INTERMEDIATE ACCTG 3

Chapter 1

FINANCIAL STATEMENTS

1-1

1. A complete set of financial statements includes all of the following, except

a. Statement of financial position

b. Statement of changes in equity

c. Notes to financial statements

d. Environmental reports and value added statements

2. What is the objective of financial statements?

To provide information about the financial position, financial performance and changes in
financial position useful to a wide range of users.

b. To prepare a statement of financial position and statement of comprehensive income

c. To present relevant, reliable, comparable and understandable information

d. To prepare financial statements in accordance with the applicable standards.

3. The primary responsibility for the preparation of the financial statements is reposed in

Management of the entity

Internal Auditor

External auditor

Controller

4. The major financial statements include all, except

 a. SFP

b. IS

c. SCF

d. Statement of retained earnings

5. The major financial statements include all, except

a. SFP

b. Statement of changes in financial position

c. SCI

d. SCE

1-2

1. When an entity changed 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

2. Which of the following is not a component of the financial statements?

a. SFP

b. SCE

c. Report of board of directors

d. Notes to financial statements

3. Which of the following is included in a complete set of financial statements?

a. A statement by the board of directors of compliance with local legislation

b. A statement of changes in equity

c. Statements of financial position for the last five years

d. Value added statement

4. Which of the following is included within the financial statements?

Accounting policies

Statement of retained earnings

an auditor’s report

board of director’s report

5. An entity shall clearly identify each financial statement and display all of the following, except

a. Name of the reporting entity

b. Names of major shareholders of the entity

c. The presentation currency

d. Whether the financial statements cover the individual entity or a group of entities

1-3

1. Which statement is incorrect concerning fair presentation of financial statements?

a. fair presentation requires the faithful representation of the effects of transactions and other
events

b. financial Statements shall present fairly the financial position, financial performance and cash
flows of an entity
 c. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
PFRS.

d. an entity whose financial statements comply with the PFRS shall not make an explicit and
unreserved statement of such compliance in notes.

2. Which of the following cannot be considered fair presentation of financial statements?

a. to present information in a manner that provides relevant and faithfully represented financial
information

b. to provide additional disclosures when compliance with specific PFRS is insufficient to

understand the financial position and financial performance

c. to select and apply accounting policies in accordance with applicable PFRS

d. To rectify inappropriate accounting policies in either by disclosure of the accounting

policies used or by notes or explanatory information

3. Which statement indicates a going concern?

Management intends to liquidate the entity

Management intends to cease the operations of the entity

Management has no realistic alternative but to cease the operations of the entity

None of the above

4. An entity is permitted to depart from a particular standard if all of the following conditions are satisfied
except

a. in extremely rare circumstance

b. when management concludes that compliance with the standard would be misleading

c. when the departure from the standard is necessary to achieve fair presentation

d. when the conceptual framework for financial reporting prohibits such a departure
5. The effects 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.

Accrual accounting

Cash accounting

Modified accrual accounting

Modified cash accounting

6. Financial statements must be prepared at least

Annually

7. Technically, offsetting in financial statements is accomplished when

Gain or loss from disposal of noncurrent assets is reported by deducting from the proceeds
the carrying amount of the asset and the related disposal cost

The allowance for doubtful accounts is deducted from accounts receivable

The accumulated depreciation is deducted from property, plan, and equipment

The total liabilities are deducted from total assets

8. The presentation and classification of items in the financial statements shall be retained from one
accounting period to the next.

Consistency of presentation

Materiality

Aggregation

Comparability

9. A third statement of financial position as at beginning of the earliest comparative period presented is
required
 When an entity applies an accounting policy retrospectively

When an entity makes a retrospective restatement of items in the financial statements

When an entity reclassifies items in the financial statements

10. Which statement in relation to financial statements is incorrect

a. general purpose financial statements do not do not and cannot provide all of the information that
primary users need

b. general purpose financial statements are designed to show the value of the reporting
entity

c. general purpose financial statements are intended to provide common information to users

d. financial statements are largely based on estimate and judgment rather than exact depiction

1-4

1. Items of dissimilar nature or function

Must be presented separately if material

2. Materiality depends on

The relative size and nature of the omission, misstatement or obscured information

The nature, omission, misstatement or obscured information

The absolute size of the omission or misstatement

The judgment of the management

3. An entity must disclose comparative information for

The previous comparable period for all amounts and for all narrative and descriptive
information when it is relevant to an understanding of the current period’s financial
statements
 The previous comparable period for all months

The previous comparable period for all amounts and for all narrative and descriptive information

The previous two comparable periods for all amounts

4. When the classification of items in the financial statements is changed, the entity

Must reclassify the comparative amounts unless it is impracticable to do so

Must not reclassify the comparative amounts

Can choose whether or not to reclassify

Must reclassify the current year amounts only

5. An entity shall present

Each financial statement with equal prominence

1-5

1. The overall objective of financial reporting is to provide information

That is useful for decision making

About assets, liabilities and equity

About financial performance during a period

That assesses performance of management

2. The objective of financial information is based on

The needs of the users of the information

The need for conservatism

Reporting on management stewardship

 Generally accepted accounting principles

3. The primary focus of financial reporting has been on meeting the needs of which of the following groups?

existing and potential investors, lenders and other creditors

Management

National taxing authorities

Independent CPAs

4. The primary objective of financial reporting is to provide useful information to

Capital providers

Management

Regulatory body

Government

5. Which is an objective of financial reporting?

To provide information that is useful in making investing and credit decisions

To provide information that is useful to management

To provide information to investors

To provide information abkut internal and external conflicts

6. Which is an objective of financial reporting?

To provide information that is useful to assess the amount, timing, and uncertainty of
prospective cash receipts

7. An objective of financial reporting is to provide

 Information that is useful in assessing cash flow prospects

Information about the investors in the entity

Information about the liquidation value of the entity

Information that will attract new investors

8. Assessing cash flow prospects is interpreted to mean

Over the long run, trends in revenue and expenses are generally more meaningful than
trends in cash receipts and disbursements

Information about the financial effects of cash receipts and cash payments is generally considered
the best indicator of ability to generate favorable cash flows

1-6

1. During a period when an entity is under the direction of a particular management financial reporting will
directly provide information about

Entity performance and management performance

2. Financial reporting pertains to

Individual business entities, rather than to industries or an economy as a whole or to

members of society as consumers

3. Which is not an objective of financial reporting?

a. financial reporting shall provide information about resources, claims against resources and
changes in them.

b. financial reporting shall provide information useful in evaluating stewardship of

management

c. financial reporting shall provide information useful in investment credit and similar decision

d. financial reporting shall provide information useful in assessing cash flow prospects
4. Which is not an objective of financial reporting?

a. to provide information about assets in claims against those assets

b. to provide information useful in assessing cash flows

c. to provide information useful in lending and investing decisions

d. to provide information about the liquidation value of an entity

1-7

1. Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence

Corporate management

investors using statistical models

financial analysts

independent CPAs

2. What is the most useful information in predicting future cash flows

Current earnings based on accrual accounting

Information regarding the results obtained by using a wide variety of accounting policies

3. The accrual basis of accounting is most useful for

Predicting the long-term financial performance

4. In measuring financial performance, accrual accounting is used because

It provides a better indication of ability to generate cash flows than cash basis
 It is one of the implicit assumptions

5. the financial statements prepared under GAAP

Are not highly precise because estimate and judgment must be made

Do not articulate with one another

Reflect a single measurement which is historical cost

Contain a limited number of future projections

Chapter 2

STATEMENT OF FINANCIAL POSITION

2-25

1. When there is much variability, the operating cycle is measured at

twelve months

2. The operating cycle of an entity

is the time between the acquisition of materials entering into a process and their realization
in cash

Is the period of time normally elapsed in converting accounts receivable back into cash

Is a period of one year

Refers to the seasonal variation experienced by entities

3. An entity shall classify an asset as current under all of the following, 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.

4. An entity shall classify a liability as current when under all of the following, 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.

5. Which obligations are classified as current even if these are due to be settled after more than twelve
months from the end of the reporting period?

Trade payables and accruals for employee and other operating cost

Current portion of interest-bearing liabilities

Dividends payable

6. Current and noncurrent presentation of assets and liabilities provides useful information when the entity

supplies goods or services within a clearly identifiable operating cycle

Is a financial institution

Is a public utility

Is a nonprofit organization

7. A presentation of asset and liabilities in increasing or decreasing order of liquidity provides information
that is reliable and more relevant than a current and noncurrent presentation for

Financial institution
8. Under Philippine jurisdiction, the common practice is to present in the statement of financial position

Current assets before noncurrent assets, current liabilities before non current liabilities and
equity after liabilities

9. A financial liability due within twelve 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 the reporting period

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

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

Current under all circumstances

Noncurrent under all circumstances

Noncurrent if the lender agreed after the reporting period to provide a grace period for at least
twelve months after the reporting period

2-26

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

Must make the current and noncurrent presentation, except when a presentation based on
liquidity provides information that is reliable and more relevant.

2. Assets to be sold, consumed or realized as part of the normal operating cycle are

Current assets

3. Liabilities that an entity expects to settle within the normal operating cycle are classified as

Current liabilities
4. In which section of the statement of financial position should cash for the settlement of a liability due 18
months after the reporting period be presented?

Noncurrent assets

5. In which section of the statement of financial position should employment taxes that are due for
settlement in 15 months’ time be presented?

Current liabilities

6. An entity has a loan due for repayment in six months’ time but the entity has the option to refinance for
repayment two years later. The entity plans to refinance this loan. In which section of the statement of
financial position should this loan be presented?

Noncurrent liabilities

7. Which of the following must be included on the face of the statement of financial position?

Investment property

Number of shares authorized

Contingent asset

Shares in an entity owned by that entity

8. Which of the following is not required to be presented as minimum information on the face of the
statement of financial position?

Contingent liability

Investment accounted under the equity method

Investment property

Biological asset
9. Which of the following must be included as a line item in the statement of financial position?

Contingent asset

PPE analyzed by class

Share capital and reserves analyzed by class

Deferred tax assets

10. Which statement about the statement of financial position is not true?

a. biological assets should be reported in the statement of financial position

b. The number of shares authorized for issue should be reported in the statement of financial
position or the statement of changes in equity or in the notes

c. Provisions should be recognized in the statement of financial position

d. A revaluation surplus on a noncurrent asset in the current year should be recognized in

the income statement

2-27

1. In analyzing financial statements, which financial statement would a potential investor primarily use to
assess liquidity and financial flexibility?

Statement of financial position

2. Which is an essential characteristic of an asset?

The asset is a present economic resource

The claims to the benefits are legally enforceable

An asset is tangible

An asset is obtained at a cost

3. Conceptually, asset valuation accounts are

 Neither assets nor liabilities

Assets

Part of shareholders' equity

Liabilities

4. Working capital is

Current assets less current liabilities

5. The basis for qualifying assets as current or noncurrent is the period of time normally elapsed from the
time the entity expends cash to the time it converts

Inventory back into cash or 12 months, whichever is longer

6. The operating cycle concept

Permits some assets to be classified as current even though more than one year removed
from becoming cash

Causes the distinction between current and noncurrent to depend on cash realization within one
year

Has become obsolete

Affects the income statement only

7. When classifying assets as current and non-current

Assets are classified as current if reasonably expected to be realized in cash or consumed

during the normal operating cycle.

Current assets must reflect realizable cash value

Prepayments are included in other assets

Current assets are determined by the seasonal nature

8. the term net assets represents

Total assets less total liabilities

9. Treasury shares should be reported as

Reduction of shareholder’s equity

10. The term deficit refers to

A debit balance in retained earnings

2-28

1. which should be classified as current assets?

