Discontinued Operation

Which of following statements in relation to a discontinued operation is

true?
I. When the discontinued criteria are met after the end of the reporting
period, the operation shall retrospectively be separately presented
as a discontinued operation.
II. The net cash flows attributable to the operating, investing, and
financing activities of a discontinued operation shall be separately
presented.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

An entity has correctly classified the manufacturing operation as a disposal

group held for sale and as discontinued operation during the current year.
Which of the following statements is true?
I. The disposal group's results for the prior year shall be re-
presented as relating to discontinued operation in the
comparative figures for the statement of comprehensive income
of the current year.
II. The disposal group's assets at the prior year-end shall be re-
presented as held for sale in the comparative figures for the
statement of financial position at the current year-end.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
Which of the following is not an acceptable option of reporting other
comprehensive income and its components?

I. In a separate statement of comprehensive income.

II. In a statement of earnings and comprehensive income.
III. In a statement of changes in stockholders' equity.

a. I only
b. II only
c. III only
d. I and II
 Accounting Changes
Which of the following information should be included in Melay, Inc.'s year
1 summary of significant accounting policies?

a. Property, plant, and equipment is recorded at cost with

depreciation computed principally by the straight-line method. 
estimate but the equipment recorded at cost is an acctg policy.

b. During year 1, the Delay component was sold.  discontinued

c. Business component year 1 sales are Alay $1M, Belay $2M, and Celay
$3M.
d. Future common share dividends are expected to approximate 60% of
earnings. estimate of earning
The requirement is to determine which information should be included in
the summary of significant accounting policies. Disclosure of accounting
policies should identify and describe the accounting principles followed by
the reporting entity and methods of applying those principles. Answer (a) is
correct because the method of recording and depreciating assets is an
example of such a required disclosure. Answers (b) and (c) are incorrect
because both represent detail presented elsewhere in the financial
statements. Answer (d) is incorrect because it is an estimate of earnings
rather than an accounting policy.

Which of the following information should be disclosed in the summary of

significant accounting policies?
a. Refinancing of debt subsequent to the balance sheet date.
b. Guarantees of indebtedness of others.
c. Criteria for determining which investments are treated as cash
equivalents.
d. Adequacy of pension plan assets relative to vested benefits.
Disclosure of accounting policies should identify and describe the
accounting principles followed by the reporting entity and methods of
applying those principles. The criteria for determining which investments
are treated as cash equivalents is an example of how the entity applies
accounting principles. These disclosures should not duplicate details
presented elsewhere as part of the financial statements. Answers (a), (b),
and (d) are not disclosures of accounting policies, and also would be
presented elsewhere in the financial statement

How should the effect of a change in accounting principle that is

inseparable from the effect of a change in accounting estimate be
reported?

a. As a correction of an error.
b. As a component of income from continuing operations. estimate
c. By restating the financial statements of all prior periods presented.
d. By footnote disclosure only.

Choice "b" is correct. When the effect of a change in accounting principle is

inseparable from the effect of a change in accounting estimate, the
reporting treatment for the overall effect is as a change in estimate. Thus,
the effect is reported prospectively as a component of income from
continuing operations.
Choice "c" is incorrect. Restatement of all prior periods is the retroactive
accounting treatment that is applied to the correction of an error and the
retrospective accounting treatment given to changes in accounting
principle. However, a change in accounting principle that is inseparable
from the effect of a change in accounting estimate is now treated as a
change in accounting estimate.
Choice "a" is incorrect. Correction of an error is given retroactive treatment
as a prior period adjustment to retained earnings with restatement of prior
periods. This is not the treatment appropriate for the effect of a change in
accounting principle that is inseparable from the effect of a change in
accounting estimate.
Choice "d" is incorrect. While footnote disclosure is always appropriate for
an accounting change, such disclosure alone is never the appropriate
accounting treatment.

At the end of year I, Ritzcar Co. failed to accrue sales commissions

earned during year I but paid in year 2. The error was not repeated in
year 2. What was the effect of this error on year I ending working capital
and on the year 2 ending retained earnings balance? counter
balancing

year I ending working capital year 2 ending retained earnings

a. Overstated Overstated

b. No effect Overstated

c. No effect No effect

d. Overstated No effect
How are discontinued operations that occur at midyear initially reported?

a) Disclosed only in the notes to the year-end financial statements.

b) Included in net income and disclosed in the notes to the year-end
financial statements.
c) Included in net income and disclosed in the notes to interim
financial statements.
d) Disclosed only in the notes to interim financial statements.

