CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

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

PAS 1 – PRESENTATION OF FINANCIAL STATEMENTS

1. What is the objective of financial statements?

a. To provide information about the financial position, financial performance and changes in the
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 all applicable standards

2. An entity shall present

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

3. When an entity changes the end of the reporting period longer or shorter than one year, an entity shall
disclose all of the following, except
a. Period covered by the financial statements.
b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial statements are not entirely comparable.
d. The fact that similar entities in the geographical area in which the entity operates have done so.

4. An entity must disclose comparative information for

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

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

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

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

7. An entity shall classify an asset as current under all of the following conditions, except
a. The entity expects to realize, or intends to sell or consume it within normal operating cycle.
b. The entity holds the asset primarily for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting period.
d. The asset is cash or cash equivalent restricted to settle a liability for more than twelve months after
the reporting period.

8. An entity shall classify a liability as current under all of the following conditions, except
a. The entity expects to settle the liability within the normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled within twelve months after the reporting period.
d. The entity has the right at the end of reporting period to defer settlement of the liability for at least
twelve months after the reporting period.

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9. A financial liability that is due to be settled within twelve months after the reporting period shall be
classified as noncurrent
a. When it is refinanced on a long-term basis before the issue of financial statements.
b. When the entity has the right at the end of the reporting period to roll over an obligation for at least
twelve months after the and of reporting period.
c. When it is refinanced on a long-term basis after the end of reporting period.
d. Under all of these circumstances.
10. When an entity breaches under a long-term loan agreement on or before the end of the reporting period
with the effect that the liability becomes payable on demand, the liability is classified as
a. Current under all circumstances
b. Noncurrent under all circumstances
c. Current if the lender agreed after the reporting period and before the issuance of the statements
not to demand payment as a consequence of the breach.
d. Noncurrent if the lender agreed after the end of the reporting period to provide a grace period for
at least twelve months after the reporting period.
11. The items which are reclassified to profit or loss in the current period but were recognized in other
comprehensive income in the current or previous period are
a. Prior period errors
b. Correcting entries
c. Unusual and irregular items
d. Reclassification adjustments
12. All of the following components of OCI should be reclassified to profit or loss, except
a. Gain and loss arising from translating the financial statements of a foreign operation.
b. Gain and loss on remeasuring debt investment at FVOCI.
c. The effective portion of gain or loss on hedging instrument in a cash flow hedge
d. Gain or loss on remeasuring equity investment at FVOCI.
13. An entity shall present an analysis of expenses using a classification based on
a. The nature of expenses.
b. The function of expenses.
c. Either the nature of expenses or the function of expenses within the entity, whichever
provides information that is reliable and more relevant.
d. Either the nature of expenses or the function of expenses within the entity, whichever
the entity would prefer to present.
14. The presentation of notes to financial statements in a systematic manner is mandatory, as far as practical.
What is the purpose of the notes to financial statements?
a. To provide disclosures required by IFRS.
b. To correct improper presentation in financial statements
c. To provide recognition of amounts not included in financial statements
d. To present management response to auditor comments
15. What is the “first item” presented in the notes to financial statements?
a. Statement of compliance with IFRS.
b. Summary of significant accounting policies
c. Supporting information for items presented in the financial statements
d. Other disclosures, including contingent liabilities and nonfinancial disclosures
16. An entity shall disclose in the summary of significant accounting policies
a. The measurement basis used
b. The measurement basis whether used or not
c. The measurement basis used and accounting policies applied
d. Neither measurement basis nor accounting policies applied
17. Which information should be disclosed in the summary of significant accounting policies?
a. Refinancing of debt subsequent to the end of reporting period
b. Guarantee of indebtedness of others
c. Criteria for determining which investments are treated as cash equivalents
d. Adequacy of pension plan assets relative to vested benefits

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PAS 10 – EVENTS AFTER REPORTING PERIOD

