Since 1977

FAR OCAMPO/OCAMPO
FAR.2952 - Medium-sized Entities (MEs)

DISCUSSION PROBLEMS
1. In accordance with SEC Memorandum Circular No. 5 4. The following SMEs may apply the full PFRS, except
Series of 2018, medium-sized entities are those that: a. An SME which has a subsidiary that is mandated to
I. Have total assets of more than P100M to P350M or report under the full PFRS.
total liabilities of more than P100M to P250M b. An SME which has a concrete plan to conduct an
II. Are not required to file financial statements under initial public offering within the next two (2) years.
Part II of SRC Rule 68 c. An SME which has been preparing financial
III. Are not in the process of filing their financial statements using full PFRS and has decided to
statements for the purpose of issuing any class of liquidate.
instruments in a public market d. An SME which has a short term projection that
IV. Are not holders of secondary licenses issued by show that it will breach the quantitative thresholds
regulatory agencies set in the criteria for an SME. The breach is not
expected to be significant and continuing.
a. I, II, III and IV c. I and IV only
b. I, II and III only d. I only
5. In relation to the change in financial reporting
framework of an SME, the determination of what is
LECTURE NOTES:
“significant and continuing” shall be based on
SEC Financial Reporting Frameworks management’s judgment taking into consideration
relevant qualitative and quantitative factors. As a
general rule, what would be considered as significant?
a. 20% or more of the consolidated total assets.
b. 20% or more of the consolidated total liabilities.
c. Either a or b.
d. Neither a nor b.

6. If an SME that uses the PFRS for SMEs in a current

year breaches the floor or ceiling of the size criteria at
the end of that current year, and the event that caused
the change is considered “significant and continuing”,
the entity should
a. Transition to the applicable financial reporting
framework in the next accounting period.
b. Transition to the applicable financial reporting
framework in the current accounting period.
c. Transition to the applicable financial reporting
2. Which of the following entities should apply the PFRS framework from the previous accounting period.
for SMEs? d. Use the same financial reporting framework.
a. An entity whose debt instruments are traded in an
over-the-counter market 7. In accordance with the IFRS for SMEs, small and
b. An investment house. medium-sized entities are entities that:
c. A non-publicly accountable entity with total a. Do not have public accountability
liabilities of P300 million. b. Publish general purpose financial statements for
d. A non-publicly accountable entity with total assets external users
of P300 million. c. Both a and b
d. Either a or b
3. The following SMEs shall be exempt from the
mandatory adoption of the PFRS for SMEs and may 8. An entity has public accountability if:
instead apply, at their option, the full PFRS, except a. Its debt or equity instruments are traded in a
a. An SME which is a subsidiary of a parent company public market
reporting under the full PFRS. b. It is in the process of issuing debt or equity
b. An SME which is a subsidiary of a foreign parent instruments for trading in a public market
company which will be moving towards IFRS c. It holds assets in a fiduciary capacity for a broad
pursuant to the foreign country’s published group of outsiders as one of its primary businesses
convergence plan. d. Any of the above
c. An SME, either as a significant joint venture or
associate, is part of a group that is reporting under 9. Entities holding assets in a fiduciary capacity for a
full PFRS. broad group of outsiders as one of their primary
d. An SME which is a branch office or regional businesses exclude
operating headquarter of a foreign company a. Insurance companies
reporting under the IFRS for SMEs. b. Securities brokers
c. Mutual funds
d. Charitable organizations

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EXCEL PROFESSIONAL SERVICES, INC.

