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 In July 2009, the International Accounting Standards Board (IASB) issued the IFRS (International Financial Reporting Standards) for Small and Medium-Sized Entities.

There is no universally agreed definition of SME (small and Medium Entities). No single definition can capture all the dimensions of a small or medium-sized business, or cannot be expected to reflect the differences between firms, sectors, or countries at different levels of development. Most definitions based on size use measures such as number of employees, net assets, or annual turnover. However, none of these measures apply well across national borders. The IFRS for SMEs is intended for use by entities that have no public accountability (i.e. its debt or equity instruments are not publicly traded).

The following accounting standards will be different between large (public accountability) and SME Company.

  1. Intangible asset (IAS 38):
  • Large Company : use revaluation or cost method,
  • SME : use cost method
  1. Borrowing cost (IAS 23):
  • Large company: borrowing cost may classify capitalization
  • SME: borrowing cost as expense
  1. Property, Plant and Equipment ( IAS 16) ):
  • Large Company: use revaluation or cost method
  • SME : use cost method
  1. Research & Development ( IAS 38):
  • Large Company: Research as expense, but development may recognize intangible asset if meet criteria
  • SME: research and development cost as expense
  1. Financial Instrument: recognition & Measurement (IAS 39)
  • Large company: use fair value or amortized cost based on purpose of investment respectively.
  • SME: amortized cost using the effective interest method

Let’s practice the following questions ( solutions at end of questions):

Question 1 : IAS 38 Intangible Asset

An intangible asset is measured by a company (AMN Co) at fair value. The asset was revalued by $400 in 20X3, and there is a revaluation surplus of $400 in the statement of financial position. At the end of 20X4, the asset is valued again, and a downward valuation of $500 is required.


  1. State the accounting treatment for the downward revaluation if AMN Co is large company.
  2. Assume that AMN Co is SME, state the accounting treatment.

Question 2 : IAS 23 Borrowing Cost

On 1 January 20X6 Stremans Co borrowed $1.5m to finance the production of two assets, both of which were expected to take a year to build. Work started during 20X6. The loan facility was drawn down and incurred on 1 January 20X6, and was utilised as follows, with the remaining funds invested temporarily.

Asset A Asset B
$’000 $’000
1 January 20X6 250 500
1 July 20X6 250 500


The loan rate was 9% and Stremans Co can invest surplus funds at 7%.


State accounting treatment for large (public accountability) and SME Company as follows:

  1. We assume that Stremans Co is large company; ignoring compound interest, calculate the borrowing costs which may be capitalised for each of the assets and consequently the cost of each asset as at 31 December 20X6.
  2. If Stremans Co is SME ( Small Medium Enterprise), state accounting treatment of borrowing transaction and cost of each asset.

Question 3 – IAS 16 Property, Plant and Equipment

Crinckle Co bought an asset for $10,000 at the beginning of 20X6. It had a useful life of five years. On 1 January 20X8 the asset was revalued to $12,000. The expected useful life has remained unchanged (ie three years remain).


  1. How will this appear in the financial statements at 31 December 20X8? If Crinckle Co is large company and company has policy to transfer revaluation surplus to retained earnings.
  2. If Crinckle Co is SME, state accounting treatment for transaction above for 31 December 20X8.

Question 4- IAS 38 Research & Development

Development Technology Company has $10 million of capitalized development expenditure at cost brought forward at 1 January 2014 in respect of products currently in production and a new project began on the same date. The research stage of the new project lasted until 30 November 2014 and incurred $2 million of costs. Capitalized development expenditure is amortized at 10% per annum using the straight line method.


  1. Assume that Development Technology Company is large company, what amount will be charged to profit or loss for the year ended 31 December 2014 in respect of research and development costs?
  2. Assume that Development Technology Company is SME, state accounting treatment of transaction above for 31 December 2014.

Question 5- IAS 39 Financial Instrument

On 1 January 20X1 Penfold purchased a debt instrument for its fair value of $500,000. It had a principal amount of $550,000 and was due to mature in five years. The debt instrument carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%.


Fair values of debt instrument are $501,000 and $502,000 on December 31, 20X1 and 20X2 respectively.


Assume that Penfold as SME, at what amount will the debt instrument be shown in the statement of financial position of Penfold as at 31 December 20X2?



Question 1

  1. In this question, the downward valuation of $500 can first be set against the revaluation surplus of $400. The revaluation surplus will be reduced to $nil and a charge of $100 made as an expense in 20X4.
  2. If AMN Co is SME, so company is not allowed to use revaluation method, so amortization is based on life of intangible asset.

Question 2

  1. Co is large company


Asset A Asset B
$ $
Borrowing costs

$500,000/$1,000,000 x 9%





Less investment income

$250,000/$500,000 x 7% x 6/12

(1 January to 1 July 20X6)







Net borrowing costs 36,250 72,500


Asset A Asset B
$ $
Cost of assets:

Expenditure incurred

Borrowing costs

Total Costs









2. SME case

Borrowing costs are expenses for SME.

  • Interest expense = 45,000+90,000=$135,000
  • Interest income = 8,750 + 17,500=$26,250
  • Cost of asset A = $500,000
  • Cost of asset B=$1,000,000


Question 3

  1. Large Company/public accountability
Journal Entry
Account Debit Credit
Dr. Accumulated Depreciation expense

Dr. Fixed Asset

Cr. Revaluation surplus ( Fair Value – NBV)






Transferred revaluation surplus to retained earnings.

transferred amount = New depreciation – old depreciation

Dr. Revaluation surplus

Cr. RE



On 1 January 20X8 , carrying value /NBV = $10,000-(2 x $10,000/5)=$6,000.

Revaluation surplus = fair value – NBV =12,000-6,000=$6,000

Journal Entry
Account Debit Credit
Dr. Accumulated Depreciation expense

Dr. Fixed Asset

Cr. Revaluation surplus






Transferred revaluation surplus to retained earnings.

Transferred amount = New depreciation – old depreciation

New depreciation expense = 12,000/3=$4,000

Old depreciation expense =10,000/5=$2,000

So transferred amount = $4,000-$2,000=$2,000

Dr. Revaluation surplus

Cr. Retained earnings



This is a movement on owners’ equity only, not an item in profit or loss.

2. Accounting treatment for SME case

SME Company uses cost method to present amount of fixed asset in statement of financial position.

Depreciation expense = 10,000/5 =$2,000

Net book value = 10,000 – 2,000 x 3 = $4,000


Question 4

  1. Research and amortization expense of Development ( Large Company Case)
Amortization Expense 10,000,000*10% 1,000,000
Research expense 2,000,000
Total $3,000,000

2. SME Case

Research and development are expense for SME.

Development as expense = $10,000,000

Research expense =$2,000,000

Total expense = $12,000,000

Question 5

Financial instruments are measured at amortized cost using the effective interest method for SME.

1 January 20X1 500,000
Interest 8% 40,000
Interest received (550,000 x 6%) (33,000)
31 December 20X1 507,000
Interest 8% 40,560
Interest received (33,000)
31 December 20X2 514,560


  1. BPP
  2. Kaplan
  3. ACCA
  4. Phnom Penh HR

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