Compilation Theories for Compilation of theories in Conceptual Framework and Accounting Standards PDF

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CHAPTER 1A complete set of financial statements includes all of the following components, except  D. Environmental reports and value added statementsWhat is the objective of financial statements?  A. To provide information about the financial position, financial performance and changes in financia...

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CHAPTER 1 A complete set of financial statements includes all of the following components, except  D. Environmental reports and value added statements What is the objective of financial statements?  A. To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users The primary responsibility for the preparation of the financial statements is reposed in 

A. Management of the entity

The major financial statements include all, except  D. Statement of retained earnings The major financial statements include all, except  C. Statement of comprehensive income When an entity changes the reporting period longer or shorter than one year, an entity shall disclose all of the following, except  D. The fact that similar entities in the geographical area in which the entity operates have done so. Which of the following is not a component of the financial statements?  C. Report of board of directors Which of the following is included in a complete set of financial statements?  B. A statement of changes in equity Which of the following is included within the financial statements?  B. Accounting policies An entity shall clearly identify each financial statement and display all of the following, except  B. Names of major shareholders of the entity. Which statement is incorrect concerning fair presentation of financial statements?  D. An entity whose financial statements comply with PFRS shall not make an explicit and unreserved statement of such compliance in notes. Which of the following cannot be considered fair presentation of financial statements?

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D. To rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information.

Which statement indicates a going concern?  D. None of these would indicate going concern. An entity is permitted to depart from a particular standard if all of the following conditions are satisfied, except  D. When the Conceptual Framework for Financial Reporting prohibits such a departure. The effects of transactions and other events on economic resources and claims are depicted in the period in which those effects occur even if the resulting cash receipts and payments occur in a different period.  A. Accrual accounting Financial statements must be prepared at least  A. Annually Technically, offsetting in financial statements is accomplished when  D. Gain or loss from disposal of noncurrent asset is reported by deducting from the carrying amount of the asset and the related disposal cost. The presentation and classification of items in the financial statements shall be retained from one accounting period to the next.  A. Consistency of presentation A third statement of financial position as at beginning of the earliest comparative period presented is required  D. Under all these circumstances Which statement in relation to financial statements is incorrect?  B. General purpose financial statements are designed to show the value of the reporting entity. Items of dissimilar nature or function  C. Must be presented separately if material. Materiality depends on  C. The relative size and nature of the omission, misstatement or obscured information. An entity must disclose comparative information for

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C. 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.

When the classification of item in the financial statements is changed, the entity  C. Must reclassify the comparative amounts unless it is impracticable to do so. An entity shall present  D. Each financial statement with equal prominence. The overall objective of financial reporting is to provide information 

A. That is useful for decision making

The objective of financial reporting is based on  D. The needs of the users of the information The primary focus of financial reporting has been on meeting the needs of which of the following groups?  B. Existing and potential investors, lenders and other creditors The primary objective of financial reporting is to provide useful information to  B. Capital providers What is an objective of financial reporting?  A. To provide information that is useful in making investing and credit decisions. Which is an objective of financial reporting?  C. To provide information useful to assess the amount, timing, and uncertainty of prospective cash receipts. An objective of financial reporting is to provide  C. Information useful in assessing cash flow prospects. Assessing cash flow prospects is interpreted to mean  C. Over the long run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements. During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about  A. Entity performance and management performance

Financial reporting pertains to  A. Individual business entities, rather than to industries or an economy or to members of society as consumers Which is not an objective of financial reporting?  B. Financial reporting shall provide information useful in evaluating stewardship of management. Which is not an objective of financial reporting?  D. To provide information about the liquidation value of an entity Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence?  B. Corporate management What is the most useful information in predicting future cash flows?  B. Current earnings based on accrual accounting The accrual basis of accounting is most useful for  C. Predicting long-term financial performance. In measuring financial performance, accrual accounting is used because  B. It provides a better indication of ability to generate cash flows than cash basis. The financial statements prepared under GAAP  C. Are not highly precise because estimate and judgment must be made.

CHAPTER 2 Where there is much variability, the operating cycle is measured at  C. Twelve months The operating cycle of an entity

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A. Is the time between the acquisition of materials entering into a process and their realization in cash.

