No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

FINANCIAL ACCOUNTING AND REPORTING November 25, 2023

Reviewer: Brian Christian S. Villaluz, CPA, MBA

PRESENTATION OF FINANCIAL STATEMENTS

1. Which of the following statements is/are correct concerning financial statements?

A. Financial statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to users.
B. Financial statements are the end product or main output of the financial accounting
process.
C. Both A and B
D. Neither A nor B

2. Which statement in relation to financial statements is/are correct?

A. General purpose financial statements are intended to provide common information to
users.
B. General purpose financial statements do not and cannot provide all of the information
that different users need.
C. Financial statements are largely based on estimates and judgments rather than exact
depiction.
D. All of these are correct statements in relation to financial statements.

3. A complete set of financial statements comprises:

I. Statement of financial position
II. Statement of comprehensive income
III. Statement of changes in equity
IV. Statement of cash flows
V. Notes to financial statements

A. I and II only
B. I, II and III only
C. I, II, III and IV only
D. I, II, III, IV and V

4. What is the objective of financial statements?

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.
B. To present relevant, reliable, comparable and understandable information.
C. To prepare financial statements in accordance with all applicable standards.
D. All of these are objectives of financial statements.

5. The primary responsibility for the preparation and presentation of the financial statements
lies with the
A. Management of the entity
B. External auditor
C. Controller
D. Internal auditor

6. Which of the following are the general features in the preparation and presentation of
financial statements?
I. Fair presentation and compliance with PFRS
II. Going concern
III. Accrual basis
IV. Materiality and aggregation
V. Offsetting
VI. Frequency of reporting

1|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

VII. Comparative information

VIII. Consistency of presentation

A. I, II and III only

B. I, II, III, V and VII only
C. I, II, III, IV, V, VI and VII only
D. I, II, III, IV, V, VI, VII and VIII

7. Which of the following is/are correct concerning fair presentation of financial statements?
I. Fair presentation requires the faithful representation of the effects of transactions
and other events in accordance with the conceptual framework for financial
reporting.
II. Fair presentation is achieved if the financial statements are prepared in
accordance with PFRSs.
III. Financial statements shall present fairly the financial position, financial
performance and cash flows of an entity.
IV. Financial statements shall present accurately the financial position, financial
performance and cash flows of an entity.

A. I and II only
B. I, II and III only
C. I, II and IV only
D. IV only

8. Which of the following indicates a going concern?

A. Going concern means that the entity is viewed as continuing in operation indefinitely
in the absence of evidence in the contrary.
B. Management intends to liquidate the entity.
C. Management intends to cease the operations of the entity.
D. Management has no realistic alternative but to cease the operations of the entity.

9. The effect of transactions and other events on economic resources and claims are
depicted in the periods in which those effects occur even if the resulting cash receipts and
payments occur in a different period.
A. Accrual accounting
B. Cash accounting
C. Modified accounting
D. None of the foregoing

10. Which of the following statements is/are true concerning materiality?

A. Materiality provides that the specific requirements of PFRS need not be met if the
resulting information is not material.
B. Materiality refers to the relative size and nature of an amount.
C. Determining materiality requires professional judgment.
D. All of these are correct.

11. Which of the following is/are incorrect concerning the offsetting feature of financial
statements?
A. Assets and liabilities, and income and expenses, when material, shall not be offset
against each other.
B. Offsetting is not allowed in all cases under PFRS.
C. Both A and B
D. Neither A nor B

12. Financial statements must be prepared at least:

A. Monthly
B. Quarterly
C. Semi-annually
D. Annually

2|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

13. A third statement of financial position as at the beginning of the earliest comparative period
presented is required
A. When an entity applies an accounting policy retrospectively.
B. When an entity makes retrospective restatement of items in the financial statements.
C. When an entity reclassifies items in the financial statements.
D. Under all of these circumstances.

14. The presentation and classification of items in the financial statements shall be retained
from one period to the next.
A. Consistency of presentation
B. Materiality
C. Aggregation
D. Comparability

15. The statement of financial position is useful for analyzing all of the following except:
A. Liquidity
B. Solvency
C. Profitability
D. Financial flexibility

16. An entity shall classify an asset as current under all of the following conditions, except
A. The entity expects to realize the asset or intends to sell or consume it within the entity’s
normal operating cycle.
B. The entity holds the asset for the purpose of trading.
C. The entity expects to realize the asset within twelve months after the reporting period.
D. The asset is cash or a cash equivalent that is restricted to settle a liability for more
than twelve months after the reporting period.

