Definition, Presentation and Measurement

1. Enron Company decided on August 1, 2009 to dispose of a component of its business.

The component was sold on November 30, 2009. Enron's income for 2009 included
income of P5, 000,000 from operating the discontinued segment from January 1 to the
sale date. Enron incurred a loss on the November 30 sale of P4, 500,000. Ignoring
income tax, what amount should be reported in the 2009 income statement as income or
loss under "discontinued operation"?

500,000 income

2. A discontinued operation is defined as

Derivative
3. A component of an entity is classified as a continue operations
I. When the entity has actually disposed of the operations
II.When the operations meets the criteria to be classified as " held" for
sale."
Either I or II
4. What is the presentation of the results from discontinued operation in the income
statements?
The entity shall disclose a single amount on the face of the income statement with
analysis in the notes or a sections of the income statement separate from continuing
operations
5. Which of the following is a requirement for a component of an entity to be classified as a
discontinued operation?

It must have been cash generating units while being held for use
6. On October 1, 2016 Tom Company approved the disposal of its subsidiary. The sale of
which was expected to be completed by July of 2017. The following information in
relation to the subsidiary is as follows:

The carrying amount of the subsidiary's net assets at December 31, 2016 was
P28,000,000 and the fair value less cost to sell was P30,500,000.
The sale contract requires Tom Company to terminate certain employees and the
expected cost is estimated at P2,000,000. Income tax rate for 2016 is 30%
The amount reported as income (loss) from discontinued operations is
3,150,000
7. On November 1, 2011 Romans Company approved the disposal of its subsidiary. The
sale of which was expected to be completed by March of 2012.
The following information in relation to the subsidiary is as follows:

The carrying amount of the subsidiary's net assets at December 31, 2011 was
P18,000,000 and the fair value less cost to sell was P16,000,000.
The sale contract requires Romans Company to terminate certain employees and the
expected cost is estimated at P1,000,000.
The amount reported under "disposal group held for sale" in Romans Company's
December 31, 2011 statement of financial position is
16,000,000

8. Which of the following is a discontinued operation?

Both (b) and (c) above

9. An entity manufacture and sell household products. The entity experienced losses
associated with its small appliance group. Operations and cash flow for this group can
be clearly distinguished from the rest of the entity operations. The entity plans to sell the
small appliance group with its operations. What is the earliest point at which the entity
shall report the small appliance group as a discontinued operations.
When the entity classifies it as held for sale
10. On November 1, 2011 Romans Company approved the disposal of its subsidiary. The
sale of which was expected to be completed by March of 2012.
The following information in relation to the subsidiary is as follows:
 The carrying amount of the subsidiary's net assets at December 31, 2011 was
P18,000,000 and the fair value less cost to sell was P16,000,000.
The sale contract requires Romans Company to terminate certain employees and the
expected cost is estimated at P1,000,000.
The amount reported as income (loss) from discontinued operations is
(2,500,000)

11. Booker Company committed to sell its comic book division (a component of the
business) on September 1, 2009. The carrying amount of the division was P4,000,000
and the fair value was P3,500,000. The disposal date is expected to be June 1,2010.
The division reported an operating loss of P200,000 for the year ended December 31,
2009. Ignoring income tax, what amount should be reported as loss from discounted
operation in 2009?

700,000

12. Which is incorrect concerning the presentations of the discontinued operations in the
statements of financial positions?

Asset of the component held for sale are measured at the higher of fair value less cost to
sell and their carrying amount
13. Which of the following criteria does not have to be met in order for an operations to be
assified as discontinued

The operations must be sold within three months of the year - end
14. On the Statement of Comprehensive Income, income from discontinued operations is
shown

As a separate item after income from continuing operations, net of income tax
15. A component of an entity is classified as a discontinued operation
I.When the entity has actually disposed of the operation
 II.When the operation meets the criteria to be classified as "held for sale"
Both I and II
16. On November 1, 2016, management of Myto Corporation committed to a plan to dispose
of Timms Company, a major subsidiary. The disposal meets the requirements for
classification as discontinued operations. The carrying value of Timms Company was
P8,000,000 and management estimated the fair value less costs to sell to be
P6,500,000. For 2016, Timms Company had a loss of P2,000,000. How much should
Myto Corporation present as loss from discontinued operations before the effect of taxes
in its income statement for 2016?

P3,500,000

17. On September 30, 2009, when the carrying amount of the net assets of a business
segment was P70, 000,000, Young Company signed a legally binding contract to sell the
business segment. The sale is expected to be completed by January 31, 2010 at selling
price of P60, 000,000. In addition, prior to January 31, 2010 the sale contract obliges
Young Company to terminate the employment of certain employees of the business
segment incurring an expected termination cost of P2,000,000 to be paid on June 30,
2010. The segment's revenue and expenses for 2009 were P40,000,000 and P45,
000,000 respectively. Before income tax, how much will be reported as loss from
discontinued operation for 2009?
17,000,000

18. On October 1, 2011 Acts Company approved the disposal of its subsidiary. The sale of
which was expected to be completed by July of 2012.
The following information in relation to the subsidiary is as follows:
 The carrying amount of the subsidiary's net assets at December 31, 2011 was
P28,000,000 and the fair value less cost to sell was P30,500,000.
The sale contract requires Acts Company to terminate certain employees and the
expected cost is estimated at P2,000,000. Income tax rate for 2011 is 30%
The amount reported as income (loss) from discontinued operations is
3,150,000

19. The following statement relate to a discontinue operation .Which statement is true?
I. When the discontinue criteria are met after the date of the reporting period, the
operations shall retrospectively be separately presented as a discontinue operations
II.The net cash flow attributable to the operating investing, and financing activities of a
discontinue operations shall be separately presented.

II only
20. The discontinued operations section of the Statement of Comprehensive Income is
comprised of which one of the following?

Post-tax Income from the discontinued operation of the business segment and post-tax
gain or loss from the disposal of the discontinued operations or post-tax gain or loss from
measurement to realizable value of net assets.
21. A discontinued operations is a component of an entity that either has been disposed of
or is classified as held for sale and
I.Represents a separate major line of business or geographical area of operations.
II.Is a Part of a single co-ordinate plan to dispose of a separate major line of business or
business or geographical area of operations.
III.Is a subsidiary acquire exclusively with a view to resale.

I, II and III
22. It comprises operations and cash flow that can be clearly distinguished, operationally
and for financial reporting purposes from the rest of the entity
Component of an entity

23.
Change in Accounting Estimates
1. Which of the following is characteristic of a change in an accounting estimates?

It does not effect the financial statement of prior period.

2. During the current year, an entity increase the estimated quantity of copper recoverable
from its mine. The entity uses the units of production depletion method. As a result of the
change, which of the following should be reported in the entity financial statement?

Chance in the accounting estimates.

3. When an entity changed from the straight line method of depreciation for previously
recorded assets to the double declining balance method, which of the following should
be reported?

Change in accounting estimates.

4. A change in the residual value of an asset arising because additional information has
been obtained is?
An accounting change that should be reported in the period of change and future period
if the changed affects both.
5. It is an adjustment of the carrying amount of an asset or a liability or the amount of the
periodic consumption of an asset that results from the assessment of the present status
and expected future benefit and obligation associated with the asset and liability.
Change in accounting estimates
6. On January 1, 2009, Neal Corporation acquired equipment at a cost of $540,000. Neal
adopted the sum-of-the-years-digits method of depreciation for this equipment and had
been recording depreciation over an estimated life of eight years, with no residual value.
At the beginning of 2012, a decision was made to change to the straight-line method of
depreciation for this equipment. The depreciation expense for 2012 would be?
$45,000

7. During 2009, Titus Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method were
as follows:

Ignoring income tax, in its 2009 statement of retained earnings, what amount should
Titus report as the cumulative effect of this accounting change?

