CHAPTER 1 – FINANCIAL STATEMENTS

A 1. What is meant by Comparison of Financial Statements?

a) Comparison of Financial Statements is primarily an analytical study of the different
items shown in the Income Statement and Position Statement (Balance Sheet) over a
period of time. It may refer to:
b) Financial statements of an enterprise for two or more accounting years.
c) Financial statements of different enterprises for the same accounting year.
d) None of the above.

B 2. What is meant by Comparative Income Statement? Why is it prepared?

Comparative Income Statement is prepared:
a) To study increase or decrease in ‘Sales’.
b) The Profit & Loss Account reveals the trading results of a concern i.e. its profit or loss
during the year. But the Comparative Income Statement presents a review of two or
more years. It shows the absolute change from one period to another.
c) To study the increasing or decreasing tendency of ‘Cost of Goods Sold’.
d) To study the increase or decrease in Gross Profit, Net Profit and Operating Profits.

A 3. What are the purposes of Comparative Financial Statement? Explain.

a) The basic objectives of Comparative Financial Statements are as under:
b) Comparison of financial statements helps to identify the size and direction of
changes in financial position of an enterprise.
c) These statements help to ascertain the weakness and soundness about liquidity,
profitability and solvency of an enterprise.
d) These statements help the management in making forecasts for the future.

C 4. The process of providing financial information to external decision makers is referred

to as:
a) Public accounting.
b) Government accounting.
c) Financial accounting.
 d) Managerial accounting.

B 5. Financial statements generally include all but which of the following:

a) Income statement.
b) Federal income tax return.
c) Balance sheet.
d) Statement of cash flows.

D 6. The primary objective of financial reporting is to provide information:

a) About a firm's financing and investing activities.
b) About a firm's economic resources and obligations.
c) About a firm's product lines.
d) Useful in predicting cash flows.

D 7. GAAP include which of the following pronouncements:

a) Statements of Financial Accounting Standards.
b) Accounting Research Bulletins.
c) Accounting Principles Board Opinions.
d) All of the above.

D 8. The two primary decision-specific qualities that make accounting information useful
are:
a) Verifiability and representational faithfulness.
b) Predictive value and feedback value.
c) Cost effectiveness and materiality.
d) Relevance and reliability.

A 9. The underlying assumption that assumes that the life of a company can be divided me
periods is:
a) Periodicity.
b) Going concern.
 c) Economic entity.
d) Monetary unit.

A 10. In general, revenue is recognized when the earnings process is virtually complete
and:
a) Collection of the sales price is reasonably assured.
b) A purchase order is received.
c) Cash is collected.
d) Production is completed.

CHAPTER 2 – STATEMENT OF FINANCIAL POSITION

A 1. Section 4 Statement of Financial Position of the IFRS for SMEs:

a) prescribes information to be presented in a statement of financial position.

b) prescribes the sequence or format in which items are to be presented in the statement

of financial position.

c) does not permit the presentation of the additional line items, headings and subtotals

in the statement of financial position in addition to those set out in paragraph 4.2.

d) such presentation is relevant to an understanding of the entity’s financial position.

A 2. In accordance with the IFRS for SMEs, an entity must present additional line items in a

statement of financial position when:

a) such presentation is relevant to an understanding of the entity’s financial position.

b) such presentation is a generally accepted practice in the sector in which the entity

operates.

c) such presentation is required by the tax authorities of the jurisdiction in which the

entity operates.

d) prescribes information to be presented in a statement of financial position.

D 3. In accordance with the IFRS for SMEs, in presenting a statement of financial position, an
entity:

a) must make the current/non-current presentation distinction.

b) must present assets and liabilities in order of liquidity.

c) must choose either the current/non-current or the liquidity presentation formats (ie a

‘free’ choice of presentation format).

d) must make the current/non-current presentation distinction except when a

presentation based on liquidity provides information that is reliable and more

relevant.

