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Chapter 37 - Financial statements
Bachelor of Science In Accountancy (University of San Jose-Recoletos)
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Chapter 37
Presentation of Financial Statements
Chapter 37: Multiple choice – Computational (SET B) – (For classroom instruction
purposes)
Current assets
1. The ledger of RELISH TASTE Co. as of December 31, 20x1 includes the following:
Assets
Cash
20,000
Trade accounts receivable (net of ₱20,000 credit balance in accounts)
80,000
Held for trading securities
160,000
Financial assets designated at FVPL
60,000
Investment in equity securities at FVOCI
140,000
Investment in bonds measured at amortized cost (due in 3 years)
120,000
Prepaid assets
20,000
Deferred tax asset (expected to reverse in 20x2)
24,000
Investment in Associate
72,000
Investment property
92,000
Sinking fund
76,000
Property, plant, and equipment
200,000
Goodwill
56,000
Totals
1,120,000
How much is the total current assets?
a. 380,000
b. 500,000
c. 360,000
d. 384,000
Current liabilities
2. The ledger of CONGRUENT HARMONIOUS Co. as of December
following:
Liabilities
Bank overdraft
Trade accounts payable (net of ₱20,000 debit balance in accounts)
Notes payable (due in 20 semi-annual payments of ₱8,000)
Interest payable
Bonds payable (due on March 31, 20x2)
Discount on bonds payable
Dividends payable
Share dividends payable
Deferred tax liability (expected to reverse in 20x2)
Income tax payable
Contingent liability
Reserve for contingencies
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31, 20x1 includes the
20,000
80,000
160,000
60,000
140,000
(60,000)
20,000
24,000
72,000
88,000
200,000
56,000
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Totals
860,000
How much is the total current liabilities?
a. 384,000
b. 456,000
c. 584,000
d. 364,000
Current and noncurrent liabilities
3. The ledger of COURIER MESSENGER Co. as of December 31, 20x1 includes the following:
10% Note payable
160,000
12% Note payable
240,000
14% Mortgage note payable
120,000
Interest payable
Additional information:
 COURIER Co.’s financial statements were authorized for issue on April 15, 20x2.
 The 10% note payable is due on July 1, 20x2 and pays semi-annual interest every July 1
and December 31. On January 28, 20x2, COURIER Co. entered into a refinancing
agreement with a bank to refinance the entire note by issuing a long-term obligation.
 The 12% note payable is due on March 31, 20x2 and pays annual interest every March 31.
On January 31, 20x2, COURIER Co. extended the maturity of the note to March 31, 20x3
under the existing loan agreement. The extension of maturity date is at the option of
COURIER.
 The 14% mortgage note is due on December 31, 20x9. Per agreement with the creditor,
COURIER is to pay quarterly interests on the note, failure to do so will render the note
payable on demand. COURIER failed to pay the 3rd and 4th quarterly interests on the note
during 20x1.
How much is the total current liabilities?
a. 280,000
b. 310,000
c. 316,000
d. 288,400
Current and noncurrent liabilities
4. The ledger of SQUAMOUS SCALY Co. as of December 31, 20x1 includes the following:
15% Note payable
100,000
16% Bonds payable
200,000
18% Serial bonds payable
400,000
Interest payable
Additional information:
 SQUAMOUS Co.’s financial statements were authorized for issue on April 15, 20x2.
 The 15% note payable was issued on January 1, 20x1 and is due on January 1, 20x5. The
note pays annual interest every year-end. The agreement with the lender provides that
SQUAMOUS Co. shall maintain an average current ratio of 2:1. If at any time the current
ratio falls below the agreement, the note payable will become due on demand. As of the 3 rd
quarter in 20x1, SQUAMOUS’s average current ratio is 0.50:1. Immediately, SQUAMOUS
informed the lender of the breach of the agreement. On December 31, 20x1, the lender
gave SQUAMOUS a grace period ending on December 31, 20x2 to rectify the deficiency in
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
the current ratio. SQUAMOUS promised the creditor to liquidate some of its long-term
investments in 20x2 to increase its current ratio.
The 16% bonds are 10-year bonds issued on December 31, 1992. The bonds pay annual
interest every year-end.
The 18% serial bonds are issued at face amount and are due in semi-annual installments
of ₱40,000 every April 1 and September 30. Interests on the bonds are also due semiannually. The last installment on the bonds is due on September 30, 20x7.
How much is the total current liabilities?
a. 218,000
b. 200,000
c. 280,000
Working capital
5. Below are the account balances prepared by
Company as of December 31, 20x1:
Assets
Cash
60,000
Accounts receivable, net
176,000
Inventory
160,000
Prepaid income tax
32,000
Prepaid assets
20,000
Investment in subsidiary
40,000
Land held for sale
112,000
Property, plant, and
200,000
equipment
Totals
800,000
d. 298,000
the bookkeeper for REEDY SLENDER
Liabilities
Accounts payable
Notes payable
80,000
400,000
480,000
Additional information:
 Cash consists of the following:
Petty cash fund (unreplenished petty cash expenses, ₱6,000)
Cash in bank
Payroll fund
Tax fund
Cash to be contributed to a sinking fund set up for the
retirement of bonds maturing on December 31, 20x3
Total Cash
8,000
(40,000)
56,000
28,000
8,000
60,000

Checks amounting to ₱122,000 were written to suppliers and recorded on December 30,
20x1, resulting to a bank overdraft of ₱40,000. The checks were mailed on January 5,
20x2.

Accounts receivable consists of the following:
Accounts receivable
Allowance for uncollectibility
Credit balance in customers’ accounts
Selling price of unsold goods sent on consignment
160,000
( 20,000)
( 12,000)
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to FRAIL, Inc. at 120% of cost and excluded from
REEDY’s inventory
Accounts receivable, net
48,000
176,000

The inventory includes cost of goods amounting to ₱40,000 that are expected to be sold
beyond 12 months but within the ordinary course of business. Also, the inventory includes
cost of consigned goods received on consignment from WEAK Co. amounting to ₱20,000.

Prepaid income tax represents excess of payments for quarterly corporate income taxes
during 20x1 over the actual annual corporate income tax as of December 31, 20x1.

Prepaid assets includes a ₱8,000 security deposit on an operating lease which is expected
to expire on March 31, 20x3. The security deposit will be received on lease expiration.

The land qualified for classification as “asset held for sale” under PFRS 5 Non-current
Assets Held for Sale and Discontinued Operations as of December 31, 20x1.

Accounts payable is net of ₱24,000 debit balance in suppliers’ accounts. Accounts payable
includes the cost of goods held on consignment from WEAK Co. which were included in
inventory.

The notes payable are dated July 1, 20x1 and are due on July 1, 20x4. The notes payable
bears an annual interest rate of 10%. Interest is payable annually.
How much is the adjusted working capital?
a. 430,000
b. 406,000
c. 442,000
d. 426,000
Working capital
6. The ledger of NEOPHYTE BEGINNER Co. as of December 31, 20x1 includes the following:
Assets
Petty cash fund
28,000
Cash in bank – Banco De Oro
60,000
Cash in bank – Metrobank
20,000
Accounts receivable (including ₱60,000 pledged accounts)
140,000
Accounts receivable – assigned
100,000
Equity in assigned receivables
40,000
Notes receivable (including ₱80,000 notes receivable discounted)
180,000
Notes receivable discounted
80,000
Advances to subsidiary
128,000
Held for trading securities
80,000
Inventory
248,000
Deferred charges
72,000
Cash surrender value
24,000
Bond sinking fund
400,000
Total assets
1,600,000
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Liabilities
Accounts payable
Estimated warranty liability
Loans payable related to assigned receivables (due in 12 months)
Accrued expenses
Bonds payable (due on December 31, 20x2)
Premium on bonds payable
Total liabilities
160,000
56,000
60,000
52,000
400,000
32,000
760,000
Additional information:
 Petty cash fund includes IOU’s from employees amounting to ₱8,000. The remaining
balance of ₱20,000 represents bills and coins.
 Cash in bank – Banco de Oro represents the balance per bank statement. As of December
31, 20x1, deposits in transit amounted to ₱40,000 while outstanding checks amounted to
₱12,000. Included in the bank statement as of December 31, 20x1 is an NSF check
amounting to ₱32,000.
 Cash in bank – Metrobank represents the balance per ledger. As of December 31, 20x1,
deposits in transit amounted to ₱8,000 while outstanding checks amounted to ₱4,000.
 Accounts receivable (unassigned) includes uncollectible past due accounts of ₱16,000
which need to be written-off.
 Also included in accounts receivable (unassigned) is a ₱20,000 receivable from a customer
which was given a special credit term. Under the special credit term, the customer shall
pay the ₱20,000 receivable in equal quarterly installments of ₱2,500. The last payment is
due on December 31, 20x3.
 The held for trading securities include the reacquisition cost of NEOPHYTE Co.’s shares
amounting to ₱16,000.
 Inventory includes ₱120,000 goods in transit purchased FOB Destination but excludes
₱48,000 goods in transit purchased FOB Shipping point.
How much is the working capital?
a. 394,000
b. 420,000
c. 349,000
d. 402,000
Reconstruction of financial statement
Use the following information for the next three questions:
The ledger of NAÏVE UNAFFECTEDLY SIMPLE Co. in 20x1 includes the following:
Dec. 31,
Jan. 1,
20x1
20x1
Current assets
2,400,000
?
Noncurrent assets
8,000,000
?
Current liabilities
1,800,000
2,000,000
Noncurrent liabilities
?
6,000,000
Additional information:
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NAÏVE’s working capital as of December 31, 20x1 is twice as much as the working capital
as of January 1, 20x1.
Total equity as of January 1, 20x1 is ₱3,400,000. Profit for the year is ₱4,800,000 while
dividends declared amounted to ₱2,000,000. There were no other changes in equity
during the year.
7. How much is the noncurrent liabilities as of January 1, 20x1?
a. 5,000,000
b. 5,200,000
c. 5,300,000
d. 5,400,000
8. How much is the current assets as of December 31, 20x1?
a. 3,200,000
b. 3,400,000
c. 3,600,000
d. 4,200,000
9. How much is the noncurrent assets as of December 31, 20x1?
a. 9,000,000
b. 11,000,000
c. 8,000,000
d. 12,000,000
Reconstruction of financial statements
10. The ledger of LOQUACIOUS TALKATIVE Co. in 20x1 includes the following:
Cash
400,000
Accounts receivable
800,000
Inventory
2,000,000
Accounts payable
600,000
Note payable
200,000
During the audit of LOQUACIOUS’s 20x1 financial statements, the following were noted by the
auditor:
 Cash sales in 20x2 amounting to ₱40,000 were inadvertently included as sales in 20x1.
LOQUACIOUS recognized gross profit of ₱12,000 on the sales.
 A collection of an ₱80,000 accounts receivable in 20x2 was recorded as collection in 20x1.
A cash discount of ₱4,000 was given to the customer.
 During January 20x2, a short-term bank loan of ₱100,000 obtained in 20x1 was paid
together with ₱10,000 interest accruing in January 20x2. The payment transaction in
20x2 was inadvertently included as a 20x1 transaction.
How much is the adjusted working capital as of December 31, 20x1?
a. 2,420,000
b. 2,482,000
c. 2,342,000
d. 2,402,000
Reclassification adjustment
Use the following information for the next two questions:
In 20x1, LUSTROUS BRIGHT Co. disposed of a foreign operation for which a cumulative
translation gain of ₱400,000 is recognized in equity. LUSTROUS Co. is subject to a 30% tax
rate.
11. How much is the net of tax reclassification adjustment to other comprehensive income in
20x1?
a. 280,000
b. (280,000)
c. 120,000
d. (120,000)
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12. How much is the gross of tax effect of the reclassification adjustment to profit or loss in
20x1?
a. 280,000
b. (280,000)
c. 400,000
d. (400,000)
Comprehensive income
Use the following information for the next two questions:
The following items were presented for the purpose of determining comprehensive income.
Profit for the year
4,000
Increase in revaluation surplus
2,000
Remeasurements of the net defined benefit liability (asset) - loss (400)
Net change in translation of foreign operation
(800)
Dividends declared
(200)
Stock rights
600
13. How much is the other comprehensive income?
a. 1,600
b. 800
c. 1,200
d. 4,800
14. How much is the total comprehensive income?
a. 4,800
b. 5,200
c. 5,400
d. 4,600
Function of expense
Use the following information for the next two questions:
The following are among the expenses incurred by GYRATE REVOLVE Co. during the year.
in ‘000s
Interest expense
₱ 48
Cost of inventories sold
1,200
Insurance expense
200
Advertising expense
40
Freight-out
20
Freight-in
8
Loss on sale of equipment
4
Legal and other professional fees
24
Rent expense (one-half occupied by sales department)
16
Sales commission expense
28
Doubtful accounts expense
32
15. How much are the distribution costs or selling expenses?
a. 96
b. 128
c. 232
d. 316
16. How much are the administrative expenses?
a. 316
b. 232
c. 264
d. 361
Gross profit
17. The records of MARAUD PLUNDER Co. showed the following information:
Increase in accounts receivable
200,000
Collections on accounts
1,600,000
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Cash sales
Increase in inventory
Freight-in
Freight-out
Decrease in accounts payable
Disbursements for purchases
Purchase discounts
240,000
80,000
28,000
26,000
120,000
960,000
8,000
How much is the gross profit for the year?
a. 1,252,000
b. 1,244,000
c. 1,226,000
d. 1,225,000
Gross profit
18. The records of DEADLOCK STANDSTILL Co. showed the following information:
Accounts receivable, net, Jan. 1, 20x1
80,000
Accounts receivable, net, Dec. 31, 20x1
320,000
Accounts receivable turnover
4:1
Inventory, Jan. 1, 20x1
240,000
Inventory, Dec. 31, 20x1
120,000
Inventory turnover
3:1
How much is the gross profit for the year?
a. 240,000
b. 260,000
c. 280,000
d. 300,000
Cost of sales
19. The records of CANDOR FAIRNESS Co. showed the following information:
Decrease in accounts payable
120,000
Disbursements for purchases
880,000
Increase in raw materials
200,000
Direct labor is 50% of raw materials used in production
Manufacturing overhead is 20% of prime costs
Increase in work-in-process inventory
80,000
Decrease in finished goods inventory
100,000
How much is the cost of goods sold?
a. 1,082,000
b. 1,032,000
c. 1,048,000
d. 1,028,000
Reconstruction of financial statement
20. WLETER TURMOIL Co. reported profit after tax of ₱420,000. WELTER’s income tax rate is
30%. Operating expenses for the year were 15% of sales and 25% of cost of sales. Other
expenses were 10% of sales. How much is the sales?
a. 4,000,100
b. 3,900,000
c. 4,100,000
d. 4,000,000
Total comprehensive income
Use the following information for the next two questions:
The records of RESTIVE UNEASY Co. on December 31, 20x1 showed the following information:
Sales
4,000,000
Sales discounts
40,000
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Cost of sales
Distribution costs
Administrative costs
Casualty loss on typhoon
Dividends received from investments in FVPL
Dividends received from investment in associate
Share in the profit of an associate
Dividends declared and paid
Interest expense
Unrealized gain on investments in FVPL
Unrealized gain on investments in FVOCI
Income tax expense
Loss on revaluation
Remeasurements of the net defined benefit liability (asset)
- gain
Correction of understatement in depreciation in prior year
Translation adjustment of foreign operation – loss
1,600,000
192,000
480,000
80,000
48,000
96,000
144,000
56,000
88,000
60,000
76,000
600,000
52,000
44,000
64,000
16,000
21. How much is the other comprehensive income?
a. (24,000)
b. 152,000
c. 52,000
d. 127,000
22. How much is the total comprehensive income?
a. 1,224,000
b. 1,242,00
c. 1,448,000
d. 1,424,000
Reconstruction of financial statement
23. PRECLUDE PREVENT Co. has the following information on December 31, 20x1:
 Cost of sales is ₱520,000.