600,000 addition
8. On January 1, 2009, Philemon Company purchased heavy duty equipment for P
4,000,000. On the date of installation, it was estimated that the equipment has a useful
life of 10 years and a residual value of P 400,000.
On January 1, 2009, the entity decided to review the useful life of the equipment and its
residual value and technical experts were consulted. The experts have determined that
the useful life of the equipment was 12 years from the date of acquisition and its residual
value was P460,000.
The depreciation of the equipment for 2009 is

262,500
9. Which statement is incorrect concerning accounting estimates?

By its very nature, the revision of an estimates relates to a prior period and is a
correction of an error.
10. Which statement is incorrect concerning accounting estimate?

By its very nature, the revision of an estimate relates to a prior period and is a correction
of error.
11. The effect of a change in accounting estimate shall be recognized currently and
prospectively by including it in income or loss of
I. The period of change if the change effect that period only
II.The period of hange and future period if the change affect both

Both I and II
12. When an independent valuation expert advises an entity that the residual value of its
plants and machinery had drastically change and the change is material, the entity shall

Change the annual depreciations for the current year and future year.
13. Which of the following is the proper time period in which to record a change in
accounting estimates
Current period and future period.
14. Prospective recognition of the effect of a change in an accounting estimates means that
the change is applied to transaction from the?

Date of the change in estimates.

15. Which of the following is not correct regarding the provision of PAS 8?
A change in depreciation method is classified as a change in accounting policy.
16. A change in the estimated useful life of a building
 Affect the depreciations on the building beginning with the year of the change.
17. When an entity changed the expected service life of an asset because additional
information has been obtained, which of the following should be reported?

An accounting changed that should be reported in the period of change and future
period if the change affects both.
18. A change in the unit depletion rate would be accounted for as a

Change in accounting estimates.

19. On January 1, 2009, Piper Co., purchased a machine (its only depreciable asset) for
$300,000. The machine has a five-year life, and no salvage value.
Sum-of-the-years'-digits depreciation has been used for financial statement reporting
and the elective straight-line method for income tax reporting. Effective January 1, 2012,
for financial statement reporting, Piper decided to change to the straight-line method for
depreciation of the machine. Assume that Piper can justify the change. Piper's income
before depreciation, before income taxes, and before the cumulative effect of the
accounting change (if any), for the year ended December 31, 2012, is $250,000. The
income tax rate for 2012, as well as for the years 2009-2011, is 30%. What amount
should Piper report as net income for the year ended December 31, 2012?
$154,000

20. On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000. Nobel
adopted the straight-line method of depreciation for this machine and had been
recording depreciation over an estimated life of ten years, with no residual value. At the
beginning of 2012, a decision was made to change to the double-declining balance
method of depreciation for this machine. The amount that Nobel should record as
depreciation expense for 2012 is?

$120,000

21. On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000. Nobel
adopted the straight-line method of depreciation for this machine and had been
recording depreciation over an estimated life of ten years, with no residual value. At the
beginning of 2012, a decision was made to change to the double-declining balance
method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect
of this accounting change on beginning retained earnings, is?
$0.
22. For the prior year, an entity estimated its two year equipment warranty cost based on a
certain amount per unit sold in the prior year. Experience during the current year
indicated that the estimates should have been higher than the previous year. The effect
of these increase in the estimates is reported
In income from continuing operations of the current year.
23. How should the effect of a change in accounting estimates be accounted for?

In the period of change and future period if the changed affects both.
24. On January 1, 2009, Hess Co. purchased a patent for $595,000. The patent is being
amortized over its remaining legal life of 15 years expiring on January 1, 2024. During
2012, Hess determined that the economic benefits of the patent would not last longer
than ten years from the date of acquisition. What amount should be reported in the
statement of financial position for the patent, net of accumulated amortization, at
December 31, 2012?
$408,000

25. On January 1, 2013, Warren Co. purchased a P600,000 machine, with a five-year useful
life and no salvage value. The machine was depreciated by an accelerated method for
book and tax purposes. The machine's carrying amount was P240,000 on December 31,
2014. On January 1, 2015, Warren changed to the straight line method for financial
reporting purposes. Warren can justify the change. Warren's income tax rate is 30%.
In its 2015 income statement, what amount should Warren report as the cumulative
effect of this change?

PO
26. The effect of a change in an accounting estimate shall be recognized prospectively by
including it in profit or loss in:
The period of the change, if the change affects that period only.
27. When it is difficult to distinguish between a change in estimate and in accounting policy,
then an entity should
Treat the entire change as a change in estimate with appropriate disclosure
28. When an entity changed from the straight line method of depreciation for previously
recorded assets to the double declining balance method, which of the following should
be reported?

Change in accounting estimates.

29. In 2009, a firm changed from straight-line (SL) method of depreciation to double
declining balance (DDB). The firm's 2008 and 2009 comparative financial statements will
reflect method or methods
2008 2009

SL DDB
30. On January 1, 2008, Lake Co. purchased a machine for $792,000 and depreciated it by
the straight-line method using an estimated useful life of eight years with no residual
value. On January 1, 2011, Lake determined that the machine had a useful life of six
years from the date of acquisition and will have a residual value of $72,000. An
accounting change was made in 2011 to reflect these additional data. The accumulated
depreciation for this machine should have a balance at December 31, 2011 of?
$438,000.
31. On January 1, 2013, Bray Company purchased for P240,000 a machine with a useful life
of ten years and no salvage value. The machine was depreciated by the double
declining balance method and the carrying amount of the machine was P153,600 on
December 31, 2014. Bray changed to the straight-line method on January 1, 2015. Bray
can justify the change. What should be the depreciation expense on this machine for the
year ended December 31, 2015?

P19,200

32. If a change in accounting estimates affects balance sheet items, PAS 8 Accounting
Policies, Changes in Accounting Estimates, and Errors, requires that the following
disclosures be made:
I.The nature of the change.
II. The amount of the change that has an effect in the current period.
III. The amount of the change that affects future periods.
IV.The effect of the change on comparative numbers.

I, II and III only.

33. On January 1, year 1, Flax Co. purchased a machine for $528,000 and depreciated it by
the straight-line method using an estimated useful life of eight years with no salvage
value. On January 1, year 4, Flax determined that the machine had a useful life of six
years from the date of acquisition and will have a salvage value of $48,000. An
accounting change was made in year 4 to reflect these additional data. The accumulated
depreciation for this machine should have a balance at December 31, year 4, of?
$292,000

34. A change in amortization rate, such as on a copyright should be accounted for?

prospectively
35. The effect of a changes in the expected pattern of consumption of economic benefits of
a depreciable assets shall be?

Included in the determination of income or loss in the period of change and future period.
36. The estimated life of building that has been depreciated 30 years of an originally
estimated life of 50 years has been revised to a remaining life of 10 years. Based o this
information the accountant shall

Depreciate the remaining book value over the remaining life of the asset.
37. Which of the following should be reported as a change in accounting estimates?

Increase in the rate applied to net credit sales from one percent to two percents in
determining losses from uncollectible receivables.
38. Which of the following is not a justifications for a change in depreciations method?

To conform with the depreciations method prevalent in a particular industry.

39. Per PAS 8, it is an adjustment of the carrying amount of an asset or a liability, or the
amount of the periodic consumption of an asset, that results from the assessment of the
present status of, and expected future benefits and obligations associated with, assets
and liabilities.

Change in accounting estimate

40. An accounting estimate may be revised

if changes occur regarding the circumstances on which the estimate was based.
41. On January 1, 2009, Knapp Corporation acquired machinery at a cost of $250,000.
Knapp adopted the double-declining balance method of depreciation for this machinery
and had been recording depreciation over an estimated useful life of ten years, with no
residual value. At the beginning of 2012, a decision was made to change to the straight-
line method of depreciation for the machinery. The depreciation expense for 2012 would
be?

$18,286

42.
Accounting Policies
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 change in accounting policy and account for it retrospectively

2. Per PAS 8, these are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
Accounting policies
3. On December 31, 2011 Dean Company changed its method of accounting for inventory
from the average cost method to the FIFO method. This change caused the 2011
beginning inventory to increase by $420,000. The cumulative effect of this accounting
change to be reported for the year ended 12/31/11, assuming a 40% tax rate, is
$252,000

4. The effect of a change in accounting policy that is inseparable from the effect of a
change in accounting estimates shall be reported

As a component of income from continuing operations in the period of change and future
periods if the change affects both
5. Jacob, Inc., changed from the average cost to the FIFO cost flow assumption in 2012.
the increase in the prior year's income before taxes is €1,100,000. The tax rate is 35%.
Jacob's 2012 journal entry to record the change in accounting policy will include.

a credit to deferred Tax Liability for €385,000

6. Which of the following statement is not correct?

A change from an in appropriate accounting policy to a proper one shall be accounted

for as an accounted for as a changed in accounting policy
7. During 20CY, Titus Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method were
as follows:
 Ignoring income tax, in its 20CY statement of retained earnings, what amount should
Titus report as the cumulative effect of this accounting change?

600,000 addition

8. On December 31, 20CY Dean Company changed its method of accounting for inventory
from the average cost method to the FIFO method. This change caused the 20CY
beginning inventory to increase by P420,000. The cumulative effect of this accounting
change to be reported for the year ended 12/31/CY, assuming a 40% tax rate, is

P252,000
9. Denny Company completed construction of its warehouse on January 1, 2008 at a cost
of P2,000,000. Denny Company uses the cost model as its accounting policy. The
warehouse was to be depreciated under the straight-line method over useful period of 10
years with no expected residual value.
On January 1, 2011 Denny Company changes its accounting policy in the measurement
of its warehouse from cost model to revalued model. The following information was
derived from the independent appraiser hired by Denny Company: (a) no changes in the
original useful life of the warehouse; (b) the expected residual value remains at PO; (c)
sound value of the warehouse on January 1, 2010 and January 1, 2011 were computed
as P2,236,500 and P2,520,000.
The revaluation surplus recognized on January 1, 2011 as a result of the change in
accounting policy from cost to revalued model is

1,120,000
10. During 2011, a construction company changed from the cost-recovery method to the
percentage-of-completion method for accounting purposes but not for tax purposes.
Gross profit figures under both methods for the past three years appear below:

Assuming an income tax rate of 40% for all years, the affect of this accounting change
on prior periods should be reported by a credit of

$390,000 on the 2011 retained earnings statement.

11. An entity changed from an accounting principles that is not generally accepted to one
that is generally accepted. The effect of the change shall be reported, net of applicable
income tax, in the current year

Retained earnings statement as an adjustment of the opening balance

12. Denny Company completed construction of its warehouse on January 1, 2008 at a cost
of P2,000,000. Denny Company uses the cost model as its accounting policy. The
warehouse was to be depreciated under the straight-line method over useful period of 10
years with no expected residual value.
On January 1, 2011 Denny Company changes its accounting policy in the measurement
of its warehouse from cost model to revalued model. The following information was
derived from the independent appraiser hired by Denny Company: (a) no changes in the
original useful life of the warehouse; (b) the expected residual value remains at PO; (c)
sound value of the warehouse on January 1, 2010 and January 1, 2011 were computed
as P2,236,500 and P2,520,000.
The depreciation expense for 2010 in the 2011 comparative income statement is
200,000
13. During 2015, Orca Corp. decided to change from the FIFO method of inventory valuation
to the weighted-average method. Inventory balances under each method were as
follows:

Orca’s income tax rate is 30%

In its 2015 financial statements, what amount should Orca report as the gain or loss on
the cumulative effect of this accounting change?

PO
14. Iceman Corporation began operations in 2010. The company has been using the first-in,
first-out method in costing its raw materials. However, during 2012, Iceman Corporation
decided to change to average costing method. Inventory balances under each method
were as follows:

In its 2012 statement of changes in retained earnings, Iceman Corporation should report
a cumulative effect of this accounting change of

P64,000

15. During 2011, Eden Company made the following accounting policy changes: • Change
from straight-line method to the declining balance method of depreciation for its
manufacturing equipment. The equipment was acquired on January 1, 2009 for
P1,200,000; expected useful life of 10 years with no expected residual value. • Change
from completed contract to percentage of completion with respect to a specially made
unit for a contract price of P750,000. The total estimated cost of manufacturing the unit
 remained the same at P400,000 since Eden Company started on the project in 2009.
Cost incurred for 2009, 2010 and 2011 were P120,000, 180,000 and P100,000
respectively.
The adjustment to the opening balance of the retained earnings as shown in the 2011
statement of changes in equity as a result of the above-mentioned changes in
accounting policy is

262,500

16. Per PAS 8, it is applying a new accounting policy to transactions, other events and
conditions as if that policy had always been applied.
Retrospective application

17.
Non-Adjusting Events
1. Each of the following events occurred after the reporting date of 31 March 2CY, but
before the financial statements were authorised for issue. Which would be treated as a
non-adjusting event under IAS 10 Events After the Reporting Period?
Select one:

A public announcement in April 20CY of a formal plan to discontinue an operation which

had been approved by the board in February 20CY.
2. International Inc. deals extensively with foreign entities, and its financial statements
reflect these foreign currency transactions. Subsequent to the balance sheet date, and
before the "date of authorization" of the issuance of the financial statements, there were
abnormal fluctuations in foreign currency rates. International Inc. should

Disclose the post-balance sheet event in footnotes as a non-adjusting event.

3. A new drug named "EEE" was introduced by Genius Inc. in the market on December 1,
20Y1. Genius Inc.'s financial year ends on December 31, 20Y1. It was the only company
that was permitted to manufacture this patented drug. The drug is used by patients
suffering from an irregular heartbeat. On March 31, 20Y2, after the drug was introduced,
more than 1,000 patients died. After a series of investigations, authorities discovered
that when this drug was simultaneously used with "BBB," a drug used to regulate
hypertension, the patient's blood would clot and the patient suffered a stroke. A lawsuit
for P100,000,000 has been filed against Genius Inc. The financial statements were
authorized for issuance on April 30, 20Y2. Which of the following options is the
appropriate accounting treatment for this post-balance sheet event under PAS 10?

The entity should disclose P100,000,000 as a "contingent liability" because it is a

present obligation with an improbable outflow.
4. Most likely a non-adjusting event

Decline in market value of investments between the end of the reporting period and the
date when the financial statements are authorized for issue
5. ABC Ltd. decided to operate a new amusement park that will cost P1 million to build in
the year 2011. Its financial year-end is December 31, 20Y1. ABC Ltd. has applied for a
letter of guarantee for P700,000. The letter of guarantee was issued on March 31, 2012.
The audited financial statements have been authorized to be issued on April 18, 2012.
The adjustment required to be made to the financial statement for the year ended
December 31, 20Y1, should be

Do nothing
6. Excellent Inc. built a new factory building during 2011 at a cost of P20 million. At
December 31, 20Y1, the net carrying value of the building was P19 million. Subsequent
to year-end, on March 15, 2012, the building was destroyed by fire and the claim against
the insurance company proved futile because the cause of the fire was negligence on
 the part of the caretaker of the building. If the date of authorization of the financial
statements for the year ended December 31, 20Y1, was March 31, 2012, Excellent Inc.
Should

Disclose this non-adjusting event in the footnotes

7.
Adjusting Events
1. Most likely an adjusting event

The discovery of fraud or errors that show that the financial statements are incorrect
2. If dividends are declared after the reporting period but before the financial statements
are authorized for issue

No liability shall be recognized at the end of the reporting period

3. Which of the following subsequent events would require adjustment of the accounts
before issuance of the financial statements?

Loss on a lawsuit, the outcome of which was deemed uncertain at year end
4. If dividends are declared after the reporting period but before the financial statements
are authorized for issue

No liability shall be recognized at the end of the reporting period

5. Thessalonians Company is completing the preparation of its draft financial statements
for the year ended December 31, 2009. The financial statements are authorized for issue
on March 31, 2010.
On March 15, 2010, a dividend of P 1,750,000 was declared and a contractual profit
share payment of P 350,000 was made, both based on the profit for the year ended
December 31, 2009.
On February 1, 2010, a customer went into liquidation having owed the entity P 340,000
for the past 5 months. No allowance had been made against this debt in the draft
financial statements.
On March 20, 2010, a manufacturing plant was destroyed by fire resulting in financial
loss of P 2,600,000.
The profit or loss for the year ended December 31, 2009 to reflect adjusting events is

690,000

6. • The following data are provided by Colossians Company. The end of the reporting
period is December 31, 2009 and the financial statements are authorized for issue on
March 15, 2010.
• On December 31, 2009, Colossians Company had a receivable of P 400,000 from a
customer that is due 60 days after the end of reporting period. On January 15, 2010, a
receiver was appointed for the said customer. The receiver informed Colossians that the
P 400,000 would be paid in full by June 30, 2010.
 • Colossians Company measures its investments in listed shares as held for trading at
fair value through profit or loss. On December 31, 2009, these investments were
recorded at the market value of P 5,000,000. During the period up to February 15, 2010,
there was a steady decline in the market value of all the shares in the portfolio, and at
February 15, 2010, the market value had fallen to P 2,000,000.
• Colossians Company had reported a contingent liability on December 31, 2009 related
to a court case in which Colossians Company was the defendant. The case was not
heard until the first week of February 2010. On February 11, 2010, the judge handed
down a decision against Colossians Company. The judge determined that Colossians
Company was liable to pay damages and costs totaling P 3,000,000.
• On December 31, 2009, Colossians Company had a receivable from a large customer
amounting to P3,500,000. On January 31, 2010 Colossians Company was advised by
the liquidator of the customer that the customer was insolvent and would be unable to
repay the full amount owed.. The liquidator advised Colossians Company in writing that
only 10% of the receivable will be paid on April 30, 2010. Colossians Company should
report a total amount of "adjusting events" on December 31, 2009 at
6,150,000

7. Per PAS 10 Events after the Reporting Period, these are events that provide evidence of
conditions that existed at the end of the reporting period

Adjusting events
8. At the balance sheet date, December 31, 20Y1, ABC Inc. carried a receivable from XYZ,
a major customer, at P10 million. The "authorization date" of the financial statements is
on February 16, 20Y2. XYZ declared bankruptcy on Valentine's Day (February 14,
2012). ABC Inc. will

Make a provision for this post-balance sheet event in its financial statements (as
opposed to disclosure in footnotes).
9. Timothy Company carried a provision of P 2,000,000 in its draft financial statements on
December 31, 2009 in relation to an unresolved court case. On January 31, 2010, when
the financial statements on December 31, 2009 had not yet been authorized for issue,
the case was settled and the court decided the final total damages payable by Timothy
to be P2,800,000.
10. The amount of adjustment to the December 31, 2009 statement of financial position in
relation to this event is

800,000

11.
Financing Activities
1. In a cash flow statement, which of the following items is reported as a cash flow from
financing activities?
I. Payment to retire mortgage notes
II. Interest payments on mortgage notes
III. Dividend payments

I and III

2. Napier Co. provided the following information on selected transactions during 2018:

The net cash provided by financing activities during 2018 is?

$3,600,000.

3. Dividends paid to stockholders are reported on the cash flow statement as

Financing activity
4. The balance in retained earnings at December 31, 20Y1 was P1,440,000 and at
December 31, 20Y2 was P1,164,000. Profit for 20Y2 was P1,000,000. A stock dividend
was declared and distributed which increased common stock P500,000 and paid-in
capital P220,000. A cash dividend was declared and paid. The amount of the cash
dividend was

P556,000
5. In a cash flow statement, which of the following items is reported as a cash flow from
financing activities?
I. Payment to retire mortgage notes
II. Interest payments on mortgage notes
III. Dividend payments

I and III
6. During 2009, Siquijor has the following activities related to its financial operations:

In the 2009 statement of cash flows, net cash used in financing activities should be
P6,000,000

7. Selected information from Dinkel Company's 2018 accounting records is as follows:

 Dinkel's statement of cash flows for the year ended December 31, 2018, would show net
cash provided (used) by financing activities of?

$2,750,000

8. The following information was taken from the 2018 financial statements of Dunlop
Corporation:

In its statement of cash flows for the year ended December 31, 2018, what amount
should Dunlop report as proceeds from issuance of bonds payable?

$4,480,000

9. Smiley Corp.'s transactions for the year ended December 31, 2018 included the
following:
 Smiley's net cash used in financing activities for 2018 was?

$350,000.

10. During 2018, Stout Inc. had the following activities related to its financial operations:

The amount of net cash used in financing activities to appear in Stout's statement of
cash flows for 2018 should be?

$3,804,000.

11. A company borrows P10,000 and signs a 90-day nontrade note payable. In preparing a
statement of cash flows (indirect method), this event would be reflected as a(n)
cash inflow from financing activities.
12. Which of the following would be classified as a financing activity on a statement of cash
flows?
 Payment of a bond payable
13. Warner Limited had the following cash flows during a reporting period:

What is the amount of the cash flows in relation to financing activities of Warner Limited
for the reporting period?

net cash outflow $155 000;

14. Lange Co. provided the following information on selected transactions during 2009:

The net cash provided by financing activities during 2009 is?

