CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING VALIXISIY/VALIUESCALA/SANTOS/DELA CRUZ PAS 1 — PRESENTATION OF FINANCIAL STATEMENTS 1. Which ofthe following eannot be considered fair presentation? "To select and apply accounting polices in accordance with applicable IFRS. a provides relevant, reliable, comparable and . To present information in a manner that ‘understandable information. ¢, To provide additional disclosures when compliance with specific IFRS is insufficient to ‘understand the entity's financial position and financial performance. 4. Toreetfy inappropriate accounting policies either by disclosure of the accounting policies used or ‘by notes or explanatory information. 2. When an entity changes the end of the reporting period longer or shorter than one year, disclose all ofthe following, except a. Period covered by the financial statements. ’. The reason for using a longer or shorter period. The fect that amounts presented inthe financial statements are not entirely comparable. {The fact chat similar entities inthe geographical area in which the entity operates have done so ‘an entity shall 4. Which information is not specifically a required disclosure in relation to financial statements? a. Name of te reporting entity or other means of identification 'b. Names of major shareholders of the entity €._ Level ofrounding used in presenting the financial statements @. Whether the financial statements cover the individual entity or a group of entities 4, Anentity must disclose comparative information for a. The previous comparable period for all amounts reported. b. The previous comparable period for all narrative and descriptive information. ¢. The previous comparable period for all amounts reported, and for all narrative and descriptive informetion when it is relevant to an understanding of the current period’s financial statements. 4, The previous two comparable periods for all amounts reported, ‘5. In presenting a statement of financial position, an entity ‘a. Must make the current and noncurrent presentation. ', Must present assets and liabilities in the order of liquidity. Must choose either the eurrent and noncurrent or the liquidity presentation. 4. Must make the current and noncurtent presentation except when a presentation based on liquidity ‘provides information that is reliable and more relevant. 6. An entity shall classify an asset as current under all of the following conditions, except fa. The entity expects to realize, or intends to sell or consume it within normal operating cyele, '. The entity holds the asset primarily for the purpose of trading. , The entity expects to realize the asset within twelve months ater the reporting period 4. ‘The asset is cash or cash equivalent restricted to settle a iability for more than twelve months aftr the reporting period. 7. Anentity shall classify a liability as current under all ofthe following conditions, except ‘a. The entity expects to settle the liability within the normal operating cycle. '. The entity holds the liability primarily forthe purpose of trading. cc. The liability is due to be settled within twelve months after the reporting period. The entity has an unconditional right to defer settlement of the liability for at least twelve ‘months after the reporting period. 6731Page 2 8. A financial liability that is due to be settled within twelve months afer the reporting period shall be classified as noncurrent ‘When it is refinanced on a long-term basis before the issue of fingncial statements, 'b. When the entity has no discretion to refinance for at least twelve months, ¢. When tis refinanced on a long-term basis after the end of reporting period. 44. When itis refinanced on a long-term basis on or before the end of reporting period. 9. When an entity breaches under a Jongc-term loan agreement on or before the end of the reporting, period withthe effect that the liability becomes payable on demand, the liability is classified es 8. Current under all circumstances '. Noncurrent under all circumstances c. Current if the lender agreed after the reporting period and before the issuance of the statements not to demand payment es a consequence ofthe breach. 4. Noncurrent ifthe lender agreed after the end of the reporting period to provide a grace period {or atleast twelve months after the reporting period. 10. All ofthe following components of OCI should be reclassified to profit or loss, except ‘2 Gain and loss arising from translating the financial statements ofa foreign operation. '. Gain and loss on remeasuring debt investment at FVOCI . The effective portion of gain or loss on hedging instrument in a cash flow hedge 4. Gain or loss on remeasuring equity investment at FVOCI. 11, An entity shall present an analysis of expenses using a classification based on a. Thenature of expenses. The function of expenses. ‘© Either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant. 4._ Either the nature of expenses or the function of expenses within the entity, whichever the entity would prefer to present. 12. Under Intemational Financial Reporting Standards, notes to finaneial statements a Must be quantifiable. ». Must qualify 0s an element ©. Amplify or explain items presented in tbe main body of the financial statements 4. Allofthe choices are correct regarding notes to financial statements. 13, What is the “first item” presented in the notes to financial statements? 