 Operating expenses are 13% of sales and 20% of cost of sales.
 Interest expense is 5% of sales.
 Income tax rate is 30%. There were no temporary differences during the year.
How much is the profit for the year?
a. 98,200
b. 104,200
c. 105,200
d. 95,200
Shareholders’ equity
24. The ledger of INDENTATION CUT Co. in 20x1 includes the following:
Share capital
Share premium
Retained earnings, appropriated
Retained earnings, unappropriated
Revaluation surplus
Remeasurements of the net defined benefit liability (asset) – gain
Cumulative net unrealized gain on fair value
changes of investment in FVOCI
Effective portion of losses on hedging instruments in a
cash flow hedge
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400,000
80,000
72,000
168,000
120,000
60,000
92,000
40,000
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Cumulative translation loss on foreign operation
Treasury shares, at cost
20,000
52,000
How much is the total shareholders’ equity?
a. 880,000
b. 932,000
c. 960,000
d. 696,000
Reconstruction of financial statements
Use the following information for the next two questions:
INFRINGE VIOLATE Co. was incorporated on January 1, 20x1. The following were the
transactions during the year:
 Total consideration from share issuances amounted to ₱4,000,000.
 A land and building were acquired through a lump sum payment of ₱800,000. A mortgage
amounting to ₱200,000 was assumed on the land and building.
 Total payments of ₱160,000 were made during the year on the mortgage assumed on the
land and building. The payments are inclusive of interest amounting to ₱20,000.
 Additional capital of ₱400,000 was obtained through bank loans. None of the bank loans
were paid during the year. Half of the bank loans required a secondary mortgage on the
land and building.
 There is no accrued interest as of year-end.
 Dividends declared during the year but remained unpaid amounted to ₱120,000.
 No other transactions during the year affected liabilities.
 Retained earnings as of December 31, 20x1 is ₱240,000.
25. How much is the profit for the year?
a. 420,000
b. 360,000
c. 280,000
d. 320,000
26. How much is the total assets as of December 31, 20x1?
a. 4,802,000
b. 4,940,000
c. 4,780,000
Reconstruction of financial statements
27. GENTEEL POLITE Co. had the following information for 20x1:
Accounts receivable turnover
10:1
Total assets turnover
2:1
Average receivables during the year
₱800,000
Total assets, January 1, 20x1
1,600,000
How much is the total assets as of December 31, 20x1?
a. 6,480,000
b. 6,380,000
c. 6,240,000
d. 4,820,000
d. 6,400,000
The answers and solutions to the computational problems above
(Multiple choice – Computational (SET B) can be found in the
accompanying Teacher’s Manual.
Chapter 37: Theory of Accounts Reviewer
Objective and scope of PAS 1
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1. This refers to financial statements that are intended to meet the needs of users who are
not in a position to require an entity to prepare reports tailored to their particular
information needs.
a. All-purpose financial statements
c. Managerial reports
b. General purpose financial statements d. Unisex financial statements
2. Regarding the presentation of financial statements, which of the following statements is
correct?
a. PAS 1 Presentation of Financial Statements prescribes the basis for presentation of
general and specific purpose financial statements to ensure comparability both with
the entity’s financial statements of previous periods and with the financial statements
of other entities.
b. PAS 1 does not apply to the structure and content of condensed interim financial
statements.
c. PAS 1 applies only to entities that present separate financial statements; consolidated
financial statements are dealt with under PAS 27.
d. PAS 1 uses terminology that is suitable for both profit and non-profit-oriented entities,
including public sector business entities.
3. Regarding the presentation of financial statements, which of the following statements is
correct?
a. PAS 1 Presentation of Financial Statements applies only to businesses in the private
sector
b. PAS 1 applies to corporations only; PAS 1 does not apply to entities that do not have
share capital.
c. PAS 1 applies equally to all entities, including those that present consolidated financial
statements and those that present separate financial statements.
d. All the recognition, measurement and disclosure requirements for specific transactions
and other events are included in PAS 1.
4. Philippine Financial Reporting Standards (PFRSs) are Standards and Interpretations
adopted by the Financial Reporting Standards Council (FRSC). They comprise all of the
following, except
a. Philippine Financial Reporting Standards (PFRS)
b. Philippine Accounting Standards (PAS)
c. Interpretations originated by the International Financial Reporting Interpretations
Committee (IFRIC) or the former Standing Interpretations Committee (SIC) adopted by
the FRSC and interpretations originated by Philippine Interpretations Committee (PIC)
d. Philippine Accounting Practice Statements (PAPS)
e. All of the following comprise the Reporting Standards
5. Financial statements are a structured representation of the financial position and
financial performance of an entity. The main objective of financial statements is
a. to provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions.
b. to show the results of the management’s stewardship of the resources entrusted to it.
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c. to provide information about the products of the entity, its achievements during the
year, and its plans for the following year(s).
d. to provide information essential in making buy or sell decisions
6. Financial statements are a structured representation of the financial position and
financial performance of an entity. The objective of general purpose financial statements
is to provide information about an entity’s (choose the incorrect statement)
a. financial position
c. cash flows
b. financial performance
d. valuation
7. In addition to financial statements, an entity also provided a report quantifying the
benefits from ISO certifications obtained during the year on quality management and
environmental compliance. Management regards the employees as an important user
group and expects that these reports may encourage employees to adhere to company
policies on quality and environmental matters. Which of the following statements is
correct?
a. Entities shall prepare additional reports showing quantitative information in
accordance with relevant PFRSs.
b. Entities are prohibited from issuing additional quantitative reports.
c. Reports and statements presented outside financial statements are outside the scope of
PFRSs.
d. Entities should prepare all additional reports showing either qualitative or
quantitative information in accordance with relevant PFRSs.
8. All of the following statements correctly refer to PAS 1 Presentation of Financial
Statements, except
a. The objective of this Standard is to prescribe the basis for presentation of general
purpose financial statements, to ensure comparability both with the entity’s financial
statements of previous periods and with the financial statements of other entities.
b. PAS 1 shall be applied to all-purpose financial statements prepared and presented in
accordance with Philippine Financial Reporting Standards (PFRSs).
c. The application of PFRSs, with additional disclosure when necessary, is presumed to
result in financial statements that achieve a fair presentation.
d. Inappropriate accounting policies are not rectified either by disclosure of the
accounting policies used or by notes or explanatory material.
9. The following statements relate to PAS1 Presentation of Financial Statements. Choose the
correct statement.
a. Many entities also present, outside the financial statements, reports and statements
such as environmental reports and value added statements, particularly in industries
in which environmental factors are significant and when employees are regarded as an
important user group. Reports and statements presented outside financial statements
should be accounted for using applicable PFRSs.
b. Applying a requirement is impracticable when the entity cannot apply it after making
every reasonable effort to do so.
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c. An entity whose financial statements do not comply with PFRSs shall make an explicit
and unreserved statement of such noncompliance in the notes. If the entity’s financial
statements do comply with PFRSs, there is no need to make an explicit and unreserved
statement of such compliance in the notes.
d. Financial statements shall not be described as complying with PFRSs unless they
comply with most of the requirements of PFRSs.
10.Which of the following statements is/are correct?
I.
External financial information is generally more highly summarized than the
information reported internally.
II.
The Securities and Exchange Commission recommends, but does not require, that all
nationally registered companies have an annual independent audit as protection for
the shareholders.
III.
PFRSs have, in most cases, eliminated the need for accountants to exercise professional
judgment in interpreting and applying accounting standards.
a. I, II, III
b. I, II
c. II, III
d. I
11.Which of the following statements is (are) correct?
I.
General purpose financial statements are those intended to meet the needs of users
who are in a position to demand reports tailored to meet their particular information
needs
II.
Managerial reports are a structured representation of the financial position and
financial performance of an entity.
a. both are true b. both are false
c. I is true d. II is true
12.Which of the following is a report presented outside the financial statements and hence,
not covered by PFRSs?
(Item #1) Environmental Reports; (Item #2) Explanatory Notes; (Item #3)Value added
statements
a. Yes, Yes, Yes
c. No, Yes, Yes
b. Yes, No, Yes
d. Yes, Yes, No
(AICPA)
13.The accounting terminology for earned surplus under current PFRSs is
a. retained earnings reservation
b. additional paid-in capital
c. capital contribution in excess of par value
d. retained earnings
(RPCPA)
14.Which of the following is not an implied objective of financial reporting?
a. to help allocate limited resources
b. to influence the market price of shares traded in the stock exchange
c. to reduce the risk of making economic decisions
d. to report on the stewardship of enterprise resources
(Adapted)
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General features
15. The general features of financial statement presentation as prescribed under PAS 1
Presentation of Financial Statements includes
I.
Fair presentation and compliance with PFRS
II.
Going concern
III.
Accrual basis of accounting
IV.
Materiality and aggregation
V.
Offsetting
VI.
Frequency of reporting
VII.
Comparative information
VIII.
Consistency of presentation
a. I, II, III, IV b. I, II, III, IV, V c. I, II, III, IV, V, VIII d. all of these
16.Which of the following is not included among the general features of financial statement
presentation?
a. Growing concern
c. Frequency of reporting
b. Accrual basis
d. Comparative information
17.A company is issuing its comparative financial statements for years 20x1 and 20x2. If the
company is required to issue an additional statement of financial position, such statement
should be dated
a. as of Jan. 1, 20x1
c. as of Dec. 31, 20x2
b. as of Jan. 1, 20x2
d. as of Dec. 31, 20x1
18.During the year, an accountant omitted centavos in the amounts recognized in the
journals. Such omissions were considered individually immaterial and were treated as a
normal company practice. However, it was found out as of year-end that the sum of the
centavos omitted, when totaled, is material. The omission is
a. considered immaterial, hence, requires no adjustment
b. considered material, hence, requires no adjustment
c. considered immaterial but no adjustment is necessary
d. considered material, hence, requires an adjustment
19.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
a. the peso amount of financial consequence of the omission or misstatement judged in
the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the surrounding
circumstances
c. the peso amount and nature of the omission but not the misstatement judged in the
surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances
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20.The presentation of comparative financial statements is
a. encouraged by PFRSs
b. required by PFRSs
c. not required by PFRSs but permitted due to industry standards
d. a violation of PFRSs
21.According to PAS 1, in virtually all circumstances, a fair presentation is achieved by
compliance with applicable PFRSs. A fair presentation also requires an entity (choose the
incorrect statement).
a. to select and apply accounting policies in accordance with PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
b. to present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information.
c. to have its financial statements examined by an external party
d. to provide additional disclosures when compliance with the specific requirements in
PFRSs is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s financial position and
financial performance.
22.In virtually all circumstances, a fair presentation is achieved by compliance with
applicable PFRSs. A fair presentation also requires an entity: (choose the incorrect
statement)
a. to select and apply accounting policies in accordance with PAS 8
b. to provide additional disclosures when compliance with the specific requirements in
PFRSs is insufficient to enable users to understand the impact of particular
transactions
c. to establish a system of internal control, the responsibility for which is the entity’s
auditor.
d. to present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information.
23.In the extremely rare circumstances in which management concludes that compliance
with a requirement in a PFRS would be so misleading that it would conflict with the
objective of financial statements set out in the Conceptual Framework and the relevant
regulatory framework requires, or otherwise does not prohibit, such a departure, the
entity need not disclose which of the following?
a. that management has concluded that the financial statements present fairly the
entity’s financial position, financial performance and cash flows
b. that it has complied with applicable PFRSs, except that it has departed from a
particular requirement to achieve a fair presentation
c. that it has complied with other applicable standards other than those issued by the
IASB and adopted by the FRSC and the description of those accounting standards
which the entity has complied to.
d. the title of the PFRS from which the entity has departed, the nature of the departure,
including the treatment that the PFRS would require, the reason why that treatment
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would be so misleading in the circumstances that it would conflict with the objective of
financial statements set out in the Conceptual Framework, and the treatment adopted
e. for each period presented, the financial effect of the departure on each item in the
financial statements that would have been reported in complying with the
requirement.
24.Identify the incorrect statement.
a. When an entity has departed from a requirement of a Standard or an Interpretation in
a prior period, and that departure affects the amounts recognized in the financial
statements for the current period, it shall disclose the (a) title of the Standard or
Interpretation from which the entity has departed and the (b) impact of such
departure.
b. In the extremely rare circumstances in which management concludes that compliance
with a requirement in a Standard or an Interpretation would be so misleading that it
would conflict with the objective of financial statements set out in the Conceptual
Framework, but the relevant regulatory framework prohibits departure from the
requirement, the entity shall, to the maximum extent possible, reduce the perceived
misleading aspects of compliance by disclosing:(a) the title of the Standard or
Interpretation in question and (b) for each period presented, the adjustments to each
item in the financial statements that management has concluded would be necessary
to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management
either intends to liquidate the entity or to cease trading, or has no realistic alternative
but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment of the
entity’s ability to continue as a going concern. In assessing whether the going concern
assumption is appropriate, management takes into account all available information
about the future, which is at least, but is not limited to, five years from the balance
sheet date.
25.Identify the incorrect statement.
a. An entity shall prepare its financial statements, including cash flow information, using
the accrual basis of accounting.
b. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items on the face of the balance sheet,
income statement, statement of changes in equity and cash flow statement, or in the
notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a
Standard or an Interpretation need not be satisfied if the information is not material.
d. PAS 1 requires that an entity presenting its current year financial statements to also
present its financial statements for the previous year.
26.When preparing financial statements, management shall make an assessment of an
entity’s ability to continue as a going concern. An entity shall prepare financial statements
on a going concern basis unless
I.
management intends to liquidate the entity
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II.
III.