18. Events after the end of the reporting period are favorable or unfavorable events that
a. Occur between the end of the reporting period and the date of the next annual financial statements.
b. Occur between the year-end and the date of the next interim or annual financial statements.
c. Occur between the year-end and the date when financial statements are authorized for issue.
d. Occur between the end of reporting period and the date of the next interim statements.
19. Financial statements are said to be authorized for issue when
a. The financial statements are filed with the SEC.
b. The shareholders approve the financial statements at their annual meeting.
c. The management is required to submit the financial statements to a supervisory body.
d. The management reviews the financial statements and authorizes them for issue.
20. Nonadjusting events after reporting period include all, except
a. The entity announced a discontinued operation
b. An agreement to purchase the leased building
c. Destruction of a major production plant by fire
d. A mistake in the calculation of allowance for doubtful accounts
21. What is the treatment of abnormal fluctuations in foreign currency rate after the end of reporting period
and before issue of financial statements?
a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in foreign
exchange rate
b. Adjust the foreign exchange year-end balances to reflect the abnormal fluctuations in foreign
exchange rate
c. Disclose the post-reporting period event as a nonadjusting event
d. Ignore the post-reporting period event

PAS 24 RELATED PARTY DISCLOSURES

22. Related parties include all of the following, except
a. Parent, subsidiary and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of such individuals
d. Two venturers simply because they share joint control over a joint venture
23. Close family members of an individual include all of the following, except
a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brother or sister of the individual
24. The minimum disclosures about related party transactions include all, except
a. The amount of the transaction
b. The amount of outstanding balance
c. Allowance for doubtful accounts related to outstanding balance
d. The amount of similar transaction with unrelated parties
25. Related party transactions include all, except
a. Transferred goods from inventory to subsidiary
b. Sold an asset to the wife of the chief operating officer
c. Sold goods to another entity owned by daughter of the managing director
d. Took out a huge bank loan
26. Which is not a mandated disclosure about related party transactions?
a. Relationship between parent and subsidiaries.
b. Names of all associates that an entity has dealt with during the year.
c. Name of the entity’s parent and if different, the ultimate controlling party.
d. If neither the entity’s parent nor the ultimate controlling party produces financial statements
available for public use, then the name of the next most senior parent that does so.

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PAS 8 – ACCOUNTING POLICIES, ESTIMATES AND ERRORS
27. Which is the first step within the hierarchy of guidance when selecting accounting policies?
a. Apply a standard from IFRS if it specifically relates to the transaction
b. Apply the requirements in IFRS dealing with similar and related issue
c. Consider the applicability of the definitions, recognition criteria and measurement concepts in the
Conceptual Framework
d. Consider the most recent pronouncements of other standard setting bodies
28. In the absence of an accounting standard that applies specifically to a transaction, what is most
authoritative source in developing an accounting policy?
a. Apply the requirements in IFRS dealing with similar and related issue.
b. The definition, recognition criteria and measurement of asset, liability income and expense in the
Conceptual Framework.
c. Most recent pronouncement of other standard setting body.
d. Accounting literature and accepted industry practice.
29. In determining which accounting policy is suitable, an entity should look into
a. IFRS and IFRIC
b. IFRS and Conceptual Framework
c. IFRIC and Conceptual Framework
d. IFRS, IFRIC and Conceptual Framework
30. A change in accounting policy may occur
a. When a change is required by IFRS or when it provides reliable and more relevant information
b. When a change is required by law
c. Only when a change is required by an IFRS
d. Only when a change provides reliable and more relevant information
31. A change in accounting policy requires that the cumulative effect of the change for prior periods be shown
as an adjustment to
a. Beginning retained earnings for the earliest period presented.
b. Net income for the period in which the change occurred.
c. Comprehensive income for the earliest period presented.
d. Shareholders’ equity for the period in which the change occurred.
32. Which of the following is not treated as a change in accounting policy?
a. A change from FIFO inventory valuation to average cost
b. A change from cash basis to accrual basis of accounting
c. A change from cost model to fair model in measuring investment property
d. A change to a new IFRS requirement
33. 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 property, plant and equipment
c. A change in the measurement basis
d. A change from one method of depreciation to a different method of depreciation
34. Which is the proper time period to record the effect of a change in accounting estimate?
a. Current period and prospectively
b. Current period and retrospectively
c. Retrospectively
d. Current period
35. When it is difficult to distinguish a change in an accounting policy from a change in an accounting
estimate, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy

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PFRS 5 DISCONTINUED OPERATION AND ASSET HELD FOR SALE

36. A noncurrent asset or disposal group shall be classified as held for sale when
a. The sale is highly probable.
b. The asset is available for immediate sale in the present condition.
c. The sale is probable and the asset is available for sale in the present condition.
d. The sale is highly probable and the asset is available for immediate sale in the present condition.
37. An entity shall classify a noncurrent asset as held for sale when
a. The carrying amount of the asset is recovered through a sale.
b. The carrying amount of the asset is recovered through continuing use.
c. The noncurrent asset is to be abandoned.
d. The noncurrent asset group is idle or retired from active use.
38. 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 carrying amount and fair value less cost of disposal
39. A noncurrent asset that is to be abandoned should not be classified as held for sale because
a. The carrying amount is recovered principally through continuing use.
b. It is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.
40. How should the assets and liabilities of a disposal group held for sale be reported?
a. The assets and liabilities should be offset and presented as a single amount.
b. The assets of disposal group should be reported separately as current assets and the liabilities should
be shown as current liabilities separately.
c. The assets and liabilities should offset and presented as a deduction from equity.
d. There should be no separate disclosure of assets and liabilities of the disposal group.
41. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the current
year-end. The entity decided at the end of the following year not to sell the asset but to continue to use it.
The asset should be measured at the end of the following year at
a. The lower of carrying amount and recoverable amount.
b. The higher of carrying amount and recoverable amount.
c. The lower of carrying amount on the basis that it had never been classified as held for sale and
recoverable amount.
d. The recoverable amount.
42. Which is not a criterion for an operation to be classified as discontinued?
a. The operation should represent a separate major line of business or geographical area.
b. The operation is part of a single plan to dispose of a separate major line of business or geographical
area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months of the year-end.
43. Which is not required for 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 operation and cash flows of the component will be eliminated from the operations of the entity
as a result of the disposal
d. The entity will not have any significant continuing involvement in the operation of the component
after disposal
44. The results of the discontinued operation should be reported net of tax as
a. A prior period adjustment.
b. An other income and expense item.
c. A single amount after continuing operations and before net income.
d. A bulk sale of plant assets included in income from continuing operations.

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PFRS 8 – OPERATING SEGMENT
45. 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
46. 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 liabilities are 10% or more of the combined liabilities of all operating segments
47. 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.
b. In some cases, the chief operating decision maker could be the chief operating officer.
c. The board of directors acting collectively could qualify as the chief operating decision maker.
d. The chief internal auditor who reports to the board of directors usually plays a very important role
and would generally qualify as chief operating decision maker
48. Which of the following statements about major customer disclosure is not true?
a. A major customer is defined as one providing revenue which amounts to 10% or more of the
combined external revenue of all operating segments.
b. The identities of major customers must be disclosed.
c. The entity shall disclose the total amount of revenue from major customers.
d. The entity shall disclose the identity of the segment reporting the revenue from major customers.
PAS 34 – INTERIM FINANCIAL REPORTING
49. Interim financial reports should include as a minimum
a. A complete set of financial statements.
b. A condensed set of financial statements and selected notes.
c. A condensed statement of financial position and a condensed income statement.
d. A condensed statement of financial position and a condensed statement of cash flows.
50. Interim financial report shall be published
a. Once a year at anytime during the year
b. Within a month of the half year-end
c. On a quarterly basis
d. Whenever the entity wishes because interim reports are not required
51. An entity preparing interim financial statements should
a. Defer recognition of seasonal revenue
b. Use the same accounting principles followed in preparing the latest annual financial statements
c. Allocate revenue and expenses evenly over the quarters, regardless of occurrence
d. Disregard temporary decreases in the market value of inventory
52. If an entity does not prepare interim reports
a. The year-end financial statements are deemed not to comply with IFRS.
b. The year-end compliance of financial statements with IFRS is not affected.
c. The year-end financial statements shall not be acceptable under local jurisdiction.
d. Interim financial reports must be included in year-end financial statements.
53. 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-month period in addition to the interim report
c. Additional disclosure in the accounting policy note
d. No additional disclosure
END
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