L.S. 281.05 Regolamenti dwar Accountancy Profession (General Accounting Principles for Small and Medium-Sized Entities)

(1)In these regulations, unless the context otherwise requires: "the Act" means the Accountancy Profession Act; Citation. Objective. Interpretation. Amended by: L.N. 41 of 2024. Cap. 281. "balance sheet date" means the date on which the balance sheet of an entity is drawn up; "company" shall have the meaning assigned to it in the Companies Act; "entity" or "reporting entity" means a commercial partnership as defined in the Companies Act and any other body, corporate or unincorporate, which carries on a trade or business and which is required to prepare financial statements in terms of the laws of Malta; Cap. 386. Cap. 386. "financial reporting period " means the period ending on the entity’s balance sheet date for which financial statements are prepared; "financial statements" means the statements prepared by an entity comprising the following documents: (

1. a)a balance sheet; (
2. b)an income statement; and (
3. c)notes to the financial statements: Provided that for medium-sized entities the financial statements shall also comprise the following documents: (
4. a)a statement of changes in equity; and (
5. b)a statement of cash flows; "public company" shall have the meaning assigned to it in the Companies Act; "public interest entity" shall have the meaning assigned to it in the Accountancy Profession Act; Cap. 386. Cap. 281. 1 2 [ S.L.281.05 Cap. 386. Cap. 386. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) "regulated market" shall have the meaning assigned to it in the Companies Act; "security" shall have the meaning assigned to it in the Companies Act; "the Schedule" means the Schedule to these regulations and forming an integral part hereof.

(2)References to an "entity" or "reporting entity" in these regulations shall, in the case of an entity or reporting entity preparing consolidated financial statements in terms of section 22 of the Schedule, be construed as referring to the group of entities in respect of which consolidated financial statements are presented for as a single economic entity.

(3)Unless the context otherwise requires, terms used in these regulations and which are not defined herein shall have the meaning assigned to them in the Act. Scope. Amended by: L.N. 41 of

2. An entity shall, for financial reporting periods commencing on or after 1st January 2016, prepare financial statements in accordance with the general accounting principles for small and medium-sized entities set out in the Schedules unless the Board of Directors of a company or, in the case of an entity other than a company, its governing body, has resolved to prepare financial statements in accordance with IFRS as adopted by the EU for that financial reporting period; or the entity does not satisfy the requirements set out in regulation 5 for the applicability of the Schedule: Provided that for financial reporting periods beginning on or before 1st January 2015, the regulations as were in force prior to the coming into force of these regulations shall continue to apply mutatis mutandis to such entities. Applicability of schedules. Amended by: L.N. 41 of
3. 5.

(1)entities: This regulation shall apply to small and medium-sized (

1. a)"small entities" means entities which on their balance sheet dates do not exceed the limits of at least two of the three following criteria: (
2. i)balance sheet total: € 4,000,000; (
3. ii)revenue: € 8,000,000; (iii) average number of employees financial year: 50 during the (
4. b)"medium-sized entities" means entities which are not small entities and which on their balance sheet dates do not exceed the limits of at least two of the three following criteria: (
5. i)balance sheet total: € 20,000,000; (
6. ii)revenue: € 40,000,000; (iii) average number of employees financial year: 250.

(2)For the purposes of sub-regulation

(1): during the ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 (

1. a)"balance sheet total" shall consist of the total value of assets held by an entity, including those that are current and non-current, as defined in the Schedule; (
2. b)"revenue" means the amounts derived from the sale of products and the provision of services after deducting sales rebates and value added tax and other taxes directly linked to revenue; and (
3. c)the "average number determined as follows: of employees" shall be (
4. i)in relation to whole-time employees, the aggregate number of full weeks worked by all the whole-time employees of the entity during the financial reporting period, divided by the number of full weeks comprised in that financial reporting period, rounded off to the nearest number; and (
5. ii)in relation to part-time employees, the aggregate number of hours worked by all the part-time employees of the entity during the financial reporting period, divided by the number of full weeks comprised in that financial reporting period and again divided by forty, rounded off to the nearest number.

(3)For the purposes of calculating the thresholds in subregulation

(1), entities for which revenue is not relevant shall be required to include income from other sources.

(4)In relation to a subsequent financial year, where, on its balance sheet date, an entity exceeds or ceases to exceed the limits of two of the three criteria set out in sub-regulation

(1)(

1. a)and (b), as applicable, that fact shall affect the application of this regulation only if it occurs in two consecutive financial years: (
2. a)where an entity exceeds the criteria in sub-regulation

(1)(a) it shall apply the provisions applicable to medium-sized entities insofar as it does not exceed the criteria in sub-regulation

(1)(b); (b) where an entity exceeds the criteria in sub-regulation

(1)(b) it shall stop applying the Principles set out in the Schedule.

(5)In determining whether an entity qualifies as small or medium-sized under sub-regulation

(1)(

1. a)or (
2. b)(qualification in relation to subsequent financial year by reference to circumstances in preceding financial years) in relation to a financial year in respect of which the amendments made by these regulations have effect, the entity is to be treated as having qualified as small or medium-sized (as the case may
3. be)in any previous year in which it would have so qualified if amendments to the same effect as the amendments made by these regulations had had effect in relation to that previous year.

(6)In the case of the first financial reporting period of an entity, the entity shall determine whether the criteria have been 3 4 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) exceeded by computing the assets comprising the balance sheet total, total revenue and the average number of employees for the first financial reporting period in accordance with the Schedule such that it shall be deemed to have exceeded the criteria if as at the end of the first financial reporting period two of the balance sheet total, total revenue and average number of employees for the relevant financial reporting period exceeded the limits established in sub-paragraphs (i), (ii) and (iii) of sub-regulation

(1)(a) or

(1)(b).

(7)For the purposes of this regulation, where a financial reporting period is shorter or longer than one calendar year, the total revenue generated during that financial reporting period shall be deemed to be the amount arrived at by dividing the total revenue figure generated in that financial reporting period by the number of months in that financial reporting period, and multiplying that number by twelve.

(8)The Schedule shall not apply to public interest entities. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 5 SCHEDULE Amended by: L.N. 41 of 2024. (Regulation 4) General Accounting Principles for Small and Medium Entities Section 1: Citation and objective 1.1 The title of this schedule is the General Accounting Principles for Small and Medium Entities (GAPSME). 1.2 The objective of GAPSME is to ensure that reporting entities or groups falling within its scope provide in their financial statements information about the financial position and financial performance and (where applicable, that is for medium-sized entities) cash flows of the entity or group that is useful to users in assessing the stewardship of management and for making economic decisions, recognising that the balance between users’ needs in respect of stewardship and economic decision-making for entities or groups falling within its scope is different from that for other reporting entities or groups. Section 2: Interpretation 2.1 The terms "GAPSME", "these Principles", "this Schedule" and "General Accounting Principles for Small and Medium Entities" all refer to the general accounting principles for small and medium entities set out in the Schedule to these regulations and forming an integral part hereof. 2.2 Most terms used in these Principles are defined in regulation 3 of these regulations and in various relevant Sections of this Schedule. Nevertheless terms that are not so defined shall have the following meaning, unless the context otherwise requires: (

