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40 Financial Statements Theory
40 Financial Statements Theory
REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE
FINANCIAL STATEMENTS
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presentation of financial statements?
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a. An enterprise shall prepare its financial statements, except for cash flow
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information, under the accrual basis of accounting.
b. The presentation and classification of items in the financial statements shall be
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retained from one period to the next.
c. Assets and liabilities, income and expenses, shall not be offset unless required or
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a. Materiality depends on the size and nature of the item judged in the particular
circumstances of its omission or misstatement.
b. Materiality provides that the specific disclosure requirements of a PFRS must be
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are immaterial.
d. Information is material if its nondisclosure could influence the economic decisions of
users taken on the basis of the financial statements.
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5. An asset shall be classified as current when it satisfies any of the following criteria
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c. It is expected to be realized in more than twelve months after the balance sheet
date.
d. It is cash or a cash equivalent which is unrestricted from being exchanged or used
to settle a liability for at least twelve months after the balance sheet date.
6. The operating cycle of an enterprise
a. Is set by the industry’s trade association usually on an average length of time for all
firms which are members of the association.
b. Is the time between the acquisition of assets for processing and their realization in
cash or cash equivalents.
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.
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d. Causes the distinction between current and noncurrent items to depend on whether
they will affect cash within one year.
7. A liability shall be classified as current when it satisfies any of the following criteria
(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 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.
8. Which can be classified as current liabilities even if they are due to be settled after
more than twelve months from balance sheet date?
a. Bank overdrafts
b. Dividends payable
c. Income taxes payable
d. Trade payables and accruals for employee and other operating costs
9. A long-term debt that is due to be settled within twelve months after the balance sheet
date is classified as noncurrent when
I. An agreement to refinance or reschedule payment on a long-term basis is
completed after balance sheet date and before the financial statements are
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authorized for issue.
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II. The entity has the discretion to refinance or roll over the obligation for at least
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twelve months after the balance sheet date under an existing loan facility.
a. I only b. II only c. Both I and II d. Neither I nor II
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10. When an entity breaches a covenant under a long-term loan agreement on or before
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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 on or before the balance sheet date to provide a grace
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period ending at least twelve months after the balance sheet date.
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II. The lender has agreed after the balance sheet date and before the financial
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a. As a minimum, the face of the balance sheet shall include line items that are
sufficiently different in nature or function to warrant separate presentation.
b. The standard does not prescribe the order or format in which the line items are to
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be presented.
c. Additional line items, headings and subtotals shall be presented on the face of the
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12. Biological assets are measured at initial recognition and every balance sheet date at
a. Cost c. Replacement cost
b. Fair value d. Fair value less estimated point of sale cost
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d. Contingent liabilities and unrecognized contractual commitments.
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17. Related parties include all of the following, except
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a. Affiliates
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b. Associates
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c. Two enterprises that have a common director
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d. Key management personnel, directors and officers of enterprise, and close family
members of such individuals
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a. Two venturers simply because they share joint control over a joint venture.
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b. Providers of finance, trade unions, public utilities and government departments and
agencies simply by virtue of their normal dealings with an entity.
c. A customer, supplier, franchisor or general agent with whom an entity transacts a
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dependence.
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22. The statement of recognized gains and losses shall include all of the
following, except
a. Net unrealized loss on available for sale securities
b. Foreign currency translation gain
c. Revaluation surplus
d. Dividend paid to stockholders
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a. Both I and II b. Neither I nor II c. I only d. II only
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24. Which is incorrect concerning accounting changes?
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a. The effect of a change in accounting estimate shall be treated currently and
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prospectively, if necessary.
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b. The effect of a change in the expected pattern of consumption of economic benefits
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II. The change will result in more relevant or reliable information about financial
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26. Prior period errors are omissions from and misstatements in the
financial statements for one or more periods arising from a failure or misuse of reliable
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information that
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I. Was available when financial statements for those periods were authorized for
issue.