10. The IFRS for SMEs contains simplifications of full 17. Items of other comprehensive income of SMEs that will
IFRSs, including be reclassified subsequently to profit or loss when
I. Some topics in IFRSs are omitted because they are specific conditions are met include
not relevant to typical SMEs a. Changes in revaluation surplus for property, plant
II. Some accounting policy options in full IFRSs are and equipment measured in accordance with the
not allowed because a more simplified method is revaluation model.
available to SMEs b. Some gains and losses arising on translating the
III. Simplification of many of the recognition and financial statements of a foreign operation.
measurement principles that are in full IFRSs c. Some actuarial gains and losses.
IV. Substantially fewer disclosures d. Some changes in fair values of hedging
V. Simplified redrafting instruments.
a. I, II, III, IV and V
18. When can an SME present only an income statement
b. I, II, III and IV only
(no statement of comprehensive income)?
c. I, II and II only
a. If it has no items of other comprehensive income
d. I and II only
(OCI).
b. If it has only one item of other comprehensive
11. The following topics in IFRSs are omitted because they
income (OCI).
are not relevant to typical SMEs, except
c. If the changes to the equity of an entity during the
a. Earnings per share
periods for which financial statements are
b. Interim financial reporting
presented arise only from profit or loss, payment
c. Segment reporting
of dividends, corrections of prior period errors, and
d. Derivatives and hedge accounting
changes in accounting policy.
d. Under no circumstances.
12. Which of the following accounting policy options in full
IFRSs are not included in the IFRS for SMEs
19. If the changes to the equity of an entity during the
a. Financial instrument options, including available-
periods for which financial statements are presented
for-sale, held-to-maturity and fair value options.
arise only from profit or loss, payment of dividends,
b. The revaluation model for intangible assets.
corrections of prior period errors, and changes in
c. Both a and b.
accounting policy:
d. Neither a nor b.
a. The entity presents the income statement and the
statement of changes in equity.
13. Which of the following is not a recognition and
b. The entity presents the statement of
measurement simplification of the full IFRSs in the
comprehensive income and the statement of
IFRS for SMEs?
changes in equity.
a. Financial instruments meeting specified criteria are
c. The entity presents a single statement of income
measured at cost or amortized cost. All others are
and retained earnings.
measured at fair value through profit or loss.
d. The entity may present the statement/s listed in
b. The IFRS for SMEs does not require separate
either (a), (b) or (c).
accounting for ‘embedded derivatives’.
c. Research and development costs must be
20. In accordance with Section 11 of the PFRS for SMEs,
recognized as expenses.
investments in equity securities with quoted price or
d. Indefinite-life intangible assets are not recognized.
readily determinable fair value should be measured at
a. Cost
14. How did the IASB develop the IFRS for SMEs?
b. Amortized cost
a. By extracting the fundamental concepts from the
c. Fair value though profit or loss
IASB Framework and the principles and related
d. Fair value through other comprehensive income
mandatory guidance from full IFRSs (including
Interpretations).
21. Which statement is incorrect regarding accounting for
b. By considering the modifications that are
financial instruments of SMEs?
appropriate on the basis of users’ needs and cost-
a. SMEs have the option to follow PAS 39 instead of
benefit considerations.
sections 11 and 12
c. Both a and b.
b. If PAS 39 is followed, SMEs should make PFRS 7
d. Neither a nor b.
disclosures.
c. Essentially, Section 11 is an amortized historical
15. Section 2 of PFRS for SMEs Concepts and Pervasive
cost model.
Principles is based on
d. Equity investments with quoted price or readily
a. 1989 Conceptual Framework
determinable fair value are measured at fair value
b. 2010 Conceptual Framework
through profit or loss.
c. 2018 Conceptual Framework
d. None of these
22. Inventories under Section 13 of the PFRS for SMEs are
required to be measured at the
16. A small and medium-sized entity may report which of
a. Lower of cost and net realizable value.
the following assets in its statement of financial
b. Lower of cost and fair value less costs to sell.
position?
c. Lower cost and recoverable value.
a. Internally generated intangible assets.
d. Lower of cost and estimated selling price less costs
b. Non-current assets held for sale.
to complete and sell.
c. Financial assets at fair value through OCI.
d. Land at revalued amount.

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EXCEL PROFESSIONAL SERVICES, INC.

Use the following information for the next six questions. a. P57.00 million c. P43.00 million
b. P54.15 million d. P39.50 million
Spurs Corporation, a small and medium-sized entity,
provided the following information regarding its
SOLUTION GUIDE #23: (Amounts in millions)
investments in equity securities:
a) On 1 January 2020 the entity acquired 25 per cent of B C D
the equity of each of entities B, C and D for P10
million, P15 million and P28 million respectively. Purchase price 10.000 15.000 28.000
Transaction costs of 1 per cent of the purchase price of
Transaction costs .100 150 .280
the shares were incurred by the entity.
b) On 2 January 2020 entity B declared and paid Total cost 10.100 15.150 28.280
dividends of P1 million for the year ended 2019.
Impairment loss
c) On 31 December 2020 entity C declared a dividend of
P8 million for the year ended 2020. The dividend CA, 12/31/20
declared by entity C was paid in 2021.
d) For the year ended 31 December 2020, entities B and SOLUTION GUIDE #25: (Amounts in millions)
C recognized profit of respectively P5 million and P18
million. However, entity D recognized a loss of P20 B C D
million for that year.
Purchase price 10.000 15.000 28.000
e) Published price quotations do not exist for the shares
of entities B, C and D. Using appropriate valuation Transaction costs .100 .150 .280
techniques the entity determined the fair value of its
investments in entities B, C and D at 31 December Total cost 10.100 15.150 28.280
2020 as P13 million, P29 million and P15 million SOPA (SOLA)
respectively. Costs to sell are estimated at 5 per cent
of the fair value of the investments. Dividends

