Differences Between PFRS for SMEs and Full PFRS

INVESTMENTS IN ASSOCIATES

PFRS for SMEsFull PFRS An associate is an entity over which the investor has significant influence, but that is neither a subsidiary nor a joint venture of the investor. [IFRS for SMEs 14.2] Same as IFRS for SMEs. [IAS 28.2] DEFINITION OF INVESTMENTS IN ASSOCIATES

PFRS for SMEsFull PFRS Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies. It is presumed to exist when the investor holds at least 20% of the investee’s voting power; it is presumed not to exist when less than 20% is held. These presumptions may be rebutted if there is clear evidence to the contrary. [IFRS for SMEs 14.3] Similar to IFRS for SMEs; in addition, IFRS gives the following indicators of significant influence to be considered where the investor holds less than 20% of the voting power of the investee: Representation on the board of directors or equivalent body. Participation in policy-making processes. Material transactions between the investor and the investee. Interchange of managerial personnel. Provision of essential technical information. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has significant influence. [IAS ] SIGNIFICANT INFLUNCE

PFRS for SMEsFull PFRS An investor may account for its investments using one of the following: The cost model (cost less any accumulated impairment losses). The equity method. The fair value through profit or loss model. [IFRS for SMEs 14.4] Investments in associates are accounted for using the equity method. Some exceptions are in place − for example, when the investment is classified as held for sale. [IAS 28.13] MEASUREMENT AFTER INITIAL RECOGNITION

PFRS for SMEsFull PFRS An investor measures its associates at cost less any accumulated impairment losses. All dividends are recognised in the income statement. The cost model is not permitted for an investment in an associate that has a published price quotation. [IFRS for SMEs ] Not permitted except in separate financial statements. [IAS 28.35] COST MODEL

PFRS for SMEsFull PFRS An associate is initially recognised at the transaction price (including transaction costs). The investor, on acquisition of the investment, accounts for the difference between the cost of the acquisition and its share of fair value of the net identifiable assets as goodwill, which is included in the carrying amount of the investment. The investor’s share of the associate’s profit or loss and other comprehensive income are presented in the statement of comprehensive income. Distributions received from the associate reduce the carrying amount of the investment. In case of losses in excess of the investment, after the investor’s interest is reduced to zero, additional losses are provided for to the extent that the investor has incurred legal or constructive obligations or has made payments on behalf of the associate. [IFRS for SMEs 5.5(c)(h), 14.8] Initial recognition is at cost. Cost is not defined in IAS 28, ‘Investments in associates’. In other standards it is defined as including transaction costs, except in IFRS 3 (revised), which requires transaction costs in a business combination to be expensed. Entities may therefore choose whether their accounting policy is to expense transaction costs or to include them in the cost of the investment. [IAS 28.11, 28.23, ] EQUITY METHOD

PFRS for SMEsFull PFRS Goodwill identified under equity method is treated separately and amortized. Under the equity method, the accounting policies of the associate is adjusted to that of the investor, unless it is impracticable to do so. In applying the equity method, the same reporting dates must be used, except if it is impracticable to do so. Goodwill is included in the carrying value of the investment and is not amortized. The impracticability exception is not provided. The same requirement applies, but the difference in dates is limited to 3 months and the difference should be consistent year-on-year. EQUITY METHOD - CONTINUATION

PFRS for SMEsFull PFRS An associate is initially recognised at the transaction price (excluding transaction costs). Changes in fair value are recognised in profit or loss. The best evidence of the fair value is a quoted price in an active market. If the market is not active, an entity estimates fair value by using a valuation technique. If the fair value cannot be measured reliably, the investor uses the cost model. [IFRS for SMEs 11.27, 14.9] Not permitted except in separate financial statements. [IAS 28.35] FAIR VALUE

PFRS for SMEsFull PFRS Where separate financial statements of a parent are prepared (this is not required), management adopts a policy of accounting for all its associates either: At cost less impairment, or At fair value through profit or loss. [IFRS for SMEs 9.26] Similar to IFRS for SMEs; in addition, investments are accounted for in accordance with IFRS 5 when they are classified as held for sale. [IAS 27.38] SEPARATE FINANCIAL STATEMENTS

PFRS for SMEsFull PFRS An investor classifies investments in associates as non-current assets. Associates are presented as a line item on the balance sheet. [IFRS for SMEs 4.2(j), 14.11] Similar to IFRS for SMEs; however, only those associates accounted for using the equity method are presented as a line item. [IAS 1.54(e), 28.38] CLASSIFICATION AND PRESENTATION

PFRS for SMEsFull PFRS Guidance on significant influence. Consequences when an investment ceases to be an associate. Profit and loss from upstream and downstream transactions. Impairment losses. Acquisition of an investment in an associate. ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEsFull PFRS Its accounting policy Carrying amount Fair value of investment (if there are published quotations) Dividend income (for cost method) Reasons why an associate is not accounted for using the equity method Summarized financial information of associates not accounted for using the equity method Share of any discontinued operations of associates (separately presented) Share of changes directly recognized in associate’s equity Share of contingent liabilities incurred jointly with other investors Any contingent liabilities that may arise because the investor is severally liable for all or part of the liabilities of the associate. DISCLOSURE TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEsFull PFRS Reasons why an associate is not accounted for using the equity method Summarized financial information of associates not accounted for using the equity method Share of any discontinued operations of associates (separately presented) Share of changes directly recognized in associate’s equity Share of contingent liabilities incurred jointly with other investors Any contingent liabilities that may arise because the investor is severally liable for all or part of the liabilities of the associate. DISCLOSURE TO NOTES TO FINANCIAL STATEMENTS cont…