A 4. Assets to be sold, consumed or realized as part of the entity’s normal operating cycle are:

a) current assets

b) non-current assets

c) classified as current or non-current in accordance with other criteria.

d) both current and non-current assets

C 5. When there is much variability in the duration of the entity’s normal operating cycle, the

operating cycle is measured at:

a) its mean value

b) its median value

c) twelve months

d) three years

C 6. Liabilities that an entity expects to settle in its normal operating cycle are:

a) classified as non-current liabilities

 b) classified as current or non-current liabilities in accordance with other criteria

c) classified as current liabilities

d) current assets

B 7. A dividend declared by the entity before its year-end and payable to its shareholders three

months after the end of the reporting period is classified as:

a) a non-current liability

b) a current liability

c) equity

d) a current asset

C 8. An entity must present each of the line items listed in paragraph 4.2:

a) even if the amount recognized for the line item is nil

b) unless the amount recognized of the line item is nil

c) unless the line item is either immaterial or irrelevant

d) not recognized

D 9. In accordance with the IFRS for SMEs, the financial statement that presents an entity’s assets,

liabilities and equity at a point in time:

a) must be titled the statement of financial position

b) must be titled the balance sheet

c) could be titled the statement of financial position or the balance sheet

d the statement of financial position, the balance sheet or any other title

that is not misleading

A 10. A partnership that prepares its financial statements in accordance with the IFRS for SMEs:

a) is required to disclose information equivalent to that required by paragraph 4.12(a)

showing changes during the period in each category of equity, and the rights,

preferences and restrictions attaching to each category of equity

b) is required to disclose information equivalent to that required by paragraph 4.12(a) if

the partners’ interests are classified as equity

c) is not required to report information about its equity

d) could be titled the statement of financial position, the balance sheet or any other title

that is not misleading.

CHAPTER 3 - NOTES TO FS
C 1. Notes to the financial statements:

a) contain only information required to be disclosed by the IFRS for SMEs that was not

presented in the statement of financial position, statement of comprehensive income,

statement of changes in equity or cash flow statement.

b) contain information required by Section 8 Notes to the Financial Statements without

reference to the other sections of the IFRS for SMEs.

c) contain the information required to be disclosed by the IFRS for SMEs that was not

presented in the statement of financial position, statement of comprehensive income,

statement of changes in equity or statement of cash flows and additional information

relevant to an understanding of the financial statements.

d) none of the above.

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

a) is voluntary.

b) is mandatory.

c) depends on the industry.

d) none of the above.

C 3. The presentation of the notes to the financial statements in a systematic manner:

a) is voluntary.

b) is mandatory.

c) is mandatory, as far as is practicable.

d) none of the above.

A 4. An entity normally presents the notes in the following order:

a) First, a statement that the financial statements have been prepared in compliance

with the IFRS for SMEs. Second, a summary of significant accounting policies applied.

Third, supporting information for items presented in the financial statements, in the

sequence in which each statement and each line item is presented. Last, any other
disclosures.

b) First, supporting information for items presented in the financial statements, in the

sequence in which each statement and each line item is presented.

c) all of the above.

d) none of the above.

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

a) the measurement basis (or bases) used in preparing the financial statements.

b) all the measurement bases specified in the IFRS for SMEs irrespective of whether they
were used by the entity in preparing its financial statements.

c) the measurement basis (or bases) used in preparing the financial statements and the

accounting policies used that are relevant to an understanding of the financial

statements.

d) all of the measurement bases and the accounting policy choices available to the
entity (ie specified in the IFRS for SMEs) irrespective of whether they were used by the
entity in preparing its financial statements. Second, a statement that the financial
statements have been prepared in compliance with the IFRS for SMEs. Third, a summary
of significant accounting policies applied. Last, any other disclosures.

c) First, supporting information for items presented in the financial statements, in the
sequence in which each statement and each line item is presented. Second, a summary
of significant accounting policies applied. Third, a statement that the financial
statements have been prepared in compliance with the IFRS for SMEs. Last, any other
disclosures.

d) none of the above.

