CHAPTER 8
The major financial statement includes all, except
•
Statement of changes in financial position
The major financial statement includes all, except
•
statement of retained earnings
What is the objective of financial statements?
•
To provide information about the financial position, financial performance and changes in
financial position of an entity that is useful to a wide range of users in making economic
decision.
Financial statements must be prepared at least
•
Annually
When entity changed the end of reporting period longer or shorter than one year, the entity shall
disclose all, except
•
the fact that similar entities have done so
The operation cycle is measured at
•
Twelve months
An entity shall classify an asset as current under all, except
•
Cash restricted to settle a liability for at least twelve months after reporting period
In the Philippines, the common practice is to present in the statement of financial position
•
Current before noncurrent asset, current before noncurrent liabilities and equity after
liabilities
In analyzing an entity’s financial statements, which financial statement would a potential investor
primarily use to assess liquidity and financial flexibility
•
Statement of financial position
Conceptually, asset valuation accounts are
•
Neither assets nor liabilities
Working capital is
•
Current assets less current liabilities
As generally used the term net assets represents
•
Total assets less total liabilities
The basis for classifying assets as current or noncurrent is the period of time normally required to
convert cash invested in
•
Inventory back into cash or 12 months, whichever is longer
Which should be classified as current asset
•
Trade installment accounts receivable normally collectible in 18 months
Which should not be considered as current asset
•
Cash surrender value of life insurance policy
Current asset should never include
•
Goodwill arising in business combination
Equity investments held to finance construction of additional plant should be classified as
•
Noncurrent investment
Which of the following is not a noncurrent investment?
•
Franchise
Assets to be sold, consumed or realized as part of the normal operating cycle are
•
Current assets
Liabilities that an entity expects to settle within the normal operating cycle are classified as
•
Current liabilities
What is an example of an item which is not an element of working capital?
•
Goodwill
Accrued revenue would normally appear in the statement of financial position under
•
Current asset
Which f the following is usually classified as a noncurrent asset
•
Plant expansion fund
Cash restricted for the settlement of a liability due 18 months after the reporting period should be
presented as
•
Noncurrent asset
Employment taxes that are due for settlement in 15 months’ time should be presented as
•
current liability
A loan due for repayment in six months’ time but the entity has the rights to defer repayment two years
later should be presented as
•
Noncurrent liability
A financial liability due within 12 months after the reporting period shall be classified as noncurrent
•
When it is refinanced on a long-term basis on or before the end of reporting period
When an entity breaches a covenant under a long-term loan agreement on or before the end of the
reporting period, the liability is classified as
•
Current or noncurrent at the discretion of the borrower
CHAPTER 9
The income statement reveals
•
Net earnings for a period of time
Conceptually, net income is a measure of
•
Change of wealth
Which term cannot be used to describe an item in the statement of comprehensive income?
•
Extraordinary
Income determination is arrived at by
•
Using a transaction approach
Net income equals
•
Revenue minus expense
An entity shall present an analysis of expenses based on
•
Either the nature of expense or the function of expense
Under IFRS, the extraordinary item presentation
•
Has been eliminated
It is 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
•
Comprehensive income
It comprises items of income and expense that are not recognized in the traditional income statement
•
Other comprehensive income
What is the purpose of reporting comprehensive income?
•
To report a measure of overall entity performance
Comprehensive income includes all of the following except
•
Investment by owners
It comprises items of income and expense, including reclassification adjustments, that are not
recognized in profit or loss as required or permitted by IFRS
•
Other comprehensive income
Comprehensive income always
•
Could be greater than or less than net income
Earnings
•
Exclude certain gains included in in comprehensive income
Other comprehensive income includes all, except
•
Dividend paid to shareholders
CHAPTER 10
The primary purpose of a statement of cash flows is to provide relevant information about
•
The cash receipts and cash disbarments of an entity during a period
Cash receipts from royalties and commissions are
•
Cash inflows from operating activities
Cash flow arising from trading securities are
•
Classified as operating activities
Cash payments to acquire equity investments are
•
Cash outflows for investing activities
Cash receipts from issuing share
•
Cash inflows from financing activities
Interest payments to lender are classified as
•
Operating activities
Dividends payments to shareholders are classified as
•
Cash outflow for financing activities
Interest received is classified as cash flow from
•
Operating activities
Cash advances and loans made by a financial institution are usually classified as
•
Investing activities
Cash payments to acquire treasury shares are
•
Cash outflows from financing activities
Under IFRS, an entity can report interest paid on bank loan in the statement of cash flows
•
Either in operating activities or financing activities
Under IFRS, the dividend received from share investments can be classified as
•
Either an operating activity or investing activity
Under IFRS, dividend paid can be classified
•
Either financing activity or operating activity
Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement
would be most appropriate?
