TOACREV Review Materials II 1st Semester A.Y.

2019-2020
211. The __________________ deals with the concepts used in the preparation and presentation of financial statements (FS).
212. The Conceptual Framework is a PFRS
213. The Conceptual Framework does not define standards for any particular measurement or disclosure issue.
214. Nothing in the Framework overrides any specific PFRS.
215. In case of conflict, PFRS prevails over the Framework.
216. The purpose of the Framework is to:
A.) Assist FRSC² in the developing GAAP and its review and adoption of existing International Financial Reporting Standards (IFRS).
B.) Assist preparers of FS in applying PFRS
C.) Assist auditors in forming an opinion as to whether FS conforms to GAAP.
D.) Assist users in interpreting the FS
E.) Provide interested parties with information about PFRS formulation by FRSC
217. The scope of the Framework covers the following:
A.) C ________________: the concept of capital and capital maintenance
B.) O_________________: the objective of FS
C.) Q_________________: the qualities or attributes that make FS useful to the users.
D.) E_________________: the definition, recognition and measurement of the elements of FS.
218. The objective of FS is to provide information about the financial position, performance and changes in financial position of an entity that is useful to
a wide range of users in making economic decisions. The FS also shows the results of the stewardship of management- - the accountability of
management for the resources entrusted to it; the management of an entity has the primary responsibility for the preparation and presentation of
FS.
219. The framework is concerned with general-purpose financial statements (including consolidated financial statements) of all commercial, industrial
and business reporting public or private entities.
220. Special purpose financial reports (e.g., prospectuses and computations prepared for taxation purposes) are outside the scope of this Framework.
221. Underlying assumptions on FS preparation and presentation : (1) Accrual basis (2) Going Concern
222. The users of financial statements include (1) present and potential investors, (2) employees and their representative groups, (3) lenders, (4) suppliers
and other trade creditors , (5) customers, (6) governments and their agencies and
(7) The public.
223. The qualitative characteristics of FS:
PRESENTATION C – Comparability: inter-period comparability; intercompany comparability.
U- Understandability: compliance with PFRS to make information understandable to users
CONTENT (Primary) R- Relevance: predictive value; feedback /confirmatory value; timeliness
Ry – Reliability: faithful representation; substance over form; prudence; neutrality; completeness
224. Constraints on relevant and reliable information: (1) On timeliness: if there is undue delay in the reporting of information, it may lose its relevance
(2) On cost-benefit: the benefits derived from information should exceed the cost of providing it (3) On qualitative characteristics: the aim is to
achieve an appropriate balance among characteristics in order to meet the objective of FS.
225. Information is material if its omission or misstatement could influence economic decisions of users taken on the basis of the financial statements.
Materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be
useful.
226. The elements of FS:
 On financial position: (1) Assets (2) Liabilities (3) Equity
 On performance: (4) Income ( includes revenue and gains) (5) Expenses (include losses)
227. An item that meets the definition of an element should be recognized if:
A.) PROBABLE : it is probable that any future economic benefit associated with the item will flow to or from the entity, AND
B.) MEASURABLE: the item has a cost or value that can be measured with reliability. Four different measurement bases are used to measure
the elements of FS:
 Historical cost (this is considered as the most common valuation basis)
 Current cost
 Realizable value (or settlement value , in the case of liabilities )
 Present value (this is also known as discounted value)
228. Two capital concepts: 1.) __________concept (most common) and 2.) __________concept. The concept of capital maintenance provides the linkage
between the concepts of profit since it provides the point of reference by which profit is measured:
A.) Under the concept of ______________maintenance, a profit is earned only if the financial amount of ending net assets exceeds beginning net
assets, excluding any contributions from and distributions to owners during the period. This concept does not require the use of a particular
basis of measurement.
B.) Under the concept of _______________maintenance, a profit is earned only if the physical productive capacity (operating capability) at the
end of periods exceeds the physical productive capacity at the beginning of period, excluding any contributions from and the distributions to
owners during the period. This concept requires the adoption of the CURRENT COST basis of measurement.
PAS_________: PRESENTATION OF FINANCIAL STATEMENTS
229. COMPONENTS OF FINANCIAL STATEMENTS (FS). A complete set of FS is composed of:
A.) Statement of financial position (balance sheet) – as at the end of the period
B.) Statement of comprehensive income⁴- ___ the period
C.) Statement of cash flows –____ the period
D.) Statement of changes in equity –____the period
E.) Notes, comprising a summary of significant accounting policies & other explanatory information.
F.) Statement of financial position – as at the ______________of the earliest comparative period when an entity applies an accounting policy