B 6. Disclosure of information about key sources of estimation uncertainty:

a) is voluntary.

b) is mandatory.

c) all of the above.

d) none of the above.

B 7. Disclosure of information about judgements, apart from those involving estimations,

that management has made in the process of applying the entity’s accounting policies
and that have the most significant effect on the amounts recognised in the financial
statements:
 a) is voluntary.

b) is mandatory.

c) all of the above.

d) none of the above.

A 8. In testing for unrecorded retirements of equipment, an auditor most likely will

a) select items of equipment from the accounting records and then locate them during
the plant tour
b) compare depreciation journal entries with similar prior-year entries in search of fully
depreciated equipment
c) inspect items of equipment observed during the plant tour and then trace them to
the equipment master file
d) scan the journal for unusual equipment additions and excessive debits to repairs and
maintenance expense.

D 9. The IASB specifies that “the elements directly related to the measurement of financial
position are
a) assets, liabilities and profit”
b) expenses, revenues and equity”
c) expenses, revenues and profit”
d) assets, liabilities and equity”   

A 10. Which of the following statements is true?

a) The balance sheet, the income statement and the cash flow statement are totally
linked.
b) There are links only between the balance sheet and the cash flow statement.
c) There is no link between the balance sheet, the income statement and the cash flow
statement.
d) There are links only between the income statement and the cash flow statement.     

CHAPTER 4 - RELATED PARTIES

C 1. Two entities are not necessarily related parties if:

a) one entity has significant influence over the other.

b) one entity has control over the other.

c) the entities share joint control over a third entity.

 d) one entity has joint control over the other.

D 2. Disclosure of a related party relationship is required:

a) when a related party exists, even if there have been no related party transactions.

b) when a control relationship exists, even if there have been no related party

transactions.

c) when a transaction with a related party has occurred.

d) both (b) and (c) above.

D 3. Related party transactions are not required to be disclosed when:

a) the only related party transactions are between the reporting entity and its

owner-manager.

b) all related party transactions are at arm’s length, ie the transaction takes place at

same price, terms and conditions that apply to transactions between willing buyers

and willing sellers in an active market.

c) a price is not charged in all related party transactions.

d) none of the above.

A 4. Entity A has significant influence over entity B. Entity B has significant influence over
entity C. Assuming entity A does not have significant influence in entity C. From entity
A’s perspective:

a) entity B is a related party (but entity C is not a related party).

b) entity C is a related party (but entity B is not a related party).

c) entities B and C are both related parties.

d) Neither entity B nor entity C is a related party.

C 5. Entity A has significant influence over entity B. Entity B has significant influence over
entity C. From entity B’s perspective:

a) entity A is a related party (but entity C is not a related party).

b) entity C is a related party (but entity A is not a related party).

c) entities A and C are both related parties.

d) neither entity A nor entity C is a related party.

B 6. Entity A has significant influence over entity B. Entity B has significant influence over
entity C. From entity C’s perspective:

a) entity A is a related party (but entity B is not a related party).

b) entity B is a related party (but entity A is not a related party).

c) entities A and B are both related parties.

d) neither entity A nor entity B is a related party.

D 7. Entity A has control over entity B. Entity B has control over entity C.

a) From entity A’s perspective, entities B and C are both related parties.

b) From entity B’s perspective, entities A and C are both related parties.

c) From entity C’s perspective, entities A and B are both related parties.

d) All of the above are true.

D 8. Entity A has control over entity B. Entity B has significant influence over entity C.

a) From entity A’s perspective, entities B and C are both related parties.

b) From entity B’s perspective, entities A and C are both related parties.

c) From entity C’s perspective, entities A and B are both related parties.
 d) All of the above are true.

