IFRS for SMEs Revenue and Expenses Flashcards

Under IFRS for SMEs, when should revenue from the sale of goods be recognized?

Answer: When the entity has transferred the significant risks and rewards of ownership to the buyer

Section 23 of IFRS for SMEs requires revenue recognition when significant risks and rewards of ownership transfer to the buyer, the amount can be reliably measured, and economic benefits are probable.

How should construction contract revenue be recognized under IFRS for SMEs when the outcome can be reliably estimated?

Answer: Using the percentage of completion method

When the outcome of a construction contract can be reliably estimated, IFRS for SMEs requires recognition of revenue and costs by reference to the stage of completion (percentage of completion method).

How are government grants related to assets accounted for under IFRS for SMEs?

Answer: Recognized in income on a systematic basis over the useful life of the asset

Under Section 24, government grants related to assets are recognized in income systematically over the periods in which the entity recognizes the costs that the grants are intended to compensate.

Under IFRS for SMEs, how should borrowing costs be treated?

Answer: Recognized as an expense in the period in which they are incurred

IFRS for SMEs requires all borrowing costs to be recognized as an expense when incurred (Section 25), unlike full IFRS which requires capitalization for qualifying assets. This simplification reduces complexity for smaller entities.

How should employee benefits such as short-term compensated absences be recognized?

Answer: As a liability when the employee has rendered service in exchange for the benefit

Short-term compensated absences (vacation, sick leave) should be recognized as a liability and expense when employees render service that increases their entitlement, not when they actually take the time off.

What is the simplified approach for share-based payment transactions under IFRS for SMEs?

Answer: Use observable market prices where available; use directors' best estimate of fair value otherwise

IFRS for SMEs allows entities to use observable market prices for share-based payments and, where these are unavailable, use directors' best estimate of fair value, avoiding the complex option pricing models required by full IFRS.