IV.
management intends to cease trading
management has no realistic alternative but to cease trading
there are material uncertainties
a. I, II
b. I, II, III
c. I, II, III, IV
d. II, III, IV
27.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, the entity shall
a. not prepare the financial statements on a going concern basis and shall disclose that
fact, together with the basis on which it prepared the financial statements and the
reason why the entity is not regarded as a going concern.
b. not prepare the financial statements on a going concern basis but no disclosure is
necessary
c. prepare the financial statements on a going concern basis but shall disclose the
uncertainties.
d. prepare the financial statements on a going concern basis but no disclosure is
necessary
28.In assessing whether the going concern assumption is appropriate, management takes
into account all available information about the future, which is at least, but is not limited
to,
a. 12 months from the end of the reporting period.
b. 12 months to 3 years from the end of the reporting period.
c. 3 to 5 years from the end of the reporting period.
d. at least 5 years from the end of the reporting period.
29.When the accrual basis of accounting is used, an entity recognizes items as assets,
liabilities, equity, income and expenses (the elements of financial statements)
a. as cash is received and as cash is paid
b. as cash is earned and as cash is incurred
c. when they provide relevant information to expected users
d. when they satisfy the definitions and recognition criteria for those elements in the
Conceptual Framework and in the PFRSs.
30.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.
According to PAS 1, the final stage in the process of aggregation and classification is
a. the presentation of a comprehensive financial report understandable by all expected
users
b. the presentation of condensed and classified data, which form line items in the
financial statements.
c. the presentation of a concise information, comprehensive enough to permit informed
judgment to external and internal users.
d. the presentation of a balanced trial balance.
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31.When preparing financial statements, a management of an entity assessed that a specific
disclosure required by a PFRS is immaterial and, thus, such disclosure was omitted from
the financial statements. The financial statements prepared
a. are misstated
b. are not misstated
c. are misstated and a rectification should be made in the notes
d. are not misstated but additional disclosures should be made in the notes
32.Which of the following statements about financial statements are in accordance with PAS
1?
I.
Extraordinary items must be disclosed on the face of the income statement as additions
to or deductions from profit before tax.
II.
The authorized share capital of the company must be disclosed by note or on the face
of the balance sheet.
III.
The total of staff costs for the period must be disclosed by note or on the face of the
income statement.
IV.
The accounting policies adopted by the company must be disclosed but only if they do
not comply with accounting standards.
V.
Proposed ordinary dividends should not be recognized as liabilities unless they have
been proposed or declared before the balance sheet date.
a. 1, 2, 3 and 4
b. 1, 2, 3 and 5
c. 2, 3 and 5
d. 1, 4 and 5
(ACCA)
33.All of the following are examples of offsetting, except
a. presenting Accounts receivable net of allowance for doubtful accounts.
b. gains and losses on the disposal of non-current assets, including investments and
operating assets, are reported by deducting from the proceeds on disposal the carrying
amount of the asset and related selling expenses
c. expenditure related to a provision that is recognized in accordance with PAS 37 and
reimbursed under a contractual arrangement with a third party are netted against the
related reimbursement in the income statement.
d. foreign exchange gains and losses or gains and losses arising on financial instruments
held for trading are netted and presented as net gains or net losses in the income
statement
34.Under PAS 1, an entity shall present a complete set of financial statements
a. including comparative information at least annually.
b. at least annually, with or without comparative information
c. on as-needed basis, with or without comparative information
d. at least every three years when there are limited users.
35.When an entity changes the end of its reporting period and presents financial statements
for a period longer or shorter than one year, the entity shall
I.
disclose the period covered by the financial statements
II.
restate comparative financial information
III.
disclose the reason for using a longer or shorter period
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IV.
disclose the fact that amounts presented in the financial statements are not entirely
comparable
a. I, II, III
b. I, III, IV
c. I, II, III, IV
d. I, III
36.When an entity’s balance sheet date changes and the annual financial statements are
presented for a period longer or shorter than one year, an entity shall disclose, in addition
to the period covered by the financial statements:
I.
the reason for using a longer or shorter period
II.
the fact that comparative amounts for the income statement, statement of changes in
equity, cash flow statement and related notes are not entirely comparable
III.
the amounts charged to the beginning balance of the retained earnings, net of tax
IV.
pro-forma financial statements, as a supplemental information in the notes
a. I, II
b. I, III
c. I, III, IV
d. I, II, III, IV
37.An entity disclosing comparative information shall present, as a minimum,
a. two statements of financial position, two of each of the other statements, and related
notes.
b. two statements of financial position, two of each of the other statements, and two
related notes.
c. two statements of financial position, one of each of the other statements, and related
notes.
d. three statements of financial position, two of each of the other statements, and related
notes.
38.When the entity changes the presentation or classification of items in its financial
statements, the entity shall reclassify comparative amounts unless reclassification is
impracticable. When the entity reclassifies comparative amounts, the entity shall disclose:
I.
the nature of the reclassification
II.
the amount of each item or class of items that is reclassified
III.
the reason for the reclassification
IV.
the nature of the adjustments that would have been made if the amounts had been
reclassified
a. I, II
b. I, II, III, IV
c. I, III, IV
d. I, II, III
39.An entity shall retain the presentation and classification of items in the financial
statements from one period to the next unless:
I.
another presentation or classification would provide a more reliable and relevant
information to users.
II.
a PFRS requires a change in presentation.
III.
in no circumstance that an entity may change the presentation and classification of
items in the financial statements
a. I, II
b. I
c. II
d. III
40.SOP SOAK, Inc. decided to extend its reporting period from a year (12-month period) to a
15-month period. Which of the following is not required under PAS 1 in case of change in
reporting period?
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a. SOP Inc. should disclose the reason for using a longer period than a period of 12
months.
b. SOP Inc. should change the reporting period only if other similar entities in the
geographical area in which it generally operates have done so in the current year;
otherwise its financial statements would not be comparable to others.
c. SOP Inc. should disclose that comparative amounts used in the financial statements are
not entirely comparable.
d. SOP Inc. should disclose the period covered by the financial statements.
(Adapted)
41.Which principle/guideline justifies a company violating an accounting principle because
the amounts are immaterial?
a. Conservatism
b. Full disclosure c. Immateriality
d. Materiality
42.Which of the following statements is incorrect?
a. working capital usually is viewed a one measure of liquidity.
b. current liabilities are short-term liabilities whose liquidation is reasonably expected to
require the use of current assets or the creation of other current liabilities.
c. all assets reported on the balance sheet are reported to acquisition cost in conformity
with the historical cost principle.
d. in financial reporting, it is improper to offset current assets with current liabilities
unless there is a legal right of setoff.
(AICPA)
43.The life of a business is
a. a series of balance sheets
b. a series of income statements
c. a and b
d. perpetual
44.You should request the following financial information before you invest in a company:
a. statement of financial position, statement of profit or loss and other comprehensive
income, statement of changes in equity, statement of cash flows and notes.
b. statement of earnings, statement of retained earnings, cash flow statement, and the
balance sheet.
c. statement of earnings, balance sheet, and the accompanying notes.
d. journals and ledgers
(Adapted)
45.Fair presentation requires an entity to
I.
Select and apply accounting policies in accordance with FRSC standards.
II.
Present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information.
III.
Provide additional disclosures when compliance with the specific requirements of FRSC
standards is insufficient to enable users to understand the impact of particular
transactions and other events on the entity’s financial position and financial
performance.
a. I only
b. I and II only
c. I and III only
d. I, II and III
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46.Philippine Financial Reporting Standards comprise the following, except:
a. Philippine Accounting Standards
c. Adopted SIC Interpretations
b. Adopted IFRIC Interpretationsd. BOA Pronouncements
47.Which of the following statements is (are) correct?
I.
Assessing whether an omission or misstatement could influence economic decisions of
users, and so be material, requires consideration of the characteristics of those users
II.
Users are assumed to have a reasonable knowledge of business and economic activities
and accounting and willingness to study the information with reasonable diligence.
a. Both are true
b. Both are false
c. I is true
d. II is true
48.The inability to apply the requirement of a specific standard after making every
reasonable effort to do so refers to the condition known as:
a. impossibility
c. impracticability
b. infeasibility
d. inapplicability
49.Which is not a general feature of financial statement presentation?
a. fair presentation and compliance with PFRS
b. structure and content
c. offsetting
d. materiality and aggregation
50.Which is not correct?
a. the application of PFRSs, with additional disclosure when necessary, is presumed to
result in financial statement that achieve fair presentation
b. an entity whose financial statement comply with PFRSs shall make an implicit and
reserved statement of such compliance
c. inappropriate accounting policies are not rectified by disclosures of the accounting
policies used or by notes or explanatory materials
d. omission or misstatement of an item is material if they could individually or
collectively, influence the decision of users taken on the basis of the financial
statements
51.Fair presentation of financial statements requires an entity to: (Select the incorrect one.)
a. select and apply accounting policies in accordance with PAS 8.
b. present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information
c. provide additional disclosures when compliance with specific requirement in PFRS is
insufficient to enable users to understand the impact of a particular transaction
d. have its accounting policies unchanged when a more appropriate alternative exists
52.When the reporting period is changed, which is not a required disclosure?
a. the new period covered by the financial statement
b. the reason for using a longer or shorter period
c. the fact that comparative amounts for the income statement, statement of changes in
equity, cash flow statement and related notes are not entirely comparable
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d. the reason why other similar entities should also change their reporting period
53.Which of the following is correct regarding the preparation of financial statements?
I.
When an entity has a history of profitable operations and ready access to financial
resources, a conclusion that the going concern basis of accounting is appropriate may
be reached without detailed analysis.
II.
An entity shall prepare all of its financial statements, including the cash flow
statement, using the accrual basis of accounting
a. I is true
c. Both I and II are true
b. II is true
d. Both I and II are false
54.When preparing financial statements, an entity needs to assess whether going concern
assumption is appropriate. In assessing the appropriateness of going concern, which of the
following need not be considered
a. maturities of obligations
b. potential sources of financing
c. current and expected profitability
d. availability of unqualified audit opinion
55.You are a CPA practicing public accounting. You were engaged by Lugi Bank Corporation
to audit its financial statements for the year ended December 31, 20x1. You did not
perform any audit procedure on the appropriateness of management’s use of going
concern assumption because of a tight deadline. Three (3) months after you issued an
unqualified opinion (‘clean’ opinion), Lugi Bank Corporation has liquidated. Which of the
following is most likely to be incorrect?
a. You may decide to take up another course in college. Goodbye accounting career.
b. There is a possibility that you will end up in jail.
c. You may acquire anemia from sleepless nights.
d. You can never be held responsible for your audit opinion because a “tight” deadline is a
valid reason to omit audit procedures. Further, PAS 1 does not require assessment of
going concern.
56.A newly acquired plant asset is to be depreciated over its useful life. The rationale for this
process is the
a. Economic entity assumption.
c. Materiality assumption.
b. Monetary unit assumption.
d. Going concern assumption.
(Adapted)
57.The standard of fair presentation in conformity with PFRSs does not require that:
a. changes in accounting policies from period to period should be disclosed
b. there should be a proper balance between disclosure and summarization of financial
accounting information
c. information in the underlying records should be properly reflected and described in the
financial statements in conformity with PFRSs
d. the financial statements should provide all available information about the entity
(Adapted)
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58.Which of the following statements is incorrect?
a. An entity shall present separately each material class of similar items.
b. An entity shall present separately items of a dissimilar nature or function unless they
are immaterial.
c. PAS 1 affects only the presentation of owner changes in equity and of comprehensive
income. It does not change the recognition, measurement or disclosure of specific
transactions and other events required by other PFRSs.
d. When an entity presents notes, it shall not present it with equal prominence with the
other financial statements so as not to imply inaccuracies in the information presented
on the face of the financial statements.
59.Which of the following statements is incorrect?
a. PAS 1 requires an entity to present all owner changes in equity in a statement of
changes in equity.
b. All non-owner changes in equity are required to be presented in one statement of profit
or loss and other comprehensive income or in two statements
c. Components of comprehensive income are permitted to be presented in the statement
of changes in equity in some rare cases.
d. An entity may do away with a requirement of a standard if such requirement is
impracticable.
60.PFRSs apply only to material items. It is therefore
a. appropriate to leave immaterial errors uncorrected
b. appropriate to make intentional errors which are immaterial
c. permitted to deviate from provisions of the PFRSs that do not materially affect the
usefulness of the financial statements.
d. appropriate to deviate from provisions of the PFRSs if the auditor says so.
61.Which of the following statements is incorrect?
a. An entity is permitted to deviate from some requirements of PFRSs in certain cases if
compliance with the provisions of the PFRSs would be so misleading.
b. An entity is permitted to deviate from some requirements of PFRSs if compliance with
the requirement is impracticable.
c. A requirement of a standard is said to be impracticable when an entity cannot apply it
after making every reasonable effort to do so
d. A requirement of a standard is said to be impracticable when the entity’s accountant is
a non-CPA.
62.Which of the following statements is incorrect?
a. An entity may present the components of profit or loss either as part of a single
statement of profit or loss and other comprehensive income or in a separate income
statement or in the notes.
b. PAS 1 requires that total comprehensive income should be presented in the financial
statements.
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c. PAS 1 requires an entity to disclose income tax relating to each component of other
comprehensive income.
d. The presentation of disclosures on dividends in the statement of comprehensive income
is not permitted.
63.Which of the following statements is incorrect?
a. When an income statement is presented it is part of a complete set of financial
statements and shall be displayed immediately before the statement of comprehensive
income.
b. An entity shall offset financial assets and financial liabilities or income and expenses if
the entity has legal right of set-off.
c. Many entities also present, outside the financial statements, reports and statements
such as environmental reports and value added statements, particularly in industries
in which environmental factors are significant and when employees are regarded as an
important user group. Reports and statements presented outside financial statements
are outside the scope of PFRSs.
d. Information about expected dates of realization of assets and liabilities is useful in
assessing the liquidity and solvency of an entity.
64.Which of the following statements is incorrect regarding offsetting of assets and liabilities
in the statement of financial position?
a. Assets and liabilities in the statement of financial position may be offset in general.
b. Offsetting does not give rise to gain or loss recognition, which distinguishes it from the
derecognition of an instrument
c. An entity shall not offset assets and liabilities or income and expenses, unless required
or permitted by a PFRS.
d. Financial assets and financial liabilities shall be offset if the entity has both the legal
right of offset and the intention of settling the asset and liabilities at a net basis.
65.Which of the following statements is incorrect?
a. If a line item is not individually material, it is aggregated with other items either in
those statements or in the notes. An item that is not sufficiently material to warrant
separate presentation in those statements may warrant separate presentation in the
notes.
b. Changes in the general purchasing power of the peso are not reflected in the basic
financial statements.
c. An important characteristic of financial statements is that the information they
contain describes the future and decision making is therefore based on the past.
d. Assets and liabilities in the statement of financial position should not be offset even if a
legal right of offset exists.
66.The elements of financial statements are measured using a mixture of costs and values.
The values used pertain to the end of reporting period.
a. Therefore, financial statement elements do not describe the future but rather reflects
costs as of transaction dates and values as of end of reporting period.