1, Statement of compliance with IFRS. ». Summary of significant accounting policies «©. Supporting information for items presented inthe financial statements 4. Other disclosures, including contingent liabilities and nonfinencial disclosures 14, An entity shall disclose in the summary of significant accounting policies ‘a. The measurement basis used in preparing the financial statements. . All the measurement bases specified in JFRS imespective of whether used or not. ‘c. The measurement basis and the accounting policies used. 4. Allof the accounting policy choices specified in JPRS irespective of whether used or not. 15. The presentation of notes to financial statements in @ systematic manner a. Isvoluntary b. Ismandatory cc. Ismandatory, as far as practicable 4d. Depends on the industry 16. Disclosure of information about key sources of estimation uncertainty and judgment '. Is mandatory. ©. Isecither voluntary or mandatory @ Depends on the industry 6731v Page 3 17. The disclosure of accounting policies is important to financial statement readers in determining, Not income for the year. Whether accounting policies are consistently applied from year to year. The value of obsolete items included in ending inventory, ‘Whether the working capital position is adequate for future operations. pose PAS 10 - EVENTS AFTER REPORTING PERIOD 18, Events after the end of the reporting period are favorable or unfavorable events that Occur between the end of the reporting period and the date ofthe next annual financial statements. 'b. Occur between the year-end and the date of the next interim or annual financial statements ‘Occur between the year-end and the date when financial statements are authorized for issue 4. Occur between the end of reporting period and the date of the next interim statements, 19, Financial statements are said to be authorized for issue when 1. The financial statements are filed with the SEC. ’. The shareholders approve the financial statements at their annual meeting. ‘c. The management is required to submit the financial statements to a supervisory body. 4. The management reviews the financial statements and authorizes them for issue. 20. Which event after the reporting period would require adjustment of the financial statements? Loss of plantas a result of fire 'b. Changes in the quoted market prices of securities held as an investment ‘Loss on inventory resulting from major flood loss Loss on settlement of lawsuit the outcome of which was deemed uncertain at year end. 21. Which subsequent event would generally require disclosure in the financial statements? ‘a. Retirement of the company president b. Settlement of litigation when the event that gave rise to the litigation occurred prior to the statement of financial position date c. Employees strike d._ Issue of @ large amount of ordinary shares PAS 24 RELATED PARTY DISCLOSURES 22, Related parties include all of the following, except ‘a. Parent, subsidiary and fellow subsidiaries b. Associate c. Key management personnel and close family members of such individuals ‘4. Two venturers simply because they share joint control over a joint venture 23. Close family members ofan individual include all ofthe following, except a. The individual's spouse and children . Children of the individual’s spouse Dependents ofthe individual or the individual's spouse d. Brother or sister of the individual 24, Unrelated parties include all of the following, except ‘Two entities simply because they have a common director Providers of finance or banks Customers Spouse of managing director aore 6731‘ Page 4 PAS 8 - ACCOUNTING POLICIES, ESTIMATES AND ERRORS 25. Which is the first step within the hierarchy of guidance when selecting accounting policies? 3. Apply a standard ftom IFRS if't specifically relates to the transaction ». Apply the requirements in IFRS dealing with similar and related issue | ©. Consider the applicability of the definitions, recognition criteria and measurement concepts in the Conceptual Framework ao 4. Consider the most recent pronouncements of other standard setting bodies 26. Which ofthe following is not classified as an accounting change? ‘Change in the accounting policy >. Change in accounting estimate [Enorin the financial statements Al of these are classified as an accounting change oe 27. Which is the reason why entities are permitted to change accounting policy? The change would allow the presentation of a more favorable profit picture . ‘The change would result in providing more reliable and relevant information about financial position, financial performance and cash flows. The change is made by the internal auditor. 4. The change is required by law. 28. Which method is required for reporting a change in accounting policy? 8. Cumulative effect approach, b. Retrospective approach Prospective approach d. Averaging approach 29. A change in accounting policy requires that the cumulative effect of the change for prior periods be shown as an adjustment to ‘Beginning retained earnings for the earliest period presented. b. Net income for the period in which the change occurred. ©. Comprehensive income for the earliest period presented. : 4. Shareholders’ equity for the period in which the change oceurred. 30. Which of the following is not treated as change in accounting policy? A cchange from FIFO inventory valuation to average cost '. Acchange from direct writeoff method of recognizing bad debt expense to allowance method © A change from cost model to fair model in measuring investment property 4. A change to anew IFRS requirement 31. Which isthe proper time period to record the effect of@ change in accounting estimate? ‘Curent period and prospectively 'b. Current period and retrospectively © Retrospectively 4 Current period 32. Why is retrospective treatment of changes in accounting estimate prohibited? Changes in estimate are normal recurring corrections and adjustments which are the natural result of the accounting process. a 'b. The retrospective treatment for any type of presentation is not allowed. c. Retrospective treatment of changes in accounting estimate is required by IFRS. 4. The IFRS is silent on the issue. . 33, When it is difficult to distinguish a change in an accounting poliey ffom a change in an accounting estimate, the change is treated as, : 4. Change in accounting estimate with appropriate disclosure . Change in accounting policy © Comection of aneror 4. Initial adoption of an accounting policy 673134. An example of a correction of an error in i i previously issued financial statements isa change fa FIFO method of inventory valuation to average cost method. -_ In the service life of plant asset based on change in the economic environment. c ‘From cash basis-of accounting to accrual basis of accounting. 4. In the tax assessment related to a prior period. 