An entity shall classify an asset as current under all of the following conditions, except  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. An entity shall classify a liability as current when under all of the conditions, except  D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Which obligations are classified as current even if these are due to be settles after more than twelve months from the end of the reporting period?  A. Trade payables and accruals for employee and other operating cost Current and noncurrent presentation of assets and liabilities provides useful information when the entity  A. Supplies goods or services within a clearly identifiable operating cycle A presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is reliable and more relevant than a current and noncurrent presentation for  A. Financial institution Under Philippine jurisdiction, the common practice is to present in the statement of financial position  A. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and equity after liabilities. A financial liability due within twelve months after the reporting period shall be classified as noncurrent  D. When it is refinanced on a long-term basis on or before the end of reporting period. 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  C. Current if the lender has agreed after the reporting period and before the issuance of the statements no to demand payment as a consequence of the breach. In presenting a statement of financial position, an entity  D. Must make the current and noncurrent presentation, except when a presentation based on liquidity provides information that is reliable and more relevant. Assets to be sold, consumed or realized as part of the normal operating cycle are  A. Current assets

Liabilities that an entity expects to settle within the normal operating cycle are classified as  C. Current liabilities In which section of the statement of financial position should cash that is restricted for the settlement of a liability due 18 months after the reporting period be presented?  D. Noncurrent assets In which section of the statement of financial position should employment taxes that are due for settlement in 15 months’ time be presented? 

A. Current liabilities

An entity has a loan due for repayment in six months’ time but the entity has the option to refinance for repayment two year later. The entity plans to refinance this loan. In which section of the statement of financial position should this loan be presented?  C. Noncurrent liabilities Which of the following must be included on the face of the statement of financial position?  A. Investment property Which of the following is not required to be presented as minimum information on the face of the statement of financial position?  D. Contingent liability Which of the following must be included as a line item in the statement of financial position?  D. Deferred tax asset Which statement about the statement of financial position is not true?  D. A revaluation surplus on a noncurrent asset in the current year should be recognized in the income statement. In analyzing financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial flexibility?  A. Statement of financial position Which is an essential characteristic of an asset?  D. An asset is a present economic resource Conceptually, asset valuation accounts are  B. Neither assets nor liabilities

Working capital is  D. Current assets less current liabilities The basis for classifying asset as current or noncurrent is the period of time normally elapsed from the time the entity expands cash to the time it converts  D. Inventory back into cash or 12 months, whichever is longer. The operating cycle concept  B. Permits some assets to be classified as current even though more than one year removed from becoming cash. When classifying assets as current and noncurrent  D. Assets are classified as current if reasonably expected to be realized in cash or consumed during the normal operating cycle. The term net assets represents  D. Total assets less total liabilities Treasury shares should be reported as  D. Reduction of shareholders’ equity The term deficit refers to  C. A debit balance in retained earnings Which should be classified as current asset?  A. Trade accounts receivable normally collectible in 18 months Which should not be considered as a current asset?  D. Cash surrender value Current assets should never include  C. Goodwill arising in a business combination Equity investments held to finance construction of additional plant should be classified as  D. Noncurrent investments Which of the following is not a noncurrent investment?  B. Franchise For a liability to exist  A. There must be a past event.

Which statement best described the term liability?  D. A present obligation arising from past event Which item is not a current liability?  B. Share dividend payable Noncurrent liabilities include  D. All of these are noncurrent liabilities Which is not within the definition of a liability? 

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

CHAPTER 3 What is the purpose of notes to financial statements?  D. All of these can be considered a purpose of the notes. What is the first item in presenting the notes?  A. Statement of compliance with PFRS An entity whose financial statements comply with PFRS shall  C. Make an explicit and unreserved statement of compliance in the notes. An entity is required to disclose all of the following nonfinancial information, except  D. Names and addresses of directors and officers. Notes to financial statements  C. Are an integral part of financial statements The presentation of the notes to financial statements in a systematic manner  C. Is mandatory, as far as practicable

The cross-reference between each line item in the financial statements and any related information disclosed in the notes to financial statements  B. Is mandatory Disclosure of information about key sources of estimation uncertainty  B. Is mandatory Disclosure of information about judgements  B. Is mandatory Which best demonstrates the standard of adequate disclosure? 