D 9. Entity A has significant influence over entity B. Entity B has control over entity C.

a) From entity A’s perspective, entities B and C are both related parties.

b) From entity B’s perspective, entities A and C are both related parties.

c) From entity C’s perspective, entities A and B are both related parties.

d) All of the above are true.

C 10. Mr A is the financial director of entity A. He does not own any shares in entity A.
However, he owns 30 per cent of the ordinary shares that carry voting rights at a
general meeting of shareholders of entity B. He and Mr Z (who also owns 30 per cent of
entity B) have contractually agreed to jointly control entity B. From entity A’s
perspective:

a) Mr A is a related party (but entity B is not a related party).

b) entity B is a related party (but Mr A is not a related party).

c) both Mr A and entity B are related parties.

d) neither Mr A nor entity B is a related party.

CHAPTER 5 - EVENTS AFTER REPORTING PERIOD

C 1. International standard IAS37 defines a provision as:

a) A liability which is legally enforceable

b) A liability which is not legally enforceable

c) A liability of uncertain timing or amount

d) A reduction in the carrying amount of an asset

A 2. In order that a provision should be recognised in an entity's financial statements, it is

necessary that:
 a) The entity has a present obligation
b) The entity has a legally enforceable obligation
c) The entity has a constructive obligation
d) It is possible that an outflow of economic benefits will be required

B 3. A past event is an obligating event only if it gives rise to a legally enforceable

obligation.

a) True
b) False
c) both
d) None of the above

D 4. The amount of a provision should be the "best estimate" of the expenditure required
to settle the obligation concerned. This estimate:

a) Should always be discounted to present value

b) Should not be adjusted to reflect future events that may affect the amount of the
required expenditure, whether or not those events are likely to occur
c) Must always be made on the basis of advice from independent experts
d) Should be the amount that would rationally be paid to settle or transfer the
obligation

B 5. If a provision relates to a large population of items, the amount of the provision

should be calculated as:

a) The maximum expenditure that could possibly be required to settle the obligation
b) The expected value of the expenditure that will be required to settle the obligation
c) The minimum expenditure that could possibly be required to settle the obligation
d) The present value of the maximum expenditure that could possibly be required to
settle the obligation

A 6. Should a provision be recognised in relation to: (a) future operating losses? (b)
onerous contracts?

a) (a) No (b) Yes

b) (a) Yes (b) No
c) (a) Yes (b) Yes
d) (a) No (b) No

A 7. In general terms, a contingent liability is a possible obligation that depends upon the
outcome of an uncertain future event that is not within the control of the entity
concerned.

a) True
 b) False
c) both
d) None of the above

D 8. In general terms, a contingent liability is a possible obligation that depends upon the
outcome of an uncertain future event that is not within the control of the entity
concerned.

a) True
b) False
c) both
d) None of the above

C 9. Contingent assets are:

a) Always recognised in the statement of financial position

b) Always disclosed in the notes to the financial statements
c) Disclosed in the notes if an inflow of economic benefits is probable
d) Disclosed in the notes unless an inflow of economic benefits is only remotely possible

B 10. International standard IAS10 requires that financial statements should be adjusted
to take account of any events occurring between the end of the reporting period and
the date when the financial statements are authorised for issue.

a) True
b) False
c) both
d) None of the above

CHAPTER 6 – STATEMENT OF COMPREHENSIVE INCOME

C 1. Which of the following best describes “comprehensive income”?
a. Comprehensive income is the amount resulting from the deduction from revenues, or from
operating revenues, of cost of goods sold, other expenses, and losses.
b. Comprehensive income is the excess (deficit) of revenue over expenses for an accounting
period.
c. Comprehensive income is the change in equity of an entity during a period of transactions and
other events and circumstances, from non-owner sources.
d. Comprehensive income is the change in equity of an entity during a period of transactions and
other events and circumstances, from owner and non-owner sources.

