Differences Between PFRS for

SMEs and Full PFRS

INVESTMENTS IN
ASSOCIATES
 DEFINITION OF INVESTMENTS IN
ASSOCIATES
PFRS for SMEs Full PFRS

An associate is an entity over which the Same as IFRS for SMEs.

investor has significant influence, but [IAS 28.2]
that is neither a subsidiary nor a joint
venture of the investor.
[IFRS for SMEs 14.2]
 SIGNIFICANT INFLUNCE

PFRS for SMEs Full PFRS

Similar to IFRS for SMEs; in addition, IFRS gives the
Significant influence is the power to following indicators of significant influence to be
participate in the financial and operating considered
where the investor holds less than 20% of the voting
policy decisions of the associate but is power of the investee:
not control or joint control over those • Representation on the board of directors or equivalent
body.
policies. It is presumed to exist when the • Participation in policy-making processes.
investor holds at least 20% of the • Material transactions between the investor and the
investee.
investee’s voting power; it is presumed • Interchange of managerial personnel.
not to exist when less than 20% is held. • Provision of essential technical information.
These presumptions may be rebutted The existence and effect of potential voting rights that are
if there is clear evidence to the currently
exercisable or convertible are considered when assessing
contrary. whether an
[IFRS for SMEs 14.3] entity has significant influence.
[IAS 28.6-26.8]
 MEASUREMENT AFTER INITIAL RECOGNITION

PFRS for SMEs Full PFRS

An investor may account for its Investments in associates are accounted

investments using one of the following: for using the equity method.
• The cost model (cost less any Some exceptions are in place − for
accumulated impairment losses). example, when the investment is
• The equity method. classified as held for sale.
• The fair value through profit or loss [IAS 28.13]
model.
[IFRS for SMEs 14.4]
 COST MODEL

PFRS for SMEs Full PFRS

An investor measures its associates at Not permitted except in separate

cost less any accumulated impairment financial statements.
losses. All dividends are recognised in [IAS 28.35]
the income statement.

The cost model is not permitted for an

investment in an associate that has a
published price quotation.
[IFRS for SMEs 14.5-14.7]
 EQUITY METHOD

PFRS for SMEs Full PFRS

An associate is initially recognised at the transaction

price (including transaction costs). The investor, on Initial recognition is at cost. Cost is not
acquisition of the investment, accounts for the difference defined in IAS 28, ‘Investments in
between the cost of the acquisition and its share of fair
value of the net identifiable assets as goodwill, which is associates’. In other standards it is
included in the defined as including transaction costs,
carrying amount of the investment.
except in IFRS 3 (revised), which
The investor’s share of the associate’s profit or loss and requires transaction costs in a business
other comprehensive income are presented in the combination to be expensed.
statement of comprehensive income. Distributions
received from the associate reduce the carrying amount of
the investment. Entities may therefore choose whether
In case of losses in excess of the investment, after the
investor’s interest is reduced to zero, additional losses are their accounting policy is to expense
provided for to the extent that transaction costs or to include them in
the investor has incurred legal or constructive obligations
or has made payments on behalf of the associate. the cost of the investment.
[IFRS for SMEs 5.5(c)(h), 14.8] [IAS 28.11, 28.23, 28.29-28.30]
 EQUITY METHOD - CONTINUATION

PFRS for SMEs Full PFRS

Goodwill identified under equity Goodwill is included in the carrying

method is treated separately and value of the investment and is not
amortized. amortized.

Under the equity method, the The impracticability exception is not

accounting policies of the associate is provided.
adjusted to that of the investor, unless
it is impracticable to do so. The same requirement applies, but
the difference in dates is limited to 3
In applying the equity method, the months and the difference should be
same reporting dates must be used, consistent year-on-year
except if it is impracticable to do so.
 FAIR
VALUE
PFRS for SMEs Full PFRS

An associate is initially recognised at the Not permitted except in separate

transaction price (excluding transaction financial statements.
costs). Changes in fair value are recognised [IAS 28.35]
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]
 SEPARATE FINANCIAL
STATEMENTS
PFRS for SMEs Full PFRS

Where separate financial statements of a Similar to IFRS for SMEs; in addition,

parent are prepared (this is not investments are accounted for in
required), management adopts a policy accordance with IFRS 5 when they are
of accounting for all its associates classified as held for sale.
either: [IAS 27.38]
• At cost less impairment, or
• At fair value through profit or loss.
[IFRS for SMEs 9.26]
 CLASSIFICATION AND
PRESENTATION
PFRS for SMEs Full PFRS