D. The notes to financial statements

Which statement is incorrect regarding notes to financial statements?  C. IFRS requires that all notes should be clear, simple to understand and nontechnical in nature. Notes to financial statements  C. Amplify items presented in the financial statements Which is not a method of disclosing pertinent information?  D. All of these are methods of disclosing pertinent information The disclosure of accounting policies is important to financial statement users in determining  B. Whether accounting policies are consistently applied from year to year. The standard of full disclosure is best described by which of the following?  D. Disclosure of any financial facts significant enough to influence the judgement of a primary user. Application of the full disclosure principle  C. Is demonstrated by the use of supplementary information presenting the effects of changing prices. Accounting policies disclosed in the notes to financial statements typically include all of the following, except  D. Significant inventory purchasing policies Significant accounting policies may not be  D. Omitted from financial statement disclosure

An inventory accounting policy that should be disclosed in a summary of significant accounting policies is  C. Method used for pricing inventory Which of the following should be disclosed in a summary of significant accounting policies?  D. Depreciation method What is the purpose of information presented in the notes to financial statements?  A. To provide disclosures required by generally accepted accounting principles Which of the following information should be disclosed in the summary of significant accounting policies? 

C. Criteria for determining which investments are treated as cash equivalents

Which of the following is not a required disclosure of accounting policies?  B. Key management personnel involved in drafting the summary of significant accounting policies The notes to financial statements should not be used to  D. Correct an improper presentation in the financial statements. An entity shall disclose in the summary of significant accounting policies  C. The measurement basis used in preparing the financial statements and the accounting policies used. The summary of significant accounting policies should disclose  B. Basis of profit recognition on long term construction contracts The summary of significant accounting policies should disclose  C. The depreciation method used only Which of the following should be included in the summary of significant accounting policies?  A. Property, plant and equipment recorded at cost with the depreciation computed principally by straight line method Related parties include all of the following, except  D. Two venturers simply because they share joint control over a joint venture A related party transaction is a transfer  B. Between related parties, regardless of whether a price is charged. Unrelated parties include which of the following?

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D. All of these are unrelated parties

Close family members of an individual include all, except  D. Brothers and sisters of the individual The minimum disclosures about related party transactions include all of the following, except  D. Nature of the relationship Which is not included in key management personnel compensation?  D. Reimbursement of out-of-pocket expenses Which of the following is not a mandated disclosure about related party transactions?  B. Names of all the associates that an entity has dealt with during the year. Which of the following is not a required minimum disclosure about related party transaction? 

C. The amount of similar transaction with unrelated parties to establish that comparable related party transaction has been entered at arm’s length

Related party transactions include all, except  B. Sold a car to the uncle of the entity’s finance director. All of the following are related party transactions, except  D. Took out a huge bank loan An entity that entered into a related party transaction would be required to disclose all of the following information, except  B. Nature of any future transactions planned between the parties and the terms involved. Which is not a required related party disclosure?  C. An entity that has a common director with the entity All of the following are related parties, except  D. The partner of a key manager is a major supplier of the entity Which of the following is not a related party of an entity?  B. An entity providing banking facilities to the entity Which of the following should be included in key management personnel compensation?  C. Social security contributions and postemployment benefits

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 the current year-end?  B. Make a provision for the event after reporting period in the financial statements. An entity decided to build an 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?  D. Do nothing 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?  D. Disclose the nonadjusting event in the notes to financial statements. An entity deals extensively with foreign currency transactions. Subsequent to the end of 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 the current year-end?  C. Disclose the post-reporting period event. Which statement is true in relation to events after reporting period?  B. Note to financial statements should give details of material nonadjusting events which could influence the economic decisions of users. Which event after the reporting period would require adjustment?  D. Loss on a lawsuit the outcome of which was deemed uncertain at year-end Events that occur after the current year-end but before the financial statements are issued and affect the realizability of accounts receivable should be  C. Used to record an adjustment to bad debt expense. Nonadjusting events include all, except  D. Destruction of a major production plant by a fire before the end of the reporting period Nonadjusting event include all, except  D. A mistake in the calculation of allowance for uncollectible accounts receivable. Which event after the end of reporting period would generally require disclosure? 

D. Issue of a large amount of ordinary s...