of
b. 20% or more of the consolidated total liabilities.
instruments in a public market
c. Either a or b.
c. Are not holders of secondary licenses issued by
d. Neither a nor b.
regulatory agencies
d. Are not public utilities
10. If a small entity that uses the PFRS for SEs in a current
year breaches the floor or ceiling of the size criteria at
4. An entity with total assets of below P3 million is
the end of that current year, and the event that caused
considered as
the change is not considered “significant and
a. Large entity c. Small entity
continuing”, the entity
b. Medium-sized entity d. Micro entity
a. Should transition to the applicable financial
reporting framework in the next accounting period.
5. Which of the following entity shall apply the PFRS for
b. Should transition to the applicable financial
SEs?
reporting framework in the current accounting
a. Finance company
period.
b. Insurance company
c. Should transition to the applicable financial
c. Securities brokers/dealers
reporting framework from the previous accounting
d. A non-publicly accountable entity with total
period.
liabilities of P3 million.
d. Can continue to use the same financial reporting
framework it currently uses.
6. Small entities who have operations or investments that
are based or conducted in a different country with a
11. The PFRS for SEs was developed in response to
different functional currency should apply
feedback of small entities that PFRS for SMEs is too
a. Full PFRS c. PFRS for SEs
complex to apply. The PFRS for SEs allows small
b. PFRS for SMEs d. Either a or b
entities to comply with the financial reporting
requirements without undue cost or burden by
7. The following SMEs shall be exempt from the
I. Reducing choices for accounting treatment
mandatory adoption of the PFRS for SEs and may
II. Eliminating topics that are not generally relevant to
instead apply, as appropriate, the full PFRS or the
small entities
PFRS for SMEs, except
III. Simplifying methods for recognition and
a. A small entity which is a subsidiary of a parent
measurement
company reporting under the full PFRS or PFRS for
IV. Reducing disclosure requirements
SMEs.

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a. I, II, III and IV c. I and III only a. Cash

b. I, II and III only d. I only b. Trade receivables and payables
c. Loans receivable and payable
12. Simplifications introduced by PFRS for SEs include d. Investments in convertible preference shares
a. Entities are given a policy choice of not recognizing
deferred taxes in the financial statements. 20. In accordance with Section 6 of PFRS for SEs, a
b. Prior period adjustments are just captured in the financial asset or liability is measured initially at
opening balance of the current year, but with a. Transaction price, including transaction costs
appropriate disclosures. b. Transaction price, excluding transaction costs
c. For defined benefit plans, an entity is required to c. Fair value, including transaction costs
use the accrual approach in calculating benefit d. Fair value, excluding transaction costs
obligations in accordance with Republic Act (RA)
7641, The Philippine Retirement Pay Law, or 21. In accordance with Section 6 of PFRS for SEs,
company policy (if superior than RA 7641). investments in shares that are traded in an active
d. All of these. market shall be measured subsequently at
a. Cost c. Lower of a or b
13. Which the following topics in PFRS for SMEs apply to b. Fair value d. Amortized cost
small entities?
a. Finance leases c. Hedge accounting 22. In accordance with Section 7 of PFRS for SEs, a
b. Onerous contracts d. None of these financial asset or liability is measured initially at
a. Transaction price, including transaction costs
14. Items of other comprehensive income of small entities b. Transaction price, excluding transaction costs
include c. Fair value, including transaction costs
I. Some gains and losses arising on translating the d. Fair value, excluding transaction costs
financial statements of a foreign operation.
II. Some actuarial gains and losses. 23. In accordance with Section 7 of PFRS for SEs, financial
III. Changes in revaluation surplus. instruments within the scope of the section shall be
IV. Some changes in fair values of hedging measured subsequently at
instruments. a. Cost
b. Amortized cost
a. I, II, III and IV c. II and IV only
c. Fair value though profit or loss
b. II, III and IV only d. None of them
d. Fair value through other comprehensive income
15. Section 2 of PFRS for SEs Concepts and Pervasive
24. In accordance with Section 8 of PFRS for SEs,
Principles provides guidance on
Inventories are required to be measured at the
I. Objective of financial statements
a. Lower of cost and net realizable value.
II. Information provided by the financial statements
b. Lower of cost and estimated selling price less costs
III. Recognition of the elements of financial statements
to complete and sell.
IV. Use of accrual basis
c. Lower of cost or market value.
V. Fair value of an asset
d. Lower of cost and fair value less costs to sell.
VI. Offsetting of the elements of financial statements
a. I, II, III, IV, V and VI c. I, III and VI only 25. In accordance with PFRS for SEs, ‘market value’ is
b. I, II, III, IV and VI only d. I and III only a. The amount for which an asset could be
exchanged, a liability settled or an equity
16. In accordance with Section 3 of PFRS for SEs, which of instrument granted could be exchanged, between
the following financial statements is not applicable to a knowledgeable, willing parties in an arm’s length
small entity? transaction.
a. Statement of financial position b. The amount obtainable from the sale of an asset or
b. Statement of comprehensive income cash-generating unit in an arm’s length transaction
c. Statement of changes in equity between knowledgeable, willing parties, less the
d. Statement of cash flows costs of disposal.
c. The price paid to acquire the asset.
17. In accordance with Section 4 of PFRS for SEs, an entity d. The probable selling price to willing buyers as of
shall account for all its investments in subsidiaries reporting date.
using
I. Cost model 26. In accordance with Section 9 of PFRS for SEs, an
II. Equity method investor shall account for all its investments in
III. Fair value model associates using
IV. Consolidation method I. Cost less impairment model
II. Equity method
a. I, II, III or IV c. II or IV only III. Fair value model
b. I or II only d. IV only
a. I, II or III c. I only
18. In accordance with Section 5 of PFRS for SEs, which of b. I or II only d. II or III only
the following requires restatement of comparative
information? 27. In accordance with Section 10 of the PFRS for SEs, a
a. Change in accounting estimates venturer shall account for all its investment in ventures
b. Change in accounting policies using
c. Correction of prior period errors I. Cost model
d. None of these II. Equity method
III. Fair value model
19. In accordance with Section 6 of PFRS for SEs, basic
a. I, II or III c. I only
financial instruments exclude
b. I or II only d. II or III only