Interim Financial Reporting

For interim financial reporting, a company's income tax provision for the
second quarter of 20X4 should be determined using the:
a) Effective tax rate expected to be applicable for the full year of 2004 as
estimated at the end of the first quarter of 20X4.
b) Effective tax rate expected to be applicable for the full year of 2004
as estimated at the end of the second quarter of 20X4.
c) Effective tax rate expected to be applicable for the second quarter of
20X4.
d) Statutory tax rate for 20X4.

To ensure the most current information, an estimate of the applicable tax

rate for the entire year is made at the end of each quarter. Also at the end
of each quarter, the tax for the entire portion of the year elapsed is
computed, including previous quarters of that year. Finally, the previous
quarters' tax is subtracted, yielding the income tax for the latest quarter.

ASC 270, Interim Reporting, concluded that interim financial reporting

should be viewed primarily in which of the following ways?
a) As useful only if activity is spread evenly throughout the year.
b) As if the interim period were an annual accounting period.
c) As reporting for an integral part of an annual period.
d) As reporting under a comprehensive basis of accounting other than
GAAP.

The fundamental principle underlying interim reporting is that interim

reports should be considered an integral part of the annual reporting
period. This has important implications for interim reporting. There are
exceptions to this principle, however

A planned volume variance in the first quarter, which is expected to be

absorbed by the end of the fiscal period, ordinarily should be deferred at
the end of the first quarter if it is:
Favorable Unfavorable
a) Yes No
b) No Yes
c) No No
d) Yes Yes
1. Which statement is correct concerning interim financial reporting?

I. PAS 34 mandates which entities are required to publish interim

financial reports, how frequently, or how soon after the end of an interim
period.
II. Entities that provide interim financial reports in conformity with
generally accepted accounting principles shall conform to the recognition
measurement and disclosure principles set out in the standard.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

2. The Securities and Exchange Commission and Philippine Stock

Exchange require entities covered by the reportorial requirements of the
Revised Securities Act to file

a. Quarterly interim financial reports within 45 days after the end of

each of the first three quarters.
b. Quarterly interim financial reports within 30 days after the end of each
of the first three quarters.
c. Semiannual interim financial reports within 45 days after the end of
the first six months.
d. Semiannual interim financial reports within 30 days after the end of
the first six months.

3. Interim financial report means a financial report containing

I. A complete set of financial statements
II. A set of condensed financial statements

a. I only
b. II only
c. Either I or II
d. Neither I nor II
4. An interim financial report shall include, as a minimum, all of the
following components, except

a. Condensed statement of financial position and statement of

comprehensive income
b. Condensed statement of cash flows
c. Condensed statement of changes in equity
d. Accounting policies and explanatory notes

5. Publicly traded entities are encouraged to provide interim financial

reports

a. At least at the end of the half year and within 60 days of the end
of the interim period.
b. Within a month of the half year-end.
c. On a quarterly basis
d. Whenever the entity wishes

6. Which is incorrect concerning presentation of comparative interim

financial statements?

a. Statement of financial position as of the end of the current interim

period and comparative statement of the current interim period and
comparative statement of financial position as of the end of the immediately
preceding fiscal year.
b. Income statements for the current interim period and
cumulatively for the current financial year to date with comparative
income statement for the immediately preceding year.
c. Statement of changes in equity cumulatively for the current financial
year to date with comparative statement for the immediately preceding
year.
d. Statement cash flows cumulatively for the current financial year to
date with comparative statement for the comparable year to date period of
the immediately preceding year.

7. The entity’s financial year ends December 31 and the entity presents
financial statements in its quarterly interim financial report on
September 30, 2010. Which is an incorrect presentation of the
comparative interim financial statements?

a. Statement of financial position at September 30, 2010

Statement of financial position at December 31, 2009
b. Income statement for nine months ending September 30,2010
Income statement for 9 months ending September 30, 2009
Income statement for three months ending September, 2009
c. Statement of cash flows for nine months ending September 30,
2010
Statement of cash flows for year ending December 31, 2009
d. Statement of changes in equity for nine months ending September
30, 2010
Statement of changes in equity for nine months ending September 30,
2009

8. Which statement is incorrect concerning interim financial reporting?

a. To save time and cost, entities often use estimates to measure
inventories at interim dates to a greater extent than at annual reporting
dates.
b. Depreciation and amortization for an interim period shall be based
only on assets owned during the interim period.
c. The cost of planned major periodic maintenance or overhaul that is
expected to occur late in the year is not anticipated for interim purposes,
unless an event has caused the entity to have legal or constructive
obligation
d. Charitable contribution, employee training costs and other costs
that are expected to be incurred irregularly during the financial year
shall be accrued at the end of interim reporting period.