A 2. Comprehensive income as displayed on the income statement represents.

a. An asset-liability approach
b. A revenue-expense approach
c. A current operating approach
 d. None of the above

D 3. Which of the following is a definition of revenue that clearly represents an asset-liability

approach?
a. Revenue results from the sale of goods and rendering of services and is measured by
the charge made to customers, clients, or tenants for goods and services furnished to them.
b. Revenue represents gross increases in assets and gross decreases in liabilities measured in
conformity with generally accepted accounting principles that result from those types of profit-
directed activities.
c. Revenue should be identified with the period during which the major economic activities
necessary to the creation and disposition of goods and services has been accomplished.
d. Revenues are the inflow or other enhancements of assets of an entity or settlement of
its liabilities (or a combination of both) during a period from delivering or producing goods,
rendering services, or other activities that constitute the entity’s ongoing major or central
operations.

A 4. Under the current-operating concept, increases in equity from peripheral or incidental

transactions (transactions other than sales of products, merchandise, or services) are referred to
as:
a. Gains
b. Revenue
c. Comprehensive income
d. Accruals

B 5. Which of the following best describes when revenues are generally recognized?
a. At the completion of production
b. At the point of sale when legal title is transferred
c. When cash is collected
d. During production

C 6. Which of the following is the primary criterion for revenue recognition applied in practice?
a. Cash collection
b. Completion of the production process
c. Completion of the earnings process
d. When sales price is measurable

C 7. Which of the following suggested bases of recognizing revenue is not permitted by

authoritative literature?
a. During production for long-term construction contracts if reliable estimates of the extent of
progress and of the cost to complete can be made and if reasonable assurance of collectibility
exists.
b. At the completion of production if immediate marketability at a quoted price exists for a
product whose units are interchangeable
c. On an accretion basis where product marketability at known prices exists and it is desirable to
recognize changes in assets, such as growing timber
d. On a cash basis if no reasonable basis exists for estimating collectibility
D 8. Which of the following represents the attribute(s) that must be measurable before revenue is
recognized?
a. Sales price and cash collections
b. Sales price
c. Cash collections
d. Sales price, cash collections, and future costs

A 9. Which of the following is a definition of expenses that clearly represents an asset-liability

approach?
a.Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination
of both) during a period from delivering or producing goods, rendering services, or carrying out
other activities that constitute the entity’s major or central operations.
b.Expenses are costs directly associated with the revenue of the period.
c. Expenses are gross decreases in assets or gross increases in liabilities recognized and
measured in conformity with generally accepted accounting principles that result from those
types of profit-directed activities of an enterprise.
d.Expenses in the broadest sense include all expired costs, which are deductible from
revenues.

A 10. Which of the following should be considered first in applying the matching concept?
a. Costs should be matched against the revenue directly produced.
b. Costs should be matched to revenue in a rational and systematic manner.
c. Costs should be recognized as period expenses when incurred.
d. Costs should be recognized as expenses when cash is paid.

CHAPTER 7 – STATEMENT OF EXCHANGES IN EQUITY

C 1. The statement of changes in equity includes a reconciliation between:

a) the carrying amount of retained earnings at the beginning and the end of the period.

b) the carrying amount of total equity at the beginning and the end of the period.

c) the carrying amount of each component of equity at the beginning and the end of the
period separately disclosing changes resulting from: (i) profit or loss, (ii) each item of
comprehensive income, and (iii) the amounts of investments by, and dividends and
other distributions to, owners.

d) no answer

A 2. In the statement of changes in equity the effects of the retrospective application of a

change in accounting policy is presented:

a) separately for each component of equity only.

 b) in aggregate for total equity only.

c) in aggregate for total equity and separately for the total amounts attributable to

owners of the parent and to non-controlling interests.

D 3. Which of the following are presented in the statement of changes in equity?

ts by owners (eg issues of shares).

b) distributions to owners (eg dividends).

c) changes in ownership interests in subsidiaries that do not result in a loss of control.

d) all of (a)–(c) above.