retrospectively⁵ or makes a retrospective restatement of items in its FS.
The term _________________________ refers to all changes in equity other than changes resulting from contributions from and distribution to owners;
hence, the Statement of Comprehensive Income shall include:
1. Components of profit or loss- these are income and expense accounts usually found in the traditional income statement. As a
Minimum requirement, the line items to be presented are: (PAS 1, par.82)
 Revenue
 Finance costs
 Share in the income or loss of associates and joint venture accounted for using the equity method
 Tax expense
 Post-tax profit or loss on discontinued operations
 Profit or loss
2. Components of other comprehensive income-these are income and expense accounts are recognized in profit or loss and
are usually required by PFRS to be recognized directly in the equity section of the statement of financial position (balance
sheet). Examples include: (PAS 1, par. 7)
 Unrealized gain or loss on available –for-sale-securities (PAS 39)
 Gain or loss from translating the financial statements of a foreign operation (PAS 21)
 Change in revaluation surplus (PAS 16 and 38)
 Unrealized gain or loss on from derivative contracts designated as cash flow hedge (PAS 39)
 Accrual gain or loss on defined benefit pension plans (PAS 19, par.93A)
An entity has two options of presenting comprehensive income: (PAS 1, par.81)
Option 1: SINGLE STATEMENT
The components of profit or loss and components of other comprehensive income are shown in a single statement of
comprehensive income.
Option 2: TWO STATEMENTS
 An income statement showing components of profit or loss
 A statement of comprehensive income beginning with profit or loss as shown in the income statement plus or minus
the components of other comprehensive income.
⁵ Retrospective application of a change in accounting policy is covered by PAS 8. Refer to page 5 of the TA Lecture Notes.
⁶Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by explanatory
note.(PAS 1, par.18)
230. HEADING AND TITLES. An entity may use other titles for the statements other than those used in PFRS and shall present with equal prominence all
of the FS and distinguish them from other information in the same published document. In addition, the following information shall be displayed
prominently:
A.) The name of reporting entity
B.) Whether the financial statements cover the individual entity or a group of entities
C.) The date at the end of reporting period or the period covered by the set of financial statements
D.) The presentation currency (as defined under PAS 21)
E.) The level rounding (also known as ‘truncation’) used in presenting amounts in the FS
231. GENERAL FEATURES in the presentation of FS.
 ____________________. The application of PFRS is presumed to result in financial statements (FS) that achieve a fair presentation. FS that comply
with PFRS should include in the notes to FS an explicit and unreserved statement of such compliance⁶
 GOING CONCERN. An entity shall prepare FS on a going concern basis unless management either intends to liquidate the entity or to cease
trading, or has no realistic alternative but to do so.
 ACCRUAL BASIS OF ACCOUNTING. An entity shall prepare its FS, except for cash flow information, using the accrual basis of accounting.
 MATERIALITY and AGGREGATION. An entity shall present separately each material class of similar items and shall present separately items of
dissimilar nature or function unless they are immaterial.
 OFFSETTING. An entity shall _______ assets and liabilities or income and expenses, _______offsetting is required or permitted by PFRS.
 COMPARATIVE INFORMATION. An entity shall include comparative information for narrative and descriptive information when it is relevant to
an understanding the current period FS.
 FREQUENCY OF REPORTING. An entity shall present a complete set of FS at least annually. When an entity presents FS for a period longer or
shorter than one year, an entity shall disclose: (A) the period covered by FS, (B) the reasons for using a longer or shorter period; and (C) the fact
that comparative amounts for FS are not entirely comparable.
  CONSISTENCY OF PRESENTATION. An entity shall retain the presentation and classification of items in the FS from one period to the next unless:
(A) it is apparent , following a change in the nature of the entity’s operations or a review of its FS, which another presentation or classification
would be more appropriate ; or( B) a standard requires a change in presentation.
232. INCOME STATEMENT PRESENTATION. When items of income and expenses are material, an entity shall disclose their nature and amount separately.
In addition, an entity shall present an analysis of expenses using a classification based on either the (1) _______of expense method or (2) _______of
expense method or _________________________, whichever provides more reliable and more relevant information.
233. BALANCE SHEET(BS) PRESENTATION. An entity shall present current and non-current assets, and current and non-current liabilities , except when a
presentation based on liquidity provides more reliable and relevant information. When the exception applies, all assets and liabilities shall be
presented broadly in order of liquidity.
234. CURRENT vs. NONCURRENT ASSETS. An entity shall classify an asset as current when:
A.) The asset is a cash or a cash equivalent (unless restricted for at least 12 months after BS date)
B.) It holds the assets primarily for the purpose of trading.
C.) It expects to realize the asset within ______________the reporting period (BS date)
D.) It expects or intends to realize or consume it within the entity’s _________________cycle⁸

An entity shall classify all other assets as non-current.

CURRENT vs. NONCURRENT LIABILITIES. An entity shall classify a liability as current when:
A.) The liability is due to be settled within 12 months after the reporting period (BS date)
B.) It holds the liability primarily for the purpose of trading.
C.) It expects to settle the liability within the entity’s normal operating cycle.
D.) The entity does not have an unconditional right to defer settlement of the liability for at least twelve months
after the reporting period (BS date).
An entity shall classify all other liabilities as non-current.
BALANCE SHEET LINE ITEMS. As a minimum requirement, the face of the statement of financial position shall include
line items that present the following amounts:
A.) Property, plant and equipment
B.) Investment property
C.) Intangible assets
D.) Financial Assets¹⁰(excluding amounts shown under E,H and I)
E.) Investments accounted for using the equity method.
F.) Biological assets (defined as “living animals or plants” under PAS 41)
G.) Inventories
H.) Trade and other receivables
I.) Cash and cash equivalents.
J.) Total assets held for sale (including assets of disposal groups held for sale under PFRS 5)
K.) Trade and other payables
L.) Provisions (defined as the “liabilities of uncertain timing of amount” under PAS 37)
M.) Financial liabilities¹¹(excluding amounts shown under J and K)
N.) Liabilities and assets for current tax.
O.) Deferred tax liabilities and deferred tax assets, not to be presented as current (PAS 1, par.56)
P.) Minority (non-controlling) interest, presented within equity¹²
Q.) Issued capital and reserves attributable to equity holders of the parent.

An entity that uses the function of expense method (a.k.a ‘cost of sales’ method) shall disclose additional information on the nature of expense , including
depreciation and amortization expense and employee benefits expense. (PAS1, par 104)
The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents . When the entity’s
normal operating cycle is not clearly identifiable , its duration is assumed to be twelve months. (PAS,par.68)
An investment property is a property (land or building) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or
both, rather than for use or sale (PAS 40)
A financial asset is any asset that is a cash , an equity instrument of another entity , a contractual right to receive cash or another financial asset from another
entity. (PAS 32)
A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another entity. (PAS 32)
Non-controlling interests, which is previously known as minority interest, shall be presented in the consolidated balance sheet within equity, separately from
the parent shareholders’ equity.(PAS 27, par 27)

235. FINANCIAL LIABILITIES .An entity classifies its financial liabilities as current when they are due to be settled within_____________________, even if:
A.) The original term was for a period longer than twelve months; and
B.) An agreement to refinance, or to reschedule payments, on a long –term basis is completed after the reporting period (BS date) and before the FS are
authorized for issue¹³
 236. EFFECTS OF BREACHES. When an entity breaches a provision of a long-term loan agreement on or before the end of reporting period (BS date) with
the effect that the liability becomes payable on demand, the liability is classified as current, even if the lender has agreed not to demand payment
as a consequence of the breach.
237. STATEMENT OF CHANGES IN EQUITY (SCE). An entity shall present a statement of changes in equity showing:
Total comprehensive income for the period, showing separately the total amounts attributed to owners of the parent and to non-controlling (minority)
interest.
For each component of equity , the effects of retrospective application / restatement under PAS 8.

The amount of transactions with owners in their capacity as owners , showing separately contributions by and distributions to owners.