1. a)"Amortisation" means the systematic allocation of the depreciable amount of an asset over its useful life. (
2. b)"Carrying amount" refers to the amount at which an asset or liability is recognised in the balance sheet. (
3. c)"Cash flows" means inflows and outflows of cash and cash equivalents. (
4. d)"Class of assets" means a grouping of assets of a similar nature and use in an entity’s operations. (
5. e)"Closing rate of exchange" is the spot exchange rate between two currencies at the balance sheet date. (
6. f)"Depreciable amount" is the cost of an asset, or other amount substituted for cost (in the financial statements), less its residual value. (
7. g)"Depreciation" means the systematic allocation of the depreciable amount of an asset over its useful life. (
8. h)"Derecognition" is the removal of a previously recognised asset or liability from an entity’s balance sheet. (
9. i)"Economic life" is either (
10. i)the period over which an asset is expected to be economically useable by one or more users; or (
11. ii)the number of production or similar units expected to be obtained from the asset by one or more users. 6 [ S.L.281.05 (
12. j)ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) "Employee benefits" refers to all forms of consideration given by an entity in exchange for service rendered by employees. (
13. k)"Fair value" is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. (
14. l)"Fellow subsidiary" is an entity which is under common control with the reporting entity. (
15. m)"Finance costs" means interest and other costs incurred by an entity in connection with the borrowing of funds. (
16. n)"Goodwill" means future economic benefits arising from assets that are not capable of being individually identified and separately recognised. (
17. o)"Group" means a parent and all its subsidiaries and the term group entities shall be construed accordingly. (
18. p)"Impracticable": applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. (
19. q)"Measurement" is the process of determining the monetary amounts at which the elements of the financial statements are to be recognised and carried in the balance sheet and income statement. (
20. r)"Minority interest" refers to that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. (
21. s)"Present value" is a current estimate of the present discounted value of the future net cash flows in the normal course of business. (
22. t)"Probable" means more likely than not. (
23. u)"Profit" is the residual amount that remains after expenses have been deducted from income. (
24. v)"Reporting date" (sometimes also referred to as "balance sheet date") is the end of the latest financial reporting period covered by financial statements. (
25. w)"Reporting period" (sometimes also referred to as "financial reporting period") refers to a period, ending on the entity’s reporting date, for which financial statements have been prepared. (
26. x)"Residual value" (of an asset) is the estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. (
27. y)"Useful life" (Section 14) means the estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity. (
28. z)"Useful life" (Sections 7, 11, 12 and 21) means either: (
29. i)the period over which an asset is expected to be available for use by the entity; or (
30. ii)the number of production or similar units expected to be obtained from the asset by the entity. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 7 Section 3: Concepts and pervasive principles 3.1 The scope of this Section is to deal with: (
31. a)the objective of financial statements and the underlying assumptions; (
32. b)the qualitative characteristics that determine the usefulness of information in financial statements; and (
33. c)the definition and recognition of the elements of financial statements. Objective of financial statements and underlying assumptions 3.2 The objective of financial statements prepared under GAPSME is to provide information about an entity’s: (
34. a)financial position, (
35. b)financial performance, and (
36. c)the ability to generate cash and cash equivalents, as regards medium-sized entities only that is useful to a wide range of users in assessing the stewardship of management and for economic decision-making. 3.3 In order to meet their objective, financial statements (with the exception of cash flow information presented for medium-sized entities) shall be prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events giving rise to assets, liabilities, equity, income or expenses are recognised when they occur, rather than when cash or its equivalent is received or paid, and hence they are recorded in the accounting records and reported in the financial statements of the financial reporting periods to which they relate. 3.4 The entity shall be presumed to be carrying on business as a going concern. The financial statements shall be prepared on this basis unless management either intends to liquidate the entity or to cease trading, or it has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. When financial statements are not prepared on a going concern basis, that fact shall be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern. The period considered by management in making its assessment of the entity’s ability to continue as a going concern shall not be less than twelve months from the balance sheet date. The financial statements shall not be prepared on a going concern basis if management determines after the balance sheet date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so. 3.5 The uncertainties that inevitably surround many events and circumstances are acknowledged by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, in particular: (
37. a)only profits made by the balance sheet date may be recognised, (
38. b)all liabilities arising in the course of the financial year concerned or in the course of a previous financial year shall be recognised, even if such liabilities become apparent only between the balance sheet date and the date on which the balance sheet is drawn up, and (
39. c)all negative value adjustments shall be recognised, whether the result of 8 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) the financial year is a profit or a loss. However, the exercise of prudence does not allow the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses. In short, prudence does not permit bias. 3.6 The requirements set out in these Principles regarding recognition, measurement, presentation, disclosure and consolidation need not be complied with when the effect of complying with them is immaterial. Information is material if its omission or misstatement could influence the economic decisions of users made on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. However, it is inappropriate to make, or leave uncorrected, immaterial departures from GAPSME to achieve a particular presentation of an entity’s financial position, financial performance or cash flows. Qualitative characteristics of information in financial statements 3.7 Qualitative characteristics are the attributes that make the information provided in financial statements useful to users. 3.8 Understandability - The information provided in financial statements should be presented in a way that makes it comprehensible by users who have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. However, the need for understandability does not allow relevant information to be omitted on the grounds that it may be too difficult for some users to understand. 3.9 Relevance - The information provided in financial statements must be relevant to the decision-making needs of users. Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations. 3.10 Reliability - The information provided in financial statements must be reliable. Information is reliable when it is free from material error and bias and represents faithfully that which it either purports to represent or could reasonably be expected to represent. Financial statements are not free from bias if, by the selection or presentation of information, they are intended to influence the making of a decision or judgement in order to achieve a predetermined result or outcome. 3.11 Substance over form - Transactions and other events and conditions shall be accounted for and presented in accordance with their substance and economic reality and not merely their legal form. This enhances the reliability of financial statements. 3.12 Completeness - To be reliable, the information in financial statements must be complete within the bounds of materiality and cost. An omission can cause information to be false or misleading and thus unreliable and deficient in terms of its relevance. 3.13 Comparability - Users must be able to compare the financial statements of an entity through time in order to identify trends in its financial position and performance. Users must also be able to compare the financial statements of different entities in order to evaluate their relative financial position, performance and cash flows. Hence, the measurement and display of the financial effect of like transactions and other events and conditions must be carried out in a consistent way throughout an entity and over time for that entity and in a consistent way for different entities. In addition, users must be informed of the accounting policies ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 9 employed in the preparation of the financial statements, and of any changes in those policies and the effects of such changes. 3.14 Timeliness - To be relevant, financial information must be able to influence the economic decisions of users. Timeliness involves providing the information within the decision time frame. If there is undue delay in the reporting of information it may lose its relevance. Management may need to balance the relative merits of timely reporting and the provision of reliable information. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the needs of users in making economic decisions. 3.15 Balance between benefit and cost - The benefits derived from information should exceed the cost of providing it. The evaluation of benefits and costs is substantially a judgemental process. Furthermore, the costs are not necessarily borne by those users who enjoy the benefits. In applying a costs and benefits test, an entity should understand that the benefits of the information may also be enjoyed by a broad range of external users. True and fair view 3.16 Preparation of financial statements in accordance with these Principles is presumed to result in financial statements which give a true and fair view of the financial position, financial performance and cash flows of an entity. 3.17 The annual financial statements shall give a true and fair view of the entity's assets, liabilities, financial position and profit or loss. Where the application of these Principles would not be sufficient to give a true and fair view of the entity's assets, liabilities, financial position and profit or loss, such additional information as is necessary to comply with that requirement shall be given in the notes to the financial statements. 3.18 Transactions and other events and conditions shall be accounted for and presented within items in the income statement and balance sheet in accordance with their substance and economic reality and not merely their legal form. To determine the substance of a transaction it is necessary to identify whether the transaction has given rise to new assets or liabilities for the reporting entity and whether it has changed the entity’s existing assets or liabilities. 3.19 The application of the qualitative characteristics and appropriate Sections within these Principles normally results in financial statements that convey a true and fair view. However, if in exceptional cases an entity’s management concludes that compliance with any of the requirements of these Principles is inconsistent with the requirement to give a true and fair view, an entity shall depart from that requirement to the extent necessary to give a true and fair view. Particulars of the departure, the reasons for it and its effect must be given in a note to the financial statements as follows: (
40. a)a statement that there has been a departure from the requirements of GAPSME and that the departure is necessary to give a true and fair view; (
41. b)an explanation of the nature and the reasons for the departure; (
42. c)its effect on the entity’s assets, liabilities, financial position and profit or loss. 3.20 Where a departure continues in subsequent financial statements, the disclosures shall be made in all subsequent financial statements and shall include comparative amounts for the previous financial reporting period. The elements of financial statements 10 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 3.21 Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements, which term includes assets, liabilities, equity, income and expenses. Paragraphs 3.22 - 3.30 define these elements. 3.22 The elements directly related to the measurement of financial position are assets, liabilities and equity. 3.23 An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity, for example through use in the entity’s operating activities, or through convertibility to cash and cash equivalents, or through its capability to reduce cash outflows. 3.24 A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. An essential characteristic of a liability is that the entity has a present, rather than a future, obligation. A present obligation therefore arises from past transactions or other past events. Moreover, the settlement of the present obligation usually involves the entity giving up resources embodying economic benefits, such as the payment of cash, transfer of other assets, provision of services, replacement of that obligation with another obligation, or conversion of that obligation to equity. 3.25 Equity is the residual interest in the assets of the entity after deducting all its liabilities. However it may be sub-classified in the balance sheet, for example in funds contributed by shareholders, retained earnings and other reserves. 3.26 Profit is frequently used as a measure of an entity’s performance. The elements directly related to the measurement of profit are income and expenses. 3.27 Income is increases in economic benefits during the financial reporting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. 3.28 The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income in paragraph 3.27 and may, or may not, arise in the course of the ordinary activities of an entity. Gains include, for example, those arising on the disposal of non-current assets or from increases in their carrying amounts. 3.29 Expenses are decreases in economic benefits during the financial reporting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. 3.30 The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. The latter include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses in paragraph 3.29 and may, or may not, arise in the course of the ordinary activities of the entity. Losses include, for example, those resulting from disasters such as fire and flood, those arising on the disposal of non-current assets, and those ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 11 unrealised losses arising from the effects of increases in the rate of exchange for a foreign currency in respect of the borrowing of an entity in that currency. Recognition of the elements of financial statements 3.31 Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria: (