INVESTMENTS PROPERTY

PFRS for SMEsFull PFRS Investment property is a property (land or building, or part of a building, or both) held by the owner or by lessee under a finance lease to earn rentals or for capital appreciation or both. A property interest held for use in the production or supply of goods or services or for administrative purposes is not an investment property. [IFRS for SMEs 16.1] Same as IFRS for SMEs. Accounting result likely to be the same. [IAS 40.5] DEFINITION OF INVESTMENT PROPERTY

PFRS for SMEsFull PFRS The cost of a purchased investment property is its purchase price plus any directly attributable costs such as professional fees for legal services, property transfer taxes and other transaction costs. Borrowing costs are recognised as an expense. [IFRS for SMEs 16.5, 25.2] Similar to IFRS for SMEs except for borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are required to be capitalised as part of the cost of that asset. [IAS ] INITIAL MEASUREMENTS

PFRS for SMEsFull PFRS Investment property is carried at fair value if its fair value can be measured reliably without undue cost or effort. Otherwise, the cost model is used. [IFRS for SMEs ] Management may choose as its accounting policy to carry all its investments properties at fair value or at cost. However, when an investment property is held by a lessee under an operating lease, the entity follows the fair value model for all its investment properties. [IAS 40.30] SUBSEQUENT MEASUREMENTS

PFRS for SMEsFull PFRS Gains and losses arising from changes in the fair value of investment property are recognised in profit or loss. [IFRS for SMEs 16.7] Same as IFRS for SMEs. [IAS ] FAIR VALUE

PFRS for SMEsFull PFRS When the fair value of the IP is no longer available without undue cost or effort, the IP becomes PPE. This is a change in circumstance, hence does not constitute a change in accounting policy. An entity may only account for IP at cost in exceptional cases, where an entity acquires IP, or when the existing property first becomes IP after a change in use, and the fair value of the property cannot be reliably determined on a continuing basis FAIR VALUE CONTINUATION…..

PFRS for SMEsFull PFRS The cost model is consistent with the treatment of property, plant and equipment (PPE). Investment properties are carried at cost less accumulated depreciation and any accumulated impairment losses. [IFRS for SMEs 16.8 Similar to IFRS for SMEs; however, full IFRS refers to IAS 16, ‘Property plant and equipment’. [IAS 40.56] COST MODEL

PFRS for SMEsFull PFRS The residual value of IP not capable of being measured reliably without undue cost or effort, and therefore accounted for as PPE must be estimated and considered when depreciating Re-assessment is only applicable when there is an indication of changes in residual value, depreciation method, or useful life The residual value of IP not capable of being measured reliably without undue cost or effort, and therefore accounted for as PPE must be deemed zero Annual re-assessment of the residual value, depreciation method, or useful life of an item of PPE is required. RESIDUAL VALUE

PFRS for SMEsFull PFRS Mixed-use property should be separated between investment property and PPE, except where to do so would entail undue cost or effort Portions of the property are only accounted for separately if they can be sold or leased out under finance lease separately MIXED USED

PFRS for SMEsFull PFRS Self-constructed IP to be classified as PPE while under construction and IP when ready for use Building under construction that is intended as IP shall be classified as IP SELF CONSTRUCTED INVESTMENT PROPERTY

PFRS for SMEsFull PFRS Transfer to or from investment properties applies when the property meets or ceases to meet the definition of an investment property. [IFRS for SMEs 16.9] IFRS includes further guidance on the situations when a property can be transferred to or from the investment property category. [IAS 40.57] TRANSFER

PFRS for SMEsFull PFRS Borrowing costs for PPE are expensed outright Borrowing costs for PPE are capitalized BORROWING COST

PFRS for SMEsFull PFRS Extensive guidance on transfers to and from investment property. Disposals. Inability to determine fair value reliably. ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEsFull PFRS Methods of determining the FV and significant assumptions applied The extent to which the FV was determined by a qualified independent valuer Existence of restrictions on the realizability of investment property Contractual obligation to purchase, construct, develop or maintain investment property Criteria to distinguish between investment property and owner-occupied property and inventory Methods, significant assumptions to determine fair value Extent to which independent valuer involved and any adjustments to the valuation obtained Rental income Direct operating expenses from investment property generating rental income from vacant investment property Material contractual obligations, including repairs, maintenance Comparative information for all disclosures DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEsFull PFRS An entity shall disclose a reconciliation of the carrying amount of investment property, showing separately: Additions FV adjustments Transfers Others Fair value model reconciliation information on property for which fair value cannot be determined whether properties held under operating leases have been classified as investment property Cost model reconciliation fair value, or information on property for which fair value cannot be determined DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS cont..

End of Presentation

Revaluation as Deemed Cost ♦ An entity may elect to use a previous accounting policy revaluation of an item of property, plant, and equipment, an investment property, or an intangible asset at, or before, the date of transition as its deemed cost at the revaluation date. INTERPRETATION: ○ The carrying amount of the revaluated asset becomes the initial measurement amount on the date of transition. ○ If the valuation was done before the date of transition, adjustments, such as depreciation, may be required. EXEMPTIONS: