ACTIVITY: STATEMENT OF CASH FLOW,
NOTES PART 1, & NOTES PART 2
THEORIES:
1. Which of the following is classified as a cash flow from operating activities?
(1): Cash receipts from issuing ordinary share warrants.
(2): Cash payments of income taxes related to sale of land.
(3): Cash receipts from securities held for dealing or trading purposes.
(4): Cash receipts from dividends of a long-term investment in shares of stocks.
a. 1 and 4 c. 3 and 4
b. 2, 3, and 4 d. 1 and 2
2. What method of presenting cash flows from operating activities is encouraged under PAS 7?
a. Direct Method
b. Indirect Method
c. Reconciliation Method
d. Hybrid Method
3. How should repayment of a long-term loan comprising repayment of the principal amount and the
interest due to date be treated in a statement of cash flow?
a. The repayment of principal loan is an investing cash flow and the interest payment is either an
operating or financing cash flow.
b. The repayment of principal loan is a financing cash flow and the interest payment is either an
operating or financing cash flow.
c. The repayment of principal loan is a financing cash flow and the interest payment is either an
operating or investing cash flow.
d. The repayment of principal loan is a financing cash flow and the interest payment is netted against
the interest received on bank deposits and the net amount is shown as operating cash flow.
4. Which of the following statements is incorrect regarding the provisions of PAS 7?
a. Only transactions that affected cash are included in the statement of cash flows.
b. Non-cash transactions are excluded from the statement of cash flows and disclosed only.
c. Cash flows from operating activities may be reported using either direct or indirect method.
d. All of the above
5. Non-cash investing and financing activities are
a. Not reported because these activities have no impact on cash.
b. Reported in the statement of cash flows only if the direct method is used.
c. Reported in the statement of cash flows only if the indirect method is used.
d. Disclosed in a note or separate schedule accompanying the statement of cash flows.
6. Which of the following is not an example of a change in accounting estimate?
a. Change in useful life of an asset c. Change from FIFO to Weighted Average Method
b. Change in the residual value of an asset d. Change in percentage used for bad debts
7. If retrospective application of a change in accounting policy is impracticable, the entity shall:
a. Disclose the fact and apply prospectively c. Ignore the change
b. Recalculate prior periods using estimates d. Apply it partially retrospectively
8. Which of the following would be considered a prior period error under PAS 8?
a. Change in depreciation method
b. Mistake in applying an accounting policy
c. Recalculation due to new estimates
d. Adoption of a new standard
9. How should the following changes be treated according to PAS 8?
(1): A change is to be made in the method of calculating the provision for uncollectible receivables.
(2): Investment properties are now measured at fair value, having previously been measured at cost.
Change 1 Change 2
a. Change in accounting policy Change in accounting policy
b. Change is accounting estimate Change in accounting policy
c. Change in accounting policy Change in accounting estimate
d. Change in accounting estimate Change in accounting estimate
10. Which of the following is an adjusting event after the reporting period under PAS 10?
(1): Discovery of fraud affecting prior financial statements
(2): Major acquisition after year-end
(3): Settlement of a court case that confirms the liability existed at year-end
(4): Bankruptcy of a customer due to conditions existing at year-end
(5): A fire destroying a warehouse after year-end
a. 1, 3, and 4 c. 1, 2, 3, and 4
b. 1, 2, 3, and 5 d. 1, 3, and 5
11. An operating segment is a component of an entity (choose the correct statement/s)
(1): That engages in business activities from which it may earn revenue and incur expenses,
including revenue and expenses relating to transactions with other components of the same entity.
(2): Whose operating results are regularly reviewed by the entity’s chief operating decision maker to
make decisions about resources to be allocated to the segment and assess its performance.
(3): For which discrete information is available.
a. 1 only c. 1 and 3 only
b. 2 only d. 1, 2, and 3
12. Which of the following is not among the quantitative thresholds under PFRS 8?
a. At least 10% of the total revenues (internal and external)
b. At least 10% of the total assets
c. At least 10% of the higher of total profits of segments reporting profit and total losses of segments
reporting losses, in absolute amount
d. At least 10% of the total revenues (external only)
13. PAS 24 requires the disclosure of key management personnel’s compensation. Which of the following
would not be considered compensation for this purpose?
a. Short-term benefits c. Termination Benefits
b. Reimbursement of out-of-pocket expenses d. Share-based payments
14. S1: The financial position and profit or loss of an entity may be affected by a related party
relationship even if no relation party transactions have occurred.