43. a)it is probable that any future economic benefit associated with the item will flow to or from the entity; (
44. b)the item has a cost or value that can be measured reliably. 3.32 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. An asset is not recognised in the balance sheet when expenditure has been incurred for which it is considered improbable that economic benefits will flow to the entity beyond the current financial reporting period. Such a transaction would therefore be recognised as an expense in the income statement. 3.33 A liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will occur can be measured reliably. 3.34 Income is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities. 3.35 Expenses are recognised in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets. Expenditure incurred on assets that generate economic benefits over several financial reporting periods is normally recognised as an expense in the income statement on the basis of systematic and rational allocation procedures. This is often necessary in recognising the expenses associated with the using up of assets such as property, plant and equipment, patents and trademarks; in such cases the expense is referred to as depreciation or amortisation. An expense is also recognised immediately in the income statement when an expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the balance sheet as an asset. An expense is also recognised in the income statement in those cases when a liability is incurred without the recognition of an asset. 3.36 The requirements for recognising and measuring assets, liabilities, income and expenses in these Principles are based on pervasive principles that are identified in paragraphs 3.21 - 3.35 of this Section. In the absence of a requirement in GAPSME that applies specifically to a transaction or other event or condition, paragraph 5.5 establishes a hierarchy for an entity to follow in deciding on the appropriate accounting policy in the circumstances. The second level of that hierarchy (paragraph 5.5(b)) requires an entity to consider the pervasive recognition and measurement principles set out in paragraphs 3.21 - 3.35 and paragraph 3.39 of this Section. Derecognition of the elements of financial statements 12 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 3.37 After an asset or liability is recognised on the balance sheet, it shall be derecognised if, and to the extent that, it is no longer probable that any future economic benefits associated with the item will flow to or from the entity. Measurement of the elements of financial statements 3.38 Measurement is the process of determining the monetary amounts at which assets, liabilities, income and expenses are to be recognised and carried in the balance sheet and income statement. Measurement involves the selection of a basis of measurement. These Principles specify which measurement basis an entity shall use for many types of assets, liabilities, income and expenses. In the absence of a requirement in GAPSME that applies specifically to a transaction or other event or condition, an entity shall have regard to measurement bases for similar assets, liabilities, income and expenses when determining monetary amounts at which such transactions, other events or conditions are to be initially and subsequently measured. 3.39 Items recognised in the financial statements shall be measured by reference to their cost unless these Principles allow an alternative measurement basis. 3.40 The components of asset and liability items shall be valued separately. Section 4: Presentation of financial statements 4.1 A complete set of financial statements comprises: (
45. a)a balance sheet; (
46. b)an income statement; and (
47. c)notes to the financial statements: Provided that medium-sized entities shall prepare additional statements as provided for in paragraphs 4.30 and 4.33 of these Principles: Provided further that in respect of the statements referred to in paragraphs 4.1(
48. a)and (b), 4.30 and 4.33, an entity may use titles for the statements other than those used in these Principles. The annual financial statements shall constitute a composite whole. They shall be drawn up in accordance with the provisions of these Principles. 4.2 The financial statements shall be identified clearly and distinguished from other information in the same published document and each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently, and repeated when it is necessary for a proper understanding of the information presented: (
49. a)the name of the reporting entity and any change in its name since the end of the preceding financial reporting period; (
50. b)the information necessary to identify the register with which the entity is registered, together with the number of the company in the register, the legal form of the company, the location of the registered office, and where appropriate, the fact that the company is being wound up; (
51. c)whether the financial statements cover the individual entity or a group of entities; (
52. d)the date of the end of the financial reporting period or the period covered by the financial statements, whichever is appropriate to that component of the financial statements; ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 13 (
53. e)the presentation currency, as defined in Section 18 of these Principles; and (
54. f)the level of rounding, if any, used in presenting amounts in the financial statements. 4.3 An entity that is permitted to apply GAPSME in accordance with regulation 5, and that opts to apply these Principles, shall present a complete set of financial statements (including comparative information) at least annually. When the end of an entity’s financial reporting period changes and the annual financial statements (including comparatives) are presented for a period longer or shorter than one year, the entity shall disclose: (
55. a)that fact; (
56. b)the reason for using a longer or shorter period; and (
57. c)the fact that comparative amounts for the income statement, statement of changes in equity (if applicable), statement of cash flows (if applicable) and related notes are not entirely comparable. 4.4 An entity shall retain the presentation and classification of items in the financial statements from one financial reporting period to the next unless: (
58. a)it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies; or (
59. b)these Principles require a change in presentation. 4.5 When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the quantification of that reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose: (
60. a)the nature of the reclassification; (
61. b)the amount of each item or class of items that is reclassified; and (
62. c)the reason for the reclassification. 4.6 When it is impracticable to quantify the amount of the reclassification, an entity shall disclose: (
63. a)the reason for not reclassifying the amounts; and (
64. b)the nature of the adjustments that would be required, had the amounts been able to be determined and reclassified. 4.7 Comparative amounts for the previous financial reporting period shall be shown for every item presented in the financial statements and notes thereto. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current financial reporting period’s financial statements. Where there is no amount to be shown for an item for the current financial reporting period but a comparative amount can be shown for the previous period, the comparative amount shall be shown. Where a comparative amount is not comparable with that for the current financial reporting period for the reason contemplated in paragraphs 5.7 - 5.9 of these Principles, it shall be adjusted and particulars of the adjustment and the reasons for it shall be disclosed in a note to the financial statements. 4.8 Comparative amounts are not required to be disclosed in relation to any amounts stated in the notes to the financial statements for the items listed below: 14 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) (
65. a)a reconciliation of the carrying amount of property, plant and equipment and investment property at the beginning and end of the financial reporting period as required by sub-paragraph (
66. f)of paragraph 7.27, and paragraph 8.14 (by virtue of a reference to the requirements of paragraph 7.27), respectively of these Principles; (
67. b)a reconciliation of the carrying amount of intangible assets at the beginning and end of the financial reporting period as required by subparagraph (
68. b)of paragraph 11.20 of these Principles; (
69. c)a reconciliation of the carrying amount of goodwill at the beginning and end of the financial reporting period as required by paragraph 21.22of these Principles; (
70. d)a reconciliation of the carrying amount of each category of investments classified as non-current assets at the beginning and end of the financial reporting period as required by sub-paragraph (
71. b)of paragraph 9.39of these Principles; (
72. e)a reconciliation of the carrying amount of non-current investments in subsidiaries, associates and jointly controlled entities at the beginning and end of the financial reporting period as required by sub-paragraph (
73. b)of paragraph 10.29 of these Principles; and (
74. f)a reconciliation of the carrying amount of each class of provisions at the beginning and the end of the financial reporting period as required by sub-paragraph (
75. c)of paragraph 17.17 of these Principles. 4.9 An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial. Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. 4.10 An entity shall not offset assets and liabilities, or income and expenses, unless required or permitted by these Principles, in which case the amounts which are set off shall be specified as gross amounts in the notes to the financial statements. 4.11 An entity’s financial statements shall comply with the requirements set out in this Section as to their form and content. Balance Sheet 4.12 The balance sheet presents an entity’s assets, liabilities and equity at a point in time. The opening balance sheet for each financial year shall correspond to the closing balance sheet for the preceding financial year. 4.13 An entity may adopt one of the layouts set out in this Section. The following items shall be shown separately on the face of the balance sheet, in the order indicated, and under the headings and sub-headings listed below. Items preceded by Arabic numerals may be combined under their respective sub-heading when they are immaterial for the purposes of the financial statements giving a true and fair view, or such combination makes for greater clarity, in which latter case the items combined shall be dealt with separately in the notes. The layout, nomenclature and terminology of items in the balance sheet that are preceded by Arabic numerals may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of the entity’s financial position. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 15 In respect of each item an entity also needs to show the corresponding amount for the preceding financial reporting period. Unless there is a corresponding item that needs to be shown, an entity shall not show any item listed below for which there is no amount for the current period. Horizontal layout of the balance sheet ASSETS Non-current assets I. Intangible assets 1. Development costs 2. Concessions, patents, licences, trade marks and similar rights and assets, if they were acquired for valuable consideration 3. Goodwill 4. Payments on account II. Property, plant and equipment 1. Land and buildings 2. Plant and machinery 3. Other fixtures and fittings, tools and equipment 4. Payments on account and tangible assets in the course of construction III. Investment property IV. Financial investments 1. Shares in subsidiaries 2. Loans to subsidiaries 3. Shares in associates and jointly controlled entities 4. Loans to associates and jointly controlled entities 5. Other non-current investments (other than loans) 6. Other loans V. Trade and other receivables 1. Trade receivables 2. Amounts owed by group entities 3. Amounts owed by associates and jointly controlled entities 4. Other receivables 5. Subscribed capital called but not paid 6. Prepayments and accrued income VI. Deferred tax assets Current assets I. Inventories 1. Raw materials and consumables 2. Work in progress 3. Finished goods and goods for resale 16 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 4. Payments on account II. Trade and other receivables Trade receivables 1. Amounts owed by group entities 2. Amounts owed by associates and jointly controlled entities 3. Other receivables 4. Subscribed capital called but not paid 5. Prepayments and accrued income III. Current tax assets IV. Financial investments 1. Shares in subsidiaries 2. Loans to subsidiaries 3. Shares in associates and jointly controlled entities 4. Loans to associates and jointly controlled entities 5. Other current investments V. Cash and cash equivalents EQUITY AND LIABILITIES Equity I. Share capital II. Share premium account III. Revaluation reserve IV. Other reserves V. Retained earnings VI. Minority interest Liabilities Non-current liabilities I. Borrowings 1. Bank loans 2. Other borrowings II. Trade and other payables 1. Payments received on account of orders 2. Trade payables 3. Bills of exchange payable 4. Amounts owed to group entities 5. Amounts owed to associates and jointly controlled entities 6. Other creditors (including indirect tax and social security) 7. Accruals and deferred income ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 III. Deferred tax liabilities IV. Provisions 1. Provisions for employee benefits and similar obligations 2. Other provisions 17 Current liabilities I. Borrowings 1. Bank loans 2. Other borrowings II. Trade and other payables 1. Payments received on account of orders 2. Trade payables 3. Bills of exchange payable 4. Amounts owed to group entities 5. Amounts owed to associates and jointly controlled entities 6. Other creditors (including indirect tax and social security) 7. Accruals and deferred income III. Current tax liabilities IV. Provisions 1. Provisions for employee benefits and similar obligations 2. Other provisions Vertical layout of the balance sheet ASSETS Non-current assets I. Intangible assets 1. Development costs 2. Concessions, patents, licences, trade marks and similar rights and assets, if they were acquired for valuable consideration 3. Goodwill 4. Payments on account II. Property, plant and equipment 1. Land and buildings 2. Plant and machinery 3. Other fixtures and fittings, tools and equipment 4. Payments on account and tangible assets in the course of construction III. Investment property IV. Financial investments 1. Shares in subsidiaries 2. Loans to subsidiaries 18 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 3. Shares in associates and jointly controlled entities 4. Loans to associates and jointly controlled entities 5. Other non-current investments (other than loans) 6. Other loans V. Trade and other receivables 1. Trade receivables 2. Amounts owed by group entities 3. Amounts owed by associates and jointly controlled entities 4. Other receivables 5. Subscribed capital called but not paid 6. Prepayments and accrued income VI. Deferred tax assets Current assets I. Inventories 1. Raw materials and consumables 2. Work in progress 3. Finished goods and goods for resale 4. Payments on account II. Trade and other receivables 1. Trade receivables 2. Amounts owed by group entities 3. Amounts owed by associates and jointly controlled entities 4. Other receivables 5. Subscribed capital called but not paid 6. Prepayments and accrued income III. Current tax assets IV. Financial investments 1. Shares in subsidiaries 2. Loans to subsidiaries 3. Shares in associates and jointly controlled entities 4. Loans to associates and jointly controlled entities 5. Other current investments V. Cash and cash equivalents Current liabilities I. Borrowings 1. Bank loans 2. Other borrowings ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 II. Creditors: amounts becoming due and payable within one year 1. Payments received on account of orders 2. Trade payables 3. Bills of exchange payable 4. Amounts owed to group entities 5. Amounts owed to associates and jointly controlled entities 6. Other creditors (including indirect tax and social security) 7. Accruals and deferred income III. Current tax liabilities IV. Provisions 1. Provisions for employee benefits and similar obligations 2. Other provisions Net current assets/liabilities Total assets less current liabilities Non-current liabilities I. Borrowings 1. Bank loans 2. Other borrowings II. Creditors: amounts becoming due and payable after more than one year 1. Payments received on account of orders 2. Trade payables 3. Bills of exchange payable 4. Amounts owed to group entities 5. Amounts owed to associates and jointly controlled entities 6. Other creditors (including indirect tax and social security) 7. Accruals and deferred income III. Deferred tax liabilities IV. Provisions 1. Provisions for employee benefits and similar obligations 2. Other provisions Equity I. Share capital II. Share premium account III. Revaluation reserve IV. Other reserves V. Retained earnings VI. Minority interest 19 20 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 4.14 The face of the balance sheet shall also include line items that present the following amounts (if applicable): (
76. a)the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with Section 23 of these Principles; and (
77. b)liabilities included in disposal groups classified as held for sale in accordance with Section 23. 4.15 An entity shall present additional line items, headings and subtotals on the face of the balance sheet when such presentation is relevant to an understanding of the entity’s financial position. Additional line items are also included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity’s financial position. The judgment on whether additional items are presented separately is based on an assessment of: (
78. a)the nature and liquidity of assets; (
79. b)the function of assets within the entity; and (
80. c)the amounts, nature and timing of liabilities. 4.16 An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its balance sheet in accordance with paragraphs 4.17 and 4.18, except when a presentation based on liquidity provides information that is reliable and more relevant. When this applies, all assets and liabilities shall be presented in order of approximate liquidity. 4.17 An entity shall classify an asset as current when: (
81. a)it expects to realise the asset, or intends to sell or consume it, in the entity’s normal operating cycle; (
82. b)it holds the asset primarily for the purpose of trading; (
83. c)it expects to realise the asset within twelve months after the end of the reporting period; or (
84. d)the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the end of the reporting period. An entity shall classify all other assets as non-current. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months. 4.18 An entity shall classify a liability as current when: (
85. a)it expects to settle the liability in the entity’s normal operating cycle; (
86. b)it holds the liability primarily for the purpose of trading; (
87. c)the liability is due to be settled within twelve months after the end of the reporting period; or (
88. d)the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. An entity shall classify all other liabilities as non-current. 4.19 Where an asset or liability relates to more than one layout item, its relationship to other items shall be disclosed either under the item where it appears or in the notes to the financial statements. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 21 Income statement 4.20 All items of income and expense recognised in the financial statements for the period shall be included in the income statement, unless these are specifically permitted orrequired to be taken directly to reserves. others: These Principles provide different treatment for the following, amongst (
89. a)the effects of corrections of errors and changes in accounting policies are presented as adjustments of prior periods in accordance with Section 5 rather than as part of profit or loss in the period in which they arise; and (
90. b)revaluation surpluses (see Section 7) and some gains and losses arising on translating the financial statements of a foreign operation (see Section 18) are reported directly in equity, rather than as part of profit or loss, when they arise. 4.21 In relation to the income statement, an entity may adopt one of the layouts set out in this Section. The items prescribed in paragraph 4.22 shall be shown separately on the face of the income statement, in the order indicated. Items preceded by Arabic numerals may be combined when they are immaterial for the purposes of the financial statements giving a true and fair view, or such combination makes for greater clarity, in which latter case the items combined are dealt with separately in the notes. The layout, nomenclature and terminology of items in the income statement that are preceded by Arabic numerals may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of the entity’s financial performance. 4.22 An entity shall present in its income statement an analysis of expenses using a classification based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant. The ‘function of expense’ method classifies expenses according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. An entity that adopts a classification using the ‘function of expense’ method presents the following items (which may be combined or amended as appropriate in accordance with paragraph 4.21 of these Principles): 1. Revenue 2. Cost of sales (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets) 3. Gross profit or loss 4. Distribution costs (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets) 5. Administrative expenses (after taking into account any necessary provisions for depreciation, amortisation and impairment of assets) 6. Other operating income 7. Income from shares in subsidiaries, associates and jointly controlled entities accounted for under the cost method and recognised in accordance with paragraph 10.13 (with a separate indication of that derived from subsidiaries) 8. Share of profit or loss of subsidiaries, associates and jointly controlled entities accounted for under the equity method and recognised in accordance with paragraph 10.17 (with a separate indication of that derived from subsidiaries) 22 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 9. Income from other investments (with as separate indication of that derived from subsidiaries) 10. Other interest receivable and similar income (with a separate indication of that derived from subsidiaries) 11. assets Adjustments to the carrying amounts of other investments held as current 12. Interest payable and similar charges (with a separate indication of the amount payable to the subsidiaries); 13. Profit or loss before tax for the period and, or year; 14. Tax on profit or loss before tax; 15. Profit or loss after tax for the period and, or year The ‘nature of expense’ method aggregates expenses in the income statement according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs), and are not reallocated among various functions within the entity. An entity that adopts a classification using the ‘nature of expense’ method presents the following items (which may be combined or amended as appropriate in accordance with paragraph 4.21 of these Principles): 1. Revenue 2. Changes in inventories of finished goods and work in progress 3. Work performed by the entity for its own purposes and capitalised. 4. (
91. a)Raw materials and consumables used 4 (
92. b)Otherexternal expenses 5. Staff costs (
93. a)wages and salaries; (
94. b)social security costs, with a separate indication of those relating to pensions. 6. Depreciation, amortisation and impairment 7. Other operating expenses 8. Other operating income 9. Income from shares in subsidiaries, associates and jointly controlled entities accounted for under the cost method and recognised in accordance with paragraph 10.13 (with a separate indication of that derived from subsidiaries) 10. Share of profit or loss of subsidiaries, associates and jointly controlled entities accounted for under the equity method and recognised in accordance with paragraph 10.17 (with a separate indication of that derived from subsidiaries) 11. Income from other investments (with as separate indication of that derived from subsidiaries) 12. Other interest receivable and similar income (with a separate indication of that derived from subsidiaries) 13. assets Adjustments to the carrying amounts of other investments held as current 14. Interest payable and similar charges (with a separate indication of the ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 23 amount payable to subsidiaries) 15. Tax on profit or loss before tax 16. Profit or loss after tax 17. Profit or loss for the period / year 4.23 If an entity prepares consolidated financial statements, it shall disclose separately the following items on the face of the income statement as allocations of profit or loss for the period: (
95. a)profit or loss attributable to minority interest; and (
96. b)profit or loss attributable to equity holders of the parent. 4.24 An entity shall present additional line items, headings and subtotals on the face of the income statement when such presentation is relevant to an understanding of the entity’s financial performance. 4.25 An entity shall disclose separately, either on the face of the income statement or in the notes, the amount and nature of individual items of income or expenditure which are of exceptional size or incidence, such as: (
97. a)write-downs of inventories to net realisable value, and the reversal of such write-downs; (
98. b)write-downs of property, plant and equipment to recoverable amount, and the reversal of such write-downs; (
99. c)restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring; (
100. d)disposals of items of property, plant and equipment; (
101. e)disposals of investment property; (
102. f)disposals of investments; (
103. g)litigation settlements; and (
104. h)the reversal of other provisions: Provided that if an entity elects not to deliver to the Registrar its profit and loss account in terms of the first proviso of sub-article