II. Could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.
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component of equity.
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b. Net profit or loss from the activities of the discontinued operation is accounted for as
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a change in accounting policy.
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c. The results from the discontinued operation shall be presented as a single amount
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net of tax below the income from continuing operations.
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b. Assets of the component held for sale are measured at the lower of fair value less
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d. Noncurrent assets of the component held for sale shall continue to be depreciated.
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a. Segment internal and external revenue is 10% or more of total internal and external
revenue of all segments
b. Segment external revenue is 10% or more of total internal and external revenue of
all segments
c. Segment result is 10% or more of the combined result of all segments in profit or
combined result of all segments in loss, whichever is greater in absolute amount
d. Segment assets are 10% or more of the total assets of all segments
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d. Accounting policies and explanatory notes
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38.
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If the enterprise publishes interim financial reports quarterly on June
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30, 2005, and the financial year ends December 31, 2005, which is an incorrect interim
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reporting?
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a. Balance sheet as of the end of the current interim period and a comparative balance
sheet as of the end of the immediately preceding fiscal year.
b. Income statements for the current interim period and cumulatively for the current
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financial year to date, with comparative income statement for the immediately
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preceding year.
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c. Cash flow statement cumulatively for the current financial year to date with
comparative statement for the comparable year-to-date period of the immediately
preceding year.
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d. Statement of changes in equity cumulatively for the current financial year to date
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b. Supporting schedule for the amount appearing as cash and cash equivalent.
c. Note to financial statements.
d. Supplementary financial statement.
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42. Cash receipts from royalties, fees, commissions and other revenue
are
a. Cash outflows for operating activities c. Cash inflows from investing activities
b. Cash inflows from operating activities d. Cash outflows for investing activities
44. Cash receipts from issuing shares and other equity instruments are
a. Cash inflows from financing activities c. Cash outflows for investing activities
b. Cash inflows from investing activities d. Cash outflows for financing activities
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a. Operating activities c. Borrowing activities
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b. Lending activities d. Financing activities
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47.
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Dividend payments to owners should be classified as cash outflows
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for
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a. Operating activities c. Financing activities
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subsidiary should
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c. Preferred shares with specified redemption date and acquired three months before
redemption date
d. One-year treasury bills maturing in three months from balance sheet date.
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51. Which of the following cash flows does not appear in a cash flow
statement using indirect method?
a. Net cash flow from operating activities c. Cash inflow from sale of equipment
b. Cash received from customers d. Cash outflow for dividend payment
52. In a cash flow statement using the indirect approach for operating
activities, an increase in inventory should be presented as
a. Outflow of cash c. Inflow and outflow of cash
b. Addition to net income d. Deduction from net income
53. Which should not be disclosed in the cash flow statement using the
indirect method?
a. Interest paid, net of amounts capitalized
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54. How should a gain from the sale of used equipment for cash be
reported in a cash flow statement using the indirect method?
a. In investing activities as a reduction of the cash inflow from the sale
b. In investment activities as a cash outflow
c. In operating activities as a deduction from income
d. In operating activities as an addition to income
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a. Less the loss and plus the amount of tax attributable to the loss
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b. Less both the loss and the amount of tax attributable to the loss
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c. Less the loss
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d. With no addition or subtraction
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57. On July 1, 2005 ABC Company signed a 20-year building lease that
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it reported as a finance lease. ABC paid the monthly lease payments when due. How
should ABC report the effect of the lease payments in the financing activities section of
its 2005 cash flow statement?
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a. As an inflow equal to the present value of future lease payments at July 1, 2005
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d. The lease payments should not be reported in the financing activities section
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a. Activities that result in changes in the size and composition of equity capital and
borrowings of the enterprise.
b. Acquisition and disposal of long-term assets and other investments not included in
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cash equivalents.
c. Principal revenue-producing activities of the enterprise.
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