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b. Therefore, financial statement elements describe the future rather than reflecting costs
as of transaction dates and values as of end of reporting period.
c. Therefore, financial statement elements are automatically adjusted for changes in the
general purchasing power of the presentation currency.
d. Therefore, financial statements are useful for predicting both the future and the past.
67.Financial statements describe the results of past events and transactions.
a. Therefore, financial statements are not useful in predicting the future.
b. Therefore, financial statements can be used to make predictions about outcomes of
future transactions.
c. Therefore, financial statements are useful in predicting the past but not the future.
d. Therefore, most accountants are historical.
68.Which of the following statements is incorrect?
a. Financial statements are normally prepared using the “stable monetary concept.”
b. The stable monetary concept assumes that the general purchasing power of money
used in financial statement elements measurement remains relatively constant.
c. Financial statements present the same levels of purchasing power of the peso.
d. Financial statements generally ignore changes in the general purchasing power of the
peso.
69.Since financial statement elements are normally presented in their respective historical
costs or costs at transaction dates or values at the end of reporting period,
a. they do not reflect the same levels of purchasing power because the levels of
purchasing power vary between transaction dates. Therefore, the financial statements
must be adjusted to the purchasing power current as of end of reporting period.
b. they do not reflect the same levels of purchasing power because the levels of
purchasing power vary between transaction dates. Nonetheless, the changes in
purchasing power are disregarded because of the concept of “stable monetary
assumption.”
c. they do reflect the same levels of purchasing power because the levels of purchasing
power do not vary between transaction dates.
d. financial statement elements are normally measured at fair value at each reporting
date. Therefore, there is no need to make adjustments for inflation.
Structure and content of financial statements in general
70.PAS 1 requires entities to present an additional statement of financial position in certain
instances. The purpose of this provision is
a. to provide information that is useful in analyzing an entity’s financial statements
b. to promote convergence with US GAAP (FASB)
c. to present information that otherwise would be concealed in the notes
d. to comply with the principle of consistency
71.PAS 1 requires an entity to present a statement of financial position as at the beginning of
the preceding period in a complete set of financial statements in all of the following
instances, except
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a.
b.
c.
d.
when the entity applies an accounting policy retrospectively
when the entity makes a retrospective restatement
when the entity reclassifies items in the financial statements
when the entity makes a change in accounting estimate
72.This information, along with other information in the notes, assists users of financial
statements in predicting the entity’s future cash flows and, in particular, their timing and
certainty.
a. assets, liabilities, and equity
b. income and expenses, including gains and losses
c. contributions by and distributions to owners in their capacity as owners
d. cash flows
e. all of the above
73.A complete set of financial statements comprises:
I.
a statement of financial position as at the end of the period
II.
a statement of profit or loss and other comprehensive income for the period
III.
an income statement for the period without a statement of comprehensive income
IV.
a statement of changes in equity for the period
V.
a statement of cash flows for the period
VI.
notes, comprising a summary of significant accounting policies and other
explanatory information
VII.
comparative information in respect of the preceding period
VIII.
a statement of financial position as at the beginning of the preceding period when
an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it reclassifies items in its
financial statements.
a. I, III, IV, V, VI
c. I, II, IV, V, VI, VII, VIII
b. I, III, IV, V, VI, VII
d. all of these
74.Which of the following statements is incorrect concerning definition of terms provided
under PAS 1 Presentation of Financial Statements?
a. Owners are holders of instruments classified as equity.
b. Profit or loss is the total of income less expenses, including the components of other
comprehensive income.
c. Reclassification adjustments are amounts reclassified to profit or loss in the current
period that were recognized in other comprehensive income in the current or previous
periods.
d. Total comprehensive income is the change in equity during a period resulting from
transactions and other events, other than those changes resulting from transactions
with owners in their capacity as owners.
e. Total comprehensive income comprises all components of ‘profit or loss’ and of ‘other
comprehensive income’.
75.Which of the following is correct regarding the use of terminology under PAS 1
Presentation of Financial Statements?
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a. Entities are required by PAS 1 to use the terms “other comprehensive income,” “profit
or loss” and “total comprehensive income.” The use of the term “net income” is
prohibited.
b. Entities are required by PAS 1 to use the term “statement of financial position” in
presenting its assets, liabilities and equity as of a given point of time. The use of the
term “balance sheet” is prohibited.
c. Entities are required by PAS 1 to use the term “statement of cash flows” in presenting
the sources and uses of cash for a period. The use of the term “cash flow statement” is
prohibited.
d. Entities may use the terms “balance sheet,” “net income,” “income statement,” and
“cash flow statement” to describe their financial statements and other terms provided
they are not misleading.
76.When an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements or when it reclassifies items in its financial
statements, it shall present, as a minimum,
a. three statements of financial position, three of each of the other statements, and two
related notes.
b. two statements of financial position, two of each of the other statements, and related
notes.
c. three statements of financial position, two of each of the other statements, and related
notes.
d. three statements of financial position, two of each of the other statements, and two
related notes.
77.FORRAY RAID PILLAGE Co. made a correction of prior period error during the current
year. When FORRAY prepares financial statements for the current year, it shall present
statement of financial position as at
I. the end of the current period
II. the end of the preceding period
III. the beginning of the preceding period.
a. I, II
b. II, III
c. I
d. I, II, III
78.Which of the following statements is incorrect?
a. PFRSs apply to financial statements and to other information presented in an annual
report or other document.
b. PAS 1 requires an entity to present assets and liabilities in order of liquidity only when
a liquidity presentation provides information that is reliable and is more relevant than
a current/non-current presentation.
c. Financial statements are often made more understandable by presenting information
in thousands or millions of units of the presentation currency. This is acceptable as
long as the level of rounding in presentation is disclosed and material information is
not omitted.
d. Financial statements shall be presented at least annually.
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79.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:
I.
the name of the reporting entity or other means of identification, and any change
in that information from the preceding reporting date
II.
whether the financial statements cover the individual entity or a group of entities
III.
the balance sheet date or the period covered by the financial statements, whichever
is appropriate to that component of the financial statements
IV.
the presentation currency, as defined in PAS 21 The Effects of Changes in Foreign
Exchange Rates
V.
the level of rounding used in presenting amounts in the financial statements.
a. I, II, III
b. I, II, III, IV
c. I, II, IV, V
d. I, II, III, IV, V
80.The information provided by financial reporting pertains to:
a. individual business enterprises and the economy as a whole, rather than to industries
or to members of society as consumers
b. individual business enterprises, industries and the economy as a whole, rather than to
members of society as consumers
c. individual enterprises, rather than to industries of the economy as a whole or to
members of society as consumers
d. individual business enterprises and industries rather than to the economy as a whole
or to members of society as consumers
(AICPA)
81.Which of the following reports is not a component of the financial statements according to
PAS 1?
a. Statement of financial position or balance sheet. c. Director’s report.
b. Statement of changes in equity.
d. Notes
(Adapted)
82.The financial statements most frequently provided include all of the following except the
a. balance sheet
c. statement of cash flows
b. income statement
d. statement of retained earnings.
83.According to PAS1 Presentation of Financial Statements, the notes within the financial
statements contain information in addition to that presented in which of the following?
I.
Report on sustainability
II.
Chairman's statement
III.
Statement of financial position
IV.
Statement of financial performance
a. I and II
b. II and III
c. III and IV
d. I, III, and IV
(ACCA)
84.Which of the following are included in a complete set of financial statements, according to
PAS1 Presentation of Financial Statements?
I.
A statement by the board of directors of compliance with local legislation
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II.
III.
IV.
A statement of changes in equity
Summarized statements of financial position for the last five years
A statement of cash flows
a. I, II, and III
b. II and IV
c. I and IV
d. all of these
(ACCA)
85.Which of the following financial statements is concerned with the entity at a point in time?
a. Statement of changes in financial position
c. Income statement
b. Cash flow statement
d. Balance sheet
86.In which of the following instances an entity is not required to present a statement of
financial position as at the beginning of the preceding period?
a. the entity applies an accounting policy retrospectively
b. the entity makes a retrospective restatement of items in its financial statements
c. the entity changes its financial reporting period
d. the entity makes reclassification adjustments as defined in PAS 1
87.Which of the following statements is correct regarding PAS 1 Presentation of Financial
Statements?
a. Fair presentation requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and recognition criteria
for assets, liabilities, income and expenses set out in PAS 1.
b. The application of PFRSs, with additional disclosure when necessary, is presumed to
result in accurate financial statements.
c. An entity whose financial statements comply with PFRSs shall make an explicit and
unreserved statement of such compliance in the notes. An entity shall not describe its
financial statements as complying with the PFRSs unless they comply with all the
requirements of PFRSs.
d. When presenting the statement of financial position, the shareholders’ equity should
always be presented after assets and liabilities.
88.Which of the following statements is incorrect regarding PAS 1 Presentation of Financial
Statements?
a. Entities are encouraged to present the analysis of expenses as to their nature or
function in the statement of profit or loss and other comprehensive income or in the
separate income statement (if presented).
b. The “function of expense” method of presenting expenses is also called the “cost of
sales” method.
c. An entity classifying expenses by function shall disclose additional information on the
nature of expenses, including depredation and amortization expense and employee
benefits expense.
d. According to PAS 1, a statement of retained earnings can be prepared in lieu of
statement of changes in equity.
89.Which of the following statements is incorrect regarding PAS 1 Presentation of Financial
Statements?
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a. An entity shall disclose, either in the statement of financial position or in the notes,
further subclassifications of the line items presented, classified in a manner
appropriate to the entity’s operations.
b. An entity need not provide a specific disclosure required by a PFRS if the information is
not material.
c. The detail provided in subclassifications depends on the requirements of PFRSs and on
the size, nature and function of the amounts involved.
d. Disclosures are presented only in the notes.
90.Which of the following correctly relate to the provisions of PAS 1?
I.
PAS 1 provides that a description of the accounting policies adopted by the reporting
entity is not required to be presented in the financial statements.
II.
The basic time period for which financial statements are presented is less than a year,
preferably semi-annually.
III.
When funds are simply segregated by the entity for the purpose of discharging a
liability, it is proper to offset the liability against the segregated funds.
IV.
Financial statements for prior periods included for comparative purposes should be
presented as previously presented, except when a changed presentation is warranted.
V.
A statement of cash flows will be omitted in some circumstances, for example from
financial statements restricted for internal use and financial statements prepared for
special purposes only.
a. I, IV, V
b. III, V
c. IV, V
d. III, IV, V
91.The following statements accurately describe the general features prescribed in PAS 1:
I.
an entity is viewed as continuing in operation in the absence of evidence to the
contrary
II.
financial reporting is primarily concerned with reporting information on economic
resources and obligations and changes in them
III.
the financial reporting process provides information about the economic activities of
an entity for specified time periods that are shorter than the life of the entity
IV.
financial reporting measurements are primarily based on prices at which economic
resources and obligations are exchanged
V.
financial reporting necessarily involves informed judgment
a. all of these
c. II, III, IV and V only
b. I, II, III, and IV only
d. III, IV and V only
92.In cases of any departure from conformity with the PFRSs the CPA must indicate:
(Item #1) Nature of departure; (Item #2) Approximate effects thereof
a. No, Yes
b. Yes, No
c. No, No
d. Yes, Yes
(Adapted)
Statement of financial position
93.The statement of financial position may be presented
I. based on current and noncurrent classification
II. based on liquidity
III. mixture of current and noncurrent and liquidity
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a. I
b. I, II
c. I, II, III
d. II
94.Regarding the presentation of the statement of financial position, which of the following
statements is correct?
a. PAS 1 requires that the line item “Property, plant and equipment” be the first line item
to be presented in the financial statements.
b. The use of different measurement bases for different classes of assets suggests that
their nature or function differs and, therefore, that an entity presents them as separate
line items.
c. When the statement of financial position is presented using the current and
noncurrent classification, the line item “Cash and cash equivalents” should always be
presented first under the current assets section.
d. When an entity opts not to present its statement of financial position using the current
and noncurrent classification, no disclosure in the notes is necessary for assets and
liabilities expected to be realized or settled within 12 months and beyond 12 months
after the reporting date.
95.As of year-end, an entity had unsettled income taxes to the government. Such liability is
charged to the “Income taxes payable” account and is expected to be settled within twelve
months after the reporting date. In the statement of financial position prepared as of yearend, the liability for the taxes is normally shown as
a. a separate line item in the current liabilities section
b. included in “Trade and other payables” in the current liability section
c. a separate line item in the noncurrent liabilities section
d. a separate line item in the current assets section
96.When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be
a. 12 months
b. 3 months
c. 6 months
d. no assumption
97.This refers to presenting separately on the face of financial statements items which are
material and combining immaterial items with similar items.
a. Offsetting
c. Fair presentation
b. Materiality and aggregation
d. Frequency of reporting
98.An asset shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s
normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted
99.All of the following statements are correct, except
a. The operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents.
b. When the entity’s normal operating cycle is not clearly identifiable, its duration is
assumed to be twelve months.
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c. Current assets include assets (such as inventories and trade receivables) that are sold,
consumed or realized as part of the normal operating cycle even when they are not
expected to be realized within twelve months after the balance sheet date.
d. Some liabilities are part of the working capital used in the entity’s normal operating
cycle. Such operating items are classified as current liabilities even if they are due to be
settled more than twelve months after the balance sheet date.
e. All of these are correct.
100. A liability shall be classified as current when it satisfies any of the following criteria,
except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least
twelve months after the balance sheet date.
101. If an entity expects, and has the discretion, to refinance or roll over an obligation for at
least twelve months after the reporting period under an existing loan facility, it classifies
the obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. only if the remaining period to maturity of the original obligation exceeds 12 months
from the end of reporting period.
c. only if the original maturity of the obligation is longer than 12 months.
d. choices b and c
102. When an entity breaches an undertaking under a long-term loan agreement on or
before the balance sheet date with the effect that the liability becomes payable on demand,
(choose the incorrect statement)
a. the liability is classified as current, even if the lender has agreed, after the balance
sheet date and before the authorization of the financial statements for issue, not to
demand payment as a consequence of the breach
b. the liability is classified as non-current, even if the lender has agreed, after the balance
sheet date and before the authorization of the financial statements for issue, not to
demand payment as a consequence of the breach
c. The liability is classified as current because, at the balance sheet date, the entity does
not have an unconditional right to defer its settlement for at least twelve months after
that date.
d. The liability is normally classified as current, however, the liability is classified as noncurrent if the lender agreed by the balance sheet date to provide a period of grace
ending at least twelve months after the balance sheet date, within which the entity can
rectify the breach and during which the lender cannot demand immediate repayment.
103. The judgment on whether additional items are presented separately on the statement
of financial position is based on an assessment of:
I.
the nature and liquidity of assets
II.
the function of assets within the entity
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III.