9. A bonus is anticipated for interim purposes when

I. The bonus is a legal obligation or past practice would make the
bonus a constructive obligation for which the entity has no realistic
alternative but make the payment.
II. A reliable estimate of the obligation can be made.

a. Both I and II
b. Neither I nor II
c. Either I or II
d. I only

10. Which statement is correct concerning interim financial reporting?

I. An entity shall apply the same accounting policies in its interim
financial statements as are applied in its annual financial statements.
II. If an entity’s interim financial report is in compliance with PFRS, that
fact shall be disclosed.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

ANSWER 10-18
1. B 6. B
2. A 7. C
3. C 8. D
4. D 9. A
5. A 10. C

1. Under PAS 34, interim financial reports shall be published

a. Once a year at any time in that year

b. Within one month of the half year-end
c. On a quarterly basis
d. Whenever the entity wishes

2. If an entity does not prepare interim financial reports

a. The year-end financial statements are deemed not to comply with
PFRS
b. The year-end financial statements’ compliance with PFRS is not
affected.
c. The year-end financial statements will not be acceptable under local
legislation
d. Interim financial reports shall be included in the year-end financial
statements.

3. Interim financial reports shall include as a minimum

a. A complete set of financial statements.

b. A condensed set of financial statements and selected notes
c. A statement of financial position an income statement only
d. A condensed statement of financial position, income statement and
statement of cash flows only.

4. PAS 34 states a presumption that anyone reading interim financial

reports shall

a. Understand all Philippine Financial Reporting Standards.

b. Have access to the records of the entity.
c. Have access to the most recent annual report.
d. Not make decisions based on the report.
5. An entity owns a number of farms that harvest produce seasonally.
Approximately 80% of the entity’s sales are in the period. August to
October. Because the entity’s business is seasonal, PAS 34 suggests

a. Additional notes be written in the interim reports about seasonal

nature of the business.
b. Disclosure of financial information for the latest and
comparative 12-month period in addition to the interim report.
c. Additional disclosure in the accounting policy note.
d. No additional disclosure.

ANSWER 10-19
1. D
2. B
3. B
4. C
5. B

QUESTION 10-20 MULTIPLE CHOICE (IFRS)

1. Which of the following is not true regarding interim financial
reporting?

a. Decline inventory shall be deferred to future interim periods.

b. Use of the gross margin method for computing cost of goods sold
must be disclosed
c. Costs and expenses not directly associated with interim revenue
must be allocated to interim periods on a reasonable basis.
d. Gains and losses that arise in an interim period shall be recognized in
the interim period in which they arise if they would not normally be deferred
at year-end.

2. Which of the following statements in relation to an interim financial

report is true?
I. An interim financial report may consist of a complete set of financial
statements.
II. An interim financial report may consist of a condensed set of financial
statements.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

3. Which of the following statements in relation to interim financial

reporting is true?
I. It is necessary to count inventories in full at the end of each interim
period.
II. The net realizable value of inventories is determined by reference to
selling prices at the interim date.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

4. An entity is preparing interim financial statements for the six months

ended June 30,2010. In the interim financial statements for the six months
ended June 30, 2010, a statement of financial position at June 30, 201
and a statement of comprehensive income for the six months ended
June 30, 201 shall be presented. In addition all of the following shall be
presented, except

a. Statement of financial position at June 30, 2009

b. Statement of financial position at December 31, 2009
c. Statement of comprehensive income for the half year ended June 30,
2009
d. Statement of cash flows for the half year ended June 30, 2009

5. An entity is preparing its financial statements for the first half of its
financial year ending June 30, 201.

One class of inventory has a cost per unit of P500 and a net realizable
value at June 30, 201 of P480 per unit. The business is seasonal and the
net realizable value at December 31, 201 is expected to be P550.

The entity’s budget for the year scheduled a major refurbishment project
from April to June 2010. For legal reasons, the contract for the
refurbishment was not signed until July 15, 2010, on which date the work
was started.

Which of the following statements is true?