(2)of article 183 of the Companies Act, this disclosure shall be made at least in the notes. 4.26 An entity shall disclose the average number of employees during the financial year (as determined in accordance with paragraph (c) of sub-regulation

(2)of regulation 5 of these regulations). Income statement - Additional disclosures for medium-sized entities 4.27 Medium-sized entities classifying expenses by function shall disclose the amounts of depreciation and amortisation expense (if not disclosed elsewhere), and employee benefits expense (analysed into wages and salaries, social security costs and pension costs), recognised in the income statement for the period. 4.28 In addition to the disclosure required in paragraph 4.26, medium-sized entities shall also disclose the average number of employees during the financial year broken down by categories. 4.29 Medium-sized entities shall disclose the remuneration of the entity’s auditors, including sums paid in respect of expenses, in a note to the financial statements. 24 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) Statement of changes in equity 4.30 In addition to the statements required in paragraph 4.1, medium-sized entities shall prepare a statement of changes in equity. 4.31 The statement of changes in equity presents a medium-sized entity’s profit or loss for a period, items of income and expense recognised directly in equity for the period, the effects of changes in accounting policies and corrections of errors recognised in the period, and the amounts of investments by, and dividends and other distributions to, equity holders during the period. 4.32 A medium-sized entity presenting a statement of changes in equity shall show on the face of the statement: (