IV.
the amounts, nature and timing of liabilities
the need for external financing
a. I, III
b. I, II
c. I, II, III
d. II, III, IV
104. Banks and other financial institutions present their statement of financial position
based on
a. current and noncurrent classification
c. nature of expense
b. liquidity
d. function of expense
105. Which of the following statements is correct?
a. Normally, all items of income and expense recognized in a period are included in profit
or loss. This includes the effects of changes in accounting policies and correction of
prior period errors.
b. Other Standards deal with items that may meet the Conceptual Framework definitions
of income or expense but are usually excluded from profit or loss.
c. The use of different measurement bases for different classes of assets suggests that
their nature or function differs and, therefore, that they should be presented as one line
item.
d. An entity shall not present any items of income and expense as extraordinary items on
the face of the income statement but it may do so in the notes.
e. Entities classifying expenses by nature shall disclose additional information on the
function of expenses, including depreciation and amortization expense and employee
benefits expense.
106. In respect of loans classified as current liabilities, if the following events occur between
the balance sheet date and the date the financial statements are authorized for issue, these
events qualify for disclosure as non-adjusting events in accordance with PAS 10 Events
After the Reporting Period.
I. refinancing on a long-term basis
II. rectification of a breach of a long-term loan agreement
III. the receipt from the lender of a period of grace to rectify a breach of a long-term loan
agreement ending at least twelve months after the balance sheet date
a. I, II
b. II
c. II, III
d. I, II, III
107. The main purpose of the statement of financial position is to reflect
a. the fair value of the entity's assets at some point in time.
b. the status of the entity 's assets in case of forced liquidation of the firm.
c. items of value, debts and net worth.
d. the firm's potential for growth in stock values in the stock market.
(Adapted)
108. As a minimum, the face of the statement of financial position shall include all of the
following line items, except
a. Biological assets
c. Deferred tax assets and liabilities
b. Investment property
d. Goodwill
(Adapted)
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109. Which one of the following is not required to be presented as minimum information on
the face of the statement of financial position, according to PAS 1?
a. Investment property.
b. Investments accounted under the equity method.
c. Biological assets.
d. Contingent liability.
(Adapted)
110. Which of the following item is not an element of working capital?
a. temporary investments
c. good-in process
b. treasury stock
d. cash in bank
(RPCPA)
111. The ratio of total cash, trade receivables and marketable securities to current
liabilities is
a. current ratio
c. working capital
b. acid test ratio
d. receivable turnover
(RPCPA)
112. The following statements relate to the concept of asset. Which is false?
a. The primary characteristic of an asset is its capacity to provide the entity with
probable economic benefits.
b. There is an expiration of economic benefits when an asset is used up in the production
of another asset.
c. A business entity may recognize an asset even if it does not possess legal title.
d. The assets of an entity result from past transactions or other past events.
(Adapted)
113. According to PAS1 Presentation of Financial Statements, which of the following must
be included in an entity's statement of financial position?
I.
Investment property
II.
Number of shares authorized
III.
Provisions
IV.
Shares in an entity owned by that entity
a. I, II, and III
b. I and III
c. III and IV d. all of these
(ACCA)
114. According to PAS1 Presentation of Financial Statements, which of the following must
be included in an entity's statement of financial position?
I.
Cash and cash equivalents
II.
Property, plant and equipment analyzed by class
III.
Share capital and reserves analyzed by class
IV.
Deferred tax
a. I, II, and III
b. I and III
c. I and IV
d. all of these
(ACCA)
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115. Are the following statements true or false, according to PAS1 Presentation of Financial
Statements?
I.
Biological assets should be shown in the statement of financial position.
II.
The number of shares authorized for issue should be shown in the statement of
financial position or the statement of changes in equity or in the notes.
a. False, False
b. False, True c. True, False d. True, True
(ACCA)
116. In which section of the statement of financial position should cash that is restricted to
the settlement of a liability due 18 months after the reporting period be presented,
according to PAS1 Presentation of Financial Statements?
a. Current assets
c. Non-current liabilities
b. Equity
d. Non-current assets
(ACCA)
117. In which section of the statement of financial position should employment taxes that
are due for settlement in 15 months' time be presented, according to PAS1 Presentation of
Financial Statements?
a. Current liabilities
c. Non-current liabilities
b. Current assets
d. Non-current assets
(ACCA)
118. DECRY TO BELITTLE Company has a loan due for repayment in six months' time, but
DECRY has the option to refinance for repayment two years later. DECRY plans to
refinance this loan. In which section of its statement of financial position should this loan
be presented, according to PAS1 Presentation of Financial Statements?
a. Current liabilities
c. Non-current liabilities
b. Current assets
d. Non-current assets
(ACCA)
119. A liability shall be classified as current in all of the following instances, except
a. It is a non-trade payable due to be settled within twelve months after balance sheet
date or within the normal operating cycle, whichever is longer.
b. It is expected to be settled in the entity’s normal operating cycle.
c. It is held primarily for the purpose of being traded.
d. The entity does not have an unconditional right to defer settlement of the liability for
at least twelve months after the balance sheet date.
120. In case of a breach of a loan covenant with the effect that the liability becomes payable
on demand, the liability is classified as noncurrent when
a. It is not probable that further breaches or violations will occur within twelve months of
the balance sheet date.
b. The lender has agreed, prior to the approval of the financial statements, not to demand
payment as a consequence of the breach.
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c. The lender has agreed after the balance sheet date and before the statements are
authorized for issue to provide a grace period ending at least twelve months after the
balance sheet date.
d. The lender has agreed on or before the balance sheet date to provide a grace period
ending at least twelve months after the balance sheet date for the entity to rectify the
breach.
121. A currently maturing long-term debt is classified as noncurrent when
a. The borrower has the discretion to refinance or roll over the liability for at least twelve
months after the reporting period under the existing loan facility.
b. The lender has the discretion to refinance or roll over the liability for at least twelve
months after the balance sheet date under the existing loan facility.
c. An agreement to reschedule payment on a long-term basis is completed after the
reporting period but before the financial statements are authorized for issue.
d. Equity security has in fact been issued after the reporting period and before the
statements are authorized for issue the proceeds from which are used to settle the
liability at maturity date.
122. The basis for classifying assets as current or noncurrent is the period of time normally
elapsed from the time the accounting entity expends cash to the time it converts
a. Inventory back into cash, or 12 months, whichever is shorter.
b. Receivables back into cash, or 12 months, whichever is longer.
c. Tangible fixed assets back into cash, or 12 months. whichever is longer.
d. Inventory back into cash, or 12 months, whichever is longer.
(Adapted)
123. Which of the following is/are a limitation(s) of a Balance Sheet?
I.
It does not contain certain assets and liabilities despite its claim to be the statement of
all assets and liabilities
II.
Some factors, which have a vital bearing on the earnings of the entity, are not disclosed
III.
Personal judgment plays a great part in determining the figures on the balance sheet.
a. I
b. II and III c. III
d. all of these
(Adapted)
124. Which of the following accounts would not be classified under current assets on the
balance sheet?
a. Supplies
c. 90-day Note Receivable
b. Prepaid Insurance
d. 2-year Note Receivable
(Adapted)
125. In Philippine settings, current assets and current liabilities are most commonly
presented in the balance sheet in the order of
a. materially
c. chronologically
b. liquidity
d. alphabetically
126. When classifying assets as current and non-current for reporting purposes,
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a. The amount at which current assets are carried and reported must reflect realizable
cash values.
b. Prepayments for items such as insurance or rent are included in an “other assets”
group rather than as current assets as they will ultimately be expensed.
c. The time period by which current assets are distinguished from non-current assets is
determined by the seasonal nature of the business.
d. Assets are classified as current if they are reasonably expected to be realized in cash, or
consumed during the normal operating cycle.
(Adapted)
127. The balance sheet allows investors to assess all of the following except
a. How efficient the company’s assets are used.
b. The liquidity and financial flexibility of the company.
c. The capital structure of the company
d. The net realizable value of the company.
(Adapted)
128. Most components of the balance sheet are reported at
a. historical cost plus allowance for inflation. c. historical cost.
b. fair value.
d. replacement value.
(Adapted)
129. Which statement is correct concerning presentation of information on the face of the
statement of financial position?
I.
Additional line items, headings and subtotals shall be presented on the face of the
balance sheet when such presentation is relevant to an understanding of the entity’s
financial position.
II.
PAS 1 does not prescribe the order or format in which items are to be presented.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
130. For accounting purposes, the “operating cycle concept”
a. Causes the distinction between current and noncurrent items to depend on whether
they will affect cash within one year.
b. Permits some assets to be classified as current even though they are expected to be
realized beyond one year from the end of the reporting period.
c. Has become obsolete.
d. Affects the income statement but not the balance sheet.
(AICPA)
131. The operating cycle of a business is that span of time which
a. Coincides with economy’s business cycle which runs from one trough of the company’s
business activity to the next.
b. Corresponds with its natural business year which runs from one trough of the
particular firm’s business activity to the next.
c. Is set by the industry’s trade association usually on an average length of time for all
firms which are members of the association.
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d. Runs from cash disbursement for items of inventory through their sale to the
realization of cash from sale.
(AICPA)
132. The current asset section of a balance sheet most likely will include:
a. all deferred income taxes resulting from interperiod income tax allocation
b. goodwill arising in a business combination accounted for as acquisition
c. rent receivable for a security deposit on a lease
d. a receivable from a customer not collectible for over one year
(Adapted)
133. Which one of the following assets is similar to certain current assets, but is not one?
a. Accounts receivable
c. long term payment of expenses
b. Prepaid insurance
d. short-term investment in equity security
(AICPA)
134. A corporation paid a six year insurance premium on January 1, Year 1 ,for P12,000. It
recorded the prepayment in two asset accounts –one with a P2,000 debit balance and one
with a P10,000 debit balance. Under which of the following captions should the account
with the P10,000 balance be classified on a balance sheet dated January, Year 1?
a. Operational assets
c. Deferred charges
b. Other assets
d. Current assets
(AICPA)
135. Which of the following statements is true?
a. deferred charges are distinguished from prepaid expenses on the basis of the time over
which their benefits will be realized.
b. working capital is a very useful measure because it reveals how much would be left if
all the assets were to be sold and the proceeds were used to pay all the current
liabilities.
c. the normal operating cycle of a business is the average length of the time from cash
expenditure, to inventory, to sale and back to accounts receivable.
d. Retained earnings often is restricted (or appropriated) to ensure that cash will be
available for plant expansion earnings are restricted the cash cannot be spent.
136. A public utility reports noncurrent assets as the first item on its balance sheet. This is
an example of
a. Improper statement presentation
c. Industry practice
b. Conservatism
d. Substance over form
(AICPA)
137. Deferred tax assets and liabilities shall be classified on the balance sheet as
a. Current
c. Partly current and partly noncurrent
b. Noncurrent
d. Part of equity
138. A liability shall be classified as a current liability when it satisfies any of the following
criteria, except
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a.
b.
c.
d.
It is expected to be settled in the entity’s normal operating cycle.
It is primarily held for the purpose of being traded.
It is expected to be realized within twelve months after the balance sheet date.
It is cash or a cash equivalent that is restricted from being exchanged or used to settle
a liability for at least twelve months after the balance sheet date.
(Adapted)
139. Which obligations are classified as current liabilities even if they are due to be settled
after more than twelve months from the end of the reporting period?
I.
Trade payables and accruals for employee and other operating cost that are part of the
entity’s working capital
II.
A portion of long-term interest-bearing liabilities
III.
Bank overdrafts arising from settlements of purchases of inventory
IV.
Dividends payable
a. I and III
b. I, III, and IV
c. III only
d. all of these
140. When an entity breaches a covenant under a long-term loan agreement on or before
the balance sheet date with the effect that the liability becomes payable on demand, the
liability is classified as noncurrent when
I.
The lender has agreed after the balance sheet date and before the financial statements
are authorized for issue not to demand payment as a consequence of the breach.
II.
The lender has agreed on or before the balance sheet date to provide a grace period
ending at least twelve months after the balance sheet date for the entity to rectify the
breach.
a. Both I and II
b. Neither I nor II
c. I only
d. II only
141. A corporation owed the following notes payable, which will mature during the coming
year. The corporation plans to settle the notes as follows:
Note payable A: Refinance by issuing a new 10 year bond
Note payable B: Give the holder merchandise inventory
Note payable C: Give the creditor a long term investment in equity instruments of
another entity
Which note is properly classified as a current liability?
a. Note payable A
c. Note payable C
b. Note payable B
d. All are current liabilities
(Adapted)
142. Which of the following statements is (are) correct?
I.
Presentation of assets or liabilities by order of liquidity can be chosen anytime should
management so desires it.
II.
A liability held primarily for the purpose of being traded is to be classified as current
a. I is true
b. I and II are true
c. II is true
d. I and II are not true
143. The operating cycle of an enterprise
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a. is the time between the acquisition of materials entering into a process and their
realization in cash or an instrument that is readily convertible into cash.
b. causes the distinction between current and noncurrent items to depend on whether
they will affect cash within one year.
c. is the period of time normally elapsed from the time the enterprise expends cash to the
time it converts trade receivables back into cash.
d. Is a period of one year.
(Adapted)
144. An operating cycle
a. is twelve months or less in length
b. is the average time required for a company to collect its receivable
c. is used to determine current assets when it is longer than one year
d. starts with inventory and ends with cash
(Adapted)
145. Working capital is
a. The group assets which enables the business to operate profitably
b. Capital which has been reinvested in the business.
c. Unappropriated retained earnings.
d. Current assets less current liabilities.
(Adapted)
146. How is working capital defined?
a. Current assets minus current liabilities
b. Total current assets
c. Capital contributed by shareholders
d. Capital contributed by shareholders plus retained earnings
(Adapted)
147. Of the following items, the one which should be classified as a current asset is
a. Trade installment receivables normally collectible in 18 months.
b. Cash designated for the redemption of callable preferred stock.
c. Cash surrender value of a life insurance policy of which the company is beneficiary.
d. A deposit on machinery ordered, delivery of which will be made within sixteen months.
(Adapted)
148. According to PAS 1, a liability shall be classified as current when (choose the incorrect
one)
a. It is expected to be settled in the entity’s normal operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is due to settled within twelve months after balance sheet date or within the normal
operating cycle, whichever is longer.
d. The entity does not have an unconditional right to defer settlement of the liability for
at least twelve months after the balance sheet date.
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149. A currently maturing long-term debt is classified as noncurrent when
a. an agreement to reschedule payment on a long-term basis is completed after the end of
reporting period but before the statements are authorized for issue.
b. equity security has in fact been issued after the end of reporting period but before the
statements are authorized for issue, the proceeds from which are used to settle the
liability on the date of maturity.
c. the lender has the discretion to refinance or roll over the liability for at least twelve
months after the end of reporting period under an existing loan facility.
d. the borrower has the discretion to refinance or roll over the liability for at least twelve
months after the end of reporting period under an existing loan facility.