Trade accounts receivable normally collectible in 18 months

Cash for the redemption of preference shares

Cash surrender value

A deposit on machinery ordered within six months

2. Which should not be considered as a current asset?

Cash surrender value

Installment accounts receivable due over 18 months in accordance with normal trade practice

Prepaid insurance

Financial asset held for trading

3. Current assets should never include

 Goodwill arising in a business combination

A receivable not collectible within one year

Current tax asset

Premium paid on a bind investment

4. Equity investments held to finance construction of additional plant should be classified as

Noncurrent investments

5. Which of the following is not a noncurrent investment?

Franchise

Cash surrender value

Land held for speculation

A sinking fund

2-29

1. For a liability to exist

There must be past event

The exact amount must be known

The identity of the party to whom the liability is owed must be known

There must be an obligation to pay cash in the future

2. Which statement best describes the term liability?

a present obligation arising from past event

Resources to meet financial commitments when due

 The residual interest in the assets of the entity after deduction all of the liabilities

3. Which item is not a current liability?

Share dividends payable

Unearned revenue

The currently maturing portion of long-term debt

Trade accounts payable

4. Noncurrent liabilities include

all of the choices are noncurrent liabilities

bonds payable

deferred tax liability

short-term obligation refinanced on a long-term basis at the end of reporting period.

5. which is not within the definition of a liability?

The signing of a three-year employment contract at a fixed annual salary

An obligation to provide goods or services in the future

A note payable with no specified maturity date

A present obligation that is estimated in amount

Chapter 3

NOTES TO FINANCIAL POSITION

RELATED PARTIES

EVENTS AFTER REPORTING PERIOD

3-1

1. Which is a purpose of notes to financial statements?

To present information about the basis of preparation of the statements and accounting
policies used

To disclose the information required by PFRS not presented elsewhere in the financial
statements

To provide additional information not presented but necessary for a fair presentation

2. What is the first item in presenting the notes?

Statement of compliance with PFRS

3. An entity whose financial statements comply with PFRS shall

Make an explicit and unreserved statement of compliance in the notes

Make an explicit statement of compliance in the notes

Make an unreserved statement of compliance in the notes

Not describe financial statements as complying with PFRS

4. An entity is required to disclose all of the following nonfinancial information, except

a. A description of the nature of the entity’s operations

b. The name of the parent entity and the ultimate parent

c. Domicile and legal form of the entity, the country on incorporation and address of the registered
office

d. Names and addresses of directors and officers

5. Notes to financial statements

Are an integral part of an entity's financial statements.

 Document the source of financial statement facts

Are irrelevant and immaterial facts

3-2

1. The presentation of the 5

is mandatory, as far as practicable

2. The cross-reference between each line item in the financial statements and any related information
disclosed in the notes to financial statements

is mandatory

3. Disclosure of information about key sources of estimation uncertainty

is mandatory

4. Disclosure of information about judgments

is mandatory

5. Which best demonstrates the standard of adequate disclosure?

a. the separate income statement

b. the auditor’s report

c. the tax return

d. the notes to financial statements

3-3

1. Which statement is incorrect regarding notes to financial statements

 a. IFRS requires specific note disclosures including disaggregation of inventories

b. IFRS requires a maturity analysis for receivables

c. IFRS requires that alll notes should be clear, simple to understand and nontechnical in
nature

d. All of these

2. Notes to financial statements

Amplify items presented in the financial statements

Must be quantifiable

Must qualify as an element

3. Which is not a method of disclosing pertinent information?

a. Supporting schedules

b. Parenthetical explanation

c. Cross reference and contra item

d. all of the above

4. The disclosure of accounting policies is important to financial statements users in determining

Whether accounting policies are consistently applied from year to year

Net income for the year

The value of obsolete goods in ending inventory

Whether the working capital position is adequate

5. The standard of full disclosure is best described by which of the following?

 Disclosure of any financial facts significant enough to influence the judgment of a primary
user

All information related to operating objectives must be disclosed in the financial statements

Information about each account balance appearing in the financial statements is included in the
notes

Enough information should be disclosed in order that a prospective investor can make a wise
decision

6. Application of the full disclosure principle

is demonstrated by the use of supplementary information presenting the effects of changing

prices

Is theoretically desirable but not practical

Is violated when important financial information is buried in the notes to financial statements

Requires that the financial statements should be consistent and comparable

7. Accounting policies disclosed in the notes to financial statements typically include all of the following,
except

a. the cost flow assumption

b. the depreciation method

c. significant estimates

d. significant inventory purchasing policies

8. Significant accounting policies may not be

omitted from financial statement disclosure

Selected in the basis of judgment

Selected from existing acceptable alternatives

Unusual or innovative in application

9. An inventory accounting policy that should be disclosed in a summary of significant accounting policies is

method used for pricing inventory

Composition of inventory into raw materials, work in process and finished goods

Major backlog in inventory orders

10. Which of the following should be disclosed in a summary of significant accounting policies?

depreciation method

Type of executory contract

Cumulative effect of change in accounting policy

Claims of equity holders

3-4

1. What is the purpose of information presented in the notes to financial statements

to provide disclosures required by generally accepted accounting policies

To correct improper presentation in the financial statements

To provide recognition of amounts not included in the total of the financial statements

To present management response to auditor comments

2. Which of the following information should be disclosed in the summary of significant accounting policies

criteria for determining which investments are treated as cash equivalents

Refinancing of debt subsequent to the reporting period

Guarantee of indebtedness of others

Adequacy of pension plan assets relative to the defined benefit obligation

3. Which of the following is not a required disclosure of accounting policies

a. The measurement basis used

b. key management personnel involved in drafting the summary of significant accounting

policies

c. disclosures required by Standards

d. the nature of operations and the policies that the users of the financial statements would expect
to be disclosed

4. The notes to financial statements should not be used to

a. Describe significant accounting policies

b. describe depreciation method employed

c. describe the principle and methods peculiar to the industry in which the entity operates

d. correct an improper presentation in the financial statements

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

the measurement basis used in preparing the financial statements and the accounting
policies used

The measurement basis used in preparing the financial statements

All the measurement bases irrespective of whether used by the entity

All of the measurement bases and the accounting policy choices available to the entity irrespective
of whether used

6. The summary of significant accounting policies should disclose

basis of profit recognition on long term construction contracts

Proforma effect of retroactive application of an accounting change

 Adequacy of pension plan assets in relation to vested benefits

Future lease payments

7. The summary of significant accounting policies should disclose

the composition of property, plant, and equipment and the depreciation method used only

The depreciation method used only

8. Which of the following should be included in the summary of significant accounting policies

property, plant and equipment recorded at cost with the depreciation computed principally
by straight line method

A business component was sold during the current year

Breakdown of sales attributable to business components

Future ordinary share dividends are expected to approximate sixty percent of earnings

3-7

1. Related parties include all of the following, except

Parent, subsidiary and fellow subsidiaries

Associates

Key management personnel and close family members of such key management personnel

Two ventures simply because they share joint control over a joint venture

2. A related party transaction is a transfer

Between related parties, regardless of whether a price is charged

3. unrelated parties include which of the following

 Providers of finance in the course of their normal dealings with an entity by virtue only of
those dealings

Government agencies

Single customer with whom an entity transacts a significant volume of business merely by
virtue of the resulting economic dependence

4. Close family members of an individual include all, except

Brother and sisters of the individual

The individual's spouse and children

Children of the individual's spouse

Dependents of the individual or individual's spouse

5. The minimum disclosures about related party transactions include all of the following, except

The amount of the transaction

Amount of outstanding balance

Allowance for doubtful accounts related to the outstanding balance

Nature of the relationship

3-8

1. Which is not included in key management personnel compensation?

Short-term benefit

Share-based payment

Termination benefit

reimbursement of out-of-pocket expenses

2. Which of the following is not a mandated disclosure about related party transactions?

Relationship between parent and subsidiaries

Names of all the associates that an entity has dealt with during the year

Name of the entity’s parent and, if different, the ultimate controlling party

If neither the entity’s parent nor the ultimate controlling entity produce financial statements
available for public use, then the name of the next most senior parent that does so

3. 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

The amount of related party transaction

The amount of the outstanding balance

Doubtful debt related to the outstanding balance

4. Related party transactions include all, except

A venture sold goods to the joint venture

Sold a car to another entity’s finance director

Sold goods to another entity owned by the daughter of the entity managing director

All of these are related party transaction

5. All of the following are related party transactions, except

took out a huge bank loan

Transferred goods from inventory to a subsidiary

Sold an entity car to the wife of the managing director

Sold an asset to an associate

6. An entity that entered into a related party transaction would be required to disclose all of the following
information, except

Nature of the relationship between the parties

Nature of any future transaction planned between the parties and the terms involved

Peso amount of the transaction

Amount due from or to related parties at the end of reporting period

7. Which is not a required related party disclosure?

an entity that has a common director with the entity

The son of the chief executive officer of the entity

The parent of the entity

Joint venture in which the entity is a venturer

8. All of the following are related parties, except

The partner of a key manager is a major supplier of the entity

Joint venture in which the entity is a venture

A postemployment benefit plan for the employees

An executive director of the entity

9. Which of the following is not a related party of an entity?

An entity providing banking facilities to the entity

A shareholder of the entity owning twenty percent

An associate of the entity

Key management personnel of the entity.

10. Which of the following should be included in key management personnel compensation?

Social security contributions and postemployment benefits

3-16

1. 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 current year-end?

make a provision for the event after reporting period in the financial statements

2. An entity decided to build and operate an amusement park next year. The entity applied for a letter of
guarantee which was issued before the issuance of the financial statements of the current year. What is the
adjustment required at the current year-end?

do nothing

3. An entity built a new factory building during the current year. Subsequent to the current year-end and
before issuance of financial statements, the building was destroyed by fire and the claim against the
insurance entity proved futile because the cause of the fire was negligence on the part of the caretaker of
the building. What should be reported at the current year-end

disclose the nonadjusting event in the notes to financial statements

4. An entity deals extensively with foreign currency transactions. Subsequent to the end of the reporting
period and before the date of authorization of the issuance of the financial statements, there were abnormal
fluctuations in foreign currency rate. What should be reported at year-end?

disclose the post-reporting period event

5. Which statement is true in relation to events after the reporting period?

notes to financial statements should give details of material nonadjusting events which
could influence the economic decisions of users

A decline in the market value of investment would normally be classified as an adjusting event
 The settlement of a long-running court case would normally be classified as a nonadjusting event

3-17

1. Which event after the reporting period would require adjustment?

Loss on a lawsuit the outcome of which was deemed uncertain at year-end

Loss of plant as a result of fire

Change in the market price of investment

Loss on inventory resulting from flood loss

2. 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

Discussed only in the management annual report

Disclosed only in the notes to financial statements

An adjustment directly to retained earnings

3. Nonadjusting events include all, except

Destruction of a major production plant by a fire before the end of the reporting period

A major business combination after the reporting period

Announcing a plan to discontinue an operation

Expropriation of major asset after reporting period

4. Nonadjusting events include all, except

The entity entered into an agreement to purchase the leased building

The entity announced the discontinuation of an operation

 A mistake in the calculation of allowance for uncollectible accounts receivable

Destruction of a major production plant by fire

5. Which event after the end of reporting period would generally require disclosure?

Issue of a large amount of ordinary shares

Retirement of key management personnel

Settlement of litigation when the event that gave rise to the litigation occurred in a prior period

Strike of employees

Chapter 4

STATEMENT OF COMPREHENSIVE INCOME

4-18

1. What is the purpose of reporting comprehensive income?

To report a measure of overall entity performance

To report transactions with owners

To replace net income with a better measure

To combine income from continuing operations with income from discontinued operations

2. Which of the following is not an acceptable option of reporting other comprehensive income?

In the notes to financial statements

In a separate statement of comprehensive income

In a single statement of comprehensive income

 In a statement of changes in equity

3. When a complete set of financial statements is presented, comprehensive income and the components
should

Be displayed in a statement that has the same prominence as other financial statements

Appear as a part of discontinued operations

Be reported net of related income tax effect, in total and individually

Appear in supplemental schedule in the notes

4. Why is reclassification adjustment used when reporting other comprehensive income?

To avoid double counting of items

To reclassify an item of comprehensive income as another item of comprehensive income

To adjust the income tax effect of OCI

5. The components of OCI include all, except

Dividend paid to shareholders

Unrealized gain on derivative contract designated as cash flow hedge

Loss from translating the financial statements of a foreign operation

6. Which is not a component of OCI

a. Foreign currency translation adjustment

b. unrealized gain on financial asset held for trading

c. deferred loss on derivative financial instrument designated as cash flow hedge

d. change in revaluation surplus

7. which is not a component of OCI

a. remeasurement of defined benefit plan

b. treasury shares at cost

c. foreign currency translation

d. unrealized gain on equity investment measured at FVOCI

8. Which of the following options for displaying other comprehensive income is preferred

A continuation from net income in the income statement or a separate statement that begins
with net income

A continuation from net income in the income statement

A separate statement that begins with net income

In the statement of changes in equity

9. How should exchange in gain or loss resulting from foreign currency transactions be accounted for?

Included as component of income from continuing operations for the period in which the
rate changes

Included as component of other comprehensive income for the period in which the rate changes

Included in the statement of financial position

Included in net income for gain but deferred for loss

10. Unusual and infrequent gain or loss should be reported

As a separate line item within income from continuing operations but not net of applicable
income tax

As an extraordinary item net of tax below income from continuing operations

As an extraordinary item net of tax within income from continuing operations

As a separate line item within income from continuing operations net of applicable income tax
4-19

1. The term comprehensive income

Includes all changes in equity concept those resulting from investments by and distributions
to owners

Must be reported on the face of the income statement

Is the net change in owner's equity for the period

Is synonymous with the term net income

2. All of the following components of other comprehensive income are reclassified to profit or loss, except

a. gain from translating the financial statements of a foreign operations

b. loss from remeasuring debt investment at FVOCI

c. the effective portion of gain or loss on hedging instrument in a cash flow hedge

d. gain on remeasuring equity investment at FVOCI

3. Which component of other comprehensive income should be reclassified to retained earnings

a. revaluation surplus

b. remeasurement of defined benefit plan

c. change in fair value attributable to credit risk of financial liability designated at FVPL

d. All of these

4. Earnings

Are the same as comprehensive income

Include certain gains excluded from comprehensive income

Exclude certain gains and losses included in comprehensive income

 Include certain gains and losses excluded from comprehensive income

5. The two-statement approach of presenting comprehensive income is preparing

a separate income statement and a separate statement of comprehensive income

A comparative statement of comprehensive income

A combined statement of comprehensive income and retained earnings

A combined income statement and a statement of changes in equity

4-20

1. An entity shall present an analysis of expense using a classification based on

Either the nature of expenses or the function of expenses, whichever provides information
that is reliable and more relevant

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

Depreciation, purchases, transport costs, employee benefits and advertising costs

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

Cost of goods sold, administrative and distribution costs

4. Under IFRS, the extraordinary item presentation

has been eliminated

has not changed from current rules

Has been eliminated from the net of tax presentation

Has been eliminated from EPS reporting

4-21

1. The income statement reveals

Net earnings for a period of time

Resources and equity at a point in time

Resources and equity for a period of time

Net earnings at a point in time

2. Conceptually, net income is a measure of

change of wealth

capital maintenance

Cash flow

3. Which term cannot be used to describe a line item in the statement of comprehensive income

extraordinary

Revenue

Gross income

Income before tax

4. Comprehensive income includes all, except

a. Revenue and gain

b. expense and loss

c. preference share dividend

d. unrealized gain and loss on derivative contract

5. Comprehensive income includes all, except

a. dividend revenue

b. loss on disposal of asset

c. investment by owners

d. unrealized gain on trading investment

4-22

1. Income determination is arrived at by

using a transaction approach

Measuring the change in owners' equity

Identifying the change in the purchasing power

Applying the value added concept

2. Net income equals

revenue minus expenses

Assets minus liabilities

Revenue minus COGS

Cash receipts minus cash payments

3. Comprehensive income always

could be greater than or less than net income

4. Gains are

increases in equity from peripheral transactions

 Inflows from selling a product to a customer

Increases in equity resulting from transfers of assets to the entity from owners

5. Change in equity from nonowner sources is

comprehensive income

Revenue

Expense

Gain or loss

Chapter 5

STATEMENT OF CHANGES IN EQUITY

Problem 5-10

1. In the statement of changes in equity, the effect of a change in accounting policy is presented

Separately for each component of equity

In aggregate for total equity

In total for the amount attributable to owners of the parent and the non-controlling interest

Separately for the total amount attributable to owners of parent and the noncontrolling interest

2. In the statement of changes in equity, the effect of the correction of a prior period error is presented

separately for each component of equity

in aggregate for total equity

in total for the amount attributable to owners of the parent and the noncontrolling interest

separately for the total amount attributable to owners of the parent and the noncontrolling interest
3. Which of the following does not appear in the statement of retained earnings?

Net loss

Prior period error

Preference share dividend

Other comprehensive income

4. Which of the following would appear first in a statement of retained earnings?

Net income

Prior period error

Cash dividend

Share dividend

5. Corrections of errors in prior period are included in

Retained earnings

Other comprehensive income

Net income

Share premium

Chapter 17

STATEMENT OF CASH FLOWS

17-39

1. All can be classified as cash and cash equivalents, except

 Redeemable preference shares due in 60 days

Treasury bills due for repayment

Equity investments

Bank overdraft

2. When an entity purchased a three-month Treasury bill, how would the purchase be treated in preparing
the statement of cash flows?

Not reported

An outflow for financing activities

An outflow for lending activities

An outflow for investing activities

3. In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash inflow
from investing activities equals the carrying amount of the equipment

Plus the gain

Plus the gain and less the amount of tax

Plus both the gain and the amount of tax

With no addition or subtraction

4. In a statement of cash flows, if used equipment is sold at a loss, the amount shown as a cash inflow from
investing activities equals the carrying amount of the equipment

Less the loss

Less the loss and plus the amount of tax

Less both the loss and the amount of tax

With no addition or subtraction

5. In a statement of cash flows using indirect method, a decrease in prepaid expense

Added to net income

Reported as an outflow and inflow of cash

6. In a statement of cash flows, depreciation is treated as an adjustment to net income because

depreciation

Reduces income but does not involve cash outflow

Is a direct source of cash

Reduces net income and involves a inflow of cash

Is an inflow of cash for replacement of asset

7. Using indirect method for operating activities, an increase in inventory is presented as

Deduction from net income

Outflow of cash

Inflow and outflow of cash

Addition to net income

8. Which of the following should not be disclosed in the statement of cash flows using the indirect method.

Cash flow per share

Interest paid

Income taxes paid

Dividends paid on preference shares

9. Dividends received from an equity investee should be presented in the statement of cash flows as

Addition to cash flows from operating activities

 Deduction from cash flows from operating activities

Addition to cash flows from investing activities

Deduction from cash flows from investing activities

10. In a statement of cash flows, which of the following should be reported as cash flow from financing
activities?

Payment to retire mortgage note and dividend payment

Payment to retire mortgage note

Interest payment on mortgage note

Dividend payment

17-40

1.Which statement about the method of preparing the statement of cash flows is true?

The direct method is more consistent with the primary purpose of the statement of cash
flows

The indirect method starts with income before tax

The direct method is known as the reconciliation method

2. Which of the following is not disclosed in the statement of cash flows when prepared under the direct
method?

The major classes of gross cash receipts and gross cash payments

The amount of income taxes paid

A reconciliation of net income to net cash flow from operations

A reconciliation of ending retained earnings to net cash flow from operations

3. Required disclosures of a statement of cash flows prepared using the direct method include a
reconciliation of net income to net cash provided by

Operating activities

4. Noncash investing and financing activities are

Disclosed in a note or separate schedule accompanying the statement of cash flows.

Reported only if the direct method is used

Reported only if the indirect method is used

Not reported

5. Supplemental disclosures required only when the using the indirect method include

Amounts paid for interest and taxes

Reconciling net income with operating activities

Amounts deducted for depreciation and amortization

Significant noncash investing and financing activities

Chapter 6

NONCURRENT HELD FOR SALE

1. An entity classified a noncurrent asset accounted for the cost model as held for sale at
the current year-end. Because no offers were received at an acceptable price, the
entity decided at the end of next year not to sell the asset but continue to use it. The
asset shall be measured at the end of the next year at what amount?
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 the asset had never been
classified as held for sale and recoverable amount.
d. The higher of carrying amount on the basis that the asset had never been
classified as held for sale and recoverable amount.

2. An entity shall classify a noncurrent asset or disposal group as held for sale when
a. The carrying amount of the asset or disposal group is recovered through a
 sale transaction.
b. The carrying amount of the asset or disposal group is recovered through continuing
use.
c. The noncurrent asset or disposal group is abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use

3. For the sale of a noncurent asset to be highly probable, which of the following
statements is incorrect?

a. Management must be committed to a plan to sell the asset.

b. An active program to locate a buyer and complete the plan must have been
initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to the
current fair value.
d. The sale is expected to qualify for recognition as a completed sale within two
years from the date of classification of the asset as held for sale

4. Which of the following statements about noncurrent asset held for sale is true?
I. An asset that meets the criteria for classification as held for sale after the
end of reporting period but before the authorization of the financial
statements shall be measured in the statement of financial position at lower
of carrying amount and fair value less cost of disposal.
II. To be classified as an asset held for sale, the sale must be expected to be
completed within 12 months form the end of the financial year.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

5. An entity acquired a subsidiary exclusively with a view to resale. The subsidiary met
the criteria to be classified as held for sale. At the end of the reporting period, the
subsidiary had not been yet sold, and six months have passed since acquisition. How
will the subsidiary be measured in the statement of financial position at the date of the
first financial statements after acquisition?
a. At fair value
b. At lower of carrying amount and fair value less cost of disposal
c. At carrying amount
d. In accordance with applicable IFRS

6. How should the assets and liabilities of a disposal group classified as held for sale be
shown in the statement of financial position?
a. The assets and liabilities shall be offset and presented as a single amount.
b. The asset of the disposal group shall be shown separately from other assets
and liabilities of the disposal group shall be shown separately from other
liabilities.
c. The assets and liabilities shall be presented as a single amount and as a deduction
from equity.
 d. disposal group.

7. In order for a noncurrent asset to be classified as held for sale, the sale must be highly
probable. What is the meaning of “highly probable”?
a. The future sale is likely to occur.
b. The future sale is more likely to occur than not to occur.
c. The sale is certain.
d. The probability is higher than more likely than not.

8. Noncurrent asset classified as held for sale shall be presented in the statement of
financial position as
a. Current asset
b. Other noncurrent asset
c. Noncurrent investment
d. Property, plant, and equipment

9. A noncurrent asset that ceases to be classified as held for sale shall be measured at
a. Carrying amount
b. Recoverable amount at the date of the subsequent decision not to sell.
c. Lower between the carrying amount before the asset was classified as held
for sale adjusted for depreciation that would have been recognized if the
asset had not been classified as held for sale and the recoverable amount at
the date of the subsequent decision not to sell.
d. Lower between the carrying amount before the asset was classified as held for
sale adjusted for depreciation that would have been recognized if the asset had not
been classified as held for sale and the recoverable amount at the date of the
subsequent decision not to sell.

10. A noncurrent asset that is to be abandoned shall not be classified as held for sale
because
a. The carrying amount will be recover principally through continuing use.
b. The noncurrent asset is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within twelve months.
d. It is unlikely that there will be an active market for the current asset.

11. What is the treatment of any gain on a subsequent increase in the fair value less cost
of disposal of a noncurrent asset classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized.
c. The gain shall be recognized but not in excess of the cumulative impairment
loss previously recognized.
d. The gain shall be recognized but only in retained earnings.

12. If the fair value less cost to sell is lower than the carrying amount of a noncurrent
asset classified as held for sale, the difference is
a. Not accounted for
b. Accounted for as an impairment loss
c. Charged to depreciation
 d. Debited to retained earnings

13. Which of the following statements is incorrect concerning presentation of noncurrent

asset or disposal group classified as held for sale?
a. An entity shall present a noncurrent asset held for sale and the assets of a
disposal group classified as held for sale separately from other assets.
b. The liabilities of a disposal group classified as held for sale shall be presented
separately from other liability.
c. The assets and liabilities of a disposal group classified as held for sale shall not be
offset as a single amount.
d. An entity shall depreciate a noncurrent asset classified as held for sale or
while it is part of a disposal group classified as held for sale.

14. An entity shall measure a noncurrent asset or disposal group classified as held for sale
at
a. Carrying amount
b. Fair value less cost of disposal
c. Lower of Carrying amount and Fair value less cost of disposal
d. Higher of Carrying amount and Fair value less cost of disposal

15. Noncurrent asset or disposal group classified as held for sale when the asset is
available for immediate sale in the present condition and the sale is highly probable.
For the sale to be highly probable, which of the following statements is incorrect?
a. Management must be committed to a plan to sell the asset.
b. An active program to locate a buyer and complete the plan must be initiated.
c. The asset must be actively marketed for a sale at a reasonable price relation to the
fair value.
d. The sale is expected to qualify for recognition as a completed sale within two
years from the date of classification of the asset as “held for sale”.

16. An entity shall classify a noncurrent asset or disposal group classified as held for sale
when
a. The carrying amount of the asset or disposal group will be recovered
through a sale transaction.
b. The Carrying amount of the asset or disposal group will be recovered through a
continue use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

17. It is a group of assets to be disposed of by or otherwise, together as a group in a

single transaction, and liabilities directly associated with those assets that will be
transferred in the transaction.
a. Disposal group
b. Discontinued operation
c. Noncurrent asset
d. Cash generating unit.

18. An entity recently moved to a new building. The old building is being actively marketed
 for sale and the entity expects to complete the sale in four months. Which statement is
incorrect regarding the old building?
a. It will be classified as an asset held for sale
b. It will be classified as a current asset.
c. It will no longer be depreciated.
d. It will be measured at historical cost.

Chapter 7

DISCONTINUED OPERATION

1. When an entity discontinued an operation and disposed of the discontinued operation, the
transaction should be included as gain or loss on disposal reported as
a. A prior period error.
b. Other income or expense.
c. An amount after continuing operations and before net income.
d. A bulk sale of plant assets included in income from continuing operations.

2. Which of the following most likely would be considered a discontinued operation?

a. Shifting production from one location to another.
b. A sporting goods manufacturer with a bicycle division decides to outsource the
manufacture of the bicycle.
c. The unprofitable brands of a beauty products component of an entity that
manufactures and sells customer products are discontinued.
d. An entity that is franchisor in the quick service restaurant business also
operates entity-owned restaurants that are unprofitable in a certain region
and, as a result, the entity decides to exit both the quick-service business
as well as the entity-owned restaurants in that region.

3. What is the presentation of the results from discontinued operation in the income
statement?
a. The entity shall disclose a single amount on the face of the income statement
below the income from continuing operations.
b. The amounts from discontinued operations shall be broken down over each
category of revenue and expense.
c. Discontinued operations shall be shown as a movement on retained earnings.
d. Discontinued operations shall be shown as a line item after gross income with the
related tax being shown as part of income tax expense

4. Which statement is incorrect concerning the presentation of the discontinued

operation in the statement of financial position?
a. Assets of the component held for sale are presented separately under current
assets
b. Assets of the component held for sale are measured at the lower between fair value
less cost of disposal and carrying amount.
 c. Liabilities of the component held for sale are presented separately under current
liabilities
d. Depreciable assets of the component held for sale shall be depreciated.

5. The following disposal could qualify as a discontinued operation:

a. Disposal of a component of an entity that is similar in nature to other components

but has operations and cash flows distinguishable from the rest of the entity.
b. Disposal of a component of an entity due to a major change in business
strategy.
c. Disposal of a small component of an entity within the current business strategy.
d. Disposal of a component of an entity with distinguishable operations and cash flows
from the rest of the entity.

6. that a single amount should be disclosed within the income statement for

a. The post-tax profit or loss on discontinued operation and pre-tax gain or loss on
the disposal of discontinued operating asset.
b. The pre-tax profit or loss on discontinued operation and post-tax gain or loss on
the disposal of discontinued operating asset.
c. The pre-tax profit or loss on discontinued operation and pre-tax gain or loss on
the disposal of discontinued operating asset.
d. The post-tax profit or loss on discontinued operation and post-tax gain or
loss on the disposal of discontinued operating asset.

7. Which of the following should be considered as discontinued operations?

a. The operations and cash flows of a component have been or will be
eliminated from the ongoing operations of the entity as a result of a
disposal transaction.
b. The entity continues to have a continuing involvement in the operations of a
component after the disposal transaction.
c. The entity outsources the manufacturing operations of a component and sells the
manufacturing facility of the component but continues to sell the product
previously manufactured by the facility sold.
d. All of these should be considered as discontinued operations.

8. Which of the following statements in relation to discontinued operations is true?

a. Discontinued operations are reported as the last category after income from
continuing operations.
b. The discontinued operations consist only of the gain or loss on disposal of the
discontinued component net of tax.
c. The discontinued operations consist only of the income or loss on disposal of the
discontinued component net of tax.
d. The discontinued operations consist income or loss from the disposal of
the discontinued component net of tax as well as the gain or loss on
disposal of the discontinued component net of tax.

9. The discontinued component’s operating loss of the current period should be

 included in the
a. Income statement as part of revenue and expenses.
b. Income statement as part of the loss on disposal of the discontinued
operations.
c. Income statement as part of continuing operations.
d. Changes in equity as direct decrease in retained earnings.

10. When the component of a business has been discontinued during the year, the loss
on disposal should
a. Include operating loss of the current period.
b. Exclude operating loss of during the period.
c. Be classified as extraordinary item.
d. Be classified as operating item

11. Any gain on the disposal of a business component should be

a. Presented as other income.
b. Presented as an adjustment of retained earnings.
c. Netted with the loss from operations of the component as a part of
discontinued operations.
d. Classified as component of other comprehensive income.

12. When the component of an entity was discontinued during the year, the loss on
disposal should
a. Exclude the associated employee relocation cost.
b. Exclude operating loss for the period.
c. Include associated employee termination cost.
d. Exclude associated lease cancellation cost.

13. Which is not required for a component’s results to be classified as discontinued

operations?
a. Management must have entered into a sale agreement.
b. The component is available for immediate sale.
c. The operations and cash flows of the component will be eliminated from the
operations of the entity.
d. The entity will not have any significant continuing involvement in the operations of
the component.

14. An entity has correctly classified the manufacturing operation as a disposal group
held for sale and as discontinued operation during the year ended December 31,
2017. Which of the following statements is true?
I. The disposal group’s results for the year ended December 31, 2016 shall be
re- presented as relating to discontinued operation in the comparative
figures for the 2017 statement of comprehensive income.
II. The disposal group’s assets on December 31, 2016 shall be re-presented as
held for sale in the comparative figures for the 2017 statement of financial
position.
a. I only
 b. II only
c. Both I and II
d. Neither I nor II

15. Which of the following statements in relation to discontinued operations is true?

I. When the discontinued criteria are met after the end of the reporting period,
the operation shall retroactively be separately as a discontinued operation.
II. The net cash flows attributable to the operating, investing, and financing
activities of a discontinued operation shall be separately presented.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

16. Which of the following statements is requirement for a component of an entity to be

classified as a discontinued operation?
a. The activities must cease a permanently prior to the financial statements being
authorized for issue by the management.
b. The component must be a reportable segment.
c. The assets must have been classified as held for sale in the previous financial
statements.
d. The component must have been a cash generating unit while being held for
use.

17. An entity manufactures and sells household products. The entity experienced losses
associated with the small appliance group. Operations and cash flows for this group
can be clearly distinguished from the rest of the entity’s operations. The entity plans
to sell the small appliance group. What is the earliest point at which the entity shall
report the small appliance group as a discontinued operation?
a. When the entity classifies it as held for sale.
b. When the entity receives an offer for the segment.
c. When the entity first sells any of the assets of the segment.
d. When the entity sells the majority of the assets of the segment.

18. Which of the following statements is criteria does not have to be met in order for an
operation to be classified as a discontinued?
a. The operation shall 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

Chapter 8

8-13
 1. A change in the periods benefited by a deferred cost because additional information has
been obtained is
a. An accounting change that should be reported in the period of change and
future periods if the change effects both
b. An accounting change that should be reported by restating the financial statements
of all prior periods presented
c. A correction of an error
d. Not an accounting change
2. A change in the residual value of an asset arising because additional information has been
obtained is
a. An accounting change that should be reported in the period of change and
future periods if the change effects both
b. An accounting change that should be reported by restating the financial statements
of all prior periods presented
c. A correction of an error
d. Not an accounting change
3. Which statement in relation to a change in accounting estimate is true?
a. Change in accounting estimate is accounted for retrospectively.
b. Change in accounting estimate results from new information or new
development.
c. By very nature, the revision of an estimate relates to prior periods and is accounted
for as a correction of an error.
d. All of the above
4. The effect of a change in accounting policy that is inseparable from the effect of a change
in accounting estimate should be reported
a. By restating the financial statements of all prior periods presented
b. As a correction of an error
c. As a component of income from continuing operations in the period of
change and future periods if the change affects both
d. As a separate disclosure after income from continuing operations in the period of
change and future periods if the change affects both.
5. When an entity changed the expected service life of an asset because additional
information has been obtained, which of the following should be reported?
a. Cumulative effect of change in accounting policy
b. Proforma effect of retroactive application
c. Prior period error
d. An accounting change that should be reported in the period of change and
future periods if the change affects both

8-14

1. Which is not classified as an accounting change?

a. Change in accounting policy
b. Change in accounting estimate
c. Error in the financial statements
 d. All of these are classified as an accounting change
2. Which of the following is the proper time period to record the effect of change in accounting
estimate?
a. Current period and prospectively
b. Current period and retrospectively
c. Retrospectively
d. Current period
3. Why is retrospective treatment of change in accounting estimate prohibited?
a. A change in accounting estimate is a normal recurring correction or
adjustment
b. The retrospective treatment is not allowed
c. Retrospective treatment of a change in accounting estimate is required by PFRS
4. Which of the following is required for a change from sum of years’ digits to straight line
method of depreciation?
a. The cumulative effect on prior years is reported in the statement of retained
earnings
b. Retrospective restatement
c. Recomputation of depreciation for current and future years
d. All of these are required
5. Which of the following is not a justification for a change in depreciation method?
a. A change in the estimated useful life
b. A change in the pattern of estimated future benefit
c. To conform with the depreciation method prevalent in a particular industry
d. A change in the future benefit from the asset