1. a)the profit or loss for the period; (
2. b)each item of income or expense for the period that, as required by these Principles, is credited or charged directly in equity, and the total of these items; (
3. c)total income and expense for the period (calculated as the sum of (
4. a)and (b)), showing separately the total amounts attributable to equity holders of the parent and to minority interest; (
5. d)for each component of equity, the effects of changes in accounting policies and corrections of prior period errors; (
6. e)the amounts of investments by, and dividends and other distributions to, equity holders; (
7. f)the balance of retained earnings at the beginning of the period and at the end of the reporting period, and the changes during the period; and (
8. g)a reconciliation between the carrying amount of each class of contributed equity and each reserve at the beginning and the end of the period. Statement of cash flows 4.33 In addition to the statements required in paragraph 4.1, medium-sized entities shall prepare a statement of cash flows. 4.34 The statement of cash flows provides information about the historical changes in cash and cash equivalents of an entity, showing separately changes during the period from operating, investing and financing activities. Cash is taken as "cash held at call with banks and in hand". Cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Bank overdrafts are normally considered financing activities similar to borrowings. However, if they are repayable on demand and form an integral part of an entity’s cash management, bank overdrafts are a component of cash and cash equivalents. 4.35 A medium-sized entity shall present a statement of cash flows that reports cash flows for a period classified by operating activities, investing activities and financing activities. 4.36 Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. Therefore, they generally result from the transactions and other events and conditions that enter into the determination of profit or loss. An entity shall report cash flows from operating activities using either: ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 25 (
9. a)the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or (
10. b)the indirect method, whereby profit or loss is adjusted for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. 4.37 Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either: (
11. a)from the accounting records of the entity; or (
12. b)by adjusting sales, cost of sales and other items in the income statement for: (
13. i)changes during the period in inventories and operating receivables and payables; (
14. ii)other non-cash items; and (iii) other items for which the cash effects are investing or financing cash flows. 4.38 Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of: (
15. a)changes during the period in inventories and operating receivables and payables; (
16. b)non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, undistributed profits of subsidiaries, associates and joint ventures, and minority interests; and (
17. c)all other items for which the cash effects relate to investing or financing activities. 4.39 Cash flows arising from investing activities represent expenditures made for resources intended to generate future income and cash flows related to the acquisition and disposal of non-current assets and other investments not included in cash equivalents. 4.40 Financing activities result in changes in the size and composition of the contributed equity and borrowings of the entity. 4.41 An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities. 4.42 Cash flows from interest and dividends received and paid shall each be disclosed separately. Cash flows shall be classified in a consistent manner from period to period as either operating, investing or financing activities. 4.43 Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. 4.44 A medium-sized entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts reported in the statement of cash flows to the equivalent items reported in the balance sheet. 4.45 A medium-sized entity shall exclude from the statement of cash flows, investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions elsewhere in the financial 26 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) statements in a way that provides all the relevant information about these investing and financing activities. Notes to the financial statements 4.46 The notes, which form an integral part of the financial statements, shall: (
18. a)present information about the basis of preparation of the financial statements and the specific accounting policies used; (
19. b)disclose: (
20. i)the information required by these Principles that is not presented on the face of the balance sheet, income statement, statement of changes in equity (if applicable), or statement of cash flows (if applicable); and (
21. ii)all the disclosures required by the respective Sections of these Principles; and (
22. c)provide additional information that is not presented on the face of the balance sheet, income statement, statement of changes in equity (if applicable) or statement of cash flows (if applicable) but is relevant to an understanding of any of them. 4.47 Notes shall, as far as practicable and applicable, be presented in a systematic manner. Each item on the face of the balance sheet, income statement, statement of changes in equity (if applicable) and statement of cash flows (if applicable) shall be cross-referenced to any related information in the notes. 4.48 Notes are normally presented in the following order: (
23. a)a statement that the financial statements have been prepared in compliance with these Principles; (
24. b)a summary of significant accounting policies applied; (
25. c)supporting information for items presented on the face of the balance sheet, income statement, statement of changes in equity (if applicable) and statement of cash flows (if applicable), in the order in which each statement and each line item is presented; and (
26. d)other disclosures as required by these Principles. Section 5: Accounting policies, estimates and errors 5.1 Accounting policies are those principles, bases, conventions, rules and practices applied by an entity that specify how the effects of transactions and other events are to be reflected in its financial statements through recognising, selecting measurement bases for, and presenting assets, liabilities, income, expenses and changes to equity. Accounting policies define the process whereby transactions and other events are reflected in the financial statements. For example, an accounting policy for a particular type of expenditure may specify whether an asset or an expense is to be recognised; the basis on which it is to be measured; and where in the income statement or balance sheet it is to be presented. 5.2 A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. Examples of estimates include those required of: (
27. a)bad debts; ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 27 (
28. b)inventory obsolescence; (
29. c)the useful lives of, or expected pattern of consumption (depreciation method) of the future economic benefits embodied in, depreciable assets. 5.3 Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when the financial statements for those periods were authorised for issue, and that information could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Accounting policies 5.4 When a Section of these Principles specifically applies to a transaction, event or condition, the accounting policy or policies applied to that item shall be determined by applying the relevant Section. In the absence of a Section in these Principles that specifically applies to a transaction, event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: (
30. a)relevant to the economic decision-making needs of users; and (
31. b)reliable, in that the financial statements: (
32. i)represent faithfully the financial position, financial performance and cash flows of the entity; (
33. ii)reflect the economic substance of the transactions, other events and conditions, and not merely their legal form; (iii) are neutral, i.e. free from bias; (
34. iv)are prudent; and (
35. v)are complete in all material respects. 5.5 In making the judgement described in the preceding paragraph, management shall refer to, and consider the applicability of, the following sources in descending order: (
36. a)the requirements and guidance in these Principles dealing with similar and related issues; (
37. b)the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in paragraphs 3.21 – 3.35 and paragraph 3.39 of Section 3 of these Principles; and (
38. c)the requirements and guidance in generally accepted accounting principles and practice dealing with similar and related issues. If additional guidance is needed to make the judgement described in the preceding paragraph, management may also consider the most recent pronouncements of standard-setting bodies that use a conceptual framework to develop accounting standards that is similar to that used in the development of generally accepted accounting principles and practice, other accounting literature and accepted industry practices, to the extent that these do not conflict with the requirements and guidance in these Principles. 5.6 An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions. Where GAPSME permits a choice of accounting policy for categories of transactions, events and conditions, an entity 28 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) shall select the policy that is most appropriate to its particular circumstances for the purpose of giving a true and fair view, taking account of the objectives of relevance, reliability, comparability and understandability, and shall apply that policy consistently to each such category of transactions, events and conditions. 5.7 An entity shall change an accounting policy only if the change: (
39. a)is required by these Principles; or (
40. b)results in the financial statements providing reliable and more relevant information about the effects of transactions, events or conditions on the entity’s financial position, financial performance or cash flows. 5.8 The initial application of a policy to revalue assets in accordance with Section 7 and Section 8, is a change in an accounting policy to be dealt with in accordance with the requirements of the relevant Section, rather than in accordance with this Section. 5.9 An entity shall account for all changes in accounting policy retrospectively. When a change in accounting policy is applied retrospectively, the entity adjusts the opening balance of each affected component of equity for the earliest prior period presented, and the other comparative amounts disclosed for each prior period presented, as if the new accounting policy had always been applied. When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. 5.10 In addition to the disclosures on accounting policies required by Section 4 of these Principles, an entity shall also disclose the following information: (
41. a)the measurement basis (or bases) used in preparing the financial statements; (
42. b)the accounting policy the entity has chosen whenever GAPSME allows an accounting policy choice for a category of transaction, event or condition; (
43. c)the other accounting policies used that are relevant to an understanding of the financial statements; and (
44. d)whenever there has been a change in accounting policy that has an effect on the current period or any prior period, or might have an effect on future periods, the entity shall also disclose the following information: (
45. i)the nature of the change in accounting policy and, if applicable, the title of the Section of these Principles that requires the change in accounting policy; (
46. ii)unless the change in accounting policy is required by these Principles, the reasons why applying the new accounting policy provides reliable and more relevant information; (iii) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected; (
47. iv)the amount of the adjustment relating to periods before those ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) (
48. v)[ S.L.281.05 29 presented, to the extent practicable; and an explanation if it is impracticable to determine the amounts to be disclosed in (iii) or (
49. iv)above. Financial statements of subsequent periods need not repeat these disclosures. Changes in accounting estimates 5.11 An entity shall recognise the effect of a change in an accounting estimate prospectively by including it in profit or loss in: (
50. a)the period of the change, if the change affects that period only; or (
51. b)the period of the change and future periods, if the change affects both. 5.12 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. 5.13 An entity shall disclose the nature and amount of a change in an accounting estimate that has a significant effect in the current period or is expected to have a significant effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. Correction of prior period errors 5.14 To the extent practicable, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after its discovery by: (
52. a)restating the comparative amounts for the prior period presented in which the error occurred; or (
53. b)if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. 5.15 An entity shall disclose the following about prior period errors: (
54. a)the nature of the prior period error; (
55. b)for each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected; (
56. c)in the circumstances described in paragraph 5.14(b), the amount of the correction at the beginning of the earliest prior period presented; and (
57. d)if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected. Financial statements of subsequent periods need not repeat these disclosures. Section 6: Revenue and construction contracts 6.1 Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. This Section shall be applied in accounting for revenue arising from the following transactions and events: 30 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) (
58. a)the sale of goods; (
59. b)the rendering of services; and (
60. c)the use by others of entity assets yielding income such as interest, royalties, rent and dividends. For avoidance of doubt, this provision is deemed to compliment and not modify the definition of "revenue" set out in regulation 5