For each component of equity , a reconciliation of the between the carrying amount at the beginning and the end
of the period , disclosing each change separately.

DIVIDENDS. An entity shall present either in the statement of changes in equity or in the notes , the amount of dividends recognized as contributions to the
owners and the related amount per share.

238. NOTES TO THE FS. The notes are normally presented in the following order, which assists users in understanding the FS and comparing them with FS
of other entities:
A. A statement of compliance with PFRS
B. A summary of significant accounting policies applied¹⁵, which shall include:
 The measurement bases used in preparing FS
 The other accounting policies used that are relevant to an understanding of the FS
C. Supporting information for an items shown on the face of each FS, in the order in which each statement and each line item is presented.
D. Other disclosures, including:
 Contingent liabilities and unrecognized contractual commitments

Non-financial disclosures (e.g., the entity’s financial risk under PFRS 7)

ACCOUNTING PROCESS

ACCOUNTING CYCLE Accounting Phase

1. ______________
2. Journalizing ____________Phase
3. ______________
4. Prepare Unadjusted Trial Balance
5. Prepare __________ Entries
6. Prepare Financial Statements Summarizing Phase
7. Prepare __________ Entries
8. Prepare Post-Closing Trial Balance
9. Prepare __________ Entries

Optional:
 ______________ Trial Balance
 ______________ Entries
 ______________ - a multicolumn sheet of paper that an accountant uses in compiling and summarizing the information necessary for the
preparation of the financial statements

 _________________is the balancing figure in the worksheet

 Statement of Financial Position Column
o Total Debits ____ Total Credits : Net Income
o Total Credits ____ Total Debits : Net Loss

 Income Statement Column

o Total Debits ____ Total Credits : Net Loss
o Total Credits ____ Total Debits : Net Income

Step 1: __________This is to determine the impact of the transactions on the financial position as represented by the basic equation “assets equals
liabilities plus equity”.
Step 2: __________This is to record transactions in a journal.
Journal - is a ______________record of transactions.
Simple Journal Entry - consists of _____ debit and _____ credit
_________ Journal Entry - or more debits or two or more credits

Step 3: __________
Transactions are classified & recorded in the journal are transferred to the appropriate accounts in the general ledger and subsidiary ledger, if appropriate.

________________ - group of accounts

Account - accounting device used in summarizing the effects of transactions of each asset, liability, equity, revenue & expense
_______ of Accounts - listing of all the entity’s general ledger accounts in a systematic form

Step 4: Prepare Unadjusted Trial Balance

_____ Balance - is a list of general ledger accounts with their respective debit or credit balance with these purposes of a:
a. It provides evidence that total debits = total credits
b. It provides information that helps accountant to formulate adjustments.

Step 5: Prepare Adjusting Entries

Adjusting Entries - are made at the ___ of every accounting period in order to split mixed accounts or to bring the accounts up to date.

NOTE: Every adjusting entry affects ____________________ account.

Ending Inventory

Doubtful Accounts Doubtful Accounts Expense xx

Allowance for doubtful accounts xx
Depreciation Depreciation Expense xx
Accumulated Depreciation xx
ASSET METHOD

Prepaid Expenses

EXPENSE METHOD

LIABILITY METHOD

Deferred Income INCOME METHOD

Accrued Expenses

Accrued Income

Step 6: Prepare Financial Statements

_____________________________ are the end product or main output of the financial accounting process.

___________________Financial Statements: are statements that have been prepared for use by those who are not in a position to require an entity to
prepare reports tailored to their particular information needs.

Step 7: Prepare Closing Entries

Closing Entries: are made at ________________________ after adjusting entries and financial statements have been prepared for the purpose of closing
______________________ accounts.

Step 8: Prepare Post-Closing Trial Balance

__________________________: a listing of general ledger accounts and their balances ______the closing entries have been made. They consist
_____________________________ accounts.
Step 9: Prepare Reversing Entries
Reversing Entries are made at the _ of the new accounting period in order to transfer all _______ and _______ items established by adjusting
entries to the nominal accounts that are to be used in recording transactions during the new period.