C 4. An entity:

a) must chose to present either a statement of income and retained earnings or a

statement of comprehensive income and a statement of changes in equity (ie a free

accounting policy choice available to all entities that prepare their financial

statements in accordance with the IFRS for SMEs).

b) whose only changes to its equity in the periods for which financial statements are

presented arise from profit or loss, payment of dividends, corrections of prior period

ges in accounting policy is required to present a statement of income

and retained earnings in place of a statement of comprehensive income and a

statement of changes in equity.

c) whose only changes to its equity in the periods for which financial statements are

presented arise from profit or loss, payment of dividends, corrections of prior period

anges in accounting policy is permitted but not required to present a

statement of income and retained earnings in place of a statement of comprehensive

 income and a statement of changes in equity.

d) that chooses to present a statement of income and retained earnings must also

ment of comprehensive income and a statement of changes in equity.

A 5. Total comprehensive income for the period is presented in the statement of changes
in equity:

a) rately the total amount attributable to owners of the parent and to

non-controlling interests.

b) showing separately an analysis of expenses by function or by nature.

c) showing separately the items required by Section 5 Statement of Comprehensive

Income and Income Statement.

d) showing separately profit or loss and the total of other comprehensive income.

A 6. In the statement of changes in equity the effects of the correction of a prior period
error are

presented:

a) separately for each component of equity.

b) in aggregate for total equity.

c) in aggregate for total equity and separately for the total amounts attributable to

owners of the parent and the non-controlling interests.

D 7. A company might prefer to raise more debt capital rather than equity capital in order to:
a) Reduce the risk of bankruptcy
b) Minimize its tax expenses
c) Get more owners
d) all of the above

D 8. Statement of changes in shareholders' equity (two answers):

a) Should be presented only if there are changes due to the evaluation of investments in
other enterprises with the equity method
b) Should be presented only if there are changes in the accounting policies
 c) Should be presented only if differences on translation of the financial statements of
foreign subsidiaries arise
d) ncludes all gains and losses a number of gain and losses for the period and not just
those that have passed through the income statement

C 9. Which of the following statements in relation to to the term 'dilution' is true

according to IAS 33 - 'Earnings per share'?
a) Dilution' is a reduction in loss per share
b) Dilution' is an estimation of the future growth of share price
c) Dilution' is a reduction in earnings per share
d) Dilution' is an estimation of reduction of future share price

D 10. One ratio that helps in assessing how effectively an enterprise uses resources
provided by its owners is:
a) ROI
b) Market-to-book ratio
c) EPS
d) ROE

CHAPTER 8 – NONCURRENT ASSET HELD FOR SALE

A 1. A non-current asset should be classified as held for sale only if:

a) Its carrying amount will be recovered principally through a sale transaction rather
than through continuing use
b) Its carrying amount will be recovered wholly through a sale transaction rather than
through continuing use
c) Its carrying amount will be recovered principally through continuing use rather than
through a sale transaction
d) Its carrying amount will be recovered wholly through continuing use rather than
through a sale transaction

D 2. The conditions which must be satisfied in order for the sale of an asset to be deemed
"highly probable" include:
a) Management is considering a plan to sell the asset
b) The asset is being marketed at a price which greatly exceeds its fair value
c) A completed sale is expected within five years
d) None of the above

B 3. A disposal group always consists of a number of cash-generating units.

a) True
b) False
c) both
 d) None of the above

D 4. A non-current asset held for sale should be measured at:

a) The higher of the asset's carrying amount when originally classified as held for sale
and its fair value less costs to sell
b) The asset's carrying amount when originally classified as held for sale, less any
accumulated depreciation since that date
c) Fair value less costs to sell
d) The lower of the asset's carrying amount when originally classified as held for sale
and its fair value less costs to sell

A 5. If certain types of asset are classified as held for sale, they should continue to be
measured in accordance with the standard that normally applies to that type of asset
rather than being measured in accordance with the requirements of standard IFRS5.