(2)(b). 6.2 This Section shall also be applied in accounting for construction contracts in the financial statements of contractors. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. This Section lays down principles for determining when contract revenue and contract costs should be recognised as revenue and expenses in the income statement. Measurement of revenue 6.3 An entity shall measure revenue at the fair value of the consideration received or receivable. The fair value of the consideration received or receivable excludes the amount of any trade discounts and volume rebates allowed by the entity. 6.4 An entity shall include in revenue only the gross inflows of economic benefits received and receivable by the entity on its own account. An entity shall therefore exclude from revenue all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes. Similarly, in an agency relationship, thegross inflows of economic benefits exclude amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission. 6.5 In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, and the arrangement constitutes in substance a financing transaction, the fair value of the consideration is the present value of all future receipts determined using an imputed rate of interest. An entity shall recognise the difference between the present value of all future receipts and the nominal amount of the consideration as interest revenue. Sale of goods 6.6 An entity shall recognise revenue from the sale of goods when all the following conditions are satisfied: (

1. a)the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; (
2. b)the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (
3. c)the amount of revenue can be measured reliably; (
4. d)it is probable that the economic benefits associated with the transaction will flow to the entity; and ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 31 (
5. e)the costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services 6.7 When the outcome of a transaction involving the rendering of services can be estimated reliably, an entity shall recognise revenue associated with the transaction by reference to the stage of completion of the transaction at the end of the reporting period (sometimes referred to as the percentage of completion method) and paragraph 6.13 of these Principles shall apply in that regard. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (
6. a)the amount of revenue can be measured reliably; (
7. b)it is probable that the economic benefits associated with the transaction will flow to the entity; (
8. c)the stage of completion of the transaction at the end of the reporting period can be measured reliably; and (
9. d)the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. 6.8 When the outcome of the transaction involving the rendering of services cannot be estimated reliably, an entity shall recognise revenue only to the extent of the expenses recognised that are recoverable. Interest, royalties, rent and dividends 6.9 An entity shall recognise revenue arising from the use by others of entity assets yielding interest, royalties, rent and dividends on the bases set out in paragraph 6.10 when: (
10. a)it is probable that the economic benefits associated with the transaction will flow to the entity; and (
11. b)the amount of the revenue can be measured reliably. 6.10 An entity shall recognise revenue on the following bases: (
12. a)interest shall be recognised on an accrual or time proportion basis; (
13. b)royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement; (
14. c)dividends shall be recognised when the shareholder’s right to receive payment is established; and (
15. d)taking into account the provisions of Section 14 of these Principles, rent shall be recognised on an accrual basis in accordance with the substance of the relevant agreement. Construction contracts 6.11 When the outcome of a construction contract can be estimated reliably, an entity shall recognise contract revenue and contract costs associated with the construction contract as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (often referred to as the percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings. 6.12 An entity shall review and, when necessary, revise the estimates of revenue and costs as the service transaction or construction contract progresses. 6.13 An entity shall determine the stage of completion of a transaction or 32 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) contract using the method that measures most reliably the work performed. Possible methods include: (
16. a)the proportion that costs incurred for work performed to date bear to the estimated total costs. Costs incurred for work performed to date do not include: (
17. i)costs relating to future activity on the contract, such as costs of material that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and (
18. ii)prepayments, such as payments made to subcontractors in advance of work performed under the subcontract; (
19. b)surveys of work performed; or (
20. c)completion of a physical proportion of the service transaction or contract work. Progress payments and advances received from customers often do not reflect the work performed. 6.14 An entity shall recognise costs that relate to future activity on the transaction or contract, such as for materials or prepayments, as an asset if it is probable that the costs will be recovered. Such costs represent an amount due from the customer and are classified as work in progress. 6.15 An entity shall recognise as an expense immediately any costs that are not probable of being recovered. 6.16 When the outcome of a construction contract cannot be estimated reliably: (
21. a)an entity shall recognise revenue only to the extent of contract costs incurred that it is probable will be recoverable; and (
22. b)the entity shall recognise contract costs as an expense in the period in which they are incurred. 6.17 When it is probable that total contract costs will exceed total contract revenue on a construction contract, the expected loss shall be recognised as an expense immediately. 6.18 If the collectability of an amount already recognised as contract revenue is no longer probable, the entity shall recognise the uncollectible amount as an expense rather than as an adjustment of the amount of contract revenue. 6.19 An entity shall present: (
23. a)the gross amount due from customers for contract work as an asset; and (
24. b)the gross amount due to customers for contract work as a liability. 6.20 The gross amount due from customers for contract work is the net amount of (
25. i)costs incurred plus recognised profits, less (
26. ii)the sum of recognised losses and progress billings for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. 6.21 The gross amount due to customers for contract work is the net amount of (
27. i)costs incurred plus recognised profits, less (
28. ii)the sum of recognised losses and progress billings for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). Revenue - disclosures ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 33 6.22 An entity shall disclose the accounting policies adopted for the recognition of revenue, including the methods adopted to determine: (
29. a)the stage of completion of transactions involving the rendering of services; (
30. b)the contract revenue recognised in the period; and (
31. c)the stage of completion of contracts in progress. Revenue - Additional disclosures for medium-sized entities 6.23 In addition to the disclosure in paragraph 6.22, a medium-sizedentity shall also disclose the amount of each category of revenue recognised during the period, including revenue arising from: (
32. a)the sale of goods; (
33. b)the rendering of services; (
34. c)interest; (
35. d)royalties; (
36. e)rent; and (
37. f)dividends. Construction contracts - Additional disclosures for medium-sized entities 6.24 In addition to the disclosures required in paragraph 6.23, a medium-sized entity shall also disclose the amount of contract revenue recognised as revenue in the period. 6.25 A medium-sized entity shall disclose each of the following for contracts in progress at the balance sheet date: (
38. a)the aggregate amount of costs incurred and recognised profits (less recognised losses) to date; (
39. b)the amount of advances received; and (
40. c)the amount of retentions. 6.26 Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. Progress billings are amounts billed for work performed on a contract whether or not they have been paid by the customer. Advances are amounts received by the contractor before the related work is performed. Section 7: Property, plant and equipment 7.1 Property, plant and equipment are tangible assets that: (
41. a)are held for use in the production or supply of goods or services, for rental to others (unless they meet the definition of investment property in paragraph 8.1), or for administrative purposes; and (
42. b)are expected to be used during more than one period. Recognition 7.2 The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if: (
43. a)it is probable that future economic benefits associated with the item will flow to the entity; and 34 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) (
44. b)the cost of the item can be measured reliably. Measurement at recognition 7.3 An entity shall measure an item of property, plant and equipment at initial recognition at its cost. 7.4 The cost of an item of property, plant and equipment comprises: (
45. a)its purchase price, including legal and brokerage fees, import duties and non-refundable purchase taxes, after deducting trade discounts and rebates; (
46. b)any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. These can include staff costs arising directly from the construction or acquisition of the item of property, plant and equipment, the costs of site preparation, initial delivery and handling, installation and assembly, and testing of functionality; and (
47. c)the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. 7.5 Subsequent expenditure shall be capitalised as part of the cost of property, plant and equipment only if: (
48. a)it enhances the economic benefits of an asset in excess of the previously assessed standard of performance (i.e. if it is an ‘improvement’); or (
49. b)it replaces or restores a component that has been separately depreciated over its useful life. Otherwise it shall be recognised in the income statement as it is incurred. 7.6 An entity may adopt an accounting policy of capitalising finance costs (such as interest). Where such a policy is adopted, only those finance costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use. The total amount of finance costs capitalised during a period shall not exceed the total amount of finance costs incurred during that period. 7.7 Capitalisation of directly attributable costs, including finance costs, shall be suspended during extended periods in which active development is interrupted. Recognition of such costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management, even if the asset has not yet been brought into use. Measurement after recognition 7.8 A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity’s operations. 7.9 An entity shall account for all items in the same class of property, plant and equipment (i.e. having a similar nature, function or use in the business) after initial recognition using either: ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 35 (
50. a)the cost model in paragraph 7.10; or (
51. b)the revaluation model in paragraphs 7.11 - 7.19. 7.10 Under the cost model, an entity shall measure an item of property, plant and equipment at cost less any accumulated depreciation and any accumulated impairment losses. 7.11 Under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. 7.12 Where an item of property, plant and equipment is revalued all items in the same class shall be revalued, but a policy of revaluation need not be applied to all classes of property, plant and equipment. 7.13 The fair value of land and buildings is usually determined from marketbased evidence by appraisal that is normally undertaken by professionally qualified valuers. The fair value of items of plant and equipment is usually their market value determined by appraisal. 7.14 If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a depreciated replacement cost approach. 7.15 The frequency of revaluations depends upon the changes in fair values of th e i te m s of pr o p e r ty, p la nt an d eq u ip m e n t be in g r e v a l u e d . N e v ertheless, revaluations shall be made at least every five years and in the intervening years where it is likely that there has been a material change in value. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. 7.16 Gains and losses arising on the revaluation of assets shall be recognised in an equity reserve, net of any attributable taxation element. 7.17 If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to an equity reserve. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss in accordance with paragraph 7.18. 7.18 If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be debited directly to an equity reserve to the extent of any credit balance existing in that reserve in respect of that asset. 7.19 The revaluation surplus included in an equity reserve in respect of an item of property, plant and equipment may be transferred directly to retained earnings (not through profit or loss) when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In 36 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Depreciation 7.20 The cost (or revalued amount) less estimated residual value of an item of property, plant and equipment shall be depreciated on a systematic basis over the asset’s useful life. An entity shall select a depreciation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. The possible depreciation methods include the straight-line method. 7.21 Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. 7.22 The depreciation charge for each period shall be recognised in profit or loss, unless it is included in the carrying amount of another asset. 7.23 Where an item of property, plant and equipment comprises two or more major components with substantially different useful lives, each component shall be accounted for separately for depreciation purposes and depreciated over its individual useful life. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. With certain exceptions, such as sites used for extractive purposes or landfill, land has an unlimited life and therefore is not depreciated. 7.24 The useful lives and residual values of property, plant and equipment shall be reviewed regularly and, when necessary, revised. On revision, the carrying amount of the item of property, plant and equipment at the date of revision, less the revised residual value, shall be depreciated over the revised remaining useful life. Such a change shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles. 7.25 An entity shall review the depreciation method regularly. If there has been a significant change in the pattern in which the entity expects to consume the asset’s future economic benefits, the entity shall change the method to reflect the new pattern. A change from one method of providing depreciation to another is permissible only on the grounds that the new method will give a fairer presentation of the results and of the financial position. Such a change does not, however, constitute a change of accounting policy; the carrying amount of the item of property, plant and equipment is depreciated using the revised method over the remaining useful life, beginning in the period in which the change is made. A change in the depreciation method shall be accounted for as a change in an accounting estimate in accordance with Section 5 of these Principles. Impairment 7.26 To determine whether an item of property, plant and equipment is impaired, an entity applies Section 12 of these Principles. That Section explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Disclosure ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 7.27 [ S.L.281.05 37 An entity shall disclose, for each class of property, plant and equipment: (