•
Cash flow from operating activities
Cash flow relating to asset held for rental to others are classified as
•
Operating
Cash equivalents are
•
All of these are features of cash equivalents
All can be classified as cash and cash equivalents, except
•
Equity investment
When an entity purchased a three-month treasury bill, how would the purchase be treated in preparing
statement of cash flows?
•
Not reported
Which of the following is not considered as a cash equivalent?
•
A three-year treasury notes maturing on January 31 of next year purchased on October 1 of
the current year
Non cash investing and financing activities are
•
Disclosed in a note or separate schedule
CHAPTER 11
A change in accounting policy shall be made when
I. required by an accounting standard
ii. the change will result in more relevant or reliable information about the financial position, financial
performance and cash flows of the entity
•
Both I and 2
A change in accounting policy requires what kind of adjustment to the financial statements
•
Retrospective adjustment
A change in accounting policy
•
All of these are considered change in accounting policy
When it is difficult to distinguish between a change in accounting estimate and a change in accounting
policy, the change is treated as
•
Change in accounting estimate with disclosure
How should the effect of a change in accounting estimate be accounted for
•
In the period of change and future periods if the change affects both
Which is characteristic of a change in accounting estimate?
•
it does not affect the financial statement of prior period
Which of the following is the proper time period to record the effect of a change in accounting
estimate?
•
current period and prospectively
Why is retrospective treatment of change in accounting estimate prohibited?
•
A change in accounting estimate is a normal recurring correction or adjustment
Which is required for a change in the useful life of an asset?
•
Which is not classified as an accounting change?
•
Error in the financial statement
When financial statement for a single year is being presented, a prior period error should
•
Be shown as an adjustment of the beginning balance of retained earnings
Prior period errors
•
Are not omissions and misstatements in the financial statements of prior period
An example of a correction of an error is a change
•
From cash basis to accrual basis of accounting
A change from an unacceptable accounting principle to an acceptable accounting principle should be
reported
•
Retroactively as correction of an error
CHAPTER 12
Events after the reporting period are favorable or unfavorable events that occur between
•
The end of reporting period and the date when the financial statements are authorized for
issue
Events after the reporting period
•
May require adjustments or disclosure
Adjusting events
•
Provide evidence of conditions that existed at the end of the reporting period
Financial statements are authorized for issue
•
When the board of directors’ review and authorizes the financial statement for issue
Which event after the reporting period would require adjustments
•
Loss on a lawsuit the outcome of which was deemed uncertain at year end
Events that occur after the current year-end but before the financial statements are issued and affect
the realizability of accounts receivable should be
•
Used to record an adjustment to bad debt expense
Non adjusting events include all, except
•
Destruction of a major production plant by a fire before the end of reporting period
Non adjusting events include all, except
•
A mistake in the calculation of allowance for uncollectible accounts receivable
Which event after the end of reporting period would generally require disclosure
•
Issue of a large amount of ordinary shares
At the end of the current reporting period, an entity carried a receivable from a major customer who
declared bankruptcy after the end of reporting period and before the issuance of financial statements.
What should be reported at the current year-end?
•
Make an adjustment for the event after reporting period
An entity built a new factory building during the current year, subsequent to the current year-end and
before the issuance of financial statements, the building was destroyed by fire. What should be reported
at the current year-end
•
Disclose the non-adjusting event in the notes of financial statements
An entity deals extensively with foreign currency transaction. Subsequent to the end of reporting period
and before the date of authorization of the issuance of the financial statements, there were abnormal
fluctuations in foreign currency. What should be reported at the current year-end?
•
Disclose the post-reporting period event
CHAPTER 13
Which is not required as related party disclosure?
•
An entity that has a common director with the entity
All of the following are related parties, except
•
The partner of a key manager is a major supplier of the entity
Which is not included in key management personnel compensation
•
Reimbursement of out-of-pocket expenses
Close family members of an individual include all, except
•
Brothers and sisters of the individual
A related party transaction is a transfer
•
Between related parties, regardless of whether a price is charge
Which of the following is not a mandated disclosure about related party transactions?