150. Some borrowing agreements incorporate covenants which have the effect that the
liability becomes payable on demand if certain conditions related to the covenants are
breached. In these circumstances, the liability is classified as noncurrent when
a. The lender has agreed, prior to the approval of the financial statements, not to demand
payment as a consequence of the breach.
b. It is not probable that further breaches or violations will occur within twelve months of
the balance sheet date.
c. The lender has agreed after the balance sheet date and before the statements are
authorized for issue to provide a grace period ending at least twelve months after the
balance sheet date.
d. The lender has given the lender, on or before the balance sheet date, a grace period to
rectify the breach ending at least twelve months after the balance sheet date.
The current assets section of a balance sheet should never include
a receivable from a customer not collectible for over one year.
the premium paid on short-term bond investment.
goodwill arising from the purchase of a going business not expected to be disposed of
within 12 months from end of reporting period.
d. customers' accounts with credit balances.
(Adapted)
151.
a.
b.
c.
152. PAS 1 requires an entity to include in a complete set of financial statements a
statement of financial position as at the beginning of the preceding period whenever the
entity retrospectively applies an accounting policy or makes a retrospective restatement of
items in its financial statements, or when it reclassifies items in its financial statements.
The purpose of this requirement is
a. to discourage auditors from subsuming in retained earnings unaccounted differences
in accounts and required reconciliations
b. to promote vigilance on entities over errors and to discourage frequent changes in
accounting policies
c. to provide information that is useful in analyzing an entity’s financial statements
d. all of these
Statement of profit or loss and other comprehensive income
153. Which of the following statements is incorrect?
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a. Comprehensive income includes all revenues, expenses, gains, losses, and prior period
adjustments.
b. PAS 1 requires an entity to disclose income tax relating to each component of other
comprehensive income.
c. The presentation of disclosures on dividends in the statement of profit or loss and other
comprehensive income is not permitted.
d. An entity may present components of other comprehensive income gross of tax or net
of tax on the face of the statement of profit or loss and other comprehensive income.
154. PAS 1 requires an entity to disclose reclassification adjustments and income tax
relating to each component of other comprehensive income. Reclassification adjustments
are
a. the amounts reclassified to profit or loss in the current period that were currently or
previously recognized in other comprehensive income.
b. the amounts reclassified to total comprehensive income that were previously
recognized in equity.
c. the amounts that previously caused the statement elements to be misstated.
d. the amounts that previously recognized using an inappropriate accounting policy.
155. Which of the following statements is correct regarding the provisions of PAS 1?
a. PAS 1 requires the presentation of an income statement that includes items of income
and expense recognized in profit or loss. Items of income and expense not recognized in
profit or loss should be presented in the statement of changes in equity, together with
owner changes in equity.
b. PAS 1 labels the statement of changes in equity comprising profit or loss, other items of
income and expense and the effects of changes in accounting policies and correction of
errors as ‘statement of recognized income and expense.
c. PAS 1 requires an entity to disclose income tax relating to each component of other
comprehensive income.
d. PAS 1 permits non-owner changes in equity to be presented together with owner
changes in equity in the statement of changes in equity.
156. Identify the correct statement.
a. PAS 1 does precludes presenting financial statements based on a 53-week period or
longer, because the resulting financial statements are likely to be materially different
from those that would be presented for one year.
b. When the method of presentation adopted by an entity is the classification based on
liquidity, the entity need not disclose amounts of assets or liabilities expected to be
recovered or settled after more than twelve months.
c. For financial institutions, such as banks, a presentation of assets and liabilities based
on the current/noncurrent presentation is more appropriate.
d. An entity is permitted to present some of its assets and liabilities using a current/noncurrent classification and others in order of liquidity.
e. The Function of Expense Method should be used in income statement presentation and
the Nature of Expense should be used in the notes. Entities are prohibited from using
the Nature of Expense Method in presenting of income statements.
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157. As a minimum, the face of the income statement shall include line items that present
the following amounts for the period:
I. revenue
II. finance costs
III. share of the profit or loss of associates and joint ventures accounted for using the
equity method
IV. tax expense
V. a single amount comprising the total of (i) the post-tax profit or loss of discontinued
operations and (ii) the post-tax gain or loss recognized on the measurement to fair
value less costs to sell or on the disposal of the assets or disposal group(s)
constituting the discontinued operation
VI. a single amount comprising the total of the post-tax profit or loss on early
extinguishment of long-term financial debts
VII. profit or loss
a. I, II, V, VII
c. I, II, III, IV, V, VII
b. I, II, III, IV, V, VII
d. all of these
158. When an entity opts to present the income statement classifying expenses by function,
which of the following is not required to be disclosed as “additional information”?
a. Depreciation expense.
c. Director’s remuneration.
b. Employee benefits expense.
d. Amortization expense.
(Adapted)
159. Which of the following items is not classified as “other comprehensive income”?
a. Extraordinary gains from extinguishment of debt
b. Foreign currency translation adjustments
c. Minimum pension liability equity adjustment for a defined-benefit pension plan
d. Unrealized gains for the year on FVOCI investments
(AICPA)
160. Which of the following statements is correct regarding reporting comprehensive
income?
a. Accumulated other comprehensive income is reported in the shareholders’ equity
section of the statement of financial position.
b. A separate income statement is required.
c. Comprehensive income must include all changes in shareholders’ equity for the period.
d. Comprehensive income is reported in the year-end statements but not in the interim
statements.
161. Which of the following statements is incorrect?
a. The choice of method of presenting expenses is not irrevocable. If the other method is
expected to present more relevant information, a change should made. However,
changes between permitted accounting policies should not be made so often so as not
to violate the principle of consistency.
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b. In a single-statement presentation, all items of income and expense are presented
together in one statement.
c. In a two-statement presentation, the first statement (‘income statement’) presents
income and expenses recognized in profit or loss and the second statement (‘statement
of comprehensive income’) begins with profit or loss and presents, in addition, items of
income and expense that PFRSs require or permit to be recognized outside profit or
loss.
d. Dividends received from investments in associates accounted for using the equity
method are not recognized in profit or loss but may be recognized in other
comprehensive income.
162. Which of the following statements is incorrect?
a. An investor in an associate may present in its other comprehensive income its share in
the associate’s other comprehensive income.
b. An investor in an associate shall present in profit or loss its share in the associate’s
profit or loss.
c. An investor in an associate shall not recognize dividends received from the associate in
its profit or loss but may recognize the dividends received in its other comprehensive
income.
d. Dividends received by an investor from its associate are accounted for as reduction in
the investment in associate account.
163.
a.
b.
c.
d.
Which of the following is not included in comprehensive income?
translation differences related to foreign operations
fair value gains or losses on FVOCI securities.
fair value gains or losses on FVPL securities.
gains on reissuance of treasury shares
164.
a.
b.
c.
d.
Which of the following is not included in comprehensive income?
Remeasurements of the net defined benefit liability (asset)
revaluation gains on property, plant, and equipment
fair value gains or losses on investment properties.
gains on retirement of ordinary shares
165.
a.
b.
c.
d.
Income and expenses for the period is presented in
a statement of profit or loss and other comprehensive income
a separate income statement and a statement of comprehensive income
income statement only
a or b
166.
a.
b.
c.
d.
Components of other comprehensive income are presented in the
statement of profit or loss and other comprehensive income
separate income statement
notes
statement of changes in equity
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167. It comprises items of income and expense including reclassification adjustments that
are not recognized in profit or loss as required or permitted by other PFRSs.
a. Comprehensive income
c. Other comprehensive income
b. Profit or loss elements
d. Nominal accounts
168.
a.
b.
c.
d.
The components of other comprehensive income exclude
Changes in revaluation surplus
Remeasurements of the net defined benefit liability (asset)
Fair value gains and losses on FVPL securities
Effective portion of a cash flow hedge
169. Identify the incorrect statement.
a. An entity shall not present any items of income or expense as extraordinary items, in
the statement of profit or loss and other comprehensive income or the separate income
statement (if presented), but such items may be disclosed in the notes.
b. An entity shall disclose the amount of income tax relating to each component of other
comprehensive income, including reclassification adjustments, either in the statement
of profit or loss and other comprehensive income or in the notes.
c. An entity may present components of other comprehensive income either net of related
tax effects, or before related tax effects with one amount shown for the aggregate
amount of income tax relating to those components.
d. An entity may present reclassification adjustments in the statement of profit or loss
and other comprehensive income or in the notes.
170. An entity sold FVOCI securities during the year. In preparing the statement of profit or
loss and other comprehensive income, the entity should
a. compute the gain by deducting the historical cost of the FVOCI from the proceeds
b. should not present the gain in the statement of profit or loss and other comprehensive
income but in equity
c. make a reclassification adjustment for the cumulative unrealized gains or losses
previously recognized in equity.
d. recognize directly in equity any cumulative unrealized gains or losses on the FVOCI
sold
171.
a.
b.
c.
d.
Reclassification adjustments may arise on which of the following?
on settlements of employee pension benefits under a defined benefit plan
changes in revaluation surplus
on derecognition of FVOCI securities
when a hedged forecast transaction affects profit or loss
172.
a.
b.
c.
d.
Reclassification adjustments will not arise on all of the following, except
derecognition of foreign operation
changes in remeasurements of the net defined benefit liability (asset)
on derecognition of FVOCI
changes in revaluation surplus
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173. An entity shall present an analysis of expenses recognized in profit or loss using a
classification based on
a. Function
b. Nature
c. Liquidity d. a or b
174. Increases in revaluation surplus are presented in the statement of profit or loss and
other comprehensive income as
a. income
c. revenue
b. item of other comprehensive income d. not presented
175. Are the following statements true or false, according to PAS1 Presentation of Financial
Statements?
I.
Provisions should be recognized in the statement of financial position.
II.
A revaluation surplus on non-current assets should be recognized in profit or loss.
a. False, False
b. False, True c. True, False
d. True, True
(ACCA)
176. Are the following statements true or false, according to PAS1 Presentation of Financial
Statements?
I.
An entity presenting a single statement of profit or loss and other comprehensive
income should present a statement of changes in equity
II.
An entity presenting a separate income statement and a statement of comprehensive
income should present a statement of changes in equity
a. False, False
b. False, True c. True, False
d. True, True
(ACCA)
What is the purpose of reporting comprehensive income?
To report changes in equity due to transactions with owners.
To report a measure of overall enterprise performance.
To replace net income with a better measure.
To combine income from continuing operations with income from discontinued
operations and extraordinary items.
(AICPA)
177.
a.
b.
c.
d.
178. All of the following are not acceptable methods of reporting other comprehensive
income and its components, except
a. In a statement of comprehensive income.
c. In the notes only.
b. In a statement of income
d. In a statement of changes in equity.
179. Accounting income is a concept in which:
a. income is measured as the amount of "real wealth" that an entity could consume
during a period and be as well off at the end of that period as it was at the beginning
b. the transactions approach is used to record income, expenses, gains and losses
throughout the reporting period
c. market values adjusted for the effects of inflation or deflation are used to calculate real
wealth
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d. income equals the change in market value of the firm's outstanding common stock for
the period.
(AICPA)
180. Which of the following items would cause earnings to differ from comprehensive
income for an enterprise in an industry not having specialized accounting principles?
a. Unrealized loss on investments classified as FVOCI securities.
b. Unrealized loss on investments classified as held for trading securities.
c. Loss on exchange of similar assets.
d. Loss on exchange of dissimilar assets.
(AICPA)
181. Comprehensive income excludes changes in equity resulting from which of the
following?
a. Loss from discontinued operations.
b. Effect of changes in accounting estimate to current operations
c. Dividends paid to stockholders.
d. Unrealized loss on securities classified as FVOCI.
182. Which of the following options for displaying comprehensive income is(are) preferred
under PAS 1?
I.
A continuation of profit or loss at the bottom of the statement of profit or loss and
other comprehensive income.
II.
A separate statement that begins with profit or loss.
III.
In the statement of changes in equity.
a. I.
b. II.
c. II and III.
d. I and II.
(Adapted)
183. Which of the following is not classified as other comprehensive income?
a. Remeasurements of the net defined benefit liability (asset).
b. Subsequent decreases of the fair value of FVOCI securities that have been previously
written down as impaired.
c. Decreases in the fair value of securities measured at amortized cost.
d. None of the above.
(Adapted)
184. When a full set of general-purpose financial statements are presented, comprehensive
income and its components should
a. Appear as a part of discontinued operations, extraordinary items, and cumulative
effect of a change in accounting principle.
b. Be reported net of related income tax effect, in total and individually.
c. Appear in a supplemental schedule in the notes to the financial statements.
d. Be displayed in a financial statement that has the same prominence as the other
components of a complete set of financial statements.
(AICPA)
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185. Which of the following is deducted from goods available for sale to determine cost of
goods sold?
a. Purchases
c. Beginning inventory
b. Freight in
d. Ending inventory
186. The account Freight-out is shown on the income statement as a
a. component of the cost of goods sold. c. selling expense.
b. deduction from sales.
d. general and administrative expense.
187. Which of the following names is not associated with the income statement?
a. Profit or loss
c. Statement of Operations
b. Statement of financial position
d. a and c
(Adapted)
188. The income statement heading will specify which of the following?
a. a point in time
b. a period of time
c. a or c
d. a and c
(Adapted)
189. HIATUS BREAK Co. engages in a buy-and-sell business. During the year, HIATUS
prepared two income statements covering the same period. One statement is prepared
using the nature of expense method while the other one is prepared using the function of
expense method. Which of the following statements is correct regarding these income
statements?
a. The nature of expense method income statement will show higher profit than the
function of expense method.
b. The sum of the amounts in the line items “net change in inventories” and “net
purchases” in the nature of expense method income statement equals the amount of
“cost of sales” in the function of expense method income statement.
c. The same disclosure requirements apply whether HIATUS uses the nature of expense
method or the function of expense method.
d. A “gross profit” line item will appear in both income statements.
190. Sales revenue less cost of goods sold is called
a. gross profit.
c. net earnings.
b. cost of sales.
d. earnings before income taxes.
(Adapted)
191. The “bottom line” in a statement of profit or loss and other comprehensive income is
a. profit or loss
c. gross profit
b. other comprehensive income
d. total comprehensive income
192. Amounts earned by an entity from its main operating activities are
a. income
b. revenues c. gains
d. b or d
193. Is a retailer's Interest Expense an operating expense or a non-operating expense?
a. operating expense
c. a or b
b. non-operating expense
d. neither a nor b
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(Adapted)
194. The income statement line item gross profit will appear on which income statement
format?
a. single-step
b. multiple-step
c. a or b
d. neither a nor b
(Adapted)
195. The income statement format that segregates the operating income and expenses from
the non-operating income and expenses is the
a. single-step
b. multiple-step
c. a or b
d. neither a nor b
(Adapted)
196. Interest earned on investments would appear in which section of a multiple-step
income statement?
a. non-operating
c. would not appear
b. operating
d. as part of gross income
(Adapted)
197. When alternative acceptable accounting methods exist, a better quality of earnings
generally is produced from selecting an accounting method that has the effect of reporting
the
a. greatest amount of retained earnings currently.
b. greatest amount of assets currently.
c. lowest amount of future earnings.
d. lowest amount of current earnings.