In accordance with section 14.4 of the PFRS for SMEs, an CA-before IL

investor shall account for all of its investments in
Impairment loss
associates using one of the following: (a) the cost model in
paragraph 14.5, (b) the equity method in paragraph 14.8, CA, 12/31/20
or (c) the fair value model in paragraph 14.9. The entity is
seeking your advice on the effect of each method on the
SOLUTION GUIDE #27: (Amounts in millions)
carrying amount of the investment and its effect on profit
or loss.
B C D
QUESTIONS: Transaction costs
Based on the above and the result of your audit, answer
the following as of and for the year ended December 31, Dividend income
2020:
Fair value
23. If the entity measures its investments in associates adjustment
using the cost model, the total carrying amount of the
investments should be Net amount in P/L
a. P40.25 million c. P39.25 million
b. P53.28 million d. P39.50 million SUMMARY:
24. If the entity measures its investments in associates
Cost Equity Fair Value
using the cost model, the net amount to be recognized
in profit or loss should be SFP
a. P(11.78) million c. P(11.03) million
b. P(12.03) million d. P 2.25 million Profit or loss

25. If the entity measures its investments in associates

using the equity method, the total carrying amount of
the investments should be Use the following information for the next four questions.
a. P52.03 million c. P42.75 million Hawks Corporation, an SME, incurred (and paid) the
b. P43.00 million d. P43.75 million following expenditures in acquiring property consisting of
26. If the entity measures its investments in associates ten identical freehold detached houses each with separate
using the equity method, the net amount to be legal title including the land on which it is built:
recognized in profit or loss should be Amount
a. P(8.28) million c. P(7.53) million Date (in Php) Additional information
b. P(8.53) million d. P0.75 million 1 Jan. 2020 200,000,000 20 per cent of the price
is attributable to the
27. If the entity measures its investments in associates
land
using the fair value model, the net amount to be
1 Jan. 2020 20,000,000 Non-refundable transfer
recognized in profit or loss should be
taxes (not included in
a. P5.72 million c. P2.87 million
the P200,000,000
b. P5.47 million d. P4.00 million
purchase price)
28. If the entity measures its investments in associates 1 Jan. 2020 1,000,000 Legal costs directly
using the fair value method, the total carrying amount attributable to the
of the investments should be acquisition

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EXCEL PROFESSIONAL SERVICES, INC.