I. The inventory shall be carried at its cost per unit of P500 on June 30,
2010.
II. The cost of the major refurbishment project shall be accrued on June
30, 2010.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

ANSWER 10-20
1. A
2. C
3. B
4. A
5. D

QUESTION 10-41MULTIPLE CHOICE (AICPA ADPATED)

1. Interim financial statements are usually presented on a

a. Monthly basis
b. Quarterly basis
c. Semiannual basis
d. Nine-month basis

2. For interim financial reporting, an inventory loss from a market

decline in the second quarter shall be recognized as a loss

a. In the fourth quarter

b. Proportionately in each of the second, third and fourth quarters
c. Proportionately in each of the first, second, third and fourth quarters
d. In the second quarter

3. If annual major reports made in the first quarter and paid for in
the second quarter clearly benefit the entire year, when should the
repairs be expensed?

a. An allocated portion in each of the last three quarters

b. An allocated portion in each quarter of the year
c. In full in the first quarter
d. In full in the second quarter

4. For external reporting purposes, it is appropriate to use estimated

gross profit rate to determine the cost of goods sold for
I. Interim reporting
II. Year-end reporting

a. I only
b. II only
c. Both I and II
d. Neither I nor II

5. For interim financial reporting, an expropriation gain occurring in the

second quarter shall be

a. Recognized ratably over the last three quarters

b. Recognized ratably over all four quarters with the first quarter being
restated
c. Recognized in the second quarter
d. Disclosed by footnote in the second quarter

6. Advertising costs incurred shall be deferred to provide an

appropriate expense in each period for
I. Interim reporting
II. Year-end reporting

a. I only
b. II only
c. Both I and II
d. Neither I nor II

7. An inventory loss from a market price decline occurred in the first

quarter. However, in the third quarter the inventory had a market price
recovery that exceeded the market decline that occurred in the first
quarter. For interim financial reporting, the peso amount of net inventory
should
a. Decrease in the first quarter by the amount of the market price
decline and increase in the third quarter by the amount of the market price
recovery.
b. Decrease in the first quarter by the amount of the market price
decline and increase in the third quarter by the amount of decrease in
the first quarter.
c. Not be affected in the first quarter and increase in the third quarter by
the amount of the market price recovery that exceeded the amount of the
market price decline.
d. Not be affected in either the first quarter or the third quarter.

8. Due to a decline in market price in the second quarter, an entity

incurred an inventory loss. The market price is expected to return to
previous levels by the end of the year at the end of the year, the decline
had not reversed. When should the loss be reported in the entity’s interim
income statement?

a. Ratably over the second, third and fourth quarters

b. Ratably over the third and fourth quarters
c. In the second quarter only
d. In the fourth quarter only

9. How is income tax expense for the third quarter interim period
computed?

a. The annual rate multiplied by the third quarter pretax earnings.

b. The estimated tax for the first three quarters based on annual
rate less a similar estimate for the first two quarters.
c. The rate applicable during the third quarter multiplied by four times
the third quarter pretax earnings.
d. One-half of the difference between total estimated annual income tax
expense and the income tax for the first two quarters.

10. Conceptually, interim financial statements can be described as

emphasizing

a. Timeliness over reliability

b. Reliability over relevance
c. Relevance over comparability
d. Comparability over neutrality

ANSWER 10-21
1. B 6. D
2. D 7. B
3. B 8. C
4. A 9. B
5. C 10. A
 Operating Segment
1. If operating segments are not based on geography, information must be
report
1. for the domestic country,
2. for all foreign operations,
3. for each foreign contry in which a material amount of revenues are
derived or assets are helded

2. Information about major customers

if a company generates 10% or more of its revenues from a single

customer fhis fact must be disclosed;
 the existence of all major (10% or more) customers must be
disclosed
 along with the related amount of revenues and the identity of the
operating segment earning the revenues;
X the identity of the customer need not be disclosed;
major customer disclosures are required even if a company
operates only in one segment and therefore does not provide
segment information.

3. What are the disclosure requirements for reportable segments?

Disclosure of the following is required:
• Factors used to identify the entity's reportable segments, including the
basis of organisation (for example, whether segments are based on
products and services, geographical areas or a combination of these).
• The types of products and services from which each reportable
segment derives its revenues.
4. What are the entity-wide disclosure requirements?
IFRS 8 also requires the following disclosures about the entity as a
whole, even if it only has one reportable segment.
• The revenues from external customers for each product and service or
each group of similar products and services.
• Revenues from external customers split between the entity's country
of domicile and all foreign countries in total.
• Non-current assets split between those located in the entity's country of
domicile and all foreign countries in total.
• Revenue from a single external customer which amounts to ten per cent
or more of an entity's revenue. The identity of the customer does not need
to be disclosed.

