Transfer pricing in taxation

In management accounting, transfer pricing is a topic which addresses the issues with regard to determining a price for the transfer of goods and services between two divisions in a decentralised set-up.

In taxation, transfer pricing relates to the following areas:-

  • When entity A sells goods on credit to entity B and the receivable remains outstanding beyond the normal credit term – Entity A may be deemed to have provided interest-free funding to entity B.
  • Entity A and entity B are related. Entity B uses entity A’s accounts department as its accounting resource. How much should entity A charge entity B? IRAS is prepared to accept a 5% mark-up on the basis that this has been a practice commonly adopted by related party service providers in Singapore as remuneration for providing routine support services. Other mark ups are acceptable. subject to arm’s length principle.
  • In the third situation, entity A and entity B are utilising a service provided in a cost pooling arrangement. Issue here is the way the costs are allocated between the entities.

FRS 14 – Segment Reporting v280509

FRS 14 prescribes the reporting of financial information by segment – information.

FRS 14 applies to enterprises whose equity or debt securities are publicly traded and enterprises in the process of issuing equity or debt securities in public securities market. Enterprises not in the above categories are also encouraged to disclose financial information by segment voluntarily.

A business segment is a component of an enterprise that is engaged in providing an individual or a group of product or service and is subject to risks and returns that are different from other business segments.

A geographical segment is a component of an enterprise that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those in other economic environments.

The source and nature of an enterprise’s risks and returns determine whether the primary segment reporting will be business segments or geographical segments. Enterprises risks and returns mainly affected by differences in products and services should have its primary segment reporting as business segments and secondary segment reporting as geographical segments.

Likewise, enterprises risks and returns mainly affected by its operations in different countries should have its primary segment reporting as geographical segments and secondary segments as business segments. This is identified by the enterprise’s internal organizational and management structure and its system of internal financial reporting to senior management.

A business or geographical segment is a reportable segment if a majority of its revenue is earned from sales to external customers; and

a) these revenue from sales to external customers is 10% or more of the total revenue of all segments; or

b) its profit or loss results is 10% or more of the combined result of all segments in profit or loss, whichever is the greater in absolute amount; or

c) its assets are 10% or more of the total assets of all segments.

If total external revenue due to reportable segments is less than 75% of the total consolidated revenue, additional segments are identified as reportable segments until at least 75% of total revenue is included in reportable segments.

The disclosure for each primary reportable segment is as follows:-

a) separate revenue disclosure of sales to external customers, inter-segment revenue;

b) separate results from both the continuing and discontinuing operations;

c) carrying amount of segment assets;

d) segment liabilities; and

e) cost incurred in the period to acquire property, plant and equipment and intangibles.

The disclosure for each secondary reportable segment is as follows:-
a) separate revenue disclosure of sales to external customers and inter-segment;
b) carrying amount of segment assets; and
c) cost incurred in the period to acquire property, plant and equipment and intangibles.

Source – ICPAS CPA Singapore Wire 28 May 2009

Women in Accounting & Finance Survey 2009

On Thursday last, I was invited to attend, in my humble capacity as a Local ACCA Executive Council member, the presentation of the survey results of women in accounting and finance roles. The survey was commissioned jointly by ACCA and Robert Half Singapore.

Based on the responses of 721 women, the following are some key findings:-

1. Are women ambitious? Yes, particularly for the younger women but the more matured ones are more likely to stay with their current employers.

2. 64% of respondents said they did not attend any leadership course at all in 2008.

3. What women see themselves doing better than men? The respondents highlighted 3 areas – attention to details, dealing with people issues, communication skills.

4. Women’s top three desired work benefits:- flexi hours, better maternity benefits and thirdly, more annual leaves. 53% said they are willing to take pay cut for more flexi hours.

5. What are the priority areas for women?
Work/life balance came out as top priority for 59%. Surprisingly for me, the younger women are the ones that value this more than the matured counterpart.

FRS 12 – Income Taxes

casino in process

FRS 12 prescribes the accounting treatment for income taxes.