Amount 32. Assume that the fair value of the units cannot be
Date (in Php) Additional information determined reliably without undue cost or effort on an
1 Jan. 2020 10,000 Reimbursing the ongoing basis, how much is the total expense to be
previous owner for recognized in profit or loss?
prepaying the non- a. P5,360,000 c. P4,366,000
refundable local b. P4,376,000 d. P4,376,160
government property
taxes for the six-month 33. Which statement is correct regarding measurement
period ending 30 June after recognition of investment property in accordance
2020 with Section 16 of PFRS for SMEs?
1 Jan. 2020 500,000 Advertising campaign to a. An entity has a choice to use either the fair value
attract tenants model or the cost model.
2 Jan. 2020 200,000 Opening function to b. An entity is required to use the fair value model.
celebrate new rental c. Investment property whose fair value can be
business that attracted measured reliably without undue cost or effort
extensive coverage by shall be measured at fair value at each reporting
the local press date with changes in fair value recognized in other
30 June 2020 20,000 Non-refundable annual comprehensive income.
local government d. Investment property whose fair value cannot be
property taxes for the measured reliably without undue cost or effort
year ending 30 June shall be measured using the cost-depreciation-
2021 impairment model.
Throughout 120,000 Day-to-day repairs and
2020 maintenance, including 34. Which statement is correct re the phrase ‘undue cost
the salary and other or effort’ in PFRS for SMEs?
costs of the a. Applying a requirement of PFRS for SMEs will entail
administration and undue cost or effort when the entity cannot apply
maintenance staff. it after making every reasonable effort to do so.
These costs are b. ‘Undue cost or effort’ is synonymous with
attributable equally to ‘impracticable’.
each of the ten units. c. ‘Undue cost or effort’ depends on the SME’s
specific circumstances and on management’s
The entity uses one of the ten units to accommodate its professional judgment in assessing the costs and
administration and maintenance staff. The other nine benefits.
units are rented to independent third parties under non- d. ‘Undue cost or effort’ is a general
cancellable operating leases. principle/exemption that can be applied by SMEs
for every accounting requirement in the PFRS for
At 31 December 2020, the entity made the following SMEs.
assessments about the units:
• Useful life of the buildings: 50 years from the date of 35. Applying a requirement of the PFRS for SMEs would
acquisition result in ‘undue cost or effort’ because of
• The entity will consume the buildings’ future a. Excessive cost (eg if valuers’ fees are excessive).
economic benefits evenly over 50 years from the b. Excessive endeavors by employees in comparison
date of acquisition. to the benefits that the users of the SME’s financial
statements would receive from having the
The fair value of the units can be determined reliably information.
without undue cost or effort on an ongoing basis and that c. Either a or b.
the residual value of the owner-occupied unit is nil. d. Neither a nor b.

At 31 December 2020 the fair value of each unit was 36. In accordance with Section 17 of the PFRS for SMEs,
reliably estimated as P25,000,000. the residual value, the useful life of an asset and the
depreciation method applied to an asset shall be
QUESTIONS: reviewed
a. At least at each financial year-end.
Based on the above and the result of your audit, answer
b. At least every two years.
the following as of and for the year ended December 31,
c. At least every three years.
2020:
d. Only if there is an indication they may have
29. How much should be reported as property, plant and changed since the most recent annual reporting
equipment? date.
a. P21,747,384 c. P 21,746,400
b. P21,648,000 d. Nil 37. A medium-sized entity is developing a new production
process. During 2020, expenditure incurred was
30. How much should be recognized in profit or loss P1,000,000, of which P900,000 was incurred before 1
regarding the increase in fair value of investment December 2020 and P100,000 was incurred between 1
properties? December 2020 and 31 December 2020. The entity is
a. P26,100,000 c. P27,000,000 able to demonstrate that, at 1 December 2020, the
b. P26,091,000 d. P29,636,000 production process met the criteria for recognition as
31. How much is the total expense to be recognized in an intangible asset. The recoverable amount of the
profit or loss? know-how embodied in the process (including future
a. P1,193,616 c. P1,193,600 cash outflows to complete the process before it is
b. P2,192,000 d. P4,376,000 available for use) is estimated to be P500,000.

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EXCEL PROFESSIONAL SERVICES, INC.