52. a)the measurement bases used for determining the gross carrying amount; (
53. b)the depreciation methods used; (
54. c)the useful lives or the depreciation rates used; (
55. d)where material, the financial effect of a change during the period in either the estimate of useful lives or the estimate of residual values; (
56. e)the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and (
57. f)having regard to paragraph 4.8(
58. a)of these Principles, for each class of property, plant and equipment, a reconciliation of the carrying amount at the beginning and end of the period showing: (
59. i)additions (reflecting additions resulting from business combinations); (
60. ii)disposals; (iii) transfers (reflecting transfers to assets classified as held for sale or included in a disposal group classified as held for sale in accordance with section 23 of the Principles); (
61. iv)revaluation gains and losses; (
62. v)impairment losses recognised or reversed in profit or loss in accordance with Section 12 of these Principles; (
63. vi)depreciation; (vii) accumulated depreciation and impairment losses released on disposal and transfers; (viii) the net exchange differences arising on the translation of the financial statements from the functional currency into a different presentation currency (see Section 18 of these Principles); and (
64. ix)other changes. 7.28 Where there has been a change in the depreciation method used, the effect, if material, shall be disclosed in the period of change. The reason for the change shall also be disclosed. 7.29 Where applicable, the notes shall disclose (
65. i)the fact that finance costs are incurred in determining the cost of the assets, and (
66. ii)the amount of finance costs so capitalised. 7.30 Where property, plant and equipment have been revalued an entity shall disclose: (
67. a)a table in the notes showing movements in the revaluation reserve in the financial year, with an explanation of the tax treatment of items therein, with disclosure of the treatment for taxation purposes of amounts debited or credited to equity; (
68. b)the comparable amounts determined under the cost model (i.e. the aggregate historical cost amount, less accumulated depreciation, that would have been included had the assets not been revalued, reflecting any write-downs to recoverable amount that would have been necessary); (
69. c)the bases of the valuation, including the significant assumptions underlying the valuation models and techniques. 38 7.31 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) Entities shall disclose: (
70. a)the amount of property, plant and equipment pledged as security for liabilities; and (
71. b)the amount of contractual commitments for the acquisition of property, plant and equipment (however authorised but not contracted commitments should also be reflected). Additional disclosures for medium-sized entities 7.32 In respect of the reconciliation referred to in paragraph 7.27(f), in addition to the items mentioned therein, and having regard to paragraph 4.8(
72. a)of these Principles, a medium-sized entity shall also disclose: (
73. a)assets classified as held for sale or included in a disposal group classified as held for sale in accordance with Section 23 of these Principles; and (
74. b)additions resulting from business combinations. 7.33 Where items of property, plant and equipment were revalued, the year in which they were revalued shall be disclosed. When an item of property, plant and equipment was revalued during the financial year to which the financial statements relate, in addition to the disclosures referred to in paragraph 7.30, a medium-sized entity shall also disclose in those financial statements: (
75. a)the effect of any revaluation made during the year; and (
76. b)whether an independent valuer was involved. Section 8: Investment property 8.1 Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for: (
77. a)use in the production or supply of goods or services or for administrative purposes (hence covered by the definition of property, plant and equipment under Section 7 of these Principles and accounted for in accordance with the provisions of that Section); or (
78. b)sale in the ordinary course of business (hence covered by the definition of inventories under Section 15 of these Principles and accounted for in accordance with the provisions of that Section). Recognition 8.2 Investment property shall be recognised as an asset when, and only when: (
79. a)it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and (
80. b)the cost of the investment property can be measured reliably. Measurement at recognition 8.3 An entity shall measure investment property at its cost at initial recognition. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure such as legal and professional fees, property transfer taxes and other transaction costs. The cost of a self-constructed investment property is its cost at the date when the construction or development is complete. Until that date an entity shall apply the measurement principles in Section 7 of these Principles. ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 39 Measurement after recognition 8.4 After initial recognition, an entity shall choose as its accounting policy either the cost model in paragraph 8.5, or the fair value model in paragraphs 8.6 8.10, and shall apply that policy to all of its investment property. 8.5 An entity that chooses the cost model shall measure all of its investment property after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses and shall account for all of its investment property by applying the principles for property, plant and equipment measured under the cost model in accordance with the requirements of paragraph 7.10 and paragraphs 7.20 7.25 of Section 7 of these Principles. To determine whether an investment property is impaired, an entity applies Section 12 of these Principles. That Section explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. 8.6 An entity that chooses the fair value model shall measure all of its investment property after initial recognition at fair value less any accumulated depreciation. 8.7 The best evidence of fair value is given by current prices in an active market for similar property in the same location and condition and subject to similar lease and other contracts. In the absence of current prices in an active market, an entity considers information from a variety of sources, including: (
81. a)current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; (
82. b)recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (
83. c)discounted cash flow projections based on reliable estimates of future cash flows and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. 8.8 If, in exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property following the completion of construction or development, or after a change of use) that the fair value of the investment property is not reliably determinable on a continuing basis, an entity shall measure that investment property using the cost model in paragraph 8.5 and the residual value of that investment property shall be assumed to be zero. The fair value of an investment property is not reliably determinable on a continuing basis when, and only when, comparable market transactions are infrequent and alternative reliable estimates of fair value are not available. An entity may nevertheless measure all its other investment property using the fair value model. 8.9 Paragraphs 7.15 - 7.19 and paragraphs 7.20 - 7.25 of Section 7 of these Principles shall also apply to investment property measured under the fair value model. 8.10 Upon first-time adoption of GAPSME an entity shall transfer any fair value gains on an item of investment property, previously recognised in profit or loss and standing to the credit of retained earnings or another reserve in accordance with another financial reporting framework, to a separate component of equity. 40 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) Transfers 8.11 If an item of property, plant and equipment becomes an investment property, and the entity will account for the investment property under the fair value model, any difference between the asset’s carrying amount and its fair value at the date when it becomes an investment property shall be treated in the same way as a revaluation in accordance with Section 7 of these Principles. 8.12 If a property held as inventories, or a completed self-constructed property, becomes an investment property, and the entity will account for the investment property under the fair value model, any difference between the asset’s previous carrying amount and its fair value at the date when it becomes an investment property shall be recognised in a separate component of equity. 8.13 When an investment property carried at fair value is transferred to property, plant and equipment or inventories, following a change of use, the property’s deemed cost for subsequent accounting in accordance with Sections 7 and 15 respectively, shall be its fair value at the date of change of use. The cumulative amount recognised in equity in respect of that investment property may be transferred to retained earnings when, and only when, the asset (property, plant and equipment or inventory) is derecognised. Disclosure 8.14 Entities shall make the disclosures required by paragraphs 7.27 - 7.31 of Section 7 of these Principles, insofar as applicable. 8.15 Medium-sized entities shall also make the disclosures required by paragraphs 7.32 - 7.33 of Section 7 of these Principles, insofar as applicable. Section 9: Financial assets, financial liabilities and equity 9.1 This Section does not apply to: (
84. a)Investments in subsidiaries, associates and joint ventures as defined in Section 10; and; (
85. b)Finance leases as defined in Section 14; 9.2 A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 9.3 A financial asset is primarily any asset that is: (
86. a)cash; (
87. b)an equity instrument of another entity; or (
88. c)a contractual right: (
89. i)to receive cash or another financial asset from another entity; or (
90. ii)to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. 9.4 A financial liability is primarily any liability that is a contractual obligation: (
91. a)to deliver cash or another financial asset to another entity; or (
92. b)to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity. 9.5 A derivative is a financial instrument with all three of the following characteristics: ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 41 (
93. a)its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract; (
94. b)it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and (
95. c)it is settled at a future date. Commodity-based contracts that give either contracting party the right to settle in cash or some other financial instrument shall be considered to be derivative financial instruments, except where such contracts: (
96. a)were entered into and continue to meet the entity’s expected purchase, sale or usage requirements at the time they were entered into and subsequently; (
97. b)were designated as commodity-based contracts at their inception; and (
98. c)are expected to be settled by delivery of the commodity. 9.6 An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 9.7 The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. 9.8 The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. 9.9 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. 9.10 Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability. An incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument. Definitions of categories of financial instruments 9.11 A financial asset or financial liability is classified as held for trading if: (
99. a)it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; (
100. b)on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or (
101. c)it is a derivative (except for a derivative that is a designated and effective hedging instrument). 42 [ S.L.281.05 ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) 9.12 Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity other than: (
102. a)those that the entity designates as available-for-sale; and (
103. b)those that meet the definition of loans and receivables. An entity shall not classify any financial assets as held to maturity if the entity has, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity (more than insignificant in relation to the total amount of held-to-maturity investments) other than sales or reclassifications that: (
104. a)are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value; (
105. b)occur after the entity has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or (
106. c)are attributable to an isolated event that is beyond the entity’s control, is non-recurring and could not have been reasonably anticipated by the entity. 9.13 Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (
107. a)those that the entity intends to sell immediately or in the near term, which shall be classified as held for trading; and (
108. b)purchased loans and receivables that the entity upon initial recognition designates as available-for-sale. 9.14 Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as (
109. a)loans and receivables; (
110. b)held-to-maturity investments; or (
111. c)held for trading financial assets. Recognition 9.15 An entity shall recognise a financial asset or a financial liability in its balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument. Measurement of financial assets and financial liabilities at recognition 9.16 When a financial asset or financial liability is recognised initially, an entity shall measure it at its fair value, in addition to in the case of a financial asset or financial liability not classified as held for trading subsequently measured at fair value, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. An arrangement involving a financial asset or a financial liability constitutes, in effect, a financing transaction if payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate. If an arrangement constitutes a financing transaction, an entity shall measure the financial asset or financial liability at initial recognition at the present value of future payments discounted at a market rate of ACCOUNTANCY PROFESSION (GENERAL ACCOUNTING PRINCIPLES FOR SMALL AND MEDIUM-SIZED ENTITIES) [ S.L.281.05 43 interest for a similar debt instrument. Accordingly, an entity shall measure all of its financial instruments at initial recognition at cost (equivalent to transaction price and fair value), comprising purchase price and for instruments that are not held for trading subsequently measured at fair value, transaction costs that are directly attributable to the acquisition of the instrument. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. Measurement of financial assets after recognition 9.17 After initial recognition, an entity may measure a specific category of financial assets (excluding derivatives that are assets) at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except for the following financial assets: (
112. a)loans and receivables, which shall be measured at amortised cost using the effective interest method; (
113. b)held-to-maturity investments, which shall be measured at amortised cost using the effective interest method; and (
114. c)investments in