•
Name of the entity’s parent and the ultimate controlling party
Which of the following is not a required minimum disclosure about related party transaction?
•
The amount of similar transaction with unrelated parties to establish that comparable related
party transaction has been entered at arm’s length
Related party transactions include all, except
•
All of these are related party transactions
All of the following are related party transactions, except
•
Took out a huge bank loan
Related parties include all of the following, except
•
Unrelated parties include which of the following
•
All of these
The minimum disclosures about related party transactions include all of the following, except
•
Nature of the relationship
An entity that entered into a related party transaction would be required to disclose all of the following
information, except
•
Nature of any future transaction planned between the parties and the terms involved.
Which should be disclosed as related party transaction in the consolidated financial statements?
•
Key management personnel compensation and sales to affiliated entities
CHAPTER 21
Which statements best describes investment property?
•
Property held to earn rentals or for capital appreciation.
An owner-occupied property held by an owner
•
For use in production of goods and services and for administrative purposes.
Investment property includes all of the following, except
•
Property held for sale in the ordinary course of business.
Which of the following is an investment property?
•
Property that is being constructed and developed as investment property.
Directly attributable expenditures related to investment property include
•
Professional fees for legal services and property transfer taxes
Subsequent to initial recognition, the investment property shall be measured using
•
Cost model or fair value model
If the entity uses the fair value model for the investment property, changes in fair value are
•
Recognized in profit or loss
If the entity uses the fair value model for investment property, which statement is true?
•
The entity does not record depreciation.
Under IFRS, assets classified as investment property are
•
Held for rental income or to be sold for a quick profit.
An investment property is derecognized when
•
In all of these cases
Which statement regarding investment property is correct?
•
All of the statements are correct.
Which disclosure must be made when the cost model is used for investment property?
•
The fair value of the property.
Which of the following disclosures shall be made when the fair value model has been adopted?
•
Net gains or losses from fair value adjustments
Gain or loss from disposal of investment property shall be determined as the difference between the
•
Net disposal proceeds and the carrying amount
Transfers from investment property to property, plant and equipment are appropriate
•
When there is a change of use
CHAPTER 26
Employees are each entitled to 20 days of paid holiday leave per year. Unused holiday leave cannot be
carried forward and does not vest. What is the holiday leave?
•
A short-term employee benefits
Employees are entitled to 10 days holiday leave per year. Unused holiday leave may be carried forward
until the employee leaves employment at which time the entity will pay the employee for all unused
holiday leave. What is the holiday leave?
•
Other long-term employee benefit
An entity made a public announcement of a commitment to a voluntary redundancy plan. The entity has
an obligation to pay employees that choose voluntary redundancy a lump sum equal to twice their gross
annual salary. What is the obligation to pay employees that choose voluntary redundancy?
•
A termination benefits
A profit-sharing plan requires an entity to pay a specified proportion of the cumulative profit for a fiveyear period to employees who serve through out the five-year period. What is the profit-sharing plan?
•
Other long-term employee benefit
It is a benefit plan under which an entity pays a fixed contribution into a separate fund and will have no
legal or constructive obligation to pay further contribution if the fund becomes insufficient to pay
employee benefits
•
Defined contribution plan
Which statement is true concerning the recognition and measurement of a defined contribution plan?
•
The contribution shall be recognized as expense in the period it is payable.
All of these statements are true about a defined contribution plan.
Any unpaid contribution at the end of the period should be recognized as accrued liability.
Any excess Contribution shall be recognized as prepaid expense.
Which statement is incorrect concerning the recognition and measurement of a defined benefit plan?
•
The defined benefit plan must be fully funded.
In a defined contribution plan, a formula is used that
•
Requires an employer to contribute a certain sum each period based on the formula
In a defined benefit plan, a formula is used that
•
Defines the benefits that the employee will receive at the time of retirement.
It is the increase in the present value of the defined benefit obligation resulting from employee service
in the current period
•
Remeasurement
It is the increase in the present value of the defined benefit obligation for employee service in prior
periods resulting from a plan amendment or curtailment
•
Past service cost
The interest on the projected benefit obligation
•
Reflects the rate at which pension benefits could be effectively settled.
A pension liability is reported when
•
PBO exceeds FVPA
A pension asset is reported when
•
FVPA exceeds PBO
These are all forms of consideration given by an entity in exchange for services rendered by employees
•
Employee benefits
Short-term employee benefits include all, except
•
Profit-sharing and bonuses payable in more than twelve months after the end of the
reporting period.