At the end of 2020, the production process is a. I, II, III and IV c. I and II only
recognized as an intangible asset at b. I, II and IV only d. I only
a. P1,000,000 c. P100,000
b. P 500,000 d. Nil 44. In accordance with Section 23 of the PFRS for SMEs,
which of the following conditions must be satisfied
38. Which statement is incorrect regarding useful life of before revenue from the sale of goods is recognized?
intangible assets in accordance with Section 18 of the I. The entity has transferred to the buyer the
PFRS for SMEs? significant risks and rewards of ownership of the
a. All intangible assets shall be considered to have a goods.
finite useful life. II. The entity retains neither continuing managerial
b. The useful life of an intangible asset that arises involvement to the degree usually associated with
from contractual or other legal rights shall not ownership nor effective control over the goods
exceed the period of the contractual or other legal sold.
rights, but may be shorter depending on the period III. The amount of revenue can be measured reliably.
over which the entity expects to use the asset. IV. It is probable that the economic benefits
c. If the contractual or other legal rights are associated with the transaction will flow to the
conveyed for a limited term that can be renewed, entity.
the useful life of the intangible asset shall include V. The costs incurred or to be incurred in respect of
the renewal period(s) only if there is evidence to the transaction can be measured reliably.
support renewal by the entity without significant
a. I, II, III, IV, and V c. I, III, and IV only
cost.
b. I, II, III, and IV only d. I, III, IV, and V only
d. If the useful life of an intangible asset cannot be
established reliably, the life shall be determined
45. An entity does not recognize revenue if it retains
based on management’s best estimate but shall
significant risks and rewards of ownership. Examples
not exceed twenty years.
of situations in which the entity may retain the
significant risks and rewards of ownership are:
39. On January 1, 2019, Magdalena, an SME, purchased
I. When the entity retains an obligation for
Victoria Company at a cost that resulted in recognition
unsatisfactory performance not covered by
of goodwill of P5,000,000. During January of 2020,
normal warranties.
Magdalena spent an additional P2,000,000 on
II. When the receipt of the revenue from a particular
expenditures designed to maintain goodwill. Due to
sale is contingent on the buyer selling the goods.
these expenditures, at December 31, 2020, Magdalena
III. When the goods are shipped subject to
estimated that the benefit period of goodwill was
installation and the installation is a significant
indefinite. In its December 31, 2020 statement of
part of the contract that has not yet been
financial position, what amount should Magdalena
completed.
report as goodwill?
IV. When the buyer has the right to rescind the
a. P7,000,000 c. P5,000,000
purchase for a reason specified in the sales
b. P5,600,000 d. P4,000,000
contract, or at the buyer’s sole discretion without
any reason, and the entity is uncertain about the
40. In accordance with Section 20 of PFRS for SMEs,
probability of return.
leases are classified as either finance or operating by
a. Lessors a. I, II, III and IV c. II and IV only
b. Lessees b. II, III and IV only d. II only
c. Both a and b.
d. Neither a nor b. 46. Lin Co., a medium-sized entity and distributor of
machinery, bought a machine from the manufacturer
41. Section 21 of PFRS for SMEs is different from PAS 37, in November for P10,000. On December 30, Lin sold
in relation to accounting for this machine to Lang Hardware for P15,000 under the
a. Provisions following terms: 2% discount if paid within 30 days,
b. Contingent liabilities 1% discount if paid after 30 days but within 60 days,
c. Contingent assets or payable in full within 90 days if not paid within the
d. None of these discount periods. However, Lang has the right to
return this machine to Lin if Lang is unable to resell the
42. In accordance with Section 22 of PFRS for SMEs, if the machine before expiration of the 90-day payment
equity instruments are issued before the entity period, in which case Lang’s obligation to Lin is
receives the cash or other resources, the entity shall canceled. Which statement is correct?
present the amount receivable as a. The sale is treated as a consignment sale since the
a. A current asset if collectible within 12 months. buyer is acting, in substance, as an agent of the
b. A non-current asset if not collectible within 12 seller.
months. b. The seller recognizes revenue when the buyer sells
c. An offset to equity. the goods to a third party.
d. Any of these. c. Both a and b.
d. Neither a nor b.
43. Section 23 of the PFRS for SMEs applies to accounting
for revenue arising from 47. A medium-sized entity sold goods for P8 million cash
I. Sale of goods to a finance company. The cost of these goods was P6
II. Rendering of services million. The finance company has the option to require
III. Construction contracts in which the entity is the the entity to repurchase these goods within one month
contractor of year-end at their original selling price plus a
IV. Use by others of entity assets yielding interest, facilitating fee of P250,000. How much revenue should
royalties or dividends the entity recognize at the time of sale?
a. P8,000,000 c. P1,750,000
b. P2,000,000 d. Nil

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EXCEL PROFESSIONAL SERVICES, INC.

