MANDAT news. Fresh tax, legal and economic information JULY-AUGUST The July-August issue includes: Micro-Entity

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1 Fresh tax, legal and economic information MANDAT news The July-August issue includes: Micro-Entity

2 With effect from 1 January 2014, under an amendment to the Act on Accounting, a new type of entity has been established, named a microentity. The aim of the amendment is to simplify entrepreneurship, notably for small and medium entrepreneurs, and reduce their administrative burden. Based on the wording of the Act on Accounting effective until 31 December 2013, all business entities keeping their books in the double-entry bookkeeping system were required to prepare their financial statements at the same extent. This means that even small and mediumsized entities used financial statements in their entirety, though they often had no contents for individual rows and their statements were presented filled only to a minimal extent. The aim of the amendment was to enable micro-entities to prepare their financial statements in a condensed form. First financial statements in a condensed form would be compiled for the period commencing on 1 January Which Entity Can Become a Micro-Entity? Marian Vojtek marian.vojtek@mandat.sk Tel.: Under the Act on Accounting, a micro-entity shall be considered: a trading company; a cooperative; an individual entrepreneur keeping books in the double-entry bookkeeping system; an individual voluntarily registered with the Commercial Register and a land community with legal personality, if: for the reporting period in which it was established, it decided to proceed as a micro-entity; or as of the reporting date and for the immediately preceding reporting period it did not exceed two of the following conditions: total assets must be not more than EUR ( gross measurement without corrections); net turnover must be not more than EUR (i.e., revenues from sale of products, goods and rendering of services, and other income related to ordinary activities net of discounts); average number of employees during the reporting period must be not more than 10; or it only exceeded two of the above conditions in one reporting period, while in the first of these two reporting periods it was considered a micro-entity. As noted above, an entity may be considered a micro entity from its establishment, this means that, e.g., a private limited company established 1

on 15 March 2014 (a business company is established by its registration with the Commercial Register) may be considered a micro entity from that date.

3 on 15 March 2014 (a business company is established by its registration with the Commercial Register) may be considered a micro entity from that date. In this context, the amended Act on Accounting does not provide, since what time the existing entities may perform tests whether they meet the conditions to become a micro-entity. In our opinion, in order to become a micro-entity as of 1 January 2014, i.e. the date of validity of the amended Act, an existing entity would test the year 2013 (if the reporting period is the calendar year), i.e. the period, for which the financial statements are being prepared, and the preceding period, i.e. the year If in each of these years, i.e. separately in 2013 and separately in 2012, the existing entity did not exceed two of the above conditions (i.e. the conditions shall not be exceed in two consecutive years), it may become a micro-entity as of 1 January Practical Examples for Testing In 2013, Alfa recorded total gross assets in the amount of EUR , their net turnover in 2013 amounted to EUR , and they employed 11 staff. In 2012, gross assets were in the amount of EUR , net turnover amounted to EUR , and the number of employees was 11. As the entity exceeded the conditions both, in 2013 and 2012, it cannot be considered a micro-entity as of 1 January Martin Šiagi martin.siagi@mandat.sk Tel.: In 2013, Beta recorded total "gross" assets in the amount of EUR , their net turnover in 2013 amounted to EUR , and they employed 10 staff. In 2012, gross assets were in the amount of EUR , net turnover amounted to EUR , and the number of employees was 10. As the entity did not exceed the conditions in 2013, it could be considered a micro-entity for the year Neither they exceeded the conditions in 2012, hence Beta may be considered a micro-entity as of 1 January Reporting Period of Financial Year An entity with the reporting period of financial year shall assess whether it is a micro-entity as of the first day of the reporting period that begins during the calendar year For example, the entity's reporting period of financial year ends on 30 June 2014 (financial year from 1 July 2013 to 30 June 2014). To be considered a micro-entity as of 1 July 2014, the entity shall test the period of financial year ending 30 June 2014 and the period of the preceding financial year as of 30 June 2013 (financial year from 1 July 2012 to 30 June 2013). If an entity starts to proceed and prepare its financial statements as a micro-entity, it is required to do so until the time while it qualifies for a micro-entity. In practice, this means that it is up to reporting entities, whether they make use of the existing possibility, but it is not for them to change this back afterwards. They have to cease to comply with the 12

aforementioned criteria, i.e. for at least two consecutive reporting periods. Advantages of Micro-Entity Status Advantages of being a micro-entity include the following: 1.

