Exam 21 August 2018, questions and answers PDF

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Name: Mary Ann A. LasalaEthel S. MahusaySource: CPA Review School of the Philippines (CPAR) The major financial statements include all of the following, except a. Statement of financial position b. Statement of changes in financial position c. Statement of comprehensive income d. Statement of change...

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Name: Mary Ann A. Lasala Ethel S. Mahusay

Source: CPA Review School of the Philippines (CPAR) 1. The major financial statements include all of the following, except a. b. c. d.

Statement of financial position Statement of changes in financial position Statement of comprehensive income Statement of changes in equity

2. The statement of financial position information is useful for all of the following, except a. b. c. d.

To compute rate of return To analyze cash inflows and outflows for the period To evaluate capital structure To assess future cash flows

3. The statement of financial position a. b. c. d.

Omits many items that are of financial value Makes very limited use of judgment and estimate Uses fair value for most assets and liabilities All of the choices are correct regarding the statement of financial position

4. The income statement information would help in which of the following tasks? a. b. c. d.

Evaluate the liquidity of an entity Evaluate the solvency of an entity Estimate future cash flows Estimate future financial flexibility

5. Which method of income measurement is used in the preparation of the income statement? a. b. c. d.

Capital maintenance approach Transaction approach Cash-flow approach Income components approach

6. The occurrence that most likely would have no effect on net income is the a. Sale in the current year of an office building contributed by a shareholder in a prior year b. Collection in the current year of a dividend from an investment c. Correction of an error in the financial statements of a prior period discovered subsequent to their issuance d. Inventory purchased deemed worthless in the current year 7. Which of the following is included in comprehensive income? a. b. c. d.

Investments by owners Unrealized gains on available for sale securities Distributions to owners Changes in accounting policy

8. Accounting changes are often made and the monetary impact is reflected in the financial statements even though, in theory, this may be a violation of the accounting concept of a. b. c. d.

Materiality Consistency Prudence Objectivity

9. Travel advances should be reported as a. b. c. d.

Supplies Cash because they represent the equivalent of money Investments Receivables

10. Which of the following statements is true when accounts receivable are factored without recourse? a. The transaction may be accounted for either as a secured borrowing or as a sale depending upon the substance of the transaction b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables d. The financing cost should be recognized ratably over the collection period of the receivables

11. An entity that purchases goods from suppliers for resale to customers should recognize which inventory? a. b. c. d.

Finished goods inventory Work in process inventory Merchandise inventory All of the choices are correct

12. If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial position date for future delivery at firm prices a. b. c. d.

This fact must be disclosed Disclosure is required only if prices have declined since the date of the order Disclosure is required only if prices have since risen substantially An appropriation of retained earnings is necessary

13. Gains or losses on cash flow hedges are a. b. c. d.

Ignored completely Recorded in equity, as part of other comprehensive income Reported directly in net income Reported directly in retained earnings

14. The account deferred grant revenue is classified as a. b. c. d.

A separate component of shareholder’s equity A noncurrent liability Other income and expense Revenue

15. Which of the following is not considered a characteristic of a liability? a. b. c. d.

Present obligation Arises from past events Results in an outflow of resources Liquidation is reasonably expected to require use of existing resources classifies as current assets

16. It is defined as increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants? a. Revenue b. Income c. Profit

d. Gain 17. The process of reporting an item in the financial statements is a. b. c. d.

Allocation Matching Realization Recognition

18. The fundamental qualitative characteristic of faithful representation has the components of a. b. c. d.

Predictive value and confirmatory value Comparability, consistency and confirmatory value Understandability, predictive value and reliability Completeness, neutrality and freedom from error

19. The statement of financial position is useful for all of the following, except a. b. c. d.

Assessing risk Evaluating liquidity Evaluating financial flexibility Determining free cash flows

20. Which item is not a current liability? a. b. c. d.

Unearned revenue Stock dividend distributable The currently maturing portion of long term debt Trade accounts payable

Source: The Review School of Accountancy (ReSA) 1. PAS 1 precludes an entity to present or classify this account as current in the statement of financial position. a. b. c. d.

Provisions Prepayments Deferred tax assets Available-for-sale investments

2. PAS 1 requires the allocation of profit or loss for the period between or among: I. Profit or loss attributable to owners of the parent

II. Profit or loss attributable to subsidiaries of the parent III. Profit or loss attributable to non-controlling interests a. I and II b. I and III c. II and III d. I, II and III 3. What statements are intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs? a. b. c. d.

