IFRS For SMEs 2 — Questions and Answers
Question 1: Under IFRS for SMEs, how must an entity account for borrowing costs directly attributable to the acquisition of a qualifying asset?
- Capitalize all borrowing costs as part of the asset's cost
- Expense all borrowing costs in the period incurred (Correct answer)
- Capitalize only borrowing costs exceeding a threshold set by management
- Defer borrowing costs until the asset is placed in service
Correct answer: Expense all borrowing costs in the period incurred
IFRS for SMEs requires all borrowing costs to be expensed immediately, unlike full IFRS which permits capitalization for qualifying assets.
Question 2: An SME has a defined benefit pension plan. Under IFRS for SMEs Section 28, which actuarial method is required?
- Projected unit credit method only if practicable, otherwise simplified method (Correct answer)
- Any actuarial method that produces a reliable estimate
- Projected unit credit method in all cases
- The corridor approach with a 10% threshold
Correct answer: Projected unit credit method only if practicable, otherwise simplified method
Section 28 requires the projected unit credit method but permits a simplified method when the full method is impracticable without undue cost or effort.
Question 3: Under IFRS for SMEs, when an SME elects the revaluation model for property, plant and equipment, how often must revaluations occur?
- Annually without exception
- Every three to five years as a minimum
- With sufficient regularity so carrying amount does not differ materially from fair value (Correct answer)
- Only when an indicator of impairment exists
Correct answer: With sufficient regularity so carrying amount does not differ materially from fair value
Revaluations must occur with sufficient regularity to ensure the carrying amount does not differ materially from fair value at the reporting date.
Question 4: How does IFRS for SMEs treat the cumulative translation differences (CTD) on disposal of a foreign operation?
- CTD is recycled to profit or loss on disposal
- CTD remains in equity and is never reclassified (Correct answer)
- CTD is allocated to goodwill on consolidation
- CTD treatment follows local GAAP at the SME's discretion
Correct answer: CTD remains in equity and is never reclassified
IFRS for SMEs does not permit recycling of cumulative translation differences to profit or loss upon disposal of a foreign operation; they remain in equity.
Question 5: Under IFRS for SMEs Section 12, which of the following instruments is within the scope of the basic financial instruments section (Section 11)?
- Interest rate swap
- Currency forward contract
- Fixed-rate bond with no embedded derivatives (Correct answer)
- Equity-settled share option
Correct answer: Fixed-rate bond with no embedded derivatives
A plain fixed-rate bond with no embedded derivatives meets the criteria for basic financial instruments under Section 11 and is measured at amortized cost.
Question 6: An SME grants equity-settled share-based payments to employees. Under IFRS for SMEs Section 26, what measurement date is used for the fair value of the equity instruments?
- Each reporting date until vesting
- The date the arrangement is approved by shareholders
- The grant date (Correct answer)
- The vesting date
Correct answer: The grant date
For equity-settled awards to employees, IFRS for SMEs requires measurement at the grant date fair value of the equity instruments granted.
Question 7: Under IFRS for SMEs, how is goodwill tested for impairment?
- Annually, regardless of impairment indicators
- Only when indicators of impairment exist (Correct answer)
- Using a qualitative assessment first, then quantitative if needed
- By comparing carrying amount to fair value less costs to sell
Correct answer: Only when indicators of impairment exist
IFRS for SMEs requires goodwill to be tested for impairment only when there is an indication of impairment, rather than annually.
IFRS For SMEs 2
Under IFRS for SMEs, how must an entity account for borrowing costs directly attributable to the acquisition of a qualifying asset?