4 aforementioned criteria, i.e. for at least two consecutive reporting periods. Advantages of Micro-Entity Status Advantages of being a micro-entity include the following: 1. A micro-entity does not measure securities and derivatives at fair value and it does not use the equity method 2. For recording disposal of business, an entity that is a micro-entity does not use extraordinary expenses or extraordinary revenues 3. Property damage due to exceptional causes is accounted for as damage from operations 4. In certain cases, no deferred expenses and accrued income are recognised 5. A micro-entity is not required to keep and maintain records on prices According to the Act on Prices, a micro-entity that sells goods not subject to price regulations shall not be obliged to keep and maintain records on prices of goods, including calculations and profits. A standard entity is obliged to keep and maintain such records for three years after the sale of goods. Jana Princová jana.princova@mandat.sk Tel.: Micro-Entity and Financial Statements The biggest advantage of being a micro-entity is the so called condensed compilation of financial statements. The Ministry of Finance issued special Measure no. MF/15464/ for compiling financial statements, stipulating details on the arrangement, naming and content of items included in separate financial statements and on the extent of separate financial statements' disclosures for micro-entities. The Measure was disclosed in the Financial Bulletin no. 12/2013. The Balance Sheet contains a number of summary rows. The Income Statement is sorted systematically under the new structure revenues first, followed by expenses. Notes contain a reduced number of pages (approx. 3 pages) and no tables are included. The Measure on Financial Statements of a Micro-Entity only regulates separate annual financial statements and interim separate financial statements. In the case of extraordinary separate financial statements, the Measure on Financial Statements of Standard Reporting Entities shall be used. Value figures in financial statements of a micro-entity are stated in whole euros. Balance Sheet The Balance Sheet is in a condensed form in the extent of two pages. The Balance Sheet items are more aggregated, i.e., in one Balance Sheet line, balances of several Balance Sheet accounts are disclosed. Accruals are not 13

separately disclosed on the Balance Sheet; these are reported together with other current receivables or non-current receivables, or together with other current liabilities or non-current liabilities.

5 separately disclosed on the Balance Sheet; these are reported together with other current receivables or non-current receivables, or together with other current liabilities or non-current liabilities. Balance Sheet items on the asset side (assets) are carried at net value, i.e. the value reflecting accumulated depreciation and provisions, for the current reporting period and for the immediately preceding accounting period. The existing entities that decided to proceed in accounting and reporting as a micro-entity shall reclassify their closing balances in Balance Sheet accounts for the immediately preceding reporting period according to the model Balance Sheet for micro-entities. This will ensure comparability of Balance Sheet information. Income Statement The content of Income Statement items consists of balances of individual profit and loss accounts according to the established Chart of Accounts, which builds on the Framework Chart of Accounts. A micro-entity shall recognize profit or loss from ordinary activities and profit or loss from financing activities (i.e., it shall not recognize profit or loss from extraordinary activities). Robert Jex robert.jex@mandat.sk Tel.: The Income Statement of a micro-entity is in a condensed form similarly to the Balance Sheet, in the extent of two pages (about one and a half A4 pages). The Income Statement items are also aggregated, some of them to the level of accounting groups. The Income Statement is more like a T-form. Even at first sight, it differs from the classic Income Statement (for large entities) by the formal arrangement of revenues and costs. In the Income Statement for microentities, costs (except for income tax expense and the cost of profit or loss of partnership transferred to partners general commercial partnership, limited partnership) and revenues are grouped into two blocks, namely the business activities and the financing activities, while cumulative sums are also disclosed (but not the total amounts of costs and revenues, however these are not difficult to establish thanks to the arrangement). Extraordinary activities are not disclosed in the Income Statement (in the previous section, differences in the accounting for the disposal of business and extraordinary damage were also stated). In the classic Income Statement for ordinary or large entities, reporting of costs and revenues intertwines, and hence various subtotals of the related costs and revenues can be established. The Income Statement for micro-entities also contains one indicator added value. This indicator encompasses the production, consumables and services purchased, and gross margin. 14

Notes to the Financial Statements Notes shall be compiled so that the information contained therein is useful, relevant, understandable, comparable, and reliable.

6 Notes to the Financial Statements Notes shall be compiled so that the information contained therein is useful, relevant, understandable, comparable, and reliable. In the Notes, information shall be included on which the entity was aware by the date of preparation of separate financial statements and for which information it has contents provided for in the aforementioned Measure. The contents of the Notes shall consist of descriptive information and value figures according to Annex 1. However, the Notes may include information that the entity has decided to disclose to readers beyond the established contents. Conclusions The legislator envisages that up to 60% of the existing entities will be able to use the simplified procedures. The intention is to reduce the cost of bookkeeping while maintaining the explanatory power of keeping the accounts in accordance with accounting principles for double-entry bookkeeping in accordance with European Union law. Roman Ferjanc Tel.: ABOUT US The companies MANDAT CONSULTING, k.s. and MANDAT AUDIT, s.r.o. were founded in 2004 as tax advisory and auditing companies. Since their establishment, they have been providing small, medium-sized and companies active in Slovakia with services in the field of tax consultancy, audit and accounting. Long-lasting cooperation with foreign advisory companies hand in hand with the competence of Slovakian tax advisors and auditors enables us rendering our service to the clients originated from abroad. In present time, 41 well trained members of our staff are at the disposal to our clients. Information provided in this material are only of a cursory nature. MANDAT CONSULTING, k.s. assumes no liability for any decision taken on the basis of this issue. Should you wish to add other person to be receiving MANDAT news, please contact: news@mandat.sk Please contact us, should you require additional information. 15

MANDAT news. Fresh tax, legal and economic information JANUARY 2014

MANDAT news. Fresh tax, legal and economic information JANUARY 2014 Fresh tax, legal and economic information MANDAT news The January issue includes: Act on Income Tax Income tax advance payments Not to be missed MANDAT CONSULTING, k.s., Nám. SNP 15, 811 01 Bratislava,