S2: Two subsidiaries having a common parent are not related parties.
S3: Joint control is participation in financial and operating policy decisions but not control of policies.
a. True, False, True c. True, False, False
b. False, False, True d. False, True, True
15. Which of the following are most likely related parties?
a. Two entities having a director in common
b. Two joint venturers that share joint control over a joint venture
c. A customer, supplier, franchisor, distributor or general agent with whom an entity transacts a
significant volume of transactions by virtue of the resulting economic dependence
d. Providers of finance, trade unions, public utilities and government agencies in the course of their
normal dealings with an entity by virtue only of those dealings.
PROBLEMS
ISAYAMA INC., a calendar year entity, is preparing its year-end financial statements and has identified
the following operating segments:
SEGMENTS REVENUES PROFIT (LOSS) ASSETS
EYYY 1,000,000 200,000 14,000,000
BHIE 1,200,000 140,000 18,000,000
CEEE 270,000 (70,000) 12,000,000
DEEE 240,000 (700,000) 1,000,000
IHHH 290,000 50,000 1,400,000
16. S1: EYYY is a reportable segment. S4: DEEE is a reportable segment.
S2: BHIE is not a reportable segment. S5: IHHH is a reportable segment
S3: CEEE is not a reportable segment.
a. Only one statement is correct. c. Only three statements are incorrect
b. Only two statements are incorrect d. Only four statements are correct
________________________________________________________________________________________
17. CONNIE COMPANY purchased a machine on January 1, 2020 for P6,000,000. At the date of
the acquisition, the machine had a useful life of six years with no residual value. The machine was
depreciated on a straight line basis.
On January 1, 2023, the entity determined that the machine had a useful life of eight years from
the date of acquisition with no residual value.
What amount should be reported as depreciation for 2023?
a. 750,000 c. 375,000
b. 600,000 d. 500,000
________________________________________________________________________________________
REINER COMPANY was incorporated on January 1, 2020. In preparing the financial statements for the
year ended December 31, 2022, the entity used the following original cost and useful life for the property, plant,
and equipment.
PPE Original Cost Useful Life Depreciation Method
Building 15,000,000 15 years Straight Line
Machinery 10,500,000 9 years SYD
Furniture 12,500,000 10 years Double Declining
On January 1, 2023, the entity determined that the remaining useful life is 10 years for the building, 4
years for the machinery, and 5 years, for the furniture.
18. What amount should be reported as total depreciation for 2023?
a. 4,650,000 c. 6,580,000
b. 7,720,000 d. 5,720,000
19. What is the carrying amount of PPE as of December 31, 2023?
a. 17,580,000 c. 16,850,000
b. 18,460,000 d. 15,280,000
________________________________________________________________________________________
ERWIN COMPANY had used FIFO method of inventory valuation since it began its operations in 2020.
The entity decided to change to the weighted average method for measuring inventory at the beginning of
2023. The income tax rate is 25%.
The following schedule showed year-end inventory balances:
Year FIFO Weighted Average
2020 4,500,000 5,400,000
2021 7,800,000 7,100,000
2022 8,300,000 7,800,000
20. What amount should be reported for 2023 as the cumulative effect of the change in accounting policy?
(considering tax rate)
a. 500,000 decrease c. 675,000 increase
b. 375,000 decrease d. 500,000 increase
________________________________________________________________________________________
On January 1, 2023, MIKASA COMPANY changed from the average cost method to the FIFO method
to account for inventory. The entity provided the following ending inventory for each method.
2022 2023
Average Cost 500,000 900,000
FIFO Cost 700,000 1,400,000
Difference in Ending Inventory 200,000 500,000
The entity reported the following income statement using the average cost method.
2022 2023
Sales 10,000,000 13,000,000
Cost of Goods Sold 7,000,000 9,000,000
Operating Expenses 1,500,000 2,000,000
Income before Tax 1,500,000 2,000,000
Tax Expense 375,000 500,000
The entity accrued tax expenses on December 31 of each year and paid the tax in April of the following
year. The income tax rate is 25%.
21. What amount should be reported as net income in 2023 after the change from average to FIFO
inventory method?
a. 1,725,000 c. 2,700,000
b. 2,300,000 d. 2,025,000
________________________________________________________________________________________
EREN INC. had the following account balances for the current year:
December 31 January 1
Accounts Payable 500,000 650,000
Inventory 300,000 250,000
Accounts Receivable 800,000 900,000
Prepaid Expenses 400,000 600,000
All purchases of inventory were on account.
