CPA REVIEW SCHOOL OF THE PHILIPPINES

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FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

PAS 1 – PRESENTATION OF FINANCIAL STATEMENTS

1. The major financial statements include all, except

a. Statement of financial position

b. Statement of comprehensive income
c. Statement of cash flows
d. Statement of retained earnings

2. An entity shall present

a. The statement of financial position more prominently
b. The income statement more prominently
c. The statement of cash flows more prominently
d. Each statement with equal prominence

3. When an entity changes the end of the reporting period longer or shorter than one year, an entity shall
disclose all of the following, except

a. Period covered by the financial statements.

b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial statements are not entirely comparable.
d. The fact that similar entities in the geographical area in which the entity operates have done so.

4. An entity 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.
c. The previous comparable period for all amounts reported, and for all narrative and descriptive
information when it is relevant to an understanding of the current period’s financial statements.
d. The previous two comparable periods for all amounts reported.

5. When the classification of items in the financial statements is changed, the entity
a. Must not reclassify the comparative amounts
b. Can choose whether or not to reclassify
c. Must reclassify the comparative amounts unless it is impracticable to do so.
d. Must reclassify current year amounts only.

6. In presenting a statement of financial position, an entity

a. Must make the current and noncurrent presentation.

b. Must present assets and liabilities in the order of liquidity.
c. Must choose either the current and noncurrent or the liquidity presentation.
d. Must make the current and noncurrent presentation except when a presentation based on liquidity
provides information that is reliable and more relevant.

7. An entity shall classify an asset as current under all of the following conditions, except

a. The entity expects to realize, or intends to sell or consume it within normal operating cycle.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting period.
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d. The asset is cash or cash equivalent restricted to settle a liability for more than twelve months
after the reporting period.

8. An entity shall classify a liability as current under all of the following conditions, except

a. The entity expects to settle the liability within the normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled within twelve months after the reporting period.
d. The entity has the right at the end of reporting period to defer settlement of the liability for at
least twelve months after the reporting period.

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9. A financial liability that is due to be settled within twelve months after the reporting period shall be
classified as noncurrent

a. When it is refinanced on a long-term basis before the issue of financial statements.

b. When the entity has the right at the end of the reporting period to roll over an obligation for at least
twelve months after the and of reporting period.
c. When it is refinanced on a long-term basis after the end of reporting period.
d. Under all of these circumstances.

10. When an entity breaches under a long-term loan agreement on or before the end of the reporting
period with the effect that the liability becomes payable on demand, the liability is classified as

a. Current under all circumstances

b. 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 as a consequence of the breach.
d. Noncurrent if the lender agreed after the end of the reporting period to provide a grace period
for at least twelve months after the reporting period.

11. All of the following components of OCI should be reclassified to profit or loss, except

a. Gain and loss arising from translating the financial statements of a foreign operation.
b. Gain and loss on remeasuring debt investment at FVOCI.
c. The effective portion of gain or loss on hedging instrument in a cash flow hedge
d. Gain or loss on remeasuring equity investment at FVOCI.

12. What is the purpose of reporting comprehensive income?

a. To report transactions with owners
b. To report a measure of overall performance of the entity
c. To replace net income with a better measure
d. To combine income from continuing operations with discontinued operations

13. Which of the following is not acceptable option of reporting other comprehensive income?
a. In a separate statement of comprehensive income
b. In a single statement of comprehensive income
c. In the notes
d. In a statement of changes in equity

14. An entity shall present an analysis of expenses using a classification based on

a. The nature of expenses.

b. The function of expenses.
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c. Either the nature of expenses or the function of expenses within the entity, whichever provides
information that is reliable and more relevant.
d. Either the nature of expenses or the function of expenses within the entity, whichever the entity
would prefer to present.

15. What is the purpose of the notes to financial statements?

a. To provide disclosures required by IFRS.
b. To correct improper presentation in financial statements
c. To provide recognition of amounts not included in financial statements
d. To present management response to auditor comments

16. Under International Financial Reporting Standards, notes to financial statements

a. Must be quantifiable.
b. Must qualify as an element.
c. Amplify or explain items presented in the main body of the financial statements.
d. All of the choices are correct regarding notes to financial statements.

17. What is the “first item” presented in the notes to financial statements?

a. Statement of compliance with IFRS.

b. Summary of significant accounting policies
c. Supporting information for items presented in the financial statements
d. Other disclosures, including contingent liabilities and nonfinancial disclosures
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18. The presentation of notes to financial statements in a systematic manner

a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry

PAS 10 – EVENTS AFTER REPORTING PERIOD

19. Events after the end of the reporting period are favorable or unfavorable events that

a. Occur between the end of the reporting period and the date of the next annual financial statements.
b. Occur between the year-end and the date of the next interim or annual financial statements.
c. Occur between the year-end and the date when financial statements are authorized for issue.
d. Occur between the end of reporting period and the date of the next interim statements.

20. Financial statements are said to be authorized for issue when

a. The financial statements are filed with the SEC.

b. The shareholders approve the financial statements at their annual meeting.
c. The management is required to submit the financial statements to a supervisory body.
d. The management reviews the financial statements and authorizes them for issue.

21. Which event after the reporting period would require adjustment of the financial statements?

a. Loss of plant as a result of fire

b. Changes in the quoted market prices of securities held as an investment
c. Loss on inventory resulting from major flood loss
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d. Loss on settlement of lawsuit the outcome of which was deemed uncertain at year end.