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28. Which statement is correct regarding measurement b. Fair value of the goods or services received, unless
after recognition of investment property in accordance that fair value cannot be estimated reliably.
with Section 11 of PFRS for SEs? c. Fair value of the equity instruments granted, if fair
a. An entity is required to use the cost model. value of the goods or services received cannot be
b. An entity has a choice to use either the cost model estimated reliably.
or the fair value model. d. Par value of equity instruments granted.
c. Investment property whose fair value cannot be
measured reliably without undue cost or effort 35. In accordance with Section 22 of PFRS for SEs, for
shall be measured using the cost-depreciation- defined benefit plans, an entity is required to
impairment model. a. Calculate the expected liability as of reporting date
d. Investment property whose fair value can be using the current salary of the entitled employees
measured reliably without undue cost or effort and the employees' years of service, without
shall be measured at fair value at each reporting consideration of future changes in salary rates and
date with changes in fair value recognized in profit service periods.
or loss. b. See each period of service as giving rise to an
additional unit of benefit entitlement and measure
29. Which statement is correct regarding measurement each unit of benefit entitlement separately to build
after recognition of property, plant and equipment up the final obligation.
(PPE) in accordance with Section 12 of PFRS for SEs? c. Either a or b.
a. An entity is required to use the cost model. d. Neither a nor b.
b. An entity has a choice to use either the cost model
or the fair value model. 36. Which statement is correct regarding measurement of
c. PPE whose fair value cannot be measured reliably biological assets in accordance with Section 27 of PFRS
without undue cost or effort shall be measured for SEs?
using the cost-depreciation- impairment model. a. An entity is required to use the current market
d. PPE whose fair value can be measured reliably price model.
without undue cost or effort shall be measured at b. An entity has a choice to use either the current
fair value at each reporting date with changes in market price model or the cost model.
fair value recognized in profit or loss. c. Biological assets whose fair value cannot be
measured reliably without undue cost or effort
30. PFRS for SEs is similar to PFRS for SMEs in relation to shall be measured using the cost-depreciation-
accounting for impairment model.
a. Investment property d. Biological assets whose fair value can be measured
b. Property, plant and equipment reliably without undue cost or effort shall be
c. Intangible assets measured at their current market price or the
d. Leases probable selling price to willing buyers at each
reporting date with changes in current market
31. Section 16 of PFRS for SEs applies to price recognized in profit or loss.
a. Executory contracts
b. Provision for depreciation, impairment of assets 37. In accordance with Section 28 of PFRS for SEs, an
and uncollectible receivables entity shall account for a non-monetary government
c. Contingent assets and contingent liabilities grant by
d. None of these a. Not recognizing the non-monetary grant.
b. Recognizing the non-monetary grant at fair value.
32. PFRS for SEs is similar to PFRS for SMEs in relation to c. Either a or b.
accounting for d. Neither a nor b.
a. Equity c. Borrowing costs
b. Revenue d. All of these 38. In accordance with Section 29 of PFRS for SEs, an
entity can be a first-time adopter of PFRS for SEs
33. Section 18 of PFRS for SEs applies to accounting for a. Only once c. Only thrice
revenue arising from b. Only twice d. Without limit
I. Sale of goods
II. Rendering of services 39. The trial balance of Entity S (a small entity) included
III. Construction contracts in which the entity is the the following assets:
contractor Cash P 500,000
IV. Deposits or receivables yielding interest Accounts receivable 3,000,000
V. Dividends from investments in shares of stock that Inventories (at cost) 5,100,000
are not accounted for using the equity method Investment in shares (at cost) 900,000
a. I, II, III, IV and V c. I and II only Property, plant and equipment 8,000,000
b. I, II and III only d. I only Additional information:
• The probable selling price of inventories to willing
34. In accordance with Section 20 of PFRS for SEs, for buyers as of reporting date is P5,000,000.
equity-settled share-based payment transactions, an • The shares held as investment are traded in an
entity shall measure the goods or services received, active market. Fair value as of reporting date is
and the corresponding increase in equity, with P950,000.
reference to the
a. Net asset value of the equity instruments granted. In accordance with the PFRS for Small Entities, Entity
Net asset value is derived by dividing the total S should report total assets of
assets of the entity less any liabilities, by the a. P17,400,000 c. P17,500,000
number of shares outstanding at measurement b. P17,450,000 d. P17,550,000
date.
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