(Adapted)
198. Which of the following items would not be reported on a statement of profit or loss and
other comprehensive income?
a. Revaluation losses
b. Prior period adjustments
c. Share in associate’s revaluation gain
d. Discontinued operations
199.
a.
b.
c.
d.
Gains or losses from extraordinary items should be shown on the income statement
immediately following income from continuing operations.
after discontinued operations.
as an item in other revenues and expenses.
not specifically identified as extraordinary items
200. Which of the following best describes an income statement?
a. It reports income and expenses for a specific accounting period.
b. It reports the amount and composition of assets and liabilities for a specific accounting
period.
c. It reports investment activities for a specified accounting period.
d. It reports cash receipts and cash disbursements for a specific accounting period.
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(Adapted)
201. The Income Statement:
I.
reflects the current operating performance of the entity.
II.
indicates whether the entity is healthy and growing or not.
III.
explains the changes in assets, liabilities and equity of the entity.
IV.
is a snapshot of a entity's operations at a given time.
a. I, II & IV
b. II & III
c. I, II, III & IV
d. I only
(Adapted)
202. Gross profit is the difference between net sales and cost of goods sold. Which of the
following most likely will not affect gross profit?
a. write-down of inventories
b. freight incurred by the consignor in delivering consigned goods to the consignee
c. allowance for sales returns
d. freight-out incurred by the seller
203. Which of the following statements is (are) correct?
I.
Under the accrual basis of accounting, income is recognized in the period in which cash
is received.
II.
Net sales minus Cost of goods sold equals income from operations.
III.
The combination of Selling expenses and Administrative expenses is referred to as total
expenses.
IV.
Cash basis of accounting best measures profitability during a short time interval.
V.
Gross profit minus all other expenses recognized in profit or loss except cost of sales is
best defined as the profit or loss for the year.
a. III and V
b. V only
c. III, IV and V
d. all of these
204. Depreciation is a process of allocating the cost of a building over its useful life in a(n)
a. equal and equitable manner.
b. accelerated and accurate manner.
c. rational and systematic manner.
d. conservative market based manner.
(Adapted)
205. The cost of a depreciable long-lived asset is expensed
a. when it is paid for.
b. as the asset benefits the company.
c. in the period in which it is acquired.
d. in the period in which it is disposed of.
(Adapted)
206. Amortization is the process of
a. valuing an asset at its fair value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
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c. allocating the cost of an asset to expense over its useful life in a rational and systematic
manner.
d. writing down an asset to its fair value each reporting period.
(Adapted)
207. Total comprehensive income is (choose the incorrect statement)
a. the change in equity during a period resulting from transactions and other events,
other than those changes resulting from transactions with owners in their capacity as
owners.
b. includes increases or decreases in revaluation surplus during the period.
c. includes both unrealized gains or losses on FVPL securities and FVOCI.
d. includes only changes in assets that are not recognized in profit or loss but rather
credited directly in equity (e.g. revaluation surplus and changes in fair values of
FVOCI)
208. The major distinction between the multiple-step and single-step income statement
formats is the separation of
a. Operating and nonoperating data
b. income tax expense and administrative expenses
c. cost of goods sold expense and administrative expenses.
d. The effect on income taxes of extraordinary items and the effect on income taxes of
profit or loss from ordinary activities
(Adapted)
209. Which of the following should be included in general and administrative expenses?
(Item #1) Interest; (Item #2) Advertising
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No
(AICPA)
210. Accumulated other comprehensive income should be reported on the balance sheet as
a component of (Item #1) Retained earnings; (Item #2) Additional paid-in capital
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, No
(AICPA)
211. Which of the following changes during a period is not a component of other
comprehensive income?
a. Unrealized gains or losses on FVOCI
b. Stock dividends issued to shareholders.
c. Foreign currency translation adjustments.
d. Minimum pension liability adjustments.
(AICPA)
212. Corrections of errors are reported in
a. Other comprehensive income.
b. Other income/(expense).
(AICPA)
c. Retained earnings.
d. Stockholders’ equity
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213. Which of the following changes during a period is not a component of other
comprehensive income?
a. Minimum pension liability.
b. Treasury share, at cost.
c. Foreign currency translation adjustment on foreign operation.
d. Reclassification adjustments
(AICPA)
214. All of the following components are shown in the statement of profit or loss and other
comprehensive income net of applicable income taxes except
a. Gain or loss on valuation adjustments of FVOCI
b. Cumulative effect of a change in accounting principle.
c. Discontinued operations.
d. Remeasurements of the net defined benefit liability (asset)
(Adapted)
215. PAS 1 requires an entity to include in a complete set of financial statements a
statement of financial position as at the beginning of the preceding period whenever the
entity retrospectively applies an accounting policy or makes a retrospective restatement of
items in its financial statements, or when it reclassifies items in its financial statements.
The purpose of this requirement is
a. to discourage auditors from subsuming in retained earnings unaccounted differences
in accounts and required reconciliations
b. to promote vigilance on entities over errors and to discourage frequent changes in
accounting policies
c. to provide information that is useful in analyzing an entity’s financial statements
d. any of these
216. Which of the following statements is incorrect regarding financial statement
presentation?
a. PAS 1 affects only the presentation of owner changes in equity and of comprehensive
income. It does not change the recognition, measurement or disclosure of specific
transactions and other events required by other PFRSs.
b. PAS 1 requires an entity to present all owner changes in equity in a statement of
changes in equity.
c. All non-owner changes in equity are required to be presented in one statement of profit
or loss and other comprehensive income or in two statements
d. When an income statement is presented it is part of a complete set of financial
statements and shall be displayed immediately after the statement of comprehensive
income.
217. Which of the statements is false?
a. A loss caused by impairment in the value of an intangible asset should be classified as
an extraordinary item.
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b. If a franchise becomes worthless prior to the end of its estimated useful life, the
unamortized balance in the franchise account should be immediately written off as an
impairment loss.
c. A lease bonus payment made in advance should be debited to a leasehold account,
which is an asset account.
d. Leasehold improvements should be amortized over the shorter of the term of the lease
or the useful life of the improvements.
(AICPA)
218. Which of the following statements is(are) correctly stated?
I.
The write-off of intangible assets generally should be reported as part of continuing
operations but disclosed in the notes as an extraordinary item.
II.
For an item to be disclosed in the notes as extraordinary but presented as part of
continuing operations in the profit or loss, the event or transaction which gave rise to
it should either be unusual in nature or infrequency of occurrence.
III.
An income statement is usually not sufficient to describe total change in equity during
a period.
IV.
The income statement of a period should include and properly describe all items of
income and expenses that do not result from transactions with owners.
V.
An income statement is sufficient to describe the total change in owners’ equity during
a period because changes arise from sources other than profit oriented activities.
a. I, III, IV
b. I, III, V
c. III, IV
d. III only
219. Which of the following items belong to the classes of expenses?
I.
expenditures to acquire assets
II.
distribution to owners
III.
costs of assets used to produce revenue
IV.
costs of assets ceasing to provide future economic benefits
V.
costs of assets that have expired during the period
a. all of these
c. III, IV and V only
b. I, III, IV and V only
d. III and IV only
(RPCPA)
220. The method of income determination which measures the results of enterprise
transactions and involves the determination of the amount of revenue earned by an entity
during a given period and the amount of expenses applicable to that revenue is known as
the:
(Item #1) Transaction approach; (Item #2) Economic approach
a. no, yes
b. yes, no
c. no, no
d. yes, yes
(AICPA)
221. Conventionally, accountants measure income
a. as a change in the value of owners’ equity
b. by applying a value-added concept
c. by using a transaction approach
d. by equity method
(AICPA)
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222. According to current standards, profit or loss for the period
a. Is the same as comprehensive income.
b. Excludes certain income and expenses that are included in comprehensive income.
c. Include certain income and expenses that are excluded from comprehensive income.
d. Include certain losses that are excluded from comprehensive income.
(AICPA)
223. Comprehensive income includes which of the following?
(Item #1) Operating income; (Item #2) Investments by owners
a. Yes, No
b. Yes, Yes
c. No, Yes
d. No, No
(AICPA)
224. Comprehensive income includes which of the following?
(Item #1)Gross margin; (Item #2) Operating income
a. Yes, No
b. Yes, Yes
c. No, Yes
d. No, No
(AICPA)
225. Comprehensive income includes which of the following?
(Item #1) Fair value gains; (Item #2) Gross Margin
a. Yes, No
b. Yes, Yes
c. No, Yes
d. No, No
(AICPA)
226. Comprehensive income includes which of the following?
(Item #1) Loss on Discontinued Operations; (Item #2) Investment by Owners
a. Yes, No
b. Yes, Yes
c. No, Yes
d. No, No
(AICPA)
227. Periodic net earnings are conventionally measured by a
a. Transactions approach.
b. Transactions approach including recognition of unrealized gains and losses in other
comprehensive income.
c. Capital maintenance approach.
d. Market value approach including recognition of all realized gains and some unrealized
losses.
(AICPA)
228. Which of the following statements is incorrect?
a. Reports prepared at the request of an entity’s management are not general purpose
financial statements if they are prepared specifically to meet the needs of management
only.
b. When preparing financial statements, the accountant shall never assume that the
business will continue to operate indefinitely.
c. Applying accrual accounting results in more accurate measurement of profit or loss for
the period than cash basis accounting.
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d. One objective of financial reporting is to help financial statement users evaluate the
cash flows of the reporting entity.
229.
a.
b.
c.
d.
Which of the following statements is incorrect?
Management motivations can influence the accounting policy choices made.
Performance evaluation is an objective of financial reporting.
Profit or loss for the period provides a good measure of a business's debt-paying ability.
PAS 1 requires that the components of total comprehensive income should be presented
prominently in the financial statements rather than in the notes.
230. Which of the following statements is incorrect?
a. Total comprehensive income for the period provides a good measure of a business's
debt-paying ability.
b. PAS 1 requires an entity to disclose reclassification adjustments and income tax
relating to each component of other comprehensive income.
c. PAS 1 requires the presentation of dividends recognized as distributions to owners and
related amounts per share in the statement of changes in equity or in the notes.
Dividends are distributions to owners in their capacity as owners and the statement of
changes in equity presents all owner changes in equity.
d. PAS 1 requires an entity to disclose comparative information in respect of the previous
period, i.e., to disclose as a minimum two of each of the statements and related notes.
231. Which of the following statements is incorrect?
a. The relationship of current assets and current liabilities provides a good measure of a
business's debt-paying ability.
b. The single-step and multistep income statements result in different profit or loss
figures.
c. The difference between gross sales and net sales is equal to the sum of sales discounts
and returns and allowances.
d. Components of comprehensive income are not permitted to be presented in the
statement of changes in equity.
232. Which of the following statements is incorrect regarding comprehensive income?
a. Comprehensive income is a broad measure of the changes in equity over a period
except for contributions from, or distributions to, owners. Comprehensive income
includes all income items which ultimately increase equity from transactions related to
non-owner sources.
b. Comprehensive income is broader than profit or loss and includes certain items of
income and expenses not included in profit or loss.
c. Comprehensive income includes any type of inflow which culminates to an earning
process, other than from an owner acting in his capacity as owner.
d. An unrealized loss on investments in FVOCI is not recognized in current earnings and is
not a factor in measuring comprehensive income.
Statement of changes in equity
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233. PAS 1 requires the presentation of dividends recognized as distributions to owners and
related amounts per share in the
a. in the notes
b. statement of financial position or in the notes
c. statement of income, statement of changes in equity, or in the notes
d. statement of changes in equity or in the notes
234. Which of the following statements is incorrect?
a. Items of Other Comprehensive Income may be presented in the statement of profit or
loss and other comprehensive income gross of tax or net of tax.
b. The statement of profit or loss and other comprehensive income does not include
transactions with owners in their capacity as owners. Such transactions are presented
in the statement of changes in equity.
c. All non-owner changes in equity should be presented in a single statement or in two
statements.
d. The choice of one of the methods of presenting expenses is irrevocable, hence, once
chosen it must not be changed unless the going concern assumption becomes
inappropriate.
235. Are the following statements true or false, according to PAS1 Presentation of Financial
Statements?
I.
Dividends paid should be recognized in the statement of profit or loss and other
comprehensive income.
II.
A loss on disposal of assets should be recognized in the statement of changes in equity.
a. False, False
b. False, True
c. True, False
d. True, True
(ACCA)
236.
a.
b.
c.
d.
To prepare a statement of changes in owner`s equity you need to know
the owners’ names
the date the company started
the beginning balance in the capital account
the address of the company
237. The first row in a statement of changes in equity is most likely the
a. profit
c. distribution to owners
b. owners’ investments
d. beginning capital
238.
a.
b.
c.
d.
The statement of changes in equity may prominently display all of the following, except
Effect of changes in accounting policies
Correction of prior period errors
Dividends to owners
Components of comprehensive income for the period
239. The preferred method of presenting statement of changes in equity in current PFRSs is
a. horizontal presentation where each component is presented in columns and reconciled
downwards.
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b. vertical presentation where there are at least two columns representing information
for the current period and the comparative period
c. dramatic presentation
d. high definition and 3D
240. The heading for the statement of changes in equity contains
a. name of the business, name of the statement, and period covered
b. name of the business, name of the statement, and current date
c. name of the business, current date, and period covered
d. name of the business, name of the owner, and period covered
(Adapted)
241. Elements in the equity section is normally reported in order of:
a. Classes of share capital
c. Permanency
b. Time to maturity
d. Liquidity
(AICPA)
242.
a.
b.
c.
d.
A complete set of financial statement does not include:
a statement of retained earnings
a cash flow statement
notes to financial statements
statement of profit or loss and other comprehensive income
243. Regarding the preparation of a statement of changes in equity, which of the following
statements is incorrect?
a. PAS 1 Presentation of Financial Statements requires an entity to present, in a
statement of changes in equity, all owner changes in equity.
b. All non-owner changes in equity (i.e. comprehensive income) are required to be
presented in one statement of profit or loss and other comprehensive income or in two
statements (a separate income statement and a statement of comprehensive income).
c. Components of comprehensive income not presented in the statement of profit or loss
and other comprehensive income are presented in the statement of changes in equity.
d. Components of comprehensive income are not permitted to be presented in the
statement of changes in equity.