35. What is the treatment if an entity has included in the consolidation this year a subsidiary that was appropriately excluded from consolidation last year? An accounting change that should be reported prospectively. . An accounting change that should be reported retrospectively © Acortection of an error 4. Neither an accounting change not a correction of an error. PERS 5 DISCONTINUED OPERATION AND ASSET HELD FOR SALE 36. A noncurrent asset or disposal group shal be classified as held for sale when ‘The sale is highly probable. ‘The asset is available for immediate sale in the present condition. ‘The sale is probable and the asset is availabe for sale in the present condition. ‘The sale is highly probable and the asset is available for immediate sale inthe present condition. 37. An entity shall classify a noncurrent asset or disposal group as “held for sale” when ‘The carrying amount of the asset or disposal group is recovered through a sale. 'b. The carrying amount of the asst or disposal group is recovered through continuing use. ¢. The noncurrent asset or disposal group is o be abandoned. ‘4. The noncurrent asset or disposal group is idle or retired from active use. 38. A noncurrent asset that is to be abandoned should not be classified as held for sale because a. The carrying amount is recovered principally through continuing use. . Itis difficult to value. ©. Itis unlikely that the noncurrent asset will be sold within 12 months. 4. Iti unlikely that there will be an active market for the noncurrent asset, 39. How should the assets and liabilities of a disposal group held for sale be reported? 1. The assets and liabilities should be offset and presented as a single amount. . The assets of disposal group should be reported separately as current assets and the liabilities should be shown as current liabilities separately. c. The assets and liabilities should offset and presented as a deduction from equity. 4. There should be no separate disclosure of assets and liabilities of the disposal group. 40. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the ccurrent year-end. The entity decided at the end of the following year not to sell the asset but to continue to use it. The asset should be measured at the end of the following year at . The lower of carrying amount and recoverable amount b. The higher of carrying amount and recoverable amount cc. The lower of carrying amount on the basis that it had never been classified as held for sale and recoverable amount 4. The recoverable amount 41. Which is not a criterion for an operation to be classified as discontinued? 1 The operation should represent a separate major line of business or geographical are. ’. The operation is part of a single plan to dispose of a separate major line of business or geographical area. . The operation isa subsidiary acquired exclusively with a view to resale. 4. The operation must be sold within three months of the year-end. 42, The results of the discontinued operation should be reported net of tax as, ‘A prior period adjustment. ‘An other income and expense item. A single amount after continuing operations and before net income. ‘A bulk sale of plant assets included in income from continuing operations. aeeP 6731Page 6 PERS 8 - OPERATING SEGMENT 43. If financial report contains both the consolidated financial statements of a parent and the parent's separate financial statements, segment information is required in a The separate financial statements only 'b, The consolidated financial statement only . Both the separate and consolidated financial statements 4. Neither the separate nor the consolidated financial statements 44, Which statement is not true with respect to a chief operating decision maker? a. The term chief operating decision maker identifies a function and not necessarily « manager with @ specific title, ». In some cases, the chief operating decision maker could be the chief operating officer. ‘©, The board of directors acting collectively could qualify asthe chief operating decision maker. d. The chief intemal auditor who reports to the board of directors usually plays a very important role and would generally qualify as chief operating decision maker 45, When is an operating segment is reportable? a. The segment external and internal revenue is 10% or more of the combined external and intemal revenue of all operating segments. 'b. The segment profit or loss is 10% or more of the greater between the combined profit of all profitable operating segments and the combined loss of all unprofitable operating segments. ‘c. The assets of the segment are 10% or more of the total assets of all operating segments. Under all ofthese circumstances 46, Which ofthe following statements about major customer disclosure is not true? 4. A major customer is defined as one providing revenue which amounts to 10% or more of the ‘combined external revenue of all operating segments, b. The identities of major customers must be disclosed. ©. The entity shall disclose the total amount of revenue from major customers. 4. The entity shall disclose the identity of the segment reporting the revenue from major customers. PAS 34— INTERIM FINANCIAL REPORTING 47. Tnterim financial reports shall be published a. Once a year at any time in that year. 'b, Within a month of the half year-end. ©. Ona quarterly basis. 4. Whenever the entity wishes. 48, Interim financial reports should include as a minimum. a. Acomplete set of financial statements. . Acondensed set of financial statements and selected notes c. A condensed statement of financial position and a condensed income statement. 4. A condensed statement of financial position and a condensed statement of cash flows. 49. Interim financial reporting should be viewed a, Asa special type of reporting that need not follow IFRS b. As useful only if activity is evenly spread throughout the year, . As reporting for an integral part of an annual period. 4. As reporting for a separate accounting period. 50, Which statement is true regarding interim repoxging? 1. Comprehensive jncome is not reported ’. Each statement must be marked “unaudited.” ‘c. Interim in reporting is required under IFRS. 4. Temporary inventory decline should not be recorded in the interim period incurred. END 6731