22. 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 end of
reporting period
c. Employees strike
d. Issue of a large amount of ordinary shares

PAS 24 RELATED PARTY DISCLOSURES

23. 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
d. Two venturers simply because they share joint control over a joint venture

24. Close family members of an individual include all of the following, except

a. The individual’s spouse and children

b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brother or sister of the individual

25. The minimum disclosures about related party transactions include all, except
a. The amount of the transaction
b. The amount of outstanding balance
c. Allowance for doubtful accounts related to outstanding balance
d. The amount of similar transaction with unrelated parties

26. Related party transactions include all, except

a. Transferred goods from inventory to subsidiary
b. Sold an asset to the wife of the chief operating officer
c. Sold goods to another entity owned by daughter of the managing director
d. Took out a huge bank loan

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PAS 8 – ACCOUNTING POLICIES, ESTIMATES AND ERRORS

27. Which is the first step within the hierarchy of guidance when selecting accounting policies?

a. Apply a standard from IFRS if it specifically relates to the transaction

b. Apply the requirements in IFRS dealing with similar and related issue
c. Consider the applicability of the definitions, recognition criteria and measurement concepts in the
Conceptual Framework
d. Consider the most recent pronouncements of other standard setting bodies

28. In the absence of an accounting standard that applies specifically to a transaction, what is most
authoritive source in developing an accounting policy?

a. Apply the requirements in IFRS dealing with similar and related issue.
b. The definition, recognition criteria and measurement of asset, liability income and expense in the
Conceptual Framework.
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c. Most recent pronouncement of other standard setting body.
d. Accounting literature and accepted industry practice.

29. Which is the reason why entities are permitted to change accounting policy?

a. The change would allow the presentation of a more favorable profit picture
b. The change would result in providing more reliable and relevant information about financial
position, financial performance and cash flows.
c. The change is made by the internal auditor.
d. The change is required by law.

30. Which method is required for reporting a change in accounting policy?

a. Cumulative effect approach

b. Retrospective approach
c. Prospective approach
d. Averaging approach

31. A change in accounting policy requires that the cumulative effect of the change for prior periods be
shown as an adjustment to

a. Beginning retained earnings for the earliest period presented.

b. Net income for the period in which the change occurred.
c. Comprehensive income for the earliest period presented.
d. Shareholders’ equity for the period in which the change occurred.

32. Which of the following is not treated as a change in accounting policy?

a. A change from FIFO inventory valuation to average cost

b. A change from cash basis to accrual basis of accounting
c. A change from cost model to fair model in measuring investment property
d. A change to a new IFRS requirement

33. Which is the proper time period to record the effect of a change in accounting estimate?

a. Current period and prospectively

b. Current period and retrospectively
c. Retrospectively
d. Current period

34. When it is difficult to distinguish a change in an accounting policy from a change in an accounting
estimate, the change is treated as

a. Change in accounting estimate with appropriate disclosure

b. Change in accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy

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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?

a. An accounting change that should be reported prospectively.

b. An accounting change that should be reported retrospectively
c. A correction of an error
d. Neither an accounting change nor a correction of an error.

PFRS 5 DISCONTINUED OPERATION AND ASSET HELD FOR SALE

36. A noncurrent asset or disposal group shall be classified as held for sale when
a. The sale is highly probable.
b. The asset is available for immediate sale in the present condition.
c. The sale is probable and the asset is available for sale in the present condition.
d. The sale is highly probable and the asset is available for immediate sale in the present condition.

37. An entity shall classify a noncurrent asset as held for sale when
a. The carrying amount of the asset is recovered through a sale.
b. The carrying amount of the asset is recovered through continuing use.
c. The noncurrent asset is to be abandoned.
d. The noncurrent asset 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. b. It is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is 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?
a. The assets and liabilities should be offset and presented as a single amount.
b. 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.
d. 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
current 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 a. The lower of
carrying amount and recoverable amount
b. The higher of carrying amount and recoverable amount
c. The lower of carrying amount on the basis that it had never been classified as held for sale and
recoverable amount
d. The recoverable amount

41. Which is not a criterion for an operation to be classified as discontinued?

a. The operation should represent a separate major line of business or geographical area.
b. The operation is part of a single plan to dispose of a separate major line of business or
geographical area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. 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. A prior period adjustment.
b. An other income and expense item.
c. A single amount after continuing operations and before net income.
d. A bulk sale of plant assets included in income from continuing operations.
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PFRS 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
c. Both the separate and consolidated financial statements
d. 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 a manager with
a specific title.
b. In some cases, the chief operating decision maker could be the chief operating officer.
c. The board of directors acting collectively could qualify as the chief operating decision maker.
d. The chief internal 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 internal
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. d. Under
all of these circumstances

46. Which of the following statements about major customer disclosure is not true?

a. 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.
c. The entity shall disclose the total amount of revenue from major customers.
d. The entity shall disclose the identity of the segment reporting the revenue from major customers.

PAS 34 – INTERIM FINANCIAL REPORTING

47. Interim financial reports should include as a minimum

a. A complete set of financial statements.

b. A condensed set of financial statements and selected notes
c. A condensed statement of financial position and a condensed income statement.
d. A condensed statement of financial position and a condensed statement of cash flows.

48. Which statement is true regarding interim reporting?

a. Interim financial reports shall be published whenever the entity wishes.

b. Each statement must be marked “unaudited.”
c. Interim in reporting is not required under IFRS.
d. All of these statement are true about interim reporting.
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49. An interim financial report shall include as a minimum all, except

a. Condensed statement of comprehensive income

b. Condensed statement of cash flows
c. Condensed statement of changes in equity
d. Accounting policies and explanatory notes

50. If an entity does not prepare interim reports

a. The year-end financial statements are deemed not to comply with IFRS.
b. The year-end compliance of financial statements with IFRS is not affected.
c. The year-end financial statements shall not be acceptable under local jurisdiction.
d. Interim financial reports must be included in year-end financial statements.

END
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