Depreciation during the year was 900,000.
Equipment was sold during the year at a gain of 300,000.
The entity provided the following cash flows from the current year:
Cash collected from customers 9,500,000
Cash paid for inventory (4,100,000)
Cash paid for other expenses (1,400,000)
22. What should be the reported amount for cash flows from operating activities?
a. 4,500,000 c. 4,000,000
b. 4,200,000 d. 4,800,000
23. What is the net income for the current year?
a. 2,500,000 c. 3,000,000
b. 2,800,000 d. 3,300,000
________________________________________________________________________________________
SASHA CORP. provided the following information for the current year in relation to the movement of its
cash account:
Cash receipts from issuance of ordinary shares 1,500,000
Cash paid to purchase inventory 3,400,000
Cash received from sale of building 2,000,000
Dividends received 500,000
Dividends paid 800,000
Interest paid on long term debt 150,000
Income taxes paid 200,000
Proceeds from sale of long-term investments 600,000
Cash received from customers 5,200,000
Cash repayment to loan 400,000
Cash paid to purchased machinery 1,250,000
Cash paid to purchase trading securities 700,000
Cash received from sale of trading securities 950,000
Cash payments for wages and other operating expenses 1,200,000
Cash payments for insurance 100,000
Cash payments for reacquisition of entity’s own shares 150,000
Cash collection of trade note 350,000
Cash payments for purchase of FVOCI investment 290,000
Cash receipts for interest 170,000
24. Operating Activities
a. 1,570,000 b. 1,420,000 c. 1,020,000 d. 1,050,000
25. Investing Activities
a. 1,150,000 b. 1,280,000 c. 1,060,000 d. 1,230,000
26. Financing Activities
a. 0 b. 320,000 c. 420,000 d. 150,000
________________________________________________________________________________________
LEVI COMPANY reported a net income of P700,000 for 2024. The entity declared and paid dividend of
P150,000 in 2024.
In the financial statements for the year ended December 31, 2023, the entity reported retained earnings
of P1,100,000 on January 1, 2023.
The net income for 2023 was P600,000 and the entity declared and paid dividend of P300,000 in 2023.
In 2024, after the 2023 financial statements were approved for issue, the entity discovered an error in
the December 31, 2022 financial statements.
The net effect of error was P750,000 overstatement of net income for the year ended December 31,
2022 due to underdepreciation.
27. What amount should be reported as retained earnings as of December 31, 2024?
a. 1,200,000 b. 1,400,000 c. 1,350,000 d. 1,950,000
________________________________________________________________________________________
On January 1, 2023, ARMIN COMPANY discovered that it had incorrectly expensed a P2,100,000
machine purchased on January 1, 2020.
The entity estimated the machine’s original useful life to be 10 years and the residual value at
P100,000. The entity used the straight line method of depreciation and is subject to a 25% income tax rate.
28. In the 2023 financial statements, what amount should be reported as a prior period error?
Without Tax Consideration With Tax Consideration
a. 2,100,000 1,575,000
b. 1,500,000 1,125,000
c. 1,125,000 843,750
d. 1,575,000 1,181,250
________________________________________________________________________________________
HANGE INC. reported profits of P4,000,000 and P8,000,000 in 2022 and 2023, respectively. In 2024,
the following prior period errors were discovered.
The inventory on December 31, 2022 was understated by P200,000.
An equipment with an acquisition cost of P1,200,000 was erroneously charged as expense in 2022.
The equipment has an estimated useful life of 5 years with no residual value. HANGE INC. provides
full year depreciation in the year of acquisition.
Prepaid supplies in 2022 were overstated by P80,000.
Accrued salaries payable in 2022 were understated by P160,000.
Repairs and Maintenance expenses in 2022 amounting to P400,000 were erroneously capitalized
and being depreciated over a period of 4 years.
The unadjusted balances of Retained Earnings are P8,800,000 and P16,800,000 as of December 31,
2022 and 2023, respectively.
29. How much is the correct profit in 2022?
a. 5,610,000 b. 5,160,000 c. 4,620,000 d. 4,780,000
30. How much is the correct profit in 2023?
a. 9,420,000 b. 7,560,000 c. 9,260,000 d. 7,950,000
31. How much is the correct retained earnings in 2022?
a. 8,060,000 b. 9,560,000 c. 9,820,000 d. 7,900,000
32. How much is the correct retained earnings in 2023?
a. 17,520,000 b. 18,420,000 c. 18,220,000 d. 17,320,000