P370,000

15. Corinthians Company prepared the following balance sheet data.

• Cash needed to purchase new equipment and to improve the company's working
capital position was raised by borrowing from the bank with a long-term note.
• Allowance for bad debts on December 31, 2012 and December 31, 2013 were P25,000
and P40,000 respectively. The bad debts expense for 2013 amounted to P40,000 while
write-offs amounted to P25,000
•Equipment costing P75,000 with a book value of P15,000 was sold for P18,000; the
gain on sale was included in net income.
•Corinthians Company issued 10,000 common shares as settlement for the acquisition
of a building acquired in June 2013. The building's fair value at the time of purchase was
P300,000 while the shares market value was P28.75
• The company paid cash dividends of P110,000 and reported earnings of P300,000 for
2013. There were no entries in the retained earnings account other than to record the
dividend and net income for the year.
The cash provided by (used in ) financing activities is
640,000
16. During 2013, Jerwin has the following activities related to its financial operations:

In the 2013 statement of cash flows, net cash used in financing activities should
be
P6,000,000

17. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018.
Included in net income was a gain on early extinguishment of debt of $120,000 related to
bonds payable with a book value of $2,400,000. Each of the following accounts
increased during 2018:
 What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended
December 31, 2018?

$2,520,000

18. Cash outflows for financing activities include all, except

Interest payment on loans

19.
Investing Activities
1. During 2018, equipment was sold for $468,000. The equipment cost $786,000 and had a
book value of $432,000. Accumulated Depreciation-Equipment was $2,061,000 at
12/31/17 and $2,205,000 at 12/31/18. Depreciation expense for 2018 was

$498,000.

2. Cash inflows from investing result from

decreases in noncash assets.

3. Equipment which cost $426,000 and had accumulated depreciation of $228,000 was
sold for $222,000. This transaction should be shown on the statement of cash flows
(indirect method) as a(n)
deduction from net income of $24,000 and a $222,000 cash inflow from investing
activities.

4. In 2013, a fire completely destroyed a building belonging to Jiffrey Company. The cost of
the building was P8,000,000 and had accumulated depreciation of P5,000,000 at the
time of fire. Jiffrey received a cash settlement from an insurance company and reported
a casualty loss of P500,000. In its 2013 statement of cash flows, the net change
reported in the cash flows from investing activities should be

P2,500,000 increase
5. Napier Co. provided the following information on selected transactions during 2018:

The net cash provided (used) by investing activities during 2018 is

$(1,100,000).

6. Hager Company sold some of its plant assets during 20CY. The original cost of the plant
assets was P900,000 and the accumulated depreciation at date of sale was P840,000.
The proceeds from the sale of the plant assets were P90,000. The information
concerning the sale of the plant assets should be shown on Hager's statement of cash
flows (indirect method) for the year ended December 31, 20CY, as a(n)

subtraction from Profit of P30,000 and a P90,000 increase in cash flows from investing
activities.
7. Smiley Corp.'s transactions for the year ended December 31, 2018 included the
following:

Smiley's net cash used in investing activities for 2018 was

$500,000.

8. Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018.
Included in net income were depreciation expense of $16,800 and a gain on sale of
equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated
depreciation of $48,000. Each of the following accounts increased during 2018:

What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for
the year ended December 31, 2018?

$22,400
9. Marie Company provided the following information for the current year:
*Purchased a building for P1,200,000. Paid P400,000 and signed a mortgage with the
seller for the remaining P800,000.
*Executed a debt-equity swap and replaced a P600,000 loan by giving the lender
ordinary shares worth P600,000 on the date the swap was executed.
*Purchased land for P1,000,000. Paid P350,000 and issued ordinary shares worth
P650,000.
*Borrowed P550,000 under a long-term loan agreement. Used the cash from the loan
proceeds as follows: P150,000 for the purchase of additional inventory, P300,000 to pay
cash dividend, and P100,000 to increase the cash balance.
What amount should be reported as net cash used in investing activities in the statement
of cash flows?

750,000

10. In 20CY, a typhoon completely destroyed a building belonging to Carpet Corporation.

The building cost P2,500,000 and had accumulated depreciation of P1,200,000 at the
time of the loss. carpet received a cash settlement from the insurance and reported a
loss of P525,000.
In Carpet's 20CY cash flow statement, how much would be the net changes that would
be reported in the cash flows from investing activities section?
Select one:

P775,000 increase

11. In preparing Titan Inc.'s statement of cash flows for the year ended December 31, 2018,
the following amounts were available:
 What amount should be reported on Titan, Inc.'s statement of cash flows for investing
activities?
$615,000

12. During 2018, equipment was sold for $468,000. The equipment cost $786,000 and had a
book value of $432,000. Accumulated Depreciation-Equipment was $2,061,000 at
12/31/17 and $2,205,000 at 12/31/18. Depreciation expense for 2018 was
$498,000.

13. In 2009, a fire completely destroyed a building belonging to Negros Company. The cost
of the building was P8,000,000 and had accumulated depreciation of P5,000,000 at the
time of fire. Negros received a cash settlement from an insurance company and reported
a casualty loss of P500,000. In its 2009 statement of cash flows, the net change
reported in the cash flows from investing activities should be?

P2,500,000 increase

14. The following information on selected cash transactions for 2018 has been provided by
Mancuso Company:
 What is the cash provided (used) by investing activities for the year ended December 31,
2018, as
a result of the above information?
$99,000
15. In preparing a statement of cash flows, which of the following transactions would be
considered an investing activity?
Sale of a business segment
16. Marcum Corp.'s transactions for the year ended December 31, 2009 included the
following:

Marcum's net cash used in investing activities for 2009 was

P70,000

17. In a statement of cash flows, the cash flows from investing activities section should
report

a major repair to machinery charged to accumulated depreciation.

18. The following cash flow activities are regarded as investing cash flows:

acquisition of subsidiary net of cash acquired;

19. Antique Corp. reported net income of P420,000 for 2009. Changes occurred in several
balance sheet accounts as follows:
 In Antique's 2009 statement of cash flows, net cash used in investing activities should be
P 2,800

20. In a statement of cash flows, receipts from sales of property, plant, and equipment would
be classified as cash inflows from
investing activities.
21. Corinthians Company prepared the following balance sheet data.
• Cash needed to purchase new equipment and to improve the company's working
capital position was raised by borrowing from the bank with a long-term note.
• Allowance for bad debts on December 31, 2012 and December 31, 2013 were P25,000
and P40,000 respectively. The bad debts expense for 2013 amounted to P40,000 while
write-offs amounted to P25,000
• Equipment costing P75,000 with a book value of P15,000 was sold for P18,000; the
gain on sale was included in net income.
• Corinthians Company issued 10,000 common shares as settlement for the acquisition
of a building acquired in June 2013. The building's fair value at the time of purchase was
P300,000 while the shares market value was P28.75
• The company paid cash dividends of P110,000 and reported earnings of P300,000 for
2013. There were no entries in the retained earnings account other than to record the
dividend and net income for the year.
The cash provided by (used in) investing activities is
(922,500)
22. Equipment that cost $875,000 and had a book value of $390,000 was sold for $450,000.
Data from the comparative balance sheets are:

Equipment purchased during 2018 was

$1,400,000.

23. Capiz Company had the following activities during 2009:

In the 2009 statement of cash flows, net cash used in investing activities should be?
P3,500,000
24. Xanthe Corporation had the following transactions occur in the current year:

How many of the above items will appear as a cash inflow from investing activities on a
statement of cash flows for the current year?
Three items
25. Fleming Company provided the following information on selected transactions during
2018:

The net cash provided (used) by investing activities during 2018 is?
$(600,000).