An investor classifies investments in Similar to IFRS for SMEs; however,

associates as non-current assets. only those associates accounted for
Associates are presented as a line item using the equity method are presented
on the balance sheet. as a line item.
[IFRS for SMEs 4.2(j), 14.11] [IAS 1.54(e), 28.38]
ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEs Full 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.
DISCLOSURE TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEs Full PFRS

• Its accounting policy • Reasons why an associate is not accounted

• Carrying amount for using the equity method
• Fair value of investment (if there
• Summarized financial information of
are published quotations) associates not accounted for using the
• Dividend income (for cost equity method
• Share of any discontinued operations of
method)
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…

PFRS for SMEs Full 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.
INVESTMENTS PROPERTY
 DEFINITION OF INVESTMENT PROPERTY

PFRS for SMEs Full PFRS

Investment property is a property (land Same as IFRS for SMEs. Accounting

or building, or part of a building, or result likely to be the same.
both) held by the owner or by lessee [IAS 40.5]
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]
 INITIAL MEASUREMENTS

PFRS for SMEs Full PFRS

The cost of a purchased investment Similar to IFRS for SMEs except for
property is its purchase price plus borrowing costs that are directly
any directly attributable costs such as attributable to the acquisition,
professional fees for legal services, construction or production of a
property transfer taxes and other qualifying asset are required to be
transaction costs. Borrowing costs are capitalised as part of the cost of that
recognised as an expense. asset.
[IFRS for SMEs 16.5, 25.2] [IAS 40.20-40.24]
 SUBSEQUENT MEASUREMENTS

PFRS for SMEs Full PFRS

Investment property is carried at fair Management may choose as its

value if its fair value can be measured accounting policy to carry all its
reliably without undue cost or effort. investments properties at fair value or
Otherwise, the cost model is used. at cost. However, when an investment
[IFRS for SMEs 16.7-16.8] 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]
 FAIR VALUE

PFRS for SMEs Full PFRS

Gains and losses arising from changes Same as IFRS for SMEs.
in the fair value of investment property [IAS 40.33-40.55]
are recognised in profit or loss.
[IFRS for SMEs 16.7]
 FAIR VALUE CONTINUATION…..

PFRS for SMEs Full PFRS

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

PFRS for SMEs Full PFRS

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

PFRS for SMEs Full PFRS

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

PFRS for SMEs Full PFRS

Mixed-use property should be separated Portions of the property are only

between investment property and PPE, accounted for separately if they can be
except where to do so would entail sold or leased out under finance lease
undue cost or effort separately
 SELF CONSTRUCTED INVESTMENT PROPERTY

PFRS for SMEs Full PFRS

Self-constructed IP to be classified as Building under construction that is

PPE while under construction and IP intended as IP shall be classified as IP
when ready for use
 TRANSFER

PFRS for SMEs Full PFRS

Transfer to or from investment IFRS includes further guidance on the

properties applies when the property situations when a property can be
meets or ceases to meet the definition transferred to or from the investment
of an investment property. property category.
[IFRS for SMEs 16.9] [IAS 40.57]
 BORROWING COST

PFRS for SMEs Full PFRS

Borrowing costs for PPE are expensed Borrowing costs for PPE are capitalized
outright
ARREAS COVERED IN IFRS BUT NOT FOR IFRS FOR SME

PFRS for SMEs Full PFRS

• Extensive guidance on transfers to and

from investment property.
• Disposals.
• Inability to determine fair value
reliably.
 DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS

PFRS for SMEs Full PFRS

• Methods of determining the FV • Criteria to distinguish between investment
and significant assumptions property and owner-occupied property and
applied inventory
• The extent to which the FV was •Methods, significant assumptions to determine
determined by a qualified fair value
independent valuer Extent to which independent valuer involved
•

and any adjustments to the valuation obtained

• Existence of restrictions on the Rental income
•

realizability of investment property Direct operating expenses

•
• Contractual obligation to purchase, from investment property generating rental
construct, develop or maintain income
investment property from vacant investment property
• Material contractual obligations, including
repairs, maintenance
• Comparative information for all disclosures
 DISCLOSURES TO NOTES TO FINANCIAL STATEMENTS cont..

PFRS for SMEs Full PFRS

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