The adjustments normally requiring reversal at the beginning of the new period are:
1. _______ Expenses
2. _______ Income
3. Prepaid Expenses , if _______ method is used
4. Deferred Income , if ________ method is used

THE ACCOUNTING PROCESS

1. JOURNAL a chronological records of transactions; also called as the ‘_____________________’
_________ Journal- used to record (1) transactions not covered in special journals and (2) adjusting, closing , and revising entries.
Special Journal: CRJ – cash receipts journal SJ- sales journal
CDJ – cash disbursements journal PJ- purchase journal

2. LEDGER(general or subsidiary ) a group of accounts; also called as the ‘ book of final entry’;

ACCOUNT – summarizes the effect of transactions on each asset, liability , equity, income & expenses.
 ___________ accounts- subject to closing entries, mainly found in income statement
 ___________ accounts – not subject to closing entries , mainly found in the balance sheet
 ______ Accounts- an account that is deducted from another account .(e.g., sales discounts)
 ______ accounts- an account that is added to another account .(e.g., freight-in)

3. WORKSHEET(optional)- a tool that typically contains columns for trial balance (unadjusted and adjusted), adjustments , income statement and balance
sheet; it is used to facilitate FS preparation.

4. ADJUSTING ENTRIES- to update amount of certain accounts

A.) Accrued revenue- revenue already earned but not yet collected
B.) Accrued expense- expense already incurred but not yet paid ACCRUALS
C.) Unearned revenue – revenues already collected but not yet earned
D.) Prepaid expense – expense already paid but not yet incurred DEFERRALS
E.) Others(e.g., depreciation, amortization, depletion, impairment , bad debts)
S
5. CLOSING ENTRIES- to bring all nominal accounts to zero balance ; Income Summary account is used to close both income and expense accounts.
6.REVERSING ENTRIES(optional)- to simplify recording of certain recurring transactions .

The following adjusting entries may be subject to reversing entries:

A.) ACCRUALS : accrued revenue and accrued expense
B.) DEFERRALS: prepaid expense (expense method) and unearned revenue (income method)

GENERAL FEATURES OF FINANCIAL STATEMENTS

1. Fair presentation and compliance with PFRS

- Fair presentation requires an entity:
a. To select and apply accounting policies in accordance with PFRS
b. To present information that provides relevant, reliable, comparable, and understandable information
c. To provide additional disclosures necessary for the users to understand the entity’s financial statements
2. Going Concern
- Means that the accounting entity is viewed as continuing in operation indefinitely in the absence of evidence to the contrary.
3. Accrual Basis
- The effects of transactions and other events are recognized when they occur and not as cash or cash equivalent is received or paid ,
and these are recorded and reported in the FS of the periods to which they relate.
4. Materiality and Aggregation
- An entity shall present separately each material class of similar items.
- An entity shall present separately items of dissimilar nature or function unless they are immaterial.
- Materiality provides that the specific requirements of PFRS need not be met if the resulting information is not material.
5. Offsetting
- Assets & liabilities and Income & Expenses, when material, shall not be offset against each other.
- Offsetting may be done when it is permitted by another PFRS
6. Frequency of Reporting
- An entity shall present a complete set of financial statements at least annually.
7. Comparative Information
- Except when a standard or an interpretation permits or requires otherwise, an entity shall disclose comparative information in
respect of the previous period for all amounts reported in the current period’s financial statements.
 - A THIRD STATEMENT OF FINANCIAL POSITION is required when an entity:
a. Applies an accounting policy retrospectively
b. Makes retrospective restatement of items in the financial statements
c. Reclassifies items in the financial statements

Under these circumstances, the entity shall present three statement of financial position as at:
a. The end of the current period
b. The end of the previous period
c. The beginning of the previous comparative period

8. Consistency of Presentation
- The presentation and classification of financial statement items shall be uniform from one accounting period to the next.

1. What is the logical order of the following steps in the accounting cycle?
a. Prepare unadjusted trial balance, prepare adjusting entries, prepare financial statements and prepare closing entries.
b. Prepare the income statement, prepare the statement of financial position, and then prepare a worksheet.
c. Post the closing entries, take a post-closing trial balance, then journalize the closing entries.
d. Prepare financial statements, prepare adjusting entries, prepare the closing entries, and prepare postclosing trial balance

2. An optional step in the accounting cycle is the preparation of:

a. Adjusting entries b. Closing entries c. Statement of cash flows d. Postclosing trial balance

3. The normal balance of the account is on the

a. Debit side of the account c. Side represented by increase in the account balance.
b. Credit side of the account d. Side represented by decrease in the account balance.