26.
Operating Activitiesf
1. Brett Limited had a net profit after tax of $850 000 for the financial year. Included in this
profit was:
Depreciation expense of $120 000
Gain on sale of Investments of $28 000
Also, Accounts Receivable increased by $39 000 and Inventories decreased by $12 000.
The cash flow from operating activities during the year was:

$915 000;

2. The direct method

Shows each major class of gross cash receipts and gross cash payments.
3. A change in unearned revenue would be classified into which of the following categories
for purposes of disclosure in the statement of cash flow?

As an item reconciling earnings and operating cash flows

4. How should a gain from the sale of used equipment for cash be reported in a cash flow
statement using the indirect method?

In operating activities as a deduction from income

5. Katsis Limited had the following cash flows during the reporting period:

The net cash connected to operating activities was:

P211,100
6. During the financial year, Cresswell Limited had a Cost of Sales amounting to $260 000.
Beginning and ending balances were:

A discount of $2 000 for prompt payment was received. The amount of cash paid for
goods purchased during the year was:
$259 000;

7. The following information is available for Santana Company for the current year:
 How much was the cash flow operating activities?
3,500,000

8. Word Corporation is preparing its statement of cash flows and has provided this
information:

The net cash provided by operating activities is

P600,000
9. Which of the following is not added to net income as an adjustment to reconcile net
income to cash from operating activities in the statement of cash flows?

Increase in deferred tax asset

10. Which should not be disclosed in the cash flow statement using the indirect method?

Cash flow per share

11. When preparing a statement of cash flows using the direct method, amortization of
patent is?

included with supplemental disclosures of noncash transactions.

12. When preparing a reconciliation of net income to cash from operations, an increase in
the ending inventory will result in an adjustment to reported net income because
The net increase in inventory is part of the difference between cost of goods sold and
cash paid to suppliers
13. Using the indirect method, cash flows from operating activities would be increased by
which of the following?

Decrease in accounts receivable

14. Mahogany Company had the following accounts balances for the current year:
 The statement of cash flows should show net cash flow from operating activities at

4,400,000

15. Black town Company had the following account balances for the current year:
 What was black town Company's net income for the current year?
3,300,000

16. Cash advances and loans from bank overdrafts should be reported as:
Operating activities.
17. Corinthians Company prepared the following balance sheet data.
*Cash needed to purchase new equipment and to improve the company's working
capital position was raised by borrowing from the bank with a long-term note.
*Allowance for bad debts on December 31, 2012 and December 31, 2013 were P25,000
and P40,000 respectively. The bad debts expense for 2013 amounted to P40,000 while
write-offs amounted to P25,000
*Equipment costing P75,000 with a book value of P15,000 was sold for P18,000; the
gain on sale was included in net income.
* Corinthians Company issued 10,000 common shares as settlement for the acquisition
of a building acquired in June 2013. The building's fair value at the time of purchase was
P300,000 while the shares market value was P28.75
*The company paid cash dividends of P110,000 and reported earnings of P300,000 for
2013. There were no entries in the retained earnings account other than to record the
dividend and net income for the year.
The cash provided by (used in) operating activities is
126,000
18. Corinthians Company prepared the following balance sheet data.
 • Cash needed to purchase new equipment and to improve the company's working
capital position was raised by borrowing from the bank with a long-term note.
• Allowance for bad debts on December 31, 2012 and December 31, 2013 were P25,000
and P40,000 respectively. The bad debts expense for 2013 amounted to P40,000 while
write-offs amounted to P25,000
• Equipment costing P75,000 with a book value of P15,000 was sold for P18,000; the
gain on sale was included in net income.
• Corinthians Company issued 10,000 common shares as settlement for the acquisition
of a building acquired in June 2013. The building's fair value at the time of purchase was
P300,000 while the shares market value was P28.75
• The company paid cash dividends of P110,000 and reported earnings of P300,000 for
2013. There were no entries in the retained earnings account other than to record the
dividend and net income for the year.
The cash provided by (used in) investing activities is
(922,500)

19. Amortization of premium on bonds payable is subtracted from net income in the
reconciliation of net income to cash flows from operation because

Interest expense understates the cash paid for interest by the amount of the premium
amortization
20. Sun Company provided the following data for the preparation of the statement of cash
flows for the current year:
 Using the indirect method, how much should be reported as cash flow from operating
activities?

550,000

21. How should gain on sale of an office building owned by the entity be presented in a
statement of cash flows?

As a deduction from the net income in the operating activities section prepaid under the
indirect method
22. Aklan Company reported net income of P10,000,000 for 2009. Changes occurred in
several balance sheet accounts during 2009 as follows:

In the 2009 cash flow statement, the cash provided by operating activities should be
P7,400,000

23. Kersley Company has provided the following account balances for the preparation of the
statement of cash flows for the current year:
 Kersley's net income for the year is P7,500,000. Net cash provided by operating
activities
should be

7,570,000

24. Which of the following cannot be classified as Cash flows from operating activities?
Cash receipts from short term borrowings.
25. Cash receipts from royalties, fees and commissions and other revenue are

Cash inflows from operating activities

26. In a cash flow statement using the indirect approach for operating activities, an increase
in inventory should be presented as

Deduction from net income

27. Using the indirect method, cash flows from operating activities would be increased by
which of the following?

Decrease in accounts receivable

28. An entity other than a financial institution receives dividends from investment in shares.
How should it disclose the dividends received in the statement of cash flows?

Either as operating cash inflow or as investing cash inflow.

29. Box Company provided the following information during the current year.
 What is the net cash provided by operating activities for the current year?
3,000,000

30. The following was taken from the comparative financial statements of Champaca
Company for the current year:
 Under the indirect method, how much should be reported as net cash flow from
operating activities?
1,500,000

31. Aries Limited had a net profit after tax of P850,000 for the financial year. Included in this
profit was:
Depreciation expense of P120,000
Gain on sale of Investments of P28,000
Also, Accounts Receivable increased by P39,000 and Inventories decreased by
P12,000. The cash flow from operating activities during the year was:

P915,000
32. The following information is available from the financial statement of Arlyn Company for
the current year:

What is Arlyn Company's net cash flow from operating activities?

5,620,000

33. Top Toms Co has been trading for a number of years and is currently going through a
period of expansion. An extract from the statement of cash flows for the year ended 31
December 20CY for Top Toms Co is presented as follows (in thousands):
 Which of the following statements is correct according to the extract of Top Toms Co's
statement of cash flows?
Select one:

Net cash generated from operating activities has been used to fund the additions to non-
current assets
34. Seawall Company provided the following data for the operation of the statement of cash
flows for the current year:

How much was reported as cash flow from operating activities?

4,200,000

35. Which of the following will be classified as cash flows from operating activities?
Cash receipts from royalties, fees, commissions and other revenue.
36. During the financial year Marina Limited had sales of P720 000. The beginning balance
of Accounts receivable was P103 000, and the ending balance was P139 000. Bad
 debts amounting to P34 000 were written off during the period. The cash receipts from
customers during the year amounted to:
P650 000;
37. Fragile Company uses the direct method to prepare it statement of cash flows. The entity
had the following cash flows during the current year:

The net cash provided by operating activities is?

