FAR Reviewer - Lecture notes 1-2 PDF

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ProblemsProblem 1-1 Muliple choice A complete set of inancial statement includes all of the following components, except. a. Statement of inancial posiion, statement of comprehensive income and statement of cash lows. b. Statement of changes in equity. c. Notes, comprising a summary of signiicant ac...

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Problems Problem 1-1 Multiple choice 1. A complete set of financial statement includes all of the following components, except. a. Statement of financial position, statement of comprehensive income and statement of cash flows. b. Statement of changes in equity. c. Notes, comprising a summary of significant accounting policies and other explanatory information. d. Reports and statement such as environmental reports and value added statements. 2. What is the objective of financial statements? a. To provide information about financial position financial performance and changes in financial position of an entity that is useful to a wide range of users in making economic decision. b. To prepare and present a statement of financial position, statement of comprehensive income. Statement of cash flows and statement of changes in equity. c. To prepare and present relevant, reliable, comparable and understandable information to investors and creditors. d. To prepare and present financial statements in accordance with all applicable PFRS and Interpretations. 3. What is the objective of providing information about financial position, financial performance and cash flows of an entity, financial statements should provide information about all of the following, except. a. b. c. d.

Assets, liabilities and equity Income and expenses, including gains and losses Contribution by and distribution to own in their capacity as owners. Nature of business activities

4. Which of the following statements is true concerning the objective of financial statements? I.

II.

a. b. c. d.

Financial statements do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide nonfinancial information. Financial statements show the results of the stewardship of management or the accountability of management for the resources entrusted to it. I only II only Both I and II Neither I nor II

5. The primary responsibility for the preparation and presentation of the financial statements of an entity is reposed in the. a. b. c. d.

Management of the entity Internal auditor External auditor Controller

Problem 1-2 Multiple choice (IFRS) 1. An entity decided to extend the reporting period from a year to a 15-month period. Which of the following is not required in case of change in reporting period? a. The entity shall disclose the reason for using a longer period than a period 12 months. b. The entity shall 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. c. The entity shall disclose that comparative amounts used in the financial statements are not entirely comparable. d. The entity shall disclose the period covered by the financial statements. 2. Which of the following is not a component of the financial statements? a. b. c. d.

Statement of financial position Statement of changes in equity Report of board of directors Notes to financial statements

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

A statement by the board of directors of compliance with local legislation A statement of changes in equity Summarized statements of financial position for the last five years Value added statement

4. Financial statements include a statement of financial position, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows. Which of the following is also included within the financial statements? a. b. c. d.

A statement of retained earnings Accounting policies An auditor’s report A director’s report

5. An entity shall clearly identity each financial statement and shall display all of the following information prominently, except. a. Name of the reporting entity or other means of identification, and any change in that information from the previous year. b. Names of major shareholders of the entity c. The presentation currency and level of rounding used in presentation the financial statements d. Whether the financial statement cover the individual entity or a group of entities and the date of the end of reporting period or the period covered by the financial statements. Problem 1-3 Multiple choices (PAS 1) 1. Which of the following statements is incorrect concerning fair preservation of financial statements? a. Fair presentation requires the faithful representation of the effects of transaction and other events. b. Financial statements shall present fairly the financial position, financial performance and cash flows of an entity c. In virtually all circumstances, a fair presentation is achieved by compliance with applicable PFRS d. An entity whose financial statements comply with PFRS shall not make an explicit and unreserved statement of such compliance in notes 2. Which of the following cannot be considered fair presentation of financial statements? a. To present information in a manner that provides relevant and faithful representation of the effects of transactions and other events. b. To provide additional disclosures when compliance with specific PFRS is insufficient to understand the financial position and financial performance. c. To select and apply accounting policies in accordance with applicable PFRS. d. To rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information. 3. Which of the following statements indicates a going concern? a. b. c. d.

Management intends to liquidate the entity Management intends to cease the operations of the entity. Management has no realistic alternative but to cease the operation of the entity None of these

4. An entity is permitted to depart from a particular standard if all of the following conditions are satisfied except. a. In extremely rare circumstances b. When management concludes that compliance the standard would be misleading c. When the departure from the standard is necessary to achieve fair presentation.

d. When the conceptual framework for financial reporting prohibits such a departure 5. The effects of transactions and either events on economic resources and claims are depicted in the period in which those effects occur even if the resulting each receipts and payments occur in a different period. a. b. c. d.