48. When the outcome of a transaction involving the The entity shall recognize income from government
rendering of services can be estimated reliably, grant in 2020 profit or loss of
revenue associated with the transaction shall be a. P90,000 c. P9,000
recognized by reference to the stage of completion of b. P10,000 d. Nil
the transaction at the end of the reporting period. The
outcome of a transaction can be estimated reliably 54. The Gargantuar Company, an SME, commenced the
when which the following conditions are satisfied? construction of a new plant on 1 February 2020. The
I. The amount of revenue can be measured reliably. cost of P1.8M was funded from existing borrowings. The
II. It is probable that the economic benefits construction was completed on 30 September 2020.
associated with the transaction will flow to the
Gargantuar's borrowings during 2020 comprised:
entity.
• Loan from Allied Bank: P800,000 at 6% per annum;
III. The stage of completion of the transaction at the
• Loan from BDO Bank: P1 million at 6.6% per
balance sheet date can be measured reliably.
annum; and
IV. The costs incurred for the transaction and the
• Loan from Metro Bank: P3 million at 7% per
costs to complete the transaction can be
annum.
measured reliably.
The amount of borrowing costs to be capitalized in
a. I, II, III, and IV c. I, II and IV only
relation to the packaging plant is
b. I, II, and III only d. I and II only
a. Nil c. P81,000
b. P121,500 d. P91,125
49. A medium-sized entity provides service contracts to
customers for maintenance of their electrical systems.
55. In accordance with Section 26 of PFRS for SMEs,
On 1 October 2020 it agrees a four-year contract with a
share-based payment transactions with cash
major customer for P154,000. Costs over the period of
alternatives are accounted for as cash settled, unless
the contract are reliably estimated at P51,333. How
a. The entity has a past practice of settling by issuing
much revenue should the company recognize in profit or
equity instruments.
loss in the year ended 31 December 2020?
b. The option has no commercial substance because
a. P38,500 c. P9,625
the cash settlement amount bears no relationship
b. P12,833 d. P3,208
to, and is likely to be lower in value than, the fair
value of the equity instrument.
50. On 1 January 2020, a medium-sized entity signs a four-
c. Either a or b.
year fixed-price contract to provide services for a
d. Neither a nor b.
customer. The contract value is P550,000. At 31
December 2020 the contract is thought to be 30%
56. In accordance with Section 27 of PFRS for SMEs, which
complete. Costs to complete the contract cannot be
of the following is subject to annual impairment test
reliably estimated and costs incurred to date of
irrespective of whether there is any indication of
P152,000 are recoverable from the customer. What is
impairment?
the revenue to be recognized in profit or loss for the
a. Intangible asset with an indefinite useful life
year ended 31 December 2020?
b. Intangible asset not yet available for use
a. P 13,000 c. P152,000
c. Goodwill
b. P137,500 d. P165,000
d. None of these
51. In accordance with Section 23 of the PFRS for SMEs,
57. Section 28 of PFRS for SMEs deals with
revenue from royalty shall be recognized
a. Employee benefits
a. On an accrual basis in accordance with the
b. Income tax
substance of the relevant agreement.
c. Foreign currency translation
b. When the shareholder’s right to received payment
d. Related party disclosure
is established.
c. Using the effective interest method as set
58. Section 34 of PFRS for SMEs does not deal with
described in Section 11.
a. Service concession arrangements
d. On a time proportion basis taking into account the
b. Extractive activities
effective yield on the asset.
c. Agriculture
d. Hyperinflation
52. On 1 January 2020 an SME acquired a transferable
nine-year taxi license by way of government grant
59. Which statement is incorrect regarding the
when the fair value of the license was P90,000. The
maintenance of the IFRS for SMEs?
license is given, free of charge, to the entity on the
a. The IASB expects to propose amendments to the
basis of the entity’s performance and there are no
IFRS for SMEs by publishing an omnibus Exposure
future performance conditions attached to the grant.
Draft periodically, but not more frequently than
The entity shall recognize income from government approximately once every three years.
grant in 2020 profit or loss of b. The IASB expects to consider new and amended
a. P90,000 c. P9,000 full IFRS Standards as well as specific issues that
b. P10,000 d. Nil have been brought to its attention regarding
application of the IFRS for SMEs.
53. On 1 January 2020 an SME acquired, free of charge, a c. On occasion (expected to be rare), the IASB may
non-transferable nine-year taxi license by way of identify an urgent matter for which amendment of
government grant when the fair value of the taxi the IFRS for SMEs may need to be considered
license was P90,000. In accordance with the terms of outside the periodic review process.
the license the entity must operate at least 10 taxis in d. Any changes that the IASB may make or propose
a deprived neighborhood of the capital city during that with respect to full IFRSs apply to the IFRS for