600,000

38. The following information pertains to Lax Company during the current year.
 What is the net cash provided by operating activities for the current year using direct
method?
3,000,000

39. Sinulog Company has provided the following 2009 current account balances:

Sinulog's net income for 2009 was P8,000,000. Net cash provided by operating activities
should be
P7,350,000

40. Corinthians Company prepared the following balance sheet data.

• Cash needed to purchase new equipment and to improve the company's working
capital position was raised by borrowing from the bank with a long-term note.
• Allowance for bad debts on December 31, 2012 and December 31, 2013 were P25,000
and P40,000 respectively. The bad debts expense for 2013 amounted to P40,000 while
write-offs amounted to P25,000
• Equipment costing P75,000 with a book value of P15,000 was sold for P18,000; the
gain on sale was included in net income.
• Corinthians Company issued 10,000 common shares as settlement for the acquisition
of a building acquired in June 2013. The building's fair value at the time of purchase was
P300,000 while the shares market value was P28.75
• The company paid cash dividends of P110,000 and reported earnings of P300,000 for
2013. There were no entries in the retained earnings account other than to record the
dividend and net income for the year.
The cash provided by (used in) financing activities is

640,000
41. Which of the following cash flows does not appear in a cash flow statement using
indirect method?

Cash received from customers

42. In preparing a statement of cash flows under the indirect method, cash flows from
operating activities

Can be calculated by appropriately adding to or deducting from net income those items
in the income statement that do not affect cash.
43. Sales, P102,000; Cost of goods sold, P40,000; Wages, P31,800; Purchase of land,
P8,000; Increase in accounts receivable, P3,600; Depreciation expense, P4,000; Gain
on sale of equipment, P1,400; Issuance of bonds, P16,000 at face value; Increase in
accounts payable, P5,200; Patent amortization expense, P2,600; Decrease in inventory,
P2,000; Loss on sale of land P1,000; Decrease in wages payable, P600; Declaration
and payment of dividend, P6,800. Net cash flows from operating activities is?
P33,200
44. Supplemental disclosures required only when the statement of cash flows is prepared
using the indirect method include

Amounts paid for interest and taxes

45. In preparing a statement of cash flows, the reconciliation of net income to cash from
operating activities does not include

Adjustment to record debt or equity securities classified as available for sale securities
46. The net income for the current year for Roger Company was P3,520,000. Additional data
are as follows:

What should be the net cash provided by operating activities in the statement of cash
flows for the current year using the indirect method?
5,420,000
47. Bumper Company's statement of cash flows for the current year shows cash flow from
operations of P1,840,000. The following items also appear on the statement of financial
position and income statement.

What is the net income for the current year?

1,360,000

48. Star Company provided the following data for the preparation of statement of cash flows
for the current year using the direct method:
 How much was the cash flow for operating activities?

430,000

49.
Notes of FS
1. Which information should be disclosed in the summary of significant accounting policies?

Criteria for determining which investments are treated as cash equivalents.

2. The presentation of the notes to the financial statements in a systematic manner

is mandatory, as far as is practicable

3. Which of the following about note disclosures are considered mandatory rather than
voluntary (optional)?
I. Disclosure of information about key sources of estimation uncertainly
II. Disclosure of information about judgement that management has made in the process
of applying accounting policies.
III. The presentation of notes to the financial statements in a systematic manner.
IV. The cross-reference between each line in the financial statements and any related
information disclosed in the notes to the financial statements.

I, II, III and IV

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

is mandatory
5.
Statement of Changes in Equity
1. Which of the following should be presented in the statement of changes in equity?

All of the above

2. The elements of the equity section of the statement of financial position should be
classified primarily by:
Source
3. Choose the correct statement
The elements in the owners' equity section of a statement of financial position are
classified primarily by source.
4. Which of the following reports is not a component of the financial statements according
to PAS 1?

Director's Report.
5. On December 31, 2010, the stockholders' equity section of Alexandra Corp was as
follows:

On March 31, 2011, Alexandra declared a 10% stock dividend. Accordingly, 900 shares
were issued when the fair market value was P16 per share. For the 3 months ended
March 31, 2011, Alexandra sustained a net loss of P32,000. The balance of Alexandra's
retained earnings as of March 31, 2011 should be
P99,600

6. Changes in account balances of Agamata Business Consultancy (ABC) for 2013 are as
follows:
 What should be the 2013 net income, assuming there were no entries in the retained
earnings account except for the net income and a dividend declaration of P1,000,000
which was paid in the current year?

P2,000,000

7. Retained earnings is a subcategory of

Equity
8. PAS 1 requires the following items to appear on the face of the Statement of Changes in
Equity:
The net amount of cash from the issue of my securities during the period
The cumulative effect of changes in accounting policy and the correction of errors
Total comprehensive income for the period
Profit or loss for the period

I,II,III and IV
9.
Statement of Comprehensive Income - Income Statement/ Profit or Loss from Continuing
Operations
1. Which of the following terms cannot be used to describe a line item in the statement of
comprehensive income?

extraordinary item
2. On July 1, 20CY, Rica Company handed over to a client a new computer system. The
contract price for the supply of the system and after-sales support for 12 months was
P1,000,000. Rica Company estimates the cost of the after-sales support at P150,000
and it normally marks up such cost by 50%.
The total revenue reported by Rica Company in its 20CY statement of comprehensive
income is

887,500

3. Rica Company reported the following changes in all the account balances for the current
year, except for retained earnings:

There were no entries in the retained earnings account except for Profit and a dividend
declaration of P190,000 which was paid in the current year. What is the Profit for the
current year?
 200,000

4. The following information provided by Maricar Company in preparing this year's

comprehensive income statement:
The amount included in the proft or loss section of the current year's comprehensive
income statement is
3,050,000
5. An entity presents an analysis of expenses using a classification based on

either the nature of expenses or the function of expenses within the entity, whichever
provides information that is reliable and more relevant
6. Separate line items in an analysis of expenses by function include

cost of sales, administrative expenses, distribution expenses etc.

7.
General Features of FS
1. An entity decided to extend the report period from a 12-month period to a 15-month
period. Which of the following is not required in case of change in reporting period?

The entity 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.
2. When the classification of items in its financial statements is changed, the entity

must reclassify the comparative amounts, unless it is impracticable to do so

3. Items of dissimilar nature or function

must be presented separately in financial statements if those items are material

4. Which of the following statements is incorrect in relation to fair presentation?

An entity can rectify in appropriate accounting policies either by disclosure of the

accounting policies used or by notes or explanatory material
5.
Concepts of Capital and Capital Maintenance
1. The following statements are correct with regard to the concept of financial capital
maintenance, except:

Holding gains may not be recognised as such, however, until the assets are recognized
in an exchange transaction.
2. The financial capital concepts requires that net assets shall be stated at

Historical cost
3. The physical capital maintenance concept required the adoptions of which
measurements basis?

Current cost
4. Which of the following statements is incorrect?

And upward change in the value of its assets is profit.

5. Which of the following statements is incorrect?

The concepts of capital maintenance include the financial capital maintenance and unit
capital maintenance.
6. Under the physical capital concepts, a profit is earned only if

The physical productive capacity of the entity at the end of the period exceeds the
physical productive capacity at the beginning of the period after excluding any
distributions to and contributions from owners
7. Which of the following statements is incorrect?

The selection of the appropriate concept of capital by an entity should be based on the
needs of the management of its financial statements.
8. Under the financial capital concepts, a profit is earned only if

The monetary amount of net asset at the end of the period exceeds the monetary
amount of net asset at the beginning of the period, after excluding any distributions to
and contributions from owners
9. Which of the following statements is incorrect?

Selection of the basis under this concept is independent on the type of financial capital
that the entity is seeking to maintain.
10. Which of the following statements regarding the concept of capital maintenance is
incorrect?