a) True
b) False
c) both
d) None of the above

C 6. An asset which ceases to be classified as held for sale should be measured at the
lower of its carrying amount before being classified as held for sale (less any
depreciation that would normally have been charged in the meantime) and:

ss costs to sell at the date of the decision not to sell

b) Value in use at the date of the decision not to sell
c) The higher of fair value less costs to sell and value in use at the date of the decision
not to sell
d) The lower of fair value less costs to sell and value in use at the date of the decision
not to sell

B 7. Non-current assets held for sale should be presented separately from other assets in
the statement of financial position.

a) True
b) False
c) both
d) None of the above

A 8. For assets that meet the criteria to be classified as ‘held for sale’ depreciation on such
assets:

a) Ceases.
b) Is reversed.
 c) Is charged to discontinued operations.
d) None of the above

B 9. Held for sale applies to:

a) Non-current liabilities.
b) Non-current assets.
c) Equity.
d) Current assets.

D 10. If a newly acquired asset is ‘held for sale’, the asset or disposal group will be
measured at:

a) Cost.
b) Fair value, less costs to sell’.
c) The lower of 1 and 2.
d) The higher of 1 and 2.

CHAPTER 9 – DISCONTINUED OPERATION

C 1. A discontinued operation is defined as a component of an entity which:
a) Has been disposed of
b) Is classified as held for sale
c) Has been disposed of or is classified as held for sale
d) Is expected to be disposed of within the next 12 months

D 2. One of the following criteria does not have to be met in order for an operation to be
classified as discontinued -
a) The operation is part of a single plan to dispose of a separate major line of business
or geographical area
b) The operation should represent a separate 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

D 3. IFRS 5 covers:

(i) The classification, measurement and presentation of assets ‘held for sale’.
(ii) The classification and presentation of discontinued operations.
(iii) The impairment of long-lived assets to be held and used.

a) i
b) ii
c) iii
d) i-ii
A 4. If the disposal group to be abandoned:

- represents a separate major line of business or geographical area of operations,

- is part of a single co-ordinated plan to dispose of a separate major line of business or

geographical area of operations or

- is a subsidiary, acquired exclusively with a view to resale,

at the date on which it ceases to be used, the bank shall present the results and cash flows of
the disposal group as:

a) ‘Discontinued operations’.
b) ‘Held for sale’.
c) ‘Continuing operations’.
d) No operations

D 5. When a company discontinues and disposes of a component segment of its

operations, the gain or loss from disposal should be reported as:
a) an adjustment to retained earnings
b) a sale of fixed assets in "other" expense
c) an extraordinary item
d) a special item after continuing operations and before extraordinary items

C 6. If the disposal of a segment meets the criteria of a disposal of a segment, then:

a) the loss on disposal is an extraordinary item

b) the loss on disposal is categorized as "other expense"
c) the results of operations of the segment will be reported in conjunction with the gain
or loss on disposal
d) the disposal qualifies as a change in entity, and prior years' statements presented on
comparative purposes must be restated

D 7. In reporting discontinued operations, the income statement should show in a special

section:
a) gains on the disposal of the discontinued component.
b) losses on the disposal of the discontinued component.
c) Neither a) nor b).
d) Both a) and b).

A 8. How should the income from discontinued operations be presented in the income
statement?
a. The entity should disclose a single amount on the face of the income statement with
analysis in the notes or a section of the income statement separate from continuing
operations.
 b. The amounts from discontinued operations should be broken down over each
category of revenue and expense.
c. Discontinued operations should be shown as a movement on retained earnings.
d. Discontinued operations should be shown as a line item after gross profit with the
taxation being shown as part of income tax expense.

B 9. How should the assets and liabilities of a disposal group classified as held for sale be
shown in the balance sheet?
a) The assets and liabilities should be offset and presented as a single amount.
b) The assets of the disposal group should be shown separately from other assets in the
balance sheet, and the liabilities of the disposal group
should be shown separately from other liabilities in the balance sheet.
c) The assets and liabilities should be presented as a single amount and as a deduction
from equity.
d) There should be no separate disclosure of assets and liabilities that form part of a
disposal group.