nine-year period. Failure to do so will result in the taxi SMEs.
license being revoked immediately.
- now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. Which of the following are not considered external A published price quotation does not exist for entity X.
users of SMEs’ financial statements? At 31 December 2018, 2019 and 2020, in accordance
a. Banks that make loans to SMEs. with Section 27 of the PFRS for SMEs, management
b. Vendors that sell to SMEs and use SMEs’ financial assessed the fair values of its investment in entity B as
statements to make credit and pricing decisions. P204,000, P220,000 and P180,000 respectively. Costs
c. Credit rating agencies and others that use SMEs’ to sell are estimated at P8,000 throughout.
financial statements to rate SMEs.
In relation to the above investment, how much is the
d. SMEs’ shareholders that are also managers of their
net amount that Entity X should recognize in its profit
SMEs.
or loss for the year ended 31 December 2018, 2019
and 2020 respectively:
2. Which statement is correct regarding public market?
a. (P6,000), P18,000, (P30,000).
a. It is restricted to recognized and/or regulated
b. (P6,000), P6,000, (P30,000).
stock exchanges.
c. (P4,000), P18,000, (P30,000).
b. The instruments are considered traded in a public
d. P196,000, P202,000, P172,000.
market even if the instruments can only be
exchanged between parties involved in the
5. The SME Company has a single investment property
management of the entity.
which had originally cost P580,000 on 1 January 2017.
c. The availability of a published price means that an
At 31 December 2019 its fair value was P600,000 and at
entity’s debt or equity instruments are traded in a
31 December 2020 it had a fair value of P590,000. On
public market.
acquisition, the property had a useful life of 40 years.
d. The assessment of whether an entity’s debt or
equity instruments are traded in a public market, What should be the expense recognized in SME's profit
or are in the process of being issued for trading in or loss for the year ended 31 December 2020?
a public market, should be an ongoing one. a. P24,500 c. P14,500
b. P14,750 d. P10,000
3. On 31 December 2018 Entity A, an SME, acquired 30
per cent of the ordinary shares that carry voting rights 6. Data regarding Cattail Corp.'s investment in equity
of entity B for P200,000. Entity A incurred transaction securities follow:
costs of P2,000 in acquiring these shares.
Cost Fair value
Entity A does not use the equity method to account for December 31, 2019 P150,000 P130,000
its investments in associates. December 31, 2020 150,000 160,000
In January 2019 entity B declared and paid a dividend As a result of the changes in fair value and using the
of P40,000 out of profits earned in 2018. No further PFRS for SMEs, the entity’s 2020 comprehensive
dividends were paid in 2019, 2020 or 2021. income would include
a. P30,000 c. P10,000
At 31 December 2018, 2019 and 2020, based on
b. P20,000 d. P 0
published price quotations, the fair values of its
pp.566 P9 Wiley 07-08
investment in entity B are P204,000, P210,000 and
7. On 1 January 2020 an SME acquired, free of charge, a
P180,000 respectively. Costs to sell are estimated at
herd of 100 cattle by way of government grant when
P8,000 throughout.
the fair value of the herd was P1,000,000. On average
In relation to the above investment, how much is the the remaining life of the cattle is expected to be 10
net amount that Entity A should recognize in its profit years. The grant does not impose future performance
or loss for the year ended 31 December 2018, 2019 conditions on the entity.
and 2020 respectively:
The entity shall account for the government grant as
a. P2,000, P18,000, (P30,000).
follows:
b. P2,000, P6,000, (P30,000).
a. Recognize P1,000,000 in income on 1 January
c. (P4,000), P18,000, (P30,000).
2020.
d. P204,000, P210,000, P180,000.
b. Recognize P1,000,000 in income evenly over the
10-year expected remaining life of the cattle (ie
4. On 31 December 2018 entity A, an SME, acquired 30
P100,000 per year).
per cent of the ordinary shares that carry voting rights
c. Credit P1,000,000 directly to retained earnings on
of entity X for P200,000. In acquiring those shares
1 January 2020.
entity A incurred transaction costs of P2,000.
d. None of the above.
Entity A has entered into a contractual arrangement
with another party (entity C) that owns 25 per cent of 8. The Coral Company applies the PFRS for SMEs. On 20
the ordinary shares of entity X, whereby entities A and July 2020 Coral wishes to classify a non-current asset as
C jointly control entity X. held for sale. At that date the asset's carrying amount
was P14,500, its fair value was estimated at P21,500
Entity A uses the cost method to account for its
and the costs to sell at P1,450.
investments in jointly controlled entities.
The asset was sold on 18 October 2020 for P21,200.
In January 2019 entity X declared and paid a dividend
of P40,000 out of profits earned in 2018. No further In accordance with PFRS for SMEs, at what amount
dividends were paid in 2019, 2020 or 2021. should the asset be stated in Coral's statement of
financial position at 30 September 2020?
a. P20,050 c. P21,200
b. P21,500 d. P14,500

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