Accrual accounting Cash accounting Modified accrual accounting Modified cash accounting

6. Financial statements must be prepared at least a. b. c. d.

Annually Quarterly Semiannually Every two years

7. Technically, offsetting in financial statements is accomplished when a. b. c. d.

The allowance for doubtful accounts is deducted from accounts receivable. The accumulated depreciation is deducted from property, plant and equipment. The total liabilities are deducted from total assets to arrive at net assets. Gain or loss from disposal of noncurrent assets is reported by deducting from the proceeds the carrying amount of the asset and the related disposal cost.

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

Consistency of presentation Materiality Aggregation Comparability

9. A third statement of financial position as at beginning of the earlier comparative period presented is required. I. II. III. a. b. c. d.

When an entity applies an accounting policy retrospectively When an entity makes a retrospective restatement of items in their financial statements. When an entity reclassifies items in the financial statements I and II only I and III only II and III only I, II and III

10. An entity shall prepare how many statements of financial position as a result of retrospective application, retrospective restatements and reclassification of items in the financial statements? a. b. c. d.

Two Three Four One

Problem 1-4 Multiple choice (IFRS) 1. Items of dissimilar nature or function a. Must always be presented separately in financial statements. b. Must not be presented separately in financial statements c. Must be presented separately in financial statements if those items are materials. d. Must be presented separately in financial statements even if those items are immaterial. 2. Materiality depends on a. The nature of the omission or misstatement b. The absolute size and nature of the omission or misstatement c. The relatives size and nature of the omission or misstatement d. The judgment of management 3. 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 for all narrative and descriptive information. c. The previous comparable period for all amounts and for all narratives and descriptive information when it is relevant to an understand d. The previous two comparable period for all amounts reported. 4. When the classification of items in the financial statements is changed, the entity a. Must not reclassify the comparative amounts b. Can choose whether to reclassify the comparative c. Must reclassify the comparative amounts unless it is impracticable to do so. d. Must reclassify the current year amounts only. 5. An entity shall present a. The statement of cash flows more prominently than the other statements b. The statement of financial position more prominently than the other statements c. The statement of comprehensive income more prominently than the other statements d. Each financial statement with equal prominence.

Problem 1-5 Multiple choice (IAA) 1. What is the objective of financial reporting under the conceptual framework for financial reporting? a. To provide information about the financial position performance and cash flows of an entity b. To prepare and present a statement of financial position and a statement of comprehensive income. c. To provide financial information about an entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity d. To prepare financial statement in accordance with all applicable standard and interpretations. 2. The primary focus of financial reporting has been on meeting the needs of which of the following? a. Managers of an entity b. Existing and potential investors, lenders and other creditors c. National and local taxing authorities d. Independent CPAs 3. Which of the following statements best describes the term “financial Position”? a. The net income and expenses of an entity b. The net of financial assets less liabilities of an entity c. The potential to contribute to the flow of cash and cash equivalent to the entity. d. The assets, liabilities and equity of any entity 4. Which of the following best describes the term “financial performance”? a. The revenue, expenses and net income or loss for a period of an entity. b. The assets, liabilities and equity of an entity c. The total assets minus total liabilities d. The total cash inflows minus total cash outflows 5. The overall objective of financial reporting is to provide information. a. That is useful for decision making b. About assets, liabilities and equity c. About financial performance during a period d. That allows owners to assess performance of management 6. Which is an objective of financial reporting? a. To provide information that is useful in making investing and credit decisions. b. To provide information that is useful to management c. To provide information to those investing in the entity d. To provide information about ways to solve internal and external conflict about the entity

7. What is an objective of financial reporting? a. To provide information that is useful to management b. To provide information that clearly portrays nonfinancial transactions. c. To provide information that is useful to assess the amounts, timing and uncertainly of prospective cash receipts. d. To provide information that excludes claims against the resources. 8. An objectives of financial reporting is to provide a. Information about the investors in the entity b. Information about the liquidations value of the resources of the entity c. Information that is useful in assessing cash flow prospects d. Information that will attract new investors. 9. The information provided by financial reporting the phrase “assessing cash flow prospects” is interpreted to mean a. Cash basis accounting is preferred over accrual basis accounting b. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of an entity’s present and continuing ability to generate favorable cash flows. c. Over the long run trends in revenue and expenses are generally more meaningful that trends in cash receipts and disbursements. d. All of the choices are correct regarding “assessing cash flow prospects”. 10. Which of the following statements in relation to financial reporting is incorrect? a. General purpose financial reports to not and cannot provide all of the information that primary users need. b. General purpose financial reports are designed to show the value of the reporting entity c. General purpose financial reports are intended to provide common information to users. d. Financial reports are largely based on estimate and judgment rather than exact depiction. Problem 1-6 Multiple choice (AICPA Adapter) 1. The objective of financial reporting is based on a. The need for conservatism b. Reporting on management’s stewardship c. Generally accepted accounting principles d. The needs of the users of the information 2. During a period when an entity is under the direction of a particular management, financial reporting will directly provide information about. a. Both entity performance and management performance b. Management performance but not entity performance c. Entity performance but not management performance