8-15

1. How should the effect of a change in accounting estimate be accounted for?

a. By restating amounts reported in the financial statements of prior periods
b. By reporting proforma amounts for prior periods
c. As a prior period adjustment to beginning retained earnings
d. In the period of change and future periods if the change affects both
2. Which of the following is characteristic of a change in accounting estimate?
a. It usually need not be disclosed
b. It does not affect the financial statements of prior period
c. It should be reported through the restatement of the financial statements
d. It makes necessary the reporting of proforma amounts for prior periods
3. Which of the following should be reported when an entity changed from the straight line
depreciation to the double declining balance depreciation?
a. Cumulative effect of change in accounting policy
b. Proforma effect of retroactive application
c. Prior period error
d. An accounting change that should be reported currently and prospectively
 4. Which is the best explanation why accounting changes are classified into change in
accounting policy and change in accounting estimate?
a. The materiality of the change
b. Each change involves different method of recognition in the financial
statements
c. The fact that some treatments are considered GAAP
d. The need to provide a favorable profit picture

Chapter 9

9-17

1. 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

2. In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?

a. The requirement and guidance in the standard or interpretation dealing with similar
and related issue
b. The definition, recognition criteria and measurement of asset, liability income and expense
in the conceptual framework
c. Most recent pronouncement of other standard-setting body
d. Accounting literature and accepted industry practice

3. A change in accounting policy shall be made when

I. Required by law
II. Required by an accounting standard or an interpretation of the standard
III. The change will result in more relevant or reliable information about the financial position,
financial performance and cash flows of the entity

a. I and III only

B. II and III only

C. I and II only

D,.I, II, and III

4. Why is an entity permitted to change an accounting policy?

 a. The change would allow the entity to present a more favorable profit
b. The chance would result in the financial statements 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 made by the CPA

5. A change in accounting policy requires what kind of adjustment to financial statements?

a. Current period adjustment

b. Prospective adjustment
c. Retrospective adjustment
d. Current and prospective adjustment

6. A change in accounting policy requires that the cumulative effect of the change for prior periods
should be reported 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. Shareholder’s equity for the period in which the change occurred

7. Which of the following is accounted for as a change in accounting policy?

a. A change in the estimated useful life of PPE

b. A change from cash basis to accrual basis of accounting
c. A change from expensing immaterial expenditures to deferring and amortizing them when
material
d. A change in inventory valuation from FIFO to average method

8. A change in accounting policy includes all of the following except

a. The initial adoption of an accounting policy to carry asset at revalued amount

b. The change from cost model to revaluation model in measuring PPE
c. A change in the measurement basis
d. A change from one method of depreciation to a different method of depreciation

9. Which of the following should be treated as a change in accounting policy?

a. A change is made in the method of calculating the provision for doubtful accounts
b. A change from cost model to fair value model in measuring investment property
c. An entity engaging in construction contract for the first time needs on accounting policy to
deal with this
d. All of these

10. When it is difficult to distinguish between a change in accounting estimated and a change in
accounting policy, the change is treated as
 a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Change in accounting estimate with no appropriate disclosure

9-18

1. An entity that changed an accounting policy voluntarily should

a. Inform shareholders prior to taking the decision
b. Account for the change retrospectively
c. Treat the effect of the change as a component of OCI
d. Treat the change prospectively and adjust the effect of the change in the current
period and future periods

2. Which statement best describes prospective application?

a. Recognizing a change in accounting policy in the current and future periods affected by the
change
b. Correcting the financial statements as if a prior period error had never occurred
c. Applying a new accounting policy to transactions occurring after the date at which
the policy changed
d. Applying a new accounting policy to transactions as if the policy had always been applied

3. Which term best describes applying a new accounting policy to transactions as if that policy had
always been applied?

a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement

4. This means correcting the recognition, measurement and disclosure of amounts of elements of
financial statements as if a prior period error had never occurred

a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement

5. All of the following should be treated as a change in accounting policy, except

 a. A new accounting policy capitalizing development cost as a project has become
eligible for capitalization for the first time
b. A new policy resulting from the requirement of a new IFRS
c. To provide more relevant information, items of PPE are now being measured at fair value,
whereas they had previously been measure at cost
d. All of these

6. It is impracticable to determine the cumulative effect of an accounting change to any of the prior
periods, the accounting change should be accounted for

a. As a prior period adjustment

b. On a prospective basis
c. As a cumulative effect change on the income statement
d. As an adjustment to retained earnings

7. A change in reporting entity is accounted for as

a. Change in accounting estimate

b. Change in accounting policy
c. Prior period error
d. Net an accounting change

8. Which of the following is not a change in reporting entity?

a. Changing the entities included in combined financial statements

b. Disposition of a subsidiary or other business unit
c. Presenting consolidated statements in place of the statements of individual entities
d. Changing specific subsidiaries that constitute the group of entities for which consolidated
financial statements are presented

9-19

1. Prior period errors

a. Do not include the effect of a mistake in the application of accounting policy
b. Do not affect the presentation of prior period comparative financial statements
c. Do not require further disclosure
d. Are reflected as adjustment of the opening balance of retained earnings of
the earliest period presented

2. An example of a correction of an error in previously issued financial statements is a change

a. From FIFO method of inventory valuation to the average method

b. In the service life of PPE
c. From cash basis to accrual basis of accounting
 d. In the tax assessment related to prior period error

3. An entity that changed from cash basis to accrual basis of accounting during the current year
should report

a. Prior period adjustment resulting from the correction of an error

b. Prior period adjustment resulting from the change in accounting policy
c. Component of income from continuing operations
d. Component of income from discontinued operations

4. A change from an accounting principle that is not generally accepted to one that is generally
accepted should be reported as

a. Component of income from continuing operations

b. Component of discontinued operations
c. An adjustment or retained earnings
d. Component of OCI

Chapter 10

10-16

1. Which statement is true regarding interim reporting?

a. The independent view is required for interim financial statements
b. Interim reports are required on a quarterly basis
c. Interim reports are now required
d. Interim reports require the preparation of only a statement of earnings and a
statement of financial statement

2. Which statement about an interim report is true?

a. An interim financial report must consist of a complete set of financial statements

b. An interim financial report must consist of a condensed set of financial statements
c. An interim financial report may consist of a condensed set or complete set of
financial statements
d. All of these
3. Which basic financial statements are prepared as a minimum for interim financial reporting

a. Statement of financial statement and income statement

b. Statement of financial position, income statement and statement of comprehensive income
c. Statement of financial position, statement of comprehensive income and statement of cash
flows
d. Statement of financial position, statement of comprehensive income, statement of
cash flows and statement of changes in equity

4. Publicly traded entities are encouraged to provide interim financial reports

a. At least at the end of the half year and within 60 days of the end of the interim period
b. Within a month of the half year-end
c. On a quarterly basis
d. Whenever the entity wishes

10-17

1. Interim financial reports shall be published

a. Once a year at any time during the year
b. Within a month of the half year-end
c. On a quarterly basis
d. Whenever the entity wishes

2. If an entity does not prepare interim financial reports

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

3. Interim financial reports shall 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 an income statement
d. A condensed statement of financial position, income statement and statement of cash flows

4. An interim financial report shall include as a minimum all of the following components, except

a. Condensed statement of financial position and statement of comprehensive income

b. Condensed statement of cash flows
c. Condensed statement of changes in equity
d. Accounting policies and explanatory notes
5. There is a presumption that anyone reading interim financial reports shall

a. Understand all IFRS

b. Have access to the records of the entity
c. Have access to the most recent annual report
d. Not make decisions based on the report

6. When the business is seasonal, what does IFRS suggest?

a. Additional notes be written in the interim reports about seasonal nature of the business
b. Disclosure of financial information for the latest 12 months and comparative
information for the prior comparable 12 period in additional to the interim report
c. Additional disclosure in the accounting policy note
d. No additional disclosure

7. Which statement is true regarding interim financial statements?

a. Interim financial statements are required.

b. If interim financial statements are presented, four basic financial statements are
required
c. If interim financial statements are presented, only a statement of financial position and
statements of comprehensive income are required.
d. Interim financial statements must be presented with the most recent annual financial
statements.

8. An entity is preparing interim financial statements for six months ended June 30, 2020. In the
interim financial statements for six months a statement of financial position on June 30, 2020, a
statement of comprehensive income for six ended June 30,2020 shall be presented. In addition, all
of the following shall be presented, excepted

a. Statement of financial position on June 30, 2019

b. Statement of financial position on December 31, 2019
c. Statements of comprehensive income for six months ended June 30, 2019
d. Statements of cash flows for six months ended June 30, 2019

Problem 10-18

1. Interim financial statements are usually presented on a

a. Monthly basis
b. Quarterly basis
c. Semiannual basis
 d. Nine-month basis

2. For interim reporting, an inventory loss from a market decline in the second quarter shall be
recognized as a loss

a. In the fourth quarter

b. Proportionately in each of the second, third and fourth quarters
c. Proportionately in each of the first, second, third and fourth quarters
d. In the second quarter

3. For external reporting purposes, it is appropriate to use estimated gross profit rate to determine
the cost of goods sold for

a. Interim reporting
b. Year-end reporting
c. Interim reporting and year-end reporting
d. Neither interim reporting nor year-end reporting

4. For interim financial reporting, an expropriation gain occurring in the second quarter shall be

a. Recognized ratably over the last three quarters

b. Recognized ratably over all four quarters with the first quarter being restated
c. Recognized in the second quarter
d. Disclosed in the second quarter

5. Advertising costs incurred shall be deferred to provide an appropriate expense in each period
for

a. Interim reporting
b. Year-end reporting
c. Interim reporting and year-end reporting
d. Neither interim reporting nor year-end reporting

6. Due to a decline in market price in the second quarter, an entity incurred an inventory loss. The
market price is expected to return to previous level by the end of the year. At the end of the year,
the decline had not reversed. When should the loss be reported in the interim income statement?
 a. Ratably over the second, third and fourth quarters
b. Ratably over the third and fourth quarters
c. In the second quarter
d. In the fourth quarter

7. Conceptually, interim financial statements can be described as emphasizing

a. Timeliness over reliability

b. Reliability over relevance
c. Relevance over comparability
d. Comparability over neutrality

8. Interim financial reporting should be viewed

a. As a special type of reporting that need not follow International Financial Reporting
Standards.
b. As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary.
c. As reporting for an integral part of an annual period.
d. As reporting for a separate accounting period.

9.Which statement about interim reporting is true?

a. All entities that issue an annual report must issue interim financial report
b. The integral view is the appropriate approach in preparing interim financial report.
c. A complete set of financial statements must be presented for an interim period.
d. The same accounting principles used for the annual report should be employed for
interim report.

10. For interim financial reporting, the income tax expense for the second quarter should be
computed by using the

a. Statutory tax rate for the year

b. Effective tax rate expected to be applicable for the second quarter
c. Effective tax rate expected to be applicable for the full year as estimated at the end of the
first quarter
d. Effective tax rate expected to be applicable for the full year as estimated at the end of the
second year.
 Chapter 11

11-18

1. Segment reporting shall apply to

a. Separate financial statements of an entity only.

b. Consolidated financial statements of a group only.

c. Both the separate financial statements of an entity and the consolidated financial
statements of a group.

d. Neither the separate financial statements of an entity nor the consolidated financial statements
of a group

2. If a 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 statements only.

c. Both the separate and consolidated financial statements.

d. Neither the separate nor the consolidated financial statements.

3. An operating segment is a component of an entity

a. That engages in business activities from which it may earn revenue and incur expenses.

b. Whose operating results are regularly reviewed by the entity's chief operating decision maker.

c. For which discrete information is available.

d. All of these characterize an operating segment.