4. A trial balance may prove debit and credits are equal, except
a. An amount could be entered in the wrong account
b. A transaction could have been entered twice
c. A transaction could have been omitted.
d. All of these may prove that debits and credits are equal.

5. Adjusting entries
a. Are often prepared after the statement of financial position date, but dated as of the
statement of financial position date.
b. Are necessary to enable the financial statements to conform to Philippine Financial
Reporting Standard.
c. Include both accruals and deferrals.
d. All of the choices are correct regarding adjusting entries.

6. Adjusting entries affect

a. One nominal account and one real account
b. Two nominal accounts
c. Two real accounts
d. No particular combination of nominal and real accounts.

7. The adjustments normally requiring reversal at the beginning of the new period are the following, except:
a. Accrued expenses
b. Prepaid expenses, if the asset method is used in recording expense
c. Accrued income
d. Deferred income, if the income method is used in recording income

8. An entity is preparing the annual financial statements based on the adjusted trial balance. Which financial statement shall be prepared first?
a. Statement of financial position
b. Income statement
c. Retained earnings statement
d. There is no particular order because any financial statement may be prepared first once the adjusted trial balance is prepared.

9. Adjusting entries that should be reversed include:

a. All accrued revenue
b. All accrued expenses
c. Those that debit an asset or credit a liability
d. All of these adjusting entries require reversal.

10. Which of the following is incorrect about reversing entries?

a. The sole purpose is to simplify the recording of certain kinds of recurring transactions.
b. They are made at the end of the accounting period.
c. They are the exact opposite of certain adjusting entries made at the end of the preceding period.
d. They are optional.
11. The components financial statements include all of the following, except:
a. Statement of financial position
b. Income statement
c. Statement of cash flows
d. Statement of retained earnings

12. In presenting a statement of financial position, an entity

a. Must make the current and noncurrent presentation.
b. Must present assets and liabilities in order of liquidity.
c. Must choose either the current and noncurrent or the liquidity presentation.
d. Must make the current and noncurrent presentation except when a presentation based on
liquidity provides information that is reliable and more relevant.

13. Which of the following is a characteristic of a current liability but not a noncurrent liability?
a. Unavoidable obligation
b. Present obligation that entails settlement by probable future transfer of cash.
c. Settlement is expected within the operating cycle or 12 months, whichever is longer.
d. Transaction or other event creating the liability has already occurred.

14. Which of the following is false with regard to the element of “comprehensive income”?
a. It is more inclusive than the traditional notion of net income
b. It includes net income and all other changes in equity exclusive of owners’ investments
and distribution to owners.
c. This concept is not yet being applied in practice.
d. It excludes prior period adjustments (transactions that relate to previous periods such as
correction of errors)

15. Other comprehensive income includes all of the following except

a. Gains and loss arising from translating the financial statements of a foreign operation.
b. Gain and loss on remeasuring equity investment at FVOCI.
c. Gain and loss on remeasuring debt investment at FVOCI
d. Dividend paid to shareholders.

PAS 8: _______________________________________________________________
 OBJECTIVE. The objective of PAS 8 is to __________________ for selecting and changing ACCOUNTING POLICIES changes in ACCOUNTING ESTIMATES
and CORRECTION OF ERRORS to enhance ______, _______ and _________ of FS of an entity over time as well as with FS of other entities.
 SELECTION OF ACCOUNTING POLICIES. When a standard specifically applies to a transaction, the accounting policy applied to an affected account shall
be determined by applying the standard. In the absence of a standard that applies to a transaction, management shall use its _________ in developing
and applying accounting policy that is relevant and reliable.
 CONSISTENCY OF ACCOUNTING POLICIES. Once selected, accounting policies must be applied consistently for similar transactions, unless a standard
specifically requires otherwise. An entity shall change an accounting policy if the change (1) is required by a _________ or (2) results in the FS providing
more ____________ financial information.
 CHANGES IN ACCOUNTIONG POLICIES. A change in accounting policy that is required by a standard shall be applied in accordance with the transitional
provisions therein. If a standard contains no transitional provisions or if an accounting policy is changed voluntarily, the change shall be
applied____________ (as if the policy had always been applied) as adjustment to the __________ balance of each affected component of equity( e.g.,
retained earnings) for the earliest prior period presented.