244. An entity shall present a statement of changes in equity showing in the statement all of
the following, except
a. components of total comprehensive income for the period
b. total comprehensive income for the period
c. the effects of retrospective application or retrospective restatement
d. reconciliation of each component of equity
245. An entity shall disclose the amount of dividends recognized as distributions to equity
holders during the period and the related amount per share on
a. the balance sheet
d. the notes
b. the face of the income statement
e. either c or d
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c. the statement of changes in equity
246. The statement of changes in equity is prepared
a. as needed
b. as an integral part of the financial statements and as a supporting document for the
income statement
c. as an integral part of the financial statements and as a supporting document for the
statement of financial position
d. as a supporting document for the financial statements but not an integral part thereof
247. All changes in equity arising from transactions with owners in their capacity as owners
are required to be presented separately from non-owner changes in equity. An entity is not
permitted to present components of comprehensive income in the statement of changes in
equity. The purpose of this requirement is
a. to segregate taxable from non-taxable items
b. to provide more relevant and reliable information that is useful in making day-to-day
decisions
c. to provide better information by aggregating items with shared characteristics and
separating items with different characteristics
d. to make accounting for changes in equity and the preparation of financial statements
simpler thereby decreasing the salaries of accountants
248. PAS 1 requires income and expenses to be presented separately from owner changes in
equity
I.
in one statement (a statement of profit or loss and other comprehensive income)
II.
in two statements (a separate income statement and a statement of comprehensive
income)
a. I only b. II only
c. I or II
d. none of these
249.
a.
b.
c.
d.
The components of other comprehensive income is to be displayed in the
income statement
statement of profit or loss and other comprehensive income
statement of changes in equity
any of these
250. PAS 1 requires an entity to disclose income tax relating to each component of other
comprehensive income. The purpose of this requirement is
a. to provide users with tax information relating to these components because the
components often have tax rates different from those applied to profit or loss
b. to encourage taxing authorities to also read financial statements
c. to provide users with information that other comprehensive income may have tax
consequences and that items of other comprehensive income are only temporary
income
d. to make accounting for other comprehensive income a complex matter in order to
continually challenge the competence of CPA’s
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251. PAS 1 requires an entity to disclose reclassification adjustments relating to
components of other comprehensive income. Reclassification adjustments are amounts
reclassified to profit or loss in the current period that were recognized in other
comprehensive income in previous periods. The purpose of this requirement is
a. to promote consistency and to discourage frequent reclassifications and frequent
changes in presentation
b. to provide users with information to assess the effect of such reclassifications on profit
or loss
c. to provide more relevant and reliable information
d. any of these
252. PAS 1 requires dividends recognized as distributions to owners and related amounts
per share to be presented in the statement of changes in equity or in the notes. The
presentation of such disclosures in the statement of profit or loss and other comprehensive
income is not permitted. The purpose of this requirement is
a. to simplify the preparation of financial statements, including disclosures in the notes,
for the benefit of the society.
b. to ensure that owner changes in equity are presented separately from non-owner
changes in equity
c. to improve comparability of financial statements generated from accounting softwares
d. to ensure that non-owner changes in equity are not identified separately from owner
changes in equity
253.
a.
b.
c.
d.
Non-owner changes in equity should be presented in
Statement of profit or loss and other comprehensive Income
Statement of changes in equity
Statement of cash flows
Not presented
Notes
254. An entity normally presents notes in the following order
I.
Summary of significant accounting policies applied
II.
Other disclosures
III.
Statement of compliance with PFRSs
IV.
Supporting information for items presented in the other financial statements
a. I, III, IV, II
b. III, IV, I, II c. III, I, IV, II
d. I, II, III, IV
255. According to PAS 1 Presentation of Financial Statements, this provides narrative
descriptions or disaggregations of items disclosed in those statements and information
about items that do not qualify for recognition in those statements.
a. Notes to financial statements
c. Disclaimer of opinion
b. Supplementary schedules and reports
d. Notes
256. All of the following correctly relate to the notes, except
a. present the breakdown of aggregated items on the face of the statement and to rectify
any inappropriate accounting policies.
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b. present information about the basis of preparation of the financial statements and the
specific accounting policies used
c. disclose the information required by PFRSs that is not presented elsewhere in the
financial statements
d. provide information that is not presented elsewhere in the financial statements, but is
relevant to an understanding of any of them.
257. Which of the following statements is correct regarding the preparation of notes?
a. An entity should cross-reference items in the statement of financial position and
statement of profit or loss and other comprehensive income, but not the statement of
cash flows and statement of changes in equity, to the notes.
b. An entity may present notes providing information about the basis of preparation of
the financial statements and specific accounting policies as a separate section of the
financial statements.
c. The notes is an optional statement. An entity may decide not to present it.
d. The notes does not occupy a bulk portion of a complete set of financial statements.
258. Which of the following information is not specifically a required disclosure of PAS 1?
a. Name of the reporting entity or other means of identification, and any change in that
information from the previous year.
b. Names of major/significant shareholders of the entity.
c. Level of rounding used in presenting the financial statements.
d. Whether the financial statements cover the individual entity or a group of entities.
(Adapted)
259.
a.
b.
c.
d.
Which of the following best states the purpose of the notes?
to provide additional disclosures regarding off-balance sheet items
to provide information regarding accounting policies adopted by the issuer
to provide necessary disclosures required by PFRSs
to provide necessary disclosures required by PSAs
260. Choose the incorrect statement
a. Disclosure notes facilitate the evaluation of enterprise position and performance
because they include information which helps to explain the quality of earnings.
b. Disclosure notes are an integral part of the financial statements.
c. Companies often look for opportunities to smooth earnings.
d. Accounting concepts, principles and standards are just as broad and general today as
they were sixty years ago.
(Adapted)
261. Which of the following statements is correct?
a. Certified Public Accountants are not independent for the benefit of the users of the
financial statements, because they are paid by the client.
b. Accounting concepts, principles and standards are just as broad and general today as
they were sixty years ago.
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c. Due to the excellent work of the FRSC, there are very few choices among alternative
accounting policies today.
d. Disclosures are an integral part of the financial statements
(Adapted)
262. Which of the following statements is incorrect?
a. The principles of accounting, as used in reporting standards, refer not only to
accounting principles but also the methods of applying them.
b. Aspects of financial position presented in the balance sheet are related to changes in
financial position presented in the income statement, statement of changes in equity,
and statement of cash flows.
c. Asset valuation accounts are neither assets nor liabilities.
d. The cash basis of accounting is acceptable primarily in enterprises that do not have
substantial credit transactions or inventories.
(RPCPA)
263. Are the following statements in relation to materiality true or false, according to PAS1
Presentation of Financial Statements?
I.
Materiality of items depends on their individual or collective influence on the economic
decisions of users.
II.
Materiality of an item depends on its absolute size and nature.
a. False, False
b. False, True
c. True, False d. True, True
(ACCA)
264. To properly prepare notes to financial statements you need to know
a. the reporting entity’s name
c. the registered address of the company
b. the date the company started
d. all of these
265. Notes to financial statements are beneficial in meeting the disclosure requirements of
financial reporting. The note should not be used to
a. Describe significant accounting policies
b. Describe depreciation methods employed by the company
c. Describe principles and methods peculiar to the industry in which the company
operates, when these principles and methods are predominantly followed in that
industry.
d. Correct an improper presentation in the financial statements.
(Adapted)
266. You are preparing the “general information” section of a notes to financial statements.
Which of the following information sources is most relevant in addition to direct inquiry
with management?
a. board of directors minutes of meetings
b. lease contract
c. general ledger
d. latest authorized articles of incorporation
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267. Which is not a required disclosure?
a. the key assumption concerning the future, and other key sources of estimation
uncertainty at the balance sheet date
b. the judgment management has made in the process of applying the accounting policies
c. a and b
d. the number of the entity’s employees
268. The following statements relate to various financial accounting topics:
I.
reporting deferred income taxes in the balance sheet is an example of intraperiod tax
allocation
II.
a lease that is in substance a purchase is termed a direct financing or a sales-type lease
by the lessor and a finance lease by the lessee
III.
earnings per share information are required on the income statements of publicly-held
corporations for each of the following (a) income from continuing operations, (b)
results of discontinued operations, and (c) net income
IV.
accounting is responsible for providing standards that insure accurate financial
information that cannot be manipulated or improperly reported.
State whether the foregoing statements are false:
a. all of the statements are false
c. only two statements are false
b. only one statement is false
d. three statements are false
(RPCPA)
269. An entity shall disclose all of the following in the notes, except
a. the amount of dividends proposed or declared before the financial statements were
authorized for issue but not recognized as a distribution to owners during the period,
and the related amount per share
b. the amount of any cumulative preference dividends not recognized.
c. the domicile and legal form of the entity and a list of its incorporators.
d. the name of the parent and the ultimate parent of the group.
270. An entity shall disclose all of the following in the notes, except
a. the domicile and legal form of the entity, its country of incorporation and the address
of its registered office (or principal place of business, if different from the registered
office)
b. a description of the nature of the entity’s operations and its principal activities; and
c. the name of the parent and the ultimate parent of the group.
d. number of employees of the entity
271. An entity shall disclose all of the following in the notes, except
a. Summary of accounting policies adopted
b. Date the financial statements were authorized for issue and who gave that
authorization
c. Components of comprehensive income if not presented in a separate financial
statement with equal prominence as the other financial statements
d. The date the entity started its operations.
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272.
a.
b.
c.
d.
An entity shall disclose all of the following in the notes, except
Schedules supporting the line items presented in the other financial statements.
Narrative descriptions of items cross referenced from the other financial statements.
The date the entity received a secondary license from a regulatory agency.
The registered addresses and nationalities of the entity’s incorporators.
273. Which of the following should be disclosed in a summary of significant accounting
policies?
a. Basis of profit recognition on long-term construction contracts.
b. Future minimum lease payments in the aggregate and for each of the five succeeding
fiscal years.
c. Depreciation expense.
d. Composition of sales by segment.
(AICPA)
The notes to financial statements should never be used to
disclose a summary of the accounting policies adopted by the reporting entity
disclose information required by PFRSs
disclose information not required by PFRSs but are relevant in the understanding of
information presented in the other components of a complete set of financial
statements
d. rectify inappropriate accounting policies
274.
a.
b.
c.
275. Which of the following statements is incorrect?
a. Extraordinary gains and losses, distinguished by their unusual nature and by the
infrequency of their occurrence, should be presented together with other items of
income and expenses in the income statement and need not be distinguished separately
either on the face of the financial statements or in the notes.
b. An income statement that separates income and expenses into operating and
nonoperating items is called a classified, or multiple step income statement.
c. Description of the accounting policies adopted by the reporting entity is not required
as an integral part of the financial statements.
d. Disclosure of accounting policies should identify and describe the accounting principles
followed by the reporting entity and the methods of applying those principles that
materially affect the determination of financial position, changes in financial position
or results of operation
276. Which of the following should be disclosed in the summary of significant accounting
policies?
(Item #1) Maturity dates of long-term debt; (Item #2) Composition of inventories
a. Yes, Yes
b. Yes, No
c. No, No
d. No, Yes
(AICPA)
277. Which of the following should be disclosed in the summary of significant accounting
policies?
(Item #1) Composition of plant assets; (Item #2) Inventory pricing
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a. Yes, Yes
(AICPA)
b. No, Yes
c. No, No
d. Yes, No
278. Which of the following information should be disclosed in the summary of significant
accounting policies?
a. Refinancing of debt subsequent to end of reporting period.
b. Guarantees of indebtedness of others.
c. Criteria for determining which investments are treated as cash equivalents.
d. Adequacy of pension plan assets relative to vested benefits.
(AICPA)
279. Which of the following facts concerning fixed assets should be included in the summary
of significant accounting policies? (Item #1) Depreciation method (Item #2) Composition
a. No, Yes
b. Yes, Yes
c. Yes, No
d. No, No
(AICPA)
The summary of significant accounting policies should disclose the
Pro forma effect of retroactive application of an accounting change.
Basis of profit recognition on long-term construction contracts.
Adequacy of pension plan assets in relation to vested benefits.
Future minimum lease payments in the aggregate and for each of the five succeeding
fiscal years.
(AICPA)
280.
a.
b.
c.
d.
281. Which of the following information should be included in FRACTIOUS TROUBLESOME,
Inc.’s 20x1 summary of significant accounting policies?
a. Property, plant, and equipment is recorded at cost with depreciation computed
principally by the straight-line method.
b. During 20x1, the UNRULY component was sold.
c. Business component 20x1 sales are QUARRELSOME ₱1M, IRRITABLE ₱2M, and
RECALCITRANT ₱3M.
d. Future ordinary share dividends are expected to approximate 60% of earnings.
(AICPA)
282. Which of the following is an acceptable method of reporting other comprehensive
income and its components?
a. In a statement of profit or loss and other comprehensive income.
b. In a statement of changes in equity
c. In the notes only.
d. All of these
283.
I.
II.
III.
Which of the following statements is (are) correct?
The preparation of a worksheet is optional.
The preparation of a trial balance is optional.
The presentation of an income statement is optional.
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IV.
The presentation of a statement of profit or loss and other comprehensive income is
optional.
V.
The presentation of notes is optional.
a. I, II, and III b. I and II
c. III, IV and V d. all of these
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Chapter 37 - Suggested answers to theory of accounts questions
1. B
41. D
81. C
121. A
161. D
201.
2. B
42. D
82. D
122. D
162. C
202.
3. C
43. B
83. C
123. D
163. D
203.
4. D
44. A
84. B
124. D
164. D
204.
5. A
45. D
85. D
125. B
165. D
205.
6. D
46. D
86. C
126. D
166. A
206.
7. C
47. A
87. C
127. C
167. C
207.
8. B
48. C
88. D
128. C
168. C
208.
9. B
49. B
89. D
129. C
169. A
209.
10. D
50. B
90. C
130. B
170. D
210.
11. B
51. D
91. A
131. D
171. D
211.
12. B
52. D
92. D
132. D
172. A
212.
13. D
53. A
93. C
133. C
173. D
213.
14. B
54. D
94. B
134. C
174. B
214.
15. D
55. D
95. A
135. A
175. C
215.
16. A
56. D
96. A
136. C
176. D
216.
17. A
57. D
97. B
137. B
177. B
217.
18. D
58. D
98. D
138. D
178. A
218.
19. D
59. C
99. E
139. A
179. B
219.
20. B
60. C
100. D
140. D
180. A
220.
21. C
61. D
101. A
141. D
181. C
221.
22. C
62. A
102. B
142. C
182. D
222.
23. C
63. B
103. C
143. A
183. C
223.
24. D
64. A
104. B
144. C
184. D
224.
25. A
65. C
105. B
145. D
185. D
225.
26. B
66. A
106. D
146. A
186. C
226.
27. C
67. B
107. C
147. A
187. B
227.
28. A
68. C
108. D
148. C
188. B
228.
29. D
69. B
109. D
149. D
189. B
229.
30. B
70. A
110. B
150. D
190. A
230.
31. B
71. D
111. B
151. C
191. D
231.
32. C
72. E
112. B
152. C
192. B
232.
33. A
73. C
113. B
153. A
193. B
233.
34. A
74. B
114. C
154. A
194. B
234.
35. B
75. D
115. D
155. C
195. B
235.
36. A
76. C
116. D
156. D
196. A
236.
37. A
77. D
117. A
157. C
197. D
237.
38. D
78. A
118. C
158. C
198. B
238.
39. A
79. D
119. A
159. A
199. D
239.
40. B
80. C
120. D
160. A
200. A
240.
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