4. Which quantitative threshold is not a requirement in qualifying a reportable segment?

a. The segment revenue, both external and internal, 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
profitable segments and combined loss of unprofitable segments.

c. The segment assets are 10% or more of the combined assets of all operating segments.

d. The segment assets are 20% or more of the combined assets of all operating segments.

5. Which statement is true concerning the 75% overall size test for reportable segments?

a. The total external and internal revenue of all reportable segments is 75% or more of the entity’s
external revenue.

b. The total external revenue of all reportable segments is 75% or more of the entity’s external and
internal revenue.

c. The total external revenue of all reportable segments is 75% or more of the entity’s
external revenue.

d. The total internal revenue of all reportable segments is 75% or more of the entity’s internal
revenue. 6. The term chief operating decision maker

a. Refers to a manager with a specific title.

6. The term chief operating decision maker

b. Must be disclosed by title in the financial reporting for segments.

c. Must be described in the disclosures for the financial reporting for segments.

d. Refers to a function of allocating resources to the operating segments and assessing

their performance.
7. 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 would generally qualify as chief operating decision maker.

8. In financial reporting for operating segments, an entity shall disclose all of the following, except

a. Type of product and service from which each reportable segment derives revenue.

B. The title of the chief operating decision maker.

c. Factors used to identify the reportable segments.

d. The basis of measurement of segment profit or loss and segment assets.

9. Two or more operating segments may be aggregated into a single operating segment if all of the
following conditions are satisfied, except

a. The segments have similar characteristics.

b. The segments share a majority of the nature of product or service, nature of production process,
class of customer, method of product distribution and regulatory environment.

c. The aggregation is consistent with the core principle of segment reporting.

d. The segments have dissimilar characteristics.

10. Operating segments that do not meet any of the quantitative thresholds

a. Cannot be considered reportable.

b. May be considered reportable and separately disclosed if management believes that

information about the segment would be useful to the users of the financial statements.

c. May be considered reportable and separately disclosed if the information is for internal use.
 d. May be considered reportable and separately disclosed if this is the practice within the economic
environment in which the entity operates.

11-19

1. What are the disclosures required in relation to operating segments?

a. General information about the operating segment
b. Information about segment profit or loss, including specified revenue and expenses
included in profit or loss, segment assets and segment liabilities.
c. Reconciliations of total segment revenue, total segment revenue, total segment
profit or loss, total segment assets and total segment liabilities to the corresponding
amount in the entity’s financial statements
d. All of these

2. An entity shall disclose which of the following general information?

a. Factors used to identify the reportable segments
b. Types of products and services
c. Factors used to identify the reportable segments and types of products and
services
d. Names of the BOD

3. Segment reporting requires that an entity should provide reconciliations of segment information.
Which is not a required reconciliation?
a. To the total of the reportable segments’ revenue to the entity revenue
b. The total of the reportable segments’ profit or loss to the entity profit or loss before tax
expense and discontinued operations
c. The total number of major customers of all segments to the total number of major
customers of the entity
d. The total of reportable segments’ assets to the entity assets

4. Which of the following is a required enterprise-wide disclosure regarding external customers?

a. The identity of any external customer considered to be major by management
b. The identity of any external customer providing 10% or more of a particular operating
segment revenue
c. Information on major customers is not required to segment reporting
d. The fact that transactions with a particular external customer constitute at least 10%
of the total entity revenue

5. An operating segment is considered reportable when any of the following conditions is met, except

a. Segment revenue is 10% or more of the combined revenue of all the entity’s segments
b. Segment assets are 10% or more of the combined assets of all segments
c. Segments liabilities are 10% or more of the combined liabilities of all segments
d. Segment’s profit or loss is 10% or more of the combined profit of all segments that did not
incur a loss
11-20

1. entity -wide disclosures include all, except

a. Information about products
b. Information about geographical areas
c. Information about major customers
d. Information about intersegment revenue

2. Which statement is true about major customer disclosure?

a. A major customer is defined as one providing revenue which amounts to 10% or more of
combined external revenue of all operating segments
b. The identities of major customers need not to be disclosed
c. The entity shall disclose the total amount of revenue from major customers
d. All of these

3. Which entity is required to report on business segments?

a. Publicly traded
b. Not for profit
c. Joint venture
d. Nonpublic

4. An entity must disclose all of the following about each reportable segment if the amounts are
used by the chief operating decision maker, except

a. Depreciation expense
b. Allocated expense
c. Interest expense
d. Income tax expense

5. An entity shall disclose for each reportable segment all of the following specified amounts
included in the measure of profit or loss, except

a. Revenue from external customers

b. Revenue from internal customers
c. Interest revenue
d. Gain on disposal of investment

6. An entity shall disclose for each reportable segment all of the following specified amounts
included in the measure of profit or loss, except

a. Depreciation and amortization

b. The entity’s interest in the profit or loss of associate
 c. Income tax expense
d. General corporate expense

7. An entity must disclose all of the following about each reportable segment if the amounts are
used by chief operating decision maker, except

a. Unusual items
b. Income tax expense
c. Intersegment revenue
d. COGS

8. For segment reporting purposes, which test must be applied to determine if a component is
reportable operating segment?

a. Revenue test and asset test

b. Revenue test, asset test and profit or loss test
c. Revenue test, asset test and expense test
d. Revenue test, asset test and cash flow test

9. What is the practical limit to the number of reportable operating segments?

a. Five segments
b. Ten segments
c. Six segments
d. Four segments

10. The approach used in segment reporting is known as

a. Segment approach
b. Revenue approach
c. Management approach
d. Enterprise approach

Chapter 12

1. A derivative instrument is best described as

a. A contract that conveys to a second entity a right to future collections on

accounts receivable from a first entity.

b. Evidence of an ownership interest in an entity.

 c. A contract that has its settlement value tied to an underlying and a
notional amount.

d. A contract that conveys to a second entity a right to receive cash from a first
entity.

2. All are characteristics of a derivative, except

a. It is acquired for the purpose of generating a profit from short-term
fluctuation in market price.
b. The value changes in response to an underlying.
c. It requires no initial investment or an initial small investment.
d. It is settled at a future date.

3. All are characteristics of a derivative, except

a. The instrument has one or more underlying and an identified payment
provision.
b. The instrument requires a large investment at the inception
c. The instrument requires or permits net settlement.
d. All of these are characteristics.

4. Which is not a characteristic of a derivative?

a. Terms that require or permit net settlement
b. Must be highly effective throughout the life
c. No initial net investment
d. An underlying and a notional amount

5. Which is not considered a derivative instrument?

a. Currency futures
b. Call option
c. Bank certificate of deposit
d. Interest rate swap

6. Any financial or physical variable that has either observable changes or objectively verifiable
changes qualifies as
a. Notional amount
b. Hedge
c. Financial Instrument
d. Underlying
7. Which of the following is an underlying?
a. An interest rate index
b. A security price
c. An average daily temperature
d. All of these could be underlying

8. Which of the following would not qualify as an underlying?

a. Insurance index
b. Equity shares
c. Exchange rate
d. Commodity price

9. An example of a notional is
a. Number of barrels of oil
b. Interest rate
c. Currency rate
d. Share price

10. Derivatives derive their value from exchange in a benchmark based on any of the following,
except
a. Share price
b. Foreign currency rate
c. Commodity price
d. Discount on accounts receivable

Chapter 13

1. Which type of contract is unique in that it protects the owners against unfavorable movement
in the price while allowing the owner to benefit from favorable movement?
a. Interest rate swap
b. Forward contract
c. Futures contract
d. Option
2. Which of the following provides the holder the right to sell at an exercise or strike price
anytime during a specified period a gain accrues to holder as the market price of the underlying
falls below the strike price?
a. Forward contract
b. Put option
c. Swaption
d. Call option

3. What is the amount initially paid for a call option?

a. Option premium
b. Notional amount
c. Strike price
d. Intrinsic value

4. In exchange for the right inherent in an option contract the owner of the option will typically
pay a price
a. Only when a call option is exercised.
b. Only when a put option is exercised.
c. When either a call option or a put option is exercised.
d. At the time the option is received regardless of whether the option
exercised or not.

5. Which statement is incorrect concerning an option?

a. A call option is the right to purchase an asset at a specified price at some
future time.
b. A put option is the right to sell an asset at a specified price during a definite
period at some future time.
c. An option is a right and not an obligation.
d. An option requires no payment.

6. It is a contract giving the owner the right but not the obligation to buy asset at a specified
price in the future.
a. Interest rate swap
b. Forward contract
c. Futures contract
d. Call option

7. If the market price is greater than the strike or exercise price, the call option is
 a. At the money
b. In the money
c. On the money
d. Out of the money

8. If the market price is lower than the option price, the call option is
a. In the money
b. At the money
c. On the money
d. Out of the money

9. If the market price is equal to the option price, the call option is
a. Out of the money
b. On the money
c. At the money
d. In the money

10. All of the following are based on a highly probable forecast transaction, except
a. Forward contract
b. Future contract
c. Option
d. Interest rate swap

1. Which term best describes a component of a hybrid instrument?

a. Financial asset at fair value through other comprehensive income
b. An embedded derivative
c. Held for collection investment
d. Financial asset held for trading

2. The process of bifurcation

a. Protects an entity from loss.
b. Includes entering into an agreement between two counterparties to exchange
cash flows.
c. Is the measurement of an embedded derivative.
d. Separates an embedded derivative from the host contract.
3. An embedded derivative shall be bifurcated from the host contract when all of the following
conditions are satisfied except
a. The economic characteristics and risks of the host contract and the
embedded derivative are not closely related.
b. A separate instrument with the same terms as the embedded feature would
meet the definition of a derivative.
c. The host contract is measured at fair value through other comprehensive
income
d. The host contract is measured at fair value through profit or loss.

4. If not separated, the host contract is its entirety is measured at

a. Amortized cost
b. Fair value through profit or loss
c. Fair value through other comprehensive income
d. Amortized cost, fair value through profit or loss or fair value through
the comprehensive income.
 Chapter 14

14-32

1. Under accrual basis of accounting, cash receipts and disbursements may

a. Precede, coincide with, or follow the period in which revenue and expenses are
recognized

b. Precede or coincide with but never follow the period in which revenue and
expenses are recognized

c. Coincide with or follow but never precede the period in which revenue and
expenses are recognized

d. Only coincide with the period in which revenue and expenses are recognized

2. Which statement regarding accrual basis versus cash basis of accounting is true?

a. The cash basis is appropriate for smaller entities

b. The cash basis is less useful in predicting the timing and amount of future cash
flows of an entity

c. Application of the cash basis results in an income statement reporting revenue

and expenses

d. The cash basis requires a complete set of double entry records

3. Under cash basis accounting

a. Revenue is recorded when earned

b. Accounts receivable would be recorded

c. Depreciation is not recognized

d. The matching principle is ignored

4. Under the cash basis of accounting, revenue is recorded

a. When earned and realized

 b. When earned and realizable

c. When earned

d. When realized

5. Total net income over the life of an entity is

a. Higher under the cash basis than under the accrual basis

b. Lower under cash basis than under the accrual basis

c. The same under the cash basis as under the accrual basis

d. No susceptible to measurement

6. Under International Financial Reporting Standards

a. The cash basis of accounting is accepted

b. Events are recorded in the period the events occur

c. Net income is lower under the cash basis than accrual basis

d. All

7. Accrual accounting adheres to which of the following?

a. Matching principle

b. Historical cost principle

c. Matching principle and historical cost principle

d. Neither matching principle nor historical cost

8. Under accrual accounting, which of the following does not describe a deferral?

a. Deferral of revenue occurs when cash is received and recognized as financial

income
 b. Deferral typically results in the recognition of a liability or prepaid expense

c. Cash collected in advance of services being rendered

d. Cash paid up front for a one-year insurance policy

9. Under accrual basis, a deferral is a transaction that impacts

a. Cash and the income statement at the same time

b. The income statement before impacting cash

c. Cash before impacting the income statement

d. The statement of financial position before impacting cash

10. Which statement is true about accrual and cash basis?

a. Under accrual, if the earning process is not complete, revenue is nevertheless

recorded

b. Under cash basis, if cash has been collected, revenue is recorded regardless of
earning process

c. Under cash basis, revenue is recognized when the receivable is initially recorded

d. All

14-33

1. The premium on a three-year insurance policy expiring on December 31, 2022 was paid in
total on January 1, 2020. If the entity has six-month operating cash cycle, then on December 31,
2020, the prepaid insurance reported as a current asset would be for

a. 6 months
 b. 12 months

c. 18 months

d. 24 months

2. The premium on a three-year insurance policy expiring on December 31, 2022 was paid in
total on January 1, 2020. The original payment was initially debited to a prepaid asset account.
The appropriate adjusting entry had been recorded on December 31, 2020. The balance in the
prepaid asset account on December 31, 2020 should be

a. Zero

b. The same as it would have been if the original payment had been debited
initially to an expense account

c. The same as the original payment

d. Higher than if the original payment had been debited initially to an expense
account