d. Neither entity performance nor management performance 3. The information provided by financial reporting pertains to a. Individual business entities rather than to industries or an economy as a whole or to members of society as consumers. b. Individual business entities and an economy as a whole or to members of society as consumers. c. Individual business entities and an economy as a whole, rather than to industries or to members of society as consumers. d. Individual business entities, industries and an economy as a whole, rather than to members of society as consumers 4. Which of the following is not an objective of financial reporting? a. Financial reporting shall provide information about resources, claims against those resources and changes in them. b. Financial reporting shall provide information useful in evaluating stewardship of management. c. Financial reporting shall provide information useful in investment, credit and similar decision. d. Financial reporting shall provide information useful in assessing cash flow prospects. 5. Which of the following is not an objective of financial reporting? a. To provide information about assets and claims against those assets b. To provide information that is useful in assessing sources and uses of cash c. To provide information that is useful in lending and investing decisions d. To provide information about the liquidation value of an entity Problem 1-7 Multiple choice (IAA) 1. Which of the following would most likely prepare the most accurate financial forecast for an entity based on empirical evidence? a. Investors using statistical models to generate forecasts b. Corporate management c. Financial analysis d. Independent certified public accountants 2. The most useful information to existing and potential investors, lenders and other creditors in predicting future cash flows is a. Information about current cash flows b. Currents earning based on accrual accounting c. Information regarding the accounting policies used by management d. Information regarding the result obtained by using a wide variety of accounting policies 3. The accrual basis of accounting is most useful for a. Determining the amount of income tax liability b. Predicting short-term financial performance c. Predicting long-term financial performance

d. Determining the amount of dividends to shareholders 4. The financial statements prepared under GAAP a. Do not articulate with one another b. Reflecting a single measurement basis which is historical cost. c. Are not highly precise because estimate and judgment must be made. d. Contain a limited number of future projection 5. In measuring financial performance, accrual accounting is used because a. Cash flows are considered less important b. It provides a better indication of ability to generate cash flows than cash basis. c. It recognizes revenue when cash is received and expenses when cash is paid d. It is of the implicit assumptions.

PROBLEMS Problem 2-1 Multiple choice (IAA) 1. The components financial statements included all of the following except a. Statement of financial position b. Income statement c. Statement of cash flows d. Statement of retained earnings 2. The major financial statements include all. Except a. Statement of financial position b. Statement of change in financial position c. Statement of comprehensive income d. Statement of changes equity 3. Which of the following represents a form of communication through financial reporting but not through financial statement? a. Statement of financial position b. President’s letter c. Income statement d. Notes to financial statement 4. The statement of financial position is useful for analyzing all of the following except a. Liquidity b. Solvency c. Profitability d. Financial flexibility 5. The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as. a. Solvency b. Financial flexibility c. Liquidity d. Exchange ability 6. The statement of financial position provide a basis for all of the following except a. Computing rate of return b. Evaluating capital structure c. Determining increase in cash due to operation d. Assessing liquidity and financial flexibility 7. The information reported is the statement of financial position is useful for all of the following, except a. To compute rate of return b. To analyze cash inflows and outflows for the period c. To evaluate capital structure

d. To asses future cash flow 8. Which criticism is not normally aimed as the statement of financial position a. Failure to reflect current value information b. The extensive use of separate classification c. An extensive use of estimate d. Failure to include items of financial value 9. The statement of financial position a. Omits many items that are financial value b. Make very limited use of judgment and estimate c. Use fair value for most assets and liabilities d. All of the choices are correct regarding the statement of financial position 10. Which of the following is a limitation of the statement of financial position? a. Many items that are of financial value are omitted b. Judgment and estimate are used c. Current fair value is not reported d. All of these are considered limitation of the statement of financial position Problem 2-2 multiple choice (PAS 1) 1. Current and noncurrent presentation of assets and liabilities provides useful information when the entity a. Supplies goods or service within a clearly identifiable operating cycle b. Is a financial institution c. Is a public utility d. Is a nonprofit organization 2. A presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is faithfully represent and more relevant for. a. Financial institution b. Public utility c. Government-owned entity d. Service provider 3. It is the time between acquisition of assets for processing and their realization in cash. a. Operating cycle b. Cash to receivable cycle c. Business cycle d. Cash to inventory cycle 4. When the normal operating c...