Separate financial statements Consolidated financial statements Business entity financial statements General purpose financial statements

4. Which is not an objective of the notes to the financial statements as envisaged under PAS 1? a. Notes present information about the basis of preparation of financial statements and the specific accounting policies used b. Notes disclose information required by PFRS that is not presented on the face of the primary statements c. Notes provide additional information that is not presented on the face of the primary statements, but is relevant to an understanding of any of them d. Notes allow external auditors in assessing whether amounts in the financial statements are fairly presented/stated so as to form an opinion as to the fairness of the financial statements taken as a whole 5. Which of the following is an entity-specific aspect of the fundamental qualitative characteristic relevance? a. b. c. d.

Timeliness Materiality Predictive value Confirmatory value

6. PAS 1 refers to it as all changes in equity other than introduction and return of capital to owners. a. Profit b. Net income

c. Other comprehensive income d. Total comprehensive income 7. In a single statement of comprehensive income, profit is equal to the total comprehensive income a. b. c. d.

Always Only if expenses are classified by nature Only if there are no reclassification adjustments Only if an entity has no item of other comprehensive income

8. The presence of “cost of sales” account in the income statement signifies that an entity classifies expenses according to a. b. c. d.

Nature Amounts Maturity Function

9. It involves the depiction of the items in words and by a monetary amount and the inclusion of that amount in the financial statements. a. b. c. d.

Realization Recognition Disclosure Presentation

10. Which of the following is an essential characteristic of an asset? a. b. c. d.

An asset is tangible An asset is obtained at a cost An asset provides future economic benefits The claims to an asset’s benefits are legally enforceable

11. Under PAS 1, assets in the statement of financial position are broadly classified into a. Current and non-current b. Tangible and intangible c. Depreciable and non-depreciable d. Monetary and non-monetary

12. Under PAS 1, which of the following does not refer to a current asset? a. It is held primarily for the purpose of being traded b. It is a cash or cash equivalent restricted for more than 12 months from BS date c. It is expected to be realized within twelve months after the balance sheet (BS) date d. It is expected to be realized, sold or consumed within the entity’s normal operating cycle 13. Under PAS 1, which of the following does not describe a current liability? a. b. c. d.

It is held primarily for the purpose of being traded It is expected to be settled within the entity’s normal operating cycle It is due to be settled within twelve months after the balance sheet date The entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date

14. When an entity BREACHES an undertaking under a long-term loan agreement with the effect that the liability becomes payable on demand, the liability is classified as a. Current, only if the lender demands immediate payment as a consequence of the breach b. Current, even if the lender has agreed not to demand payment as a consequence of the breach c. Non-current, only if the lender demands immediate payment as a consequence of the breach d. Non-current, even if the lender has agreed not to demand payment as a consequence of the breach 15. The REFINANCING (rolling over) of a currently maturing long-term debt completed on or before the balance sheet date requires that such debt be classified as a a. Current liability b. Non-current liability c. Current liability or non- current liability, at the option of the debtor d. Non-adjusting event and be disclosed in the notes to the financial statements 16. The REFINANCING (rolling over) of a currently maturing long-term debt of an entity completed after the balance sheet date but before the FS are authorized for issue requires that such debt be classifies as a

a. Current liability, if the refinancing is at the discretion of the entity owing the debt b. Current liability, the discretion of the entity to refinance the debt notwithstanding c. Non- current liability, if the refinancing is at the discretion of the entity owing the debt d. Non- current liability, if the refinancing is not at the discretion of the entity owing the debt 17. Offsetting of assets and liabilities is a. b. c. d.

Allowed in all cases Not allowed in all cases Allowed unless not permitted by PFRS Not allowed unless permitted by PFRS

18. Which of the following is not an acceptable presentation of the statement of financial position? a. b. c. d.

Assets presented in the order of liquidity Non-controlling interests presented within equity Provisions presented as part of the liability section Deferred tax liabilities presented as part of current liabilities

19. These provide narrative description or disaggregation of items disclosed on the face of the financial statements and information about items that do not qualify for recognition. a. b. c. d.

Financial reports Value-added statements Notes to the financial statements Summary of significant accounting policies

20. What is the purpose of information presented in notes to the financial statements? a. To present management’s responses to auditor comments b. To correct improper presentation in the financial statements c. To provide disclosures required by generally accepted accounting principles d. To provide recognition to the financial statements

Source: Southern Mindanao Academic Review & Training Center (SMARTS) 1. Which of the following is correct concerning PAS 1 Presentation of Financial Statements? a. It prescribes the basis for presentation of general and special purpose financial statements. b. It sets out the recognition, measurement and disclosure requirements for specific transactions and other events. c. It uses terminology that is suitable for profit-oriented entities, and if not-forprofit entities apply this Standard, they need not amend the descriptions used for particular line items in the financial statements because it also applies to them. d. It applies equally to all entities, separate financial statements, individual financial statements and consolidated financial statements. 2. Which of the following definitions is correct? I.