For purposes of PAS 8, the following are NOT considered as changes in accounting policies:
1. Application of accounting policies for events that ___________in substance from those previously occurring.
2. Application of new accounting policy ______________ from the start of the earliest period practicable.
 EXCEPTION to the RULE. When it is impracticable for an entity to apply new accounting policy retrospectively (i.e., it cannot determine the cumulative
effect of applying the policy to all prior periods), the entity applies the new policy prospectively from the start of the earliest period practicable.
 APPLICATION of NEW STANDARDS. When an entity has not applied a new standard that been issued but not yet effective, the entity shall disclose this
fact, and the reasonably estimable information relevant for assessing the possible impact that application of the new standard will have on the entity’s
FS in the period of initial application.
 CHANGES in ESTIMATES. The effect of a change in an accounting estimate shall be recognized ___________by including it in the profit or loss during
the periods (if the change affects that period only) or the period of the change and the future periods (if the change affects both).
 EXAMPLES of CHANGES in ESTIMATES. Due to uncertainties inherent in business activities, many items in FS cannot be measured with the precision
but can only be estimated. Estimation involves judgments based on the latest available, reliable information. Common examples of accounting estimates
include:
1. Bad debts and inventory obsolescence
2. Fair value of financial assets or financial liabilities
3. Useful lives of depreciable assets; and
4. Provision for warranty obligations
 A change in the measurement basis applied is a change in an_________________, it is not a change in an ______________. When it is difficult to
distinguish a change in an accounting policy from a change in an accounting policy from a change in an accounting estimate, the change is treated
as a change in an accounting _____________.

 CORRECTION OF ERRORS.An entity shall correct material prior period errors ____________ as an adjustment to the opening balances of retained
earnings and affected assets and liabilities. If comparative statements are presented, the FS of prior period shall be restated to reflect the retrospective
application of the prior period errors. If the error occurred before the earliest period presented, the opening balances of assets, liabilities and equity
for the earliest period presented shall be restated.

 MATERIALITY. In applying the concept of materiality:

1. Accounting policies in the PFRSs ________ to be applied when the effect of applying them is immaterial.
2. FS _______________ with PFRSs if they contain material errors, whether due to omissions or misstatements.
3. Material prior period errors should be corrected _______________in the first set of FS authorized for issue after their discovery.

____________ are the specific principles, bases, convention, rules and practice adopted by an entity in preparing and presenting financial statements.
In making judgments, management shall refer to the following sources in descending order:
1.) The requirements and guidance in standards dealing with similar and related issues.
2.) The definition, recognition criteria and measurement concepts set forth in the Conceptual Framework.

In the making the judgment, management may also consider the most recent pronouncements of other standard-setting bodies that use similar conceptual
framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with PFRS
and the Conceptual Framework.

Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

A change in accounting estimate results from a new information or developments and, hence, are not correction of errors.
The concept of ‘fundamental error’ has been eliminated. Instead, PAS 8 uses and defines term ‘ _______________’.

___________________ are omission and misstatements in the FS for one or more periods; they are committed in prior periods but are discovered only in the
current period.

Omissions or misstatements of items are material, if they could, individually or collectively, influence the economic decisions of users taken on the basis of
the FS. Materiality depends on the _______________ of the omission or misstatement judged in the surrounding circumstances.