Only outflows of assets in excess of amounts needed to maintain capital may be

regarded as profit and therefore as a return on capital.
11.
Elements of FS (Definition, Recognition, and Measurement)
1. Revenue is generally recognized when a sale occurs. This statement describes the

revenue recognition principle

2. Which of the following basic elements of financial statements is not associated with the
statement of financial position?
Income.
3. The International Accounting Standards Board (IASB) defines one of the 5 elements as
follows: "the residual interest in the assets of the entity after deducting all its liabilities"
Which element matches this description?

Equity.
4. Which of the following is not a basic element of financial statements?

Statement of financial position

5. The Allowance for Doubtful Accounts, which appears as a deduction from Accounts
Receivable on a statement of financial position and which is based on an estimate of
bad debts, is an application of the

expense recognition principle

6. Which of the following is not a required component of financial statements prepared in
accordance with generally accepted accounting principles?
President's letter to shareholders
7. Which of the following are the two components of the revenue recognition principle?

It is probable that future economic benefits will flow to the company and it is possible to
reliably measure the amount
8. What is the general approach as to when product costs are recognized as expenses?

In the period when the related revenue is recognized.

9. The Allowance for Doubtful Accounts, which appears as a deduction from Accounts
Receivable on a statement of financial position and which is based on an estimate of
bad debts, is an application of the
expense recognition principle
10. Which of the following is not a time when revenue may be recognized?

All of these are possible times of revenue recognition.

11. Which of the following is an argument against using historical cost in accounting?
Fair values are more relevant.
12. Which of the following practices may not be an acceptable deviation from recognizing
revenue at the point of sale?

Upon receipt of order.

13. Generally, revenue from sales should be recognized at a point when
 none of these
14. Recognition of expense related to amortization of an intangible asset illustrates which
principle of accounting?
Expense recognition.
15. The accounting principle of expense recognition is best demonstrated by

associating effort (expense) with accomplishment (revenue).

16. When should an expenditure be recorded as an asset rather than an expense?

When future benefit exits

17. When is revenue generally recognized?

When the sale occurs.

18. Issuance of common stock for cash affects which basic element of financial statements?

Equity.
19. Not adjusting the amounts reported in the financial statements for inflation is an example
of which basic principle of accounting?

Historical cost.
20. The International Accounting Standards Board (IASB) defines five interrelated elements
of financial statements. Which of the following is not one of those elements?

All of the choices are elements defined by the IASB

21. Application of the full disclosure principle

is demonstrated by the use of supplementary information presenting the effects of

changing prices.
22.
Underlying Assumptions
1. The basic assumptions of accounting used by the International Accounting Standards
Board (IASB) include all of the following except:

Materiality
2. Preparation of consolidated financial statements when a parent-subsidiary relationship
exists is an example of the
economic entity assumption
3. Which of the following is an implication of the going concern assumption?

All of these
4. Which accounting assumption or principle is being violated if a company provides
financial reports in connection with a new product introduction?
Economic entity
5. The basic assumptions of accounting used by the International Accounting Standards
Board (IASB) include all of the following except:

Materiality
6. Under current IFRS, inflation is ignored in accounting due to the

monetary unit assumption

7. During the lifetime of an entity, accountants produce financial statements at arbitrary
points in time in accordance with which basic accounting concept?

Periodicity assumption
8. Identify the pervasive constraint and underlying assumption mentioned in the
Conceptual Framework. Pervasive constraint Underlying assumption

Cost Going concern

9. Which of the following is not a basic assumption underlying the financial accounting
structure?

Historical cost assumption

10. Which of the following is not a basic assumption underlying the financial accounting
structure?

Historical cost assumption.

11. The basic assumptions of accounting used by the International Accounting Standards
Board (IASB) include

Periodicity.
12. When a parent and subsidiary relationships exist, consolidated financial statement are
prepared in recognitions of
 Economic entity
13. Valuing assets at their liquidation values rather than their cost is inconsistent with the

historical cost principle

14. The assumption that a business enterprise will not be sold or liquidated in the near future
is known as the

none of these
15. Which basic assumption may not be followed when a firm in bankruptcy reports financial
results?

Going concern assumption

16. When a parent and subsidiary relationships exist, consolidated financial statement are
prepared in recognitions of

Economic entity
17. The basic assumptions of accounting used by the International Accounting Standards
Board (IASB) include

Periodicity.
18. Which basic assumption may not be followed when a firm in bankruptcy reports financial
results?

Going concern assumption

19. The assumption that a business enterprise will not be sold or liquidated in the near future
is known as the

none of these
20. Valuing assets at their liquidation values rather than their cost is inconsistent with the

historical cost principle

21. Which of the following basic accounting assumptions is threatened by the existence of
severe inflation in the economy?
Monetary unit assumption
22. Proponents of historical cost ordinarily maintain that in comparison with all other
valuation alternatives for general purpose financial reporting, statements prepared using
historical costs are more
verifiable
23. Which basic assumption is illustrated when a firm reports financial results on an annual
basis?

Periodicity assumption
24. During the lifetime of an entity accountants produce financial statements at artificial
points in time in accordance with the concept of
 Objectivity Periodicity
No Yes
25. Which of the following basic assumptions of accounting (used by the International
Accounting Standards Board) makes depreciation and amortization policies justifiable
and appropriate

Going concern
26. The economic entity assumption

is applicable to all forms of business organizations

27.
Qualitative Characteristics
1. What is the concept that supports the issuance of interim reports?

Relevance
2. To achieve faithful representation, the financial statements

Must be complete, neutral and reasonably free from error

3. What is the underlying concept that supports estimating a fixed asset impairment
charge?

Faithful representation
4.
Objectives of Financial Statement
1. One element of the objective of financial reporting is to provide information

that is useful in assessing cash flows prospects.

2.
Development of Financial Reporting Framework and Standard-Setting Bodies
1. Which ONE of the following bodies is responsible for reviewing accounting issues that
are likely to receive divergent or unacceptable treatment in the absence of authoritative
guidance, with a view to reaching consensus as to the appropriate accounting
treatment?
International Financial Reporting Interpretations Committee (IFRIC)
2. The international accounting standard board was formed to

Develop word wide accounting standard

3. The singularly unique functions performed by Certified Public Accountant is

The attest functions

4. It is a global phenomenon intended to bring about transparency and a higher degree of
comparability in financial reporting, both of which will benefit the investors and are
essential to achieved the goal of one uniform and globally accepted financial reporting
standard
IFRS
5. As independent or external auditor, CPA are primarily responsible for

Expressing an opinion as to the fairness of financial statement

6. Are the following statements about the Norwalk Agreement true or false?
Statement 1: The Norwalk Agreement requires the consolidated financial statements of
all listed United States companies, starting after 1 January 2005, to be prepared in
accordance with International Accounting Standards.
Statement 2: The Norwalk Agreement was an agreement for short-term financial
reporting convergence between the European Commission and the United States
government
False, False
7. The process of establishing financial accounting standard

Is a social process which incorporate political actions of various interested user group as
well as profession research and logic
8. Once an accounting standard has been established
The standard is continually reviewed to see if modifications is necessary
9. The purposed of the international Financial Reporting Standard is to

Promote uniform accounting standard among countries of the world

10. The international accounting standard board was formed to

Develop word wide accounting standard

11. Are the following statements true or false?
Statement 1: The Norwalk Agreement outlines the commitment of the IASB and FASB
towards harmonisation of International and US Accounting Standards.
 Statement 2: IOSCO requires mandatory preparation of financial statements in
accordance with IFRS

True, False
12.