D 10. Which of the following criteria do not have to be met in order for an operation to be
classified as discontinued?
a) The operation should represent a separate 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 10 – ACCOUNTING CHANGES

C 1. XYZ Inc. changes its method of valuation of inventories from weighted-average
method to first-in, first-out (FIFO) method. XYZ Inc. should account
for this change as
a) A change in estimate and account for it prospectively.
b) A change in accounting policy and account for it prospectively.
c) A change in accounting policy and account for it retrospectively.
d) Account for it as a correction of an error and account for it retrospectively.

A 2. Change in accounting policy does not include

a) Change in useful life from ten years to seven years.
b) Change of method of valuation of inventory from FIFO to weighted-average.
c) Change of method of valuation of inventory from weighted-average to FIFO.
d) Change from the practice (convention) of paying as Christmas bonus one month’s
salary to staff before the end of the year to the new practice of paying one-half month’s
salary only.

B 3. When a public shareholding company changes an accounting policy voluntarily, it has

to
 a) Inform shareholders prior to taking the decision.
b) Treat it retrospectively.
c) Treat the effect of the change as an extraordinary item.
d) Treat it prospectively and adjust the effect of the change in the current period and
future periods.

A 4. When it is difficult to distinguish between a change of estimate and a change in

accounting policy, then an entity should
a) Treat the entire change as a change in estimate with appropriate disclosure.
b) Apportion, on a reasonable basis, the relative amounts of change in estimate and the
change in accounting policy and treat each one
accordingly.
c) Treat the entire change as a change in accounting policy.
d) Since this change is a mixture of two types of changes, it is best if it is ignored in the
year of the change; the entity should then wait for the
following year to see how the change develops and then treat it accordingly.

C 5. When an independent valuation expert advises an entity that the salvage value of its
plant and machinery had drastically changed and thus the
change is material, the entity should
a) Retrospectively change the depreciation charge based on the revised salvage value.
b) Change the depreciation charge and treat it as a correction of an error.
c) Change the annual depreciation for the current year and future years.
d) Ignore the effect of the change on annual depreciation, because changes in salvage
values would normally affect the future only since theseare expected to be recovered in
future.

C 6. An entity wishes to accelerate its depreciation policy because of changes in the useful
life of the asset. How should the change be dealt with?
a) By retrospective restatement.
b) By retrospecctive application.
c) By prospective application.
d) By disclosure of an error.

D 7. In determining which accounting policy is suitable for the preparation of the financial
statements, an entity should look to
a) IFRS only.
b) IFRICs only.
c) The Framework only.
d) IFRS, IFRICs and the Framework.

A 8. Where it is impracticable to determine the period-specific effects of the change on

comparative information for one or more prior periods presented, the retrospective
application or restatement is applied
 a) Retrospectively only to the extent that it is practicable.
b) Prospectively only to the extent that it is practicable.
c) Retrospectively to the extent that estimates can be made.
d) Prospectively to the extent estimates can be made.

D 9.Applying a requirement of a Standard or Interpretation is “impracticable” when the

entity cannot apply it after making every effort to do so. Whichof the following is not
included in the definition of “impracticable”?
a) The effects of the retrospective application are not determinable.
b) The retrospective application requires assumptions about what management’s
intentions would have been at the time.
c) The retrospective application requires significant estimates of amounts.
d) The entity would find the determination of the effects to be immaterial.

A 10. Standards are normally published in advance of the required implementation date.
In the intervening period, where a new/revised standard that is relevant to an entity has
been issued but is not yet effective, the entity should
a) Disclose this fact together with the impact.
b) Not disclose any information.
c) Only apply the standard at the implementation date.
d) Only disclose the fact that the standard has been issued.