3. The premium on a three-year insurance policy expiring on December 31, 2022 was paid in
total on January 1, 2020. If the original payment was recorded as a prepaid asset, how would total
assets and shareholder’s equity be affected during 2020?

a. Total assets would decrease and shareholder’s equity would increase

b. Both total assets and shareholder’s equity would decrease

c. Both total assets and shareholder’s equity would increase

d. Neither total assets and shareholder’s equity would change

4. The premium on a four-year insurance policy expiring on December 31, 2023 was paid in
total on January 1, 2020. If the original payment was recorded as a prepaid asset, the balance in
prepaid asset on December 31, 2021 would be

a. Lower than the balance on December 31, 2020

b. Lower than the balance on December 31, 2022

c. The same as the balance on December 31, 2022

 d. The same as the original payment

5. At the beginning of the current year, an entity signed a 5-year contract enabling it to use a
patented manufacturing process beginning in the current year. A royalty is payable for each
product produced, subject to a minimum annual fee. Any royalties in excess of the minimum will be
paid annually. On the contract date, the entity prepaid a sum equal to two year’s minimum annual
fees. In the current year, only minimum fees were incurred. The royalty prepayment shall be
reported in the current year-end financial statement as

a. An expense only

b. A current asset and an expense

c. A current asset and a noncurrent asset

d. A noncurrent asset

Chapter 15

Chapter 16

16-19

1. If ending inventory is understated, the effect is to

a. Overstate the net purchases

b. Overstate the gross margin

c. Overstate the cost of goods available for sale

d. Overstate the COGS

2. If beginning inventory is overstated, the effect is to

a. Overstate net purchases

b. Overstate gross margin

c. Overstate cost of goods available for sale

d. Understate COGS
3. The overstatement of ending inventory in the current year will cause

a. Retained earnings to be understated in the current year-end statement of financial

position

b. COGS to be understated in the income statement of next year

c. COGS to be overstated in the income statement of the current year

d. Statement of financial position not to be misstated in the next year-end

4. At the middle of the year, an entity paid for insurance premium for the current year and
debited the amount to prepaid insurance. At year-end, the bookkeeper forgot to record the amount
expired. In the financial statements prepared at year-end, the omission

a. Overstates owner’s equity

b. Understates assets

c. Understates net income

d. Overstates liabilities

5. If at the end of current reporting period, an entity erroneously excluded some goods from
ending inventory and also erroneously did not record the purchase of these goods, these errors
would cause

a. The ending inventory to be overstated

b. The retained earnings to be understated

c. No effect on net income, working capital and retained earnings

d. Net income to be understated

6. When the current year’s ending inventory is overstated

a. The current year’s cost of goods sold is overstated

b. The current year’s total assets are understated

c. The current year’s net income is overstated

d. The next year’s net income is overstated

7. An overstatement of ending inventory in the current period would result in income of the next
period being
 a. Overstated

b. Understated

c. Correctly stated

d. The answer cannot be determined from the information

8. Which would result if the current year’s ending inventory is understated in the cost of goods
sold calculation?

a. Cost of goods sold would be overstated

b. Total assets would be overstated

c. Net income would be overstated

d. Retained earnings would be overstated

9. If the beginning inventory in the current year was overstated, the income for the current year
would be

a. Understated and assets are correctly stated

b. Understated and assets are overstated

c. Overstated and assets are overstated

d. Understated and assets are understated

10. Which of the following would cause income to be overstated in the period of occurrence?

a. Overestimating bad debts

b. Understating beginning inventory

c. Overstated purchases

d. Understated ending inventory

16-20

1. Failure to record the expired amount of prepaid rent expense would not
 a. Understate expense

b. Overstate net income

c. Overstate owner’s equity

d. Understate liabilities

2. Failure to record accrued salaries at year end results in

a. Overstated retained earnings

b. Overstated assets

c. Overstated liabilities

d. Understated retained earnings

3. Failure to record depreciation at year-end results in

a. Understated income

b. Understated assets

c. Overstated expenses

d. Overstated assets

4. Which of the following is a counterbalancing error?

a. Understated depletion expense

b. Bond premium under-amortized

c. Prepaid expense adjusted incorrectly

d. Overstated depreciation expense

5. Which error will not self-correct next year?

a. Accrued expense not recognized at year-end

 b. Accrued revenue not recognized at year-end

c. Depreciation expense overstated for the year

d. Prepaid expense not recognized at year-end

Chapter 18

18-29

1. Which of the following shareholder rights is most commonly enhanced in an issue of

preference shares?

a. The right to vote for the BOD

b. The right to maintain one’s proportional interest

c. The right to receive a full cash dividend before dividends are paid to other
classes of share capital

d. The right to vote on major corporate issues

2. Preference shares participate ratably with the ordinary shareholders in any profit distribution
beyond the prescribed preference rate

a. Cumulative feature

b. Participating feature

c. Callable feature

d. Redeemable feature

3. Which feature of preference share would most likely be opposed by ordinary shareholders?

a. Convertible

b. Callable

c. Redeemable

d. Participating

4. Noncumulative preference dividends in arrears

a. Are not paid and not disclosed

 b. Must be paid before any other cash dividends can be distributed

c. Are disclosed as liability until paid

d. Are paid to preference shareholders if sufficient funds remain after payment of

ordinary dividend

5. How should cumulative preference dividends in arrears be reported?

a. Note disclosure

b. Increase in shareholder’s equity

c. Increase in current liabilities

d. Increase in noncurrent liabilities

Chapter 19

19-29

1. EPS disclosures are required for

a. Entities whose ordinary shares and potential ordinary shares are publicly traded

b. Entities that are in the process of issuing ordinary shares in the public market

c. All entities

d. Entities whose ordinary shares and potential ordinary shares are publicly
traded and entities that are in the process of issuing ordinary shares in public
market.

2. EPS disclosure are

a. Required for all public and nonpublic entities

b. Required for public entities and encouraged for nonpublic entities

c. Encouraged for public entities and required for nonpublic entities

 d. Encouraged for all entities

3. When an entity issues both consolidated and separate financial statements, the EPS
information is required

a. For both sets of financial statements

b. In neither set of financial statements

c. Only for consolidated financial statements

d. Only for separate financial statements

4. Earnings per share shall be computed on the basis of

a. The number of shares outstanding at the end of the year

b. A weighted average of the number of shares outstanding during the year

regardless of the extent of fluctuations

c. A weighted average of the number of shares outstanding during the year

except that minor fluctuations in the number of shares may be disregarded

d. The number of shares outstanding at the middle of year

5. Earnings per share shall be reported for all of the following except

a. Continuing operations

b. Discontinued operations

c. Net income

d. Gross income

6. In computing basic earnings per share, if the preference shares are cumulative, the amount
that should be deducted as an adjustment to the numerator is the

a. Preference dividends in arrears

 b. Preference dividends paid during year

c. Annual preference dividend

d. Annual ordinary dividend

7. In computing basic earnings per share, the amount of preference dividends on noncumulative
preference shares should be

a. Deducted from net income whether declared or not

b. Deducted from net income only when declared

c. Added to net income only when declared

d. Ignored

8. In computing basic earnings per share, the full amount of the required preference dividends
on cumulative preference shares for the period should be

a. Ignored

b. Deducted from net income only when declared

c. Deducted from net income whether declared or not

d. Added to net income whether declared or not

9. In computing basic loss per share, the annual preference dividend on cumulative preference
shares should be

a. Ignored

b. Deducted from the net loss whether declared or not

c. Added to the net loss whether declared or not

d. Added to net loss only when declared

10. In the computation of weighted average number of shares when there is share split, the
additional shares are

a. Weighted by the number of days outstanding

b. Weighted by the number of months outstanding

c. Considered outstanding at the beginning of the year

d. Considered outstanding at the beginning of the earliest year reported

19-30

1. Earnings per share information is calculated before accounting for which of the following?

a. Preference dividend for the period

b. Ordinary dividend

c. Taxation

d. Minority interest

2. Which figure for earnings does EPS information use?

a. Net income attributable to ordinary equity holders and preference shareholders of

the parent

b. Net income before taxation

c. Net income from operations

d. Net income attributable to ordinary equity holders of the parent

3. When an entity issues a share split

a. The previous year’s EPS is not adjusted for the issue

b. The previous year’s EPS is adjusted for the issue

 c. Only a note of the effect on the previous year’s EPS is made

d. Only the diluted EPS for the previous year is adjusted

4. If a bonus issue occurs between the year-end and the date that the financial statements are
authorized

a. The EPS both for the current and the previous year are adjusted

b. The EPS for the current year only is adjusted

c. No adjustment is made to EPS

d. Diluted EPS only is adjusted

5. If a new issue of shares for cash is made between the year-end and the date that the financial
statements are authorized

a. The EPS both for the current and the previous year are adjusted

b. The EPS for the current year only is adjusted

c. No adjustment is made to EPS

d. Diluted EPS only is adjusted

6. The weighted average number of shares outstanding during the period for all periods should
be adjusted for

a. Any change in the number of ordinary shares without a change in resources

b. Any prior period adjustment

c. Any new issue of shares for cash

d. Any convertible instruments settled in cash

7. Ordinary shares issued as a part of a business combination are included in the EPS
calculation from
 a. The beginning of the accounting period

b. The date of acquisition

c. The end of the accounting period

d. The midpoint of the accounting year

8. Shares issued to settle a liability are included in the EPS calculation from

a. Date of the contract for services

b. Halfway through the rendering of services

c. The completion of services

d. The settlement date

9. Shares to be issued upon the conversion of a mandatorily convertible instrument are included
in the calculation of basic earnings per share from

a. The date of the contract for the shares

b. Halfway through the period

c. The date of conversion

d. The issue of the share certificate

10. Under IFRS, where ordinary shares are issued but not fully paid, the ordinary shares are
treated in EPS

a. In the same way as fully paid ordinary shares

b. As a fraction of an ordinary share to the extent that the subscribed shares

are entitled to participate in dividends

c. In the same way as warrants or options

d. Are ignored
 Chapter 20

20-27

1. The calculation of diluted EPS assumes that share options were exercised and that the
proceeds were used to

a. Buy ordinary shares as an investment

b. Retire preference shares

c. Buy treasury shares

d. Increase net income

2. Options and warrants are dilutive if

a. The exercise price is lower than the average market price

b. The exercise price is higher than the average market price

c. The exercise price is equal to the average market price

d. The option shares represent 20% of ordinary shares

3. When applying the treasury share method for diluted EPS, the market price of the ordinary
share used for the assumed acquisition of treasury shares is the

a. Market price at the end of the year

b. Average market price during the year

c. Market price at the beginning of the year

d. Average market price over a two-year period

4. In applying the treasury share method of computing diluted earnings per share, when is it
appropriate to use the average market price of ordinary share during the year as the assumed
repurchase price?