17. An entity shall classify a liability as current when under all of the following conditions,
except
A. The entity expects to settle the liability within the entity’s 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 an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.

18. The operating cycle of an entity

A. Is the time between the acquisition of materials entering into a process and their
realization in cash.
B. Is the period of time normally elapsed in converting trade receivables back into cash.
C. Is a period of one year.
D. Refers to the seasonal variation experienced by entities.

19. When there is much variability, the operating cycle is measured at:
A. Twelve months
B. Fifteen months
C. Two years
D. Three years

20. A financial liability due within 12 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 no discretion to refinance for at least twelve months.
C. When it is refinanced on a long-term basis after the end of reporting period.
D. When it is refinanced on a long-term basis on or before the end of reporting period.

3|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

21. 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 has 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 reporting period to provide a grace period for
at least twelve months after the reporting period.

22. In the Philippines, the common practice is to present in the statement of financial position:
A. Current assets, noncurrent assets, current liabilities, noncurrent liabilities and equity
B. Noncurrent assets, current assets, noncurrent liabilities, current liabilities and equity
C. Current assets, noncurrent assets, noncurrent liabilities, current liabilities and equity
D. Noncurrent assets, current assets, current liabilities, noncurrent liabilities and equity

Use the following information for the next two items:

Scarlett Company provided the following information at year-end:
Cash P3,000,000
Accounts receivable 2,400,000
Inventory, including inventory expected in the ordinary course of
operations to be sold beyond 12 months amounting to P1,400,000 2,000,000
Financial assets held for trading 600,000
Financial assets at fair value through other comprehensive income 1,600,000
Investments in associate 2,500,000
Bond investments at amortized cost 5,000,000
Property, plant, and equipment (net) 112,000,000
Intangible assets (net) 56,700,000
Investment properties 21,000,000
Biological assets (net) 31,500,000
Machine held for sale 4,000,000
Deferred tax asset (P60,000 of which is expected to reverse in the
subsequent year) 300,000

23. What amount should be reported as total current assets at year-end?

A. P8,000,000 C. P12,000,000
B. P10,660,000 D. P12,060,000

24. What amount should be reported as total noncurrent assets at year-end?

A. P230,540,000 C. P231,940,000
B. P230,600,000 D. P234,600,000

25. Gorr Company reported the following liability account balances on December 31, 2023:

Accounts payable P3,800,000

Bonds payable, due December 31, 2024 (net of discount of 6,400,000
P400,000)
Bonds payable, due December 31, 2025 (net of discount of 7,800,000
P200,000)
Deferred tax liability (expected to reverse during 2024) 800,000
Dividends payable 1,000,000
Income tax payable 1,800,000
Note payable, due February 1, 2025 1,200,000
Note payable, due January 31, 2024 600,000

On December 31, 2023, what total amount should be reported as current liabilities?

4|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Use the following information for the next two items:

Following selected account balances and supplemental information were taken from the
accounting records of Reese Corporation as of December 31, 2022:

Sales P 9,675,000
Mortgage note payable 1,300,000
Bank notes payable 300,000
Accounts payable* 270,000
Share dividends payable 200,000
Withholding tax payable 120,000

*Solely arising from purchase of merchandise

Supplemental information:
• Mortgage note payable was refinanced on its due date, February 15, 2023, with a new 5-
year mortgage note after paying P300,000 cash on the principal balance. There was no
unpaid interest as of December 31, 2022.

• The bank notes are payable in semi-annual installments of P50,000 on February 1 and
August 1 of each year. Unpaid interest for 2022 of P7,500 has not been taken up. This
was paid on January 5, 2023.

• The sales account included the 12% Value-Added Tax (VAT) corresponding to the sales
for the month of December of P2,688,000 (inclusive of VAT). This was remitted to the BIR
on January 20, 2023.

• Total income tax due for 2022 amounted to 186,500. Quarterly remittances to BIR during
the year for income tax totaled P105,000, including payment of P 35,000 on income tax
relating to the prior year. The balance due as of December 31, 2022, has not been taken
up in the books.