II.

General purpose financial statements are those intended to meet the needs of users who are in a position require an entity to prepare reports tailored to their particular information needs. Individual financial statements are those presented by a parent, an investor in an associate or a venturer in joint arrangement, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees. a. I only b. II only c. Both I and II d. Neither I nor II

3. They are structured representation of the financial position and financial performance of an entity. a. Statement of financial position b. Statement of changes in equity c. Financial statements d. Notes to the financial statements 4. Which is incorrect regarding an income statement?

a. An entity may present the components of profit or loss as part of a single statement of comprehensive income b. An entity may present the components of profit or loss in a separate income statement c. When prepared, an income statement must be immediately presented before the statement of comprehensive income d. When a separate income statement is prepared, it is not considered a part of a complete set of financial statements 5. Which of the following reports is within the scope of PAS 1? a. A report containing a review of the main factors and influences determining financial performance, including changes in the environment in which the entity operates, the entity’s response to those changes and their effect, and the entity’s policy for investment to maintain and enhance financial performance, including its dividend policy b. A review of the entity’s sources of funding and its targeted ratio of liabilities to equity c. A report of the entity’s resources not recognized in the statement of financial position in accordance with PFRSs d. A statement of financial condition prepared by a banking institution 6. Which of the basic financial statements is not prepared using the accrual basis of accounting? a. b. c. d.

None Statement of Financial Position Statement of Cash Flows Statement of Comprehensive Income

7. Which of the following is incorrect regarding fair presentation of financial statements? a. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. b. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. c. In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable PFRSs.

d. Management cannot depart from a PFRS requirement even if compliance with the requirement in question would be so misleading that it would conflict with the objective of financial statements. 8. Items of dissimilar nature or function a. Must always be presented separately in financial statements b. Must not be presented separately in financial statements (i.e. must be aggregated in the financial statements) c. Must be presented separately in financial statements if those items are material d. Must be disclosed only in the notes 9. Current tax assets and current tax liabilities can only be offset in the statement of financial position a. If the entity has the legal right but not the intention to settle on a net basis b. If the entity does not have the legal right but the intention to settle on a net basis c. If the entity has the legal right and the intention to settle on a net basis d. If the entity does not have the legal right and the intention to settle on a net basis 10. An entity shall present a complete set of financial statements (including the comparative information) at least a. b. c. d.

Annually Every two years Every three to five years Every quarter

11. XYZ Inc. decided to extend its reporting period from a year (12-month period) to a 15-month period. Which of the following is not required under PAS 1 in case of change in reporting period? a. XYZ Inc. should disclose the reason for using a longer period than a period of 12 months b. XYZ Inc. should disclose that comparative amounts used in the financial statements are not entirely comparable. c. XYZ Inc. should change the reporting period only if other similar entities in the geographical area in which it generally operates have done so in

the current year: its financial statements would not be comparable to others. d. All of the above are required 12. An entity must disclose comparative information for a. The previous comparable period for all amounts reported b. The previous comparable period for all amounts reported and 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 statement d. The previous two comparable period for all amounts reported 13. In preparing a statement of comprehensive income in two statements, the second statement shall start with what line item? a. b. c. d.

Profit or loss Income from continuing operations Gain presented as other comprehensive income Revaluation surplus

14. Which of the following terms cannot be used to describe a line item in the statement of comprehensive income? a. b. c. d.

Revenue Gross profit Profit before tax Extraordinary item

15. Other comprehensive income arises from all of the following, except a. Changes in revaluation surplus for PPE and intangibles under the revaluation model b. Remeasurements arising from defined benefit plans c. Gains and losses arising from translating the financial statements of a foreign operation d. The ineffective portion of gains and losses on hedging instruments in a cash flow hedge 16. Which of the following is not a generally practiced method of presenting the income statement?

a. b. c. d.

Including prior period adjustments in determining net income The single-step income statement The consolidated statement of income Including gains and losses from discontinued operations of a component of a business in determining net income

17. Which of the following is not required to be presented in the statement of changes in equity? a. Total comprehensive income for the period, showing separately the total amounts attributable to the owners of the parent and to non-controlling interests b. For each component of equity, the effects of retrospective application or retrospective restatement c. For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period d. The amount of dividends recognized as distributions to owners during the period, and the related amount per share 18. All of the following is required to be disclosed by the ent...