a. Always

b. When the average market price is higher than the exercise price

c. Never

d. When the average market price is lower than the exercise price
5. Under the treasury share method, the number of potential ordinary shares is equal to

a. Option shares

b. Option shares minus assumed treasury shares

c. Assumed treasury shares

d. Option shares actually issued during the year

20-28

1. All of the following must be disclosed in relation to earnings per share, except

a. Forecast earnings per share for the following year

b. Instruments that could potentially dilute basic earnings per share in the future but
not included in the diluted EPS because they are antidilutive in the current period

c. The weighted average number of ordinary shares used

d. The earnings figures used in calculating EPS

2. Dilution of EPS is defined as

a. Decrease in earnings per share when any financial instrument is converted to any
form of share capital

b. Decrease in share capital

c. Decrease in earnings per share when convertible instruments are converted

to ordinary shares

d. Decrease in earnings per share when share capital is converted to debt capital

3. If a share option is converted on March 31

a. The potential ordinary shares are included in diluted EPS up to March 31,
and in basic EPS from the date converted to the year-end, both weighted
accordingly

b. The ordinary shares are not included in diluted EPS

c. The ordinary shares are not included in basic EPS

d. The effects of the share option are included only in previous year’s EPS calculation
4. In calculating whether potential ordinary shares are dilutive, the income figure used as the
control number is

a. Net income including discontinued operations

b. Income from continuing operations

c. Income before tax including discontinued operations

d. Retained earnings for the year after dividends

5. The nature of diluted earnings per share involving adjustment for share options can be
described as

a. Historical because earnings are historical

b. Historical because it indicates an entity’s valuation

c. Proforma because it indicates potential changes in number of shares

d. Proforma because it indicates potential changes in earnings

20-29

1. Antidilutive securities

a. Should be included in the computation of diluted earnings per share but not basic
earnings per share

b. Are those whose inclusion in earnings per share computation would cause basic
earnings per share to exceed diluted earnings per share

c. Include share options and warrants whose option price is less than the average
market price

d. Should be disregarded in all EPS computations

2. The purpose of diluted earnings per share is to

a. Provide a comparison figure for debt holders

b. Indicate earnings shareholders shall receive in future periods

c. Distinguish between entities with a complex capital structure and entities with a
simple capital structure
 d. Show the maximum possible dilution of earnings

3. What is the justification underlying the concept of potential ordinary shares in a diluted EPS
computation?

a. Form over substance

b. Substance over form

c. Form and substance considered equally

d. Accounting practice

4. In calculating diluted earnings per share, which of the following should not be considered?

a. The weighted average number of ordinary shares outstanding

b. The amount of dividends declared on cumulative preference shares

c. The amount of cash dividends declared on ordinary shares

d. The number of ordinary shares resulting from the assumed conversion of bonds
payable outstanding

5. Which statement is correct in relation to EPS?

a. If preference share is outstanding, dividend declared on the preference share is

always deducted from net income in calculating EPS

b. EPS can never be negative

c. If income from continuing operations is less than zero, potentially dilutive

securities are antidilutive

d. All issues convertible to ordinary shares must be included in the calculation of

diluted EPS

6. An entity already has calculated the basic earnings per share. In determining diluted earnings
per share, the annual dividend on convertible cumulative preference share which is dilutive should
be

a. Added back to the numerator of basic EPS whether declared or not

b. Deducted from the numerator of basic EPS only if declared

c. Added back to the numerator of basic EPS only if declared

d. Deducted from the numerator of basic EPS whether declared or not

7. In determining diluted earnings per share, dividends on nonconvertible cumulative preference
shares should be

a. Disregarded

b. Added back to net income whether declared or not

c. Deducted from net income only if declared

d. Deducted from net income whether declared or not

8. The “if converted” method of computing earnings per share assumes conversion of convertible
bonds payable at

a. Beginning of the earliest period reported or at time of issuance, if later

b. Beginning of the earliest period reported regardless of time issuance

c. Middle of the earliest period reported regardless of the time issuance

d. Ending of the earliest period reported regardless of the time of issuance

9. In determining diluted earnings per share, interest expense, net of income tax, on dilutive
convertible bond payable should be

a. Added back to weighted average shares outstanding for diluted earnings per share

b. Added back to net income for diluted earnings per share

c. Deducted from net income for diluted earnings per share

d. Deducted from weighted average shares outstanding for diluted earnings per share

10. When dilutive convertible bonds are only potential ordinary shares

a. Diluted EPS will be greater if the bonds are actually converted than not converted

b. Diluted EPS will be smaller if the bonds are actually converted than not converted

c. Diluted EPS will be the same whether or not the bonds are converted

d. The effect of conversion on diluted EPS cannot be determined without additional

information

Chapter 22
22-17

1. Hyperinflation is indicated by all of the following, except

a. The general population prefers to keep its wealth in nonmonetary assets

b. Interest rates, wages and prices are linked to a price index

c. The cumulative inflation rate over three years is approaching or exceeds 100%

d. All of these

2. All would indicate that hyperinflation exists, except

a. The general population regards monetary amounts in terms of relatively stable foreign
currency

b. The cumulative inflation rate over three years is approaching or exceeds 20% per year

c. Inflation rates have exceeded interest rates in three successive years

d. The general population prefers to keep its wealth in nonmonetary assets

3. Which would indicate the hyperinflation exists?

a. Sales on credit are at lower prices than cash sales

b. Inflation is approaching or exceeds 20% per year

c. Monetary items do not increase in value

d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency

4. An entity that wishes to present information about the effect of changing prices in a
hyperinflationary economy should report this information in

a. The body of financial statements

b. The notes to financial statements

c. Supplementary schedule
d. Management’s report to shareholders

5. In a hyperinflationary economy, monetary items

a. Are not restated because they are already expressed in terms of the measuring unit current
at year-end

b. Are measured at fair value

c. Are restated applying the general price index

d. Are restated applying the specific price index

6. For purposes of adjusting financial statements for changes in the general price level,
monetary items consist of

a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of pesos

b. Assets and liabilities classified as current

c. Cash and cash equivalents plus all receivables

d. Cash, other assets expected to be converted into cash, and current liabilities

7. All of the following are monetary items, except

a. Accounts payable

b. Accounts receivable

c. Administration costs paid in cash

d. Loan repayment at face value

8. The financial statements of an entity that reports in the currency of a hyperinflationary

economy shall be stated in terms of

a. Historical cots
b. Current cost

c. Fair value

d. Measuring unit current at the end of reporting period

9. The gain or loss on the net monetary position in a hyperinflationary economy shall be
included in

a. Profit or loss and separately disclosed

b. Retained earnings

c. Equity

d. OCI

10. In a hyperinflationary economy, amounts not expressed in the measuring unit currents at
the end of reporting period are restated by applying

a. General price index

b. Specific price index

c. Both general price index and specific price index

d. Either general price index or specific price index

22-18

1. Which of the following is classified as nonmonetary?

a. Allowance for doubtful accounts

b. Accumulated depreciation

c. Premium on bonds payable

d. Advances to unconsolidated subsidiaries

2. Which of the following is classified as nonmonetary?

a. Warranty liability

b. Accrued expense

c. Unamortized discount on bonds payable

d. Refundable deposit

3. Which of the following is classified as nonmonetary?

a. Cash surrender value

b. Long- term receivable

c. Accrued liability on firm purchase commitment

d. Inventory

4. Which of the following is classified as monetary?

a. Goodwill

b. Equipment

c. Patent

d. Allowance for doubtful accounts

5. Purchasing power gain or loss results from

a. Monetary asset only

b. Monetary liability only

c. Both monetary asset and monetary liability

d. Nonmonetary asset and nonmonetary liability

6. During a period of inflation, an account balance remains constant. With respect to this
account, a purchasing power loss will be recognized if the account is a

a. Monetary asset

b. Monetary liability

c. Nonmonetary asset

d. Nonmonetary liability

7. During a period of inflation, an account balance remains constant. With respect to this
account, a purchasing power gain will be recognized if the account is a

a. Monetary liability

b. Monetary asset

c. Nonmonetary liability

d. Nonmonetary asset

8. During a period of deflation in which a liability account balance remains constant, which of
the following occurs?

a. A purchasing power loss if the item is a nonmonetary liability

b. A purchasing power gain if the item is a nonmonetary liability

c. A purchasing power loss if the item is a monetary liability

d. A purchasing power gain if the item is a monetary liability

9. During a period of inflation in which a liability account balance remains constant, which of
the following occurs?

a. A purchasing power loss if the item is a nonmonetary liability

b. A purchasing power gain if the item is a nonmonetary liability

c. A purchasing power loss if the item is a monetary liability

d. A purchasing power gain if the item is a monetary liability

10. During a period of deflation, an entity would have the greatest gain in general purchasing
power by holding

a. Cash

b. PPE

c. Finance lease liability

d. Mortgage payable

22-19

1. Financial statements that are expressed under a stable monetary unit are

a. Constant peso financial statements

b. Nominal peso financial statements

c. Current cost financial statements

d. Fair value financial statements

2. A general price level statement of financial position is prepared and presented in terms of

a. The general purchasing power of the peso at the latest end of reporting period

b. The general purchasing power of the peso in the base period

c. The average general purchasing power of the peso

d. The general purchasing power of the peso at the time the financial statements are issued

3. Which method of reporting attempts to eliminate the effect of the changing value of the
peso?

a. Discounted net present value of future cash flows

b. Historical cost restated for change in the general price level

c. Replacement cost

d. Exit value

4. The restatement of historical peso financial statements to reflect the general price level
change results in presenting assets at

a. Lower of cost NRV

b. Fair value

c. Cost adjusted for purchasing power change

d. Current replacement cost

5. Which argument in favor of price level adjusted financial statements is not valid?

a. Price level financial statements use historical cost

b. Price level financial statements compare uniform purchasing power among various periods

c. Price level financial statements measure current value

d. Price level financial statements measure earnings in terms of a common peso

Chapter 23

23-13
1. In current cost financial statements

a. General price level gains or losses are recognized

b. Amounts are always stated in common purchasing power

c. All items are different from what they would be in a historical cost statement of financial
position

d. Holding gains are recognized

2. When an entity adjusted the historical cost income statement by applying specific price
index to depreciation, the income statement is prepared according to

a. Fair value accounting

b. Purchasing power accounting

c. Current cost accounting

d. Nominal peso accounting

3. When an entity prepares financial statements on a current cost basis, how is the COGS
computed?

a. Number of units sold times average current cost

b. Number of units sold times current cost at year-end

c. Number of units sold times beginning current cost

d. Beginning inventory at current cost plus cost of goods purchased less ending inventory at
current cost

4. In a period of inflation, an entity discloses income on a current cost basis. Compared to

historical cost income, which condition increases the current cost income?

a. Current cost is the same as historical cost

b. Current cost of land is less than historical cost

c. Current cost of goods sold is less than historical cost

d. Ending net monetary assets are less than beginning

5. Could current cost financial statements report holding gains during the period for which of
the following?

a. Goods sols

b. Inventory

c. Goods sold and inventory

d. Neither goods sold nor inventory