26. How much are the total current liabilities as of December 31, 2022?
A. 902,000 C. 2,202,000
B. 1,202,000 D. 2,402,000

27. How much are the total non-current liabilities as of December 31, 2022?
A. Zero C. 1,200,000
B. 200,000 D. 1,500,000

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

A. The nature of expenses.
B. The function of expenses.
C. Either the nature of expenses or the function of expenses, whichever provides
information that is reliable and more relevant.
D. Either the nature of expenses or the function of expenses, whichever the entity would
prefer to present.

29. Separate line items in an analysis of expenses by nature include

A. Purchases, transport costs, employee benefits, depreciation, extraordinary items.
B. Purchases, distribution costs, administrative costs, employee benefits, depreciation,
taxes.
C. Depreciation, purchases, transport costs, employee benefits and advertising costs.
D. Cost of goods sold, administrative and distribution costs.

30. Separate line items in an analysis of expenses by function include

A. Purchases, transport costs, employee benefits, depreciation, extraordinary items.
B. Purchases, distribution costs, administrative costs, employee benefits, depreciation,
taxes.
C. Depreciation, purchases, transport costs, employee benefits and advertising costs.
D. Cost of goods sold, administrative and distribution costs.

5|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

31. Pale Company reported the following information for 2023:

Sales revenue P500,000

Cost of goods sold 350,000
Operating expenses 55,000
Translation adjustment – credit 20,000
Cash dividend received on trading 2,000
securities

Ignore income tax, how much should Pale Company report as total comprehensive
income for the year 2023?
A. P117,000
B. P115,000
C. P97,000
D. P20,000

32. Mayumi Company provided the following information for the year 2023:

Sales 25,000,000
Cost of sales 15,000,000
Selling costs 2,500,000
General and administrative expenses 2,000,000
Interest expense 1,000,000
Gain on early retirement of long-term debt 250,000
Correction of inventory error, net of tax – credit 500,000
Share in profit of the investee 1,500,000
Gain on expropriation of land 1,000,000
Income tax expense 2,500,000
Dividends paid 1,250,000

What is the net income for the year 2023?

A. 3,500,000
B. 4,000,000
C. 4,500,000
D. 4,750,000

Use the following information for the next five items:

JJ Prime Company provided the following information for the current year:
Income from continuing operations 2,000,000
Income from discontinued operations 250,000
Unrealized gain on financial asset classified as FVPL 400,000
Unrealized loss on equity investment classified as FVOCI 500,000
Unrealized gain on debt investment classified as FVOCI 600,000
Unrealized gain on forward contract designated as cash flow hedge 200,000
Translation loss on foreign operation 100,000
Net actuarial gain on defined benefit plan 300,000
Loss on credit risk of a financial liability designated as FVPL 150,000
Revaluation surplus during the current year 1,250,000

33. What amount should be reported as profit for the current year?
A. 2,000,000 C. 2,400,000
B. 2,250,000 D. 2,650,000

34. What net amount should reported as other comprehensive income for the current
year?
A. 350,000 C. 1,750,000
B. 1,600,000 D. 2,000,000

6|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

35. What net amount in other comprehensive income that may be reclassified to profit
or loss?
A. 200,000 C. 900,000
B. 700,000 D. 1,600,000

36. What net amount in other comprehensive income that may not be reclassified to
profit or loss?
A. 200,000 C. 900,000
B. 700,000 D. 1,600,000

37. What amount should be reported as comprehensive income for the current year?
A. 2,600,000 C. 3,850,000
B. 3,600,000 D. 4,250,000

38. Which of the following is a purpose of the notes to financial statements?

A. To present information about the basis of preparation of financial statements and
accounting policies used.
B. To disclose the information required by PFRS but not presented elsewhere in the
financial statements.
C. To provide additional information not presented but necessary for fair presentation.
D. All of these can be considered a purpose of the notes to financial statements.

39. What is the proper order of presenting notes to financial statements?

I. Statement of compliance with PFRSs.
II. Summary of significant accounting policies used
III. Supporting information or computation for line items presented in the financial
statements
IV. Other disclosures, such as contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures

A. I, II, III, IV
B. I, III, II, IV
C. II, III, I, IV
D. III, II, I, IV

40. An entity shall disclose in the summary of significant accounting policies:

A. The measurement basis used in preparing the financial statements.
B. All the measurement bases irrespective of whether used by the entity.
C. The measurement basis used in preparing the financial statements and the accounting
policies used.
D. All of the measurement bases and the accounting policy choices available to the entity
irrespective of whether used.

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