Which of the following is not a characteristic of short-term employee benefits?
•
Short-term employee benefit obligations are measured on a discounted basis
These are employee benefits which are payable after completion of employment
•
Postemployment employee benefits
Postemployment employee benefits include all of the following, except
•
Long-term disability benefits
The components of employee benefit expense include all of the following, except
•
Contribution to the plan
When an entity amends a pension plan, past service cost should be
•
Expensed in the period the plan is amended
What is the meaning of net interest in relation to employee benefit example?
•
The difference between interest expense on defined benefit liability and interest income on
the fair value of plan assets
The return on plan assets
•
Includes interest, dividends and change in the fair value of the plan during the year.
Vested benefits
•
Are defined by all of the choices.
CHAPTER 36
Depending on the business model for managing financial assets an entity shall classify financial assets
subsequent to initial recognition at
•
All of these are used in measuring financial assets
Which of the following is a characteristic of a financial asset held for trading?
•
It is acquired principally for the purpose of selling or repurchasing it in the near term
Under IFRS, the presumption is that equity investments are
•
Held for trading and held to profit from price changes
All of the following shall be measured at FVPL, except
•
Debt investment at amortized cost
Equity investments irrevocably accounted for at fair value through other comprehensive income are
•
Nontrading investments of less than 20%
Entities are required to measure financial asset based on all of the following, except
•
Whether the financial asset is a debt or an equity investment.
Debt investments held for collection of contractual cash flows are reported at
•
Amortized cost
Debt investments not held for collection of contractual cash flow are reported at
•
Fair value
Debt investments reported at amortized cost are
•
Held for collection debt investments
A debt investment shall be measured shall be measured at fair value through other comprehensive
income
•
When the business model is to collect contractual cash flows that are solely payments of
principal and interest and also to sell the financial asset
PROBLEMS
CHAPTER 10 COMPUTATION
Lax Company provided the following information during the current year.
Dividend received
Dividend paid
Cash received from customers
Proceeds from issuing share capital
Interest received
Proceeds from sale of long-term investments
Cash paid to suppliers and employees
Interest paid on long term debt
Income taxes paid
Cash balance, January 1
500,000
1,000,000
9,000,000
1,500,000
200,000
2,000,000
6,000,000
400,000
300,000
1,800,000
O
F
O
F
O
I
O
O
O
What amount should be reported as net cash provided by operation activities
•
3,000,000
What amount should be reported as net cash provided by investing activities
•
2,000,000
What amount should be reported as net cash provided by financing activities
•
500,000
What amount should be reported as cash balance on December 31
•
7,300,000 (add all)
Star Company provided the following data for the preparation of the statement of cash flows
for the current year using the direct method.
Cash balance, beginning
1,500,000
Cash paid to purchase inventory
7,800,000
Cash received from sale of trading securities
2,500,000
Cash paid for interest
450,000
Cash paid to repay a loan
1,000,000
Cash collected from customers
10,000,000
Cash received from issuance of ordinary shares
1,200,000
Cash paid for dividend
2,000,000
Cash paid for income taxes
1,350,000
Cash paid to purchase trading securities
1000,000
What is the net cash provided by operating activities?
• a. 1,900,000
• b. 2,900,000
• c. 2,350,000
• d. 400,000
2. What is the net cash used in financing activities?
• a. 3,000,000
• b. 2,000,000
• c. 1,800,000
• d. 4,200,000
3. What is the cash balance at year end?
• a. 3,400,000
• b. 1,600,000
• c. 1,400,000
• d. 2,400,000
CHAPTER 26
Seda Company provided the following information pertaining to a pension plan for the current year:
Actuarial value of projected benefit obligation at the beginning of year
7,200,000
Assumed discount rate
10%
Service cost
1,800,000
Pension benefits paid
No change in actuarial estimate occurred during the current year.
What is the projected benefit obligation at year-end?
•
1,500,000
8,220,000 (7.2M + 720K + 1.8M – 1.5M)
Manaoag Company maintain a fund to cover a pension plan with the following data for the currentyear:
January 1
Fair value of plan assets
8,750,000
During year
Pension benefits paid
600,000
Contribution to the fund
700,000
Actual return on plan assets
950,000
What is the fair value of plan assets on December 31?
• 9,800,000 (8,750M + 700k + 950k – 600k)