Current tax refers to the amount of income taxes payable/recoverable in respect of taxable profit/tax loss for the period. Income taxes payable for current and prior periods are recognized as a liability. Income tax recoverable or overpaid is recognized as an asset.

Deferred tax is the differences between the carrying value of the assets and liabilities in the balance sheet and the tax base of assets and liabilities. A deferred tax asset or liability arises if recovery/settlement of asset/liabilities affect the amount of future tax payments.

FRS 12 states that entities should recognize a deferred tax liability in full except in the following situations:-
a) where the initial recognition of an asset/liability in a transaction
i) is not a business combination; and
ii) at the time of the transaction, affects neither accounting profit nor taxable profit

b) deferred tax liability arising from the initial recognition of goodwill, or from goodwill for which amortization is not deductible for tax purposes.

c) deferred taxes on temporary differences arising on investments in subsidiaries, branches, associates and joint ventures if the entity is able to control the timing of the reversal of the difference, and it is probable that the temporary difference will not reverse in the future.

FRS 12 also states that a deferred tax asset is recognized to the extent that it is probable that a tax benefit will be realized in the future. This applies to the unused tax losses and unused tax credits.

Deferred tax is measured at tax rates expected to apply when the deferred tax asset/liability is realized/settled. The tax rates used must be enacted or substantially enacted by the balance sheet date. A deferred tax asset or liability is not discounted.

The tax consequences of transactions and events are recognized in the same financial statement as the transaction or event – that is, current and deferred taxes are:-

a) recognized in equity, if the items to which they relate are credited or charged directly to equity;

b) recognized as identifiable assets or liabilities at the acquisition date, if they arise as part of a business combination in accordance with FRS 103;

c) otherwise, recognized as tax income or expense.

Source – CPA Singapore Wire / ICPAS May 21, 2009

How to account for Jobs Credit?

prawns in soup

Surprisingly I received a circular from ICPAS on how to account for the grants received from Jobs Credit.

I thought we don’t need guidance on something so simple. But then again, perhaps we should synchronise.

Anyway the specific directions that we should follow are:-

  1. For grant received on 31 March 2009, we should recognise it for value 31 March 2009. For grant received on 30 Jun 2009, we should recognise it for value 30 Jun 2009 etc etc.
  2. An entity should start accounting as per circular No. A7/2009 prospectively from 20 May 2009.
  3. If you have chosen to apply this circular early, you are permitted to do so.
  4. But if you have not applied as per Circular for the first cheque in March, you have to disclose that.


  • What if we receive the cheque only after 31 March 2009? Should we then accrue for it?
  • Which account should we credit the amount to?

What have you been doing for your company? Can share with me?

Summary of FRS 10: Events After the Balance Sheet Date

charlton hotel is changing

The objective of FRS 10 is to prescribe the accounting and disclosure requirements of events after the balance sheet date. Events after the balance sheet date refer to those events that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Adjusting events provide evidence of conditions that existed at the balance sheet date. Examples of adjusting events include:-

  • the settlement after the balance sheet date of a court case that confirms that the entity had a present obligation at balance sheet date;
  • the awareness of information after the balance sheet date pertaining to the impairment of an asset impaired at the balance sheet date (eg. knowledge of customer’s bankruptcy after balance sheet date warrants an adjustments to be made to the receivable from customer at balance sheet date and sale of inventories below cost after the balance sheet date)

Non-adjusting events reflect conditions that arise only after the balance sheet date.

Examples of non-adjusting events include:-

  • a decline in market value of investments subsequent to balance sheet date and before date financial statements are authorized for issue;
  • dividends declared after the balance sheet date.

Refer to FRS 10 for more examples of non-adjusting events.

For non-adjusting events, the entity discloses the nature of the event and an estimate of its financial effect.

Financial statements should not be prepared on a going concern basis if management determines after the balance sheet date that it intends to liquidate the entity or to cease trading.

Financial statements should disclose the date when the financial statements were authorized for issue and who gave that authorisation.

Source – eICPAS newsletter May 2009