1. The entity’s financial position as to liquidity, solvency and financial structure is portrayed in which specific FS?
a. Statement of financial position c. Statement of comprehensive income
b. Statement of cash flows d. Statement of changes in equity
2. The objectives of financial reporting for entities are based on
a. The need for conservatism b. Reporting on management stewardship
b. Generally accepted accounting principle d. The need of the users of the information
3. These are accounting information users who are interested in information about the profitability and stability of an entity in order to assess whether
they should buy, hold or sell their shares.
a. Employees b. Lenders c. Investors d. General public
4. These are accounting information users who are interested in information about profitability and stability of an entity in order to assess the ability
of the entity to provide remuneration, retirement benefits and employment opportunities.
a. Customers b. Trade creditors c. Suppliers d. Employees
5. These are accounting information users that require information to regulate the activities of the entity, determine taxation policies and as a basis
for national income and similar statistics.
a. Investors b. General public c. Academe d. Government and its agencies
6. The conceptual framework of accounting is applicable to all of the following, except
a. General purpose financial statements
b. Special purpose financial statements
c. Commercial and industrial enterprises
d. Public enterprises
7. The two primary qualities that make accounting information useful for decision making are
a. Comparability and consistency c. Relevance and reliability
b. Materiality and timeliness d. Reliability and Comparability
8. The two qualitative characteristics that relate to the presentation rather than the content of financial accounting information are
a. Relevance and reliability c. Comparability and reliability
b. Relevance and understandability d. Comparability and understandability
9. Financial information exhibits the characteristics of consistency when
a. Expenses are reported as charges against revenue in the period in which they are paid
b. Accounting entities give accountable events the same accounting treatment from period to period
c. Gains and losses are not included on the income statement
d. Accounting procedures be adopted that give a consistent rate of return
10. The consistency standard of reporting requires that
a. Expenses be reported as charges against the period in which they are incurred.
b. The effect of changes in accounting upon income be properly disclosed.
c. Gains and losses should not appear in the income statement.
d. Accounting procedures be adopted that give a consistent rate of return.
11. The financial information must be comprehensible or intelligible if it is to be useful
a. Relevance b. Understandability c. Reliability d. Comparability
12. Which measurement bases are used in preparing the financial statements according to the conceptual framework?
a. Historical cost and realizable value
b. Historical cost, current cost and realizable value
c. Historical cost, realizable value and present value
d. Historical cost, current cost, realizable value and present value
13. Which of the following is not a line item on the face of the income statement using function of expense method?
a. Revenue b. Finance cost c. Income tax expense d. Salaries and wages
14. The cumulative effects of changes from FIFO to weighted average inventory costing are reported as
a. adjustments to the opening balance of retained earnings in the earliest comparative period presented
b. other operating epenses
c. adjustments to the current period statements only
d. adjustments to current and/or prior period statements
15. Which of the following line items is normally shown in income statement presenting expenses by function but not in an income statement
presenting expenses by nature?
a. Gross profit c. income from operations
b. Income from associates d. finance cost
16. Which of the following will not appear in the statement of changes in equity?
a. Change in depreciation method c. net loss
b. Change of prior period error d. dividends
17. Which of the following approaches to income measurement underlies financial accounting and reporting
a. Transaction approach c. valuation approach
b. Economic approach d. physical capital maintenance approach
18. The operating expenses section of a statement of comprehensive income does not include
a. Selling expenses b. administrative expenses c. loss on sale of securities d. interest expense
19. Which of the following would not be reported on the statement of comprehensive income?
a. Finance cost b. discontinued operations c. income tax expense d. correction of prior period errors
20. Which of the following does not require restatement of the comparative financial information for the year 2016 in presenting financial statements
for the year 2017?
a. Change in 2017 from average costing procedure to FIFO costing procedure
b. Change in 2017 of the estimated useful life of a significant amount of equipment because there is a change in pattern of use for the asset
c. Discovery in 2017 of errors in the financial statements of 2016
d. All of the above
21. Which of the following items would not require restatement of comparative prior period financial statements?
a. Prior period errors discovered in the current year
b. A change in accounting estimate
c. An involuntary change in accounting policy with not transitional provision in the applicable IFRS
d. A voluntary change in accounting policy
22. IAS 1 requires the presentation of a restated statement of financial position at the beginning of the preceding period when there is
I. Retrospective treatment of a change in accounting policy
II. Prospective treatment of a change in accounting policy
III. Correction of an accounting error committed before the earliest comparative prior period
IV. Retrospective treatment of a change in accounting estimate
a. I, II, III and IV b. I, III and IV c. I and III d. I and IV
23. A change in policy should not be made if
a. Required by las
b. Required by an accounting standard
c. The change will result in more appropriate presentation of events or transactions
d. Required by shareholders