5. What are the problematic areas in segmental reporting?

Segmental reports can provide useful information, but they also have
important limitations.
• IFRS 8 states that segments should reflect the way in which the entity
is managed. This means that segments are defined by the directors.
Arguably, this provides too much flexibility. It also means that segmental
information is only useful for comparing the performance of the same
entity over time, not for comparing the performance of different
entities.
• Common costs may be allocated to different segments on whatever
basis the directors believe is reasonable. This can lead to arbitrary
allocation of these costs.
• A segment's operating results can be distorted by trading with other
segments on non-commercial terms.
• These limitations have applied to most systems of segmental reporting,
regardless of the accounting standard being applied. IFRS 8 requires
disclosure of some information about the way in which common costs are
allocated and the basis of accounting for inter-segment transactions.
1. What is the “core principle significant “of PFRS8 on operating
segments?

a. An entity shall disclose significant financial, information by business

segments geographical segments.
b. An entity shall disclose information to enable users of its financial
statements to evaluate the nature and financial effects of business activities
which it engages.
c. An entity shall disclose information to enable users to evaluate the
nature and financial effects of the environment in which it operates.
d. An entity shall disclose information to enable users to evaluate
the nature and financial effect of the business activities in which it
engages and the economic environment in which it operates.

2. PFRS 8 shall apply to

a. Separate financial statements of entity only.

b. Consolidated financial statements of a group only.
c. Both the separate financial statement of an entity and the
consolidated financial statement of a group.
d. Neither the separate financial statement of an entity nor the
consolidated financial statement of a group.
3. PFRS 8 shall apply to the separate financial statement of an entity and
to the consolidated financial statements of a group with a parent

I. Whose debt and equity instruments are traded in a public market.

II. That files or is in the process of filling the consolidated financial
statements with a securities commission for the purpose of issuing any
class of instruments in a public market.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

4. If a financial report contains both the consolidated financial statements of

a parent and the parent’s separate financial statements, segment
information is required in

a. The separate financial only

b. The consolidated financial statements only
c. Both the separate and consolidated financial statements
d. Neither the separate nor the consolidated financial statements

5. An operating segment is a component of an entity

I. 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.
II. 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.
III. For which discrete information is available

a. I only
b. II only
c. I and III only
d. I,II and III

6. Which may be considered an operating segment?

a. Start-up operations before earning revenue

b. Corporate headquarters that earn revenue
c. Functional department
d. Postemployment benefit plans

7. What is the function of the chief operating decision maker?

a. To allocate resources to the operating segments only.

b. To assess the performance of the operating segments only.
c. To provide general information to financial statement users about
operating segments.
d. To allocate resources to the operating segments and asses their
performance.
8. Who could be the chief operating decision maker?

a. Chief operating officer

b. Chief executive officer
c. Group of executive directors
d. All those mentioned depending on who within the organization
is responsible for the allocation of resources and assessing the
performance of operating segments.

9. What is the approach prescribed by PFRS 8 in identifying an operating

segment?

a. Management approach
b. Risk and rewards approach
c. Matrix approach
d. Geographical segment approach

10. What is the “management approach” of identifying operating segment?

I. Operating segments are identified on the basis of internal reports

about components of an entity that are regularly reviewed by a chief
operating decision maker in order to allocate resources to the segment and
assess its performance.
II. Operating segments are identified on the basis of the dominant
source and nature of the entity’s risk and rewards.

a. I only
b. II only
c. Both I and II
d. Neither I or II

ANSWER 11-27

1. d 6. a
2. c 7. d
3. c 8. d
4. b 9. a
5. d 10. a

QUESTION 11-28 Multiple choice (PFRS 8)

1. An entity disclose information about an operating segment when

a. Its reported external and internal revenue is 10 % or more of the

combine external revenue of all operating segments.
b. Its reported external revenue is 10% or more of the combine external
and internal revenue of all operating segments.
c. Its reported external revenue is 10% or more of the combine external
revenue of all operating segments.
d. Its reported external and internal revenue is 10% or more of the
combine external and internal revenue of all operating segments.
2. An entity shall disclose information about an operating segment when
the absolute amount of its profit or loss is

a. 10% or more of the absolute amount of the combine profit or loss of

all operating segments.
b. 10% or more of the absolute amount of the combine profit of all
operating segment that reported a profit.
c. 10% or more of the absolute amount of the combine loss of all
operating segments that reported a loss.
d. 10% or more of the greater in absolute amount between the
combine profit of all operating segments that reported a profit, and
the combine loss of all operating segments that reported a loss.

3. An entity shall disclose information about an operating segment when

a. Its assets are 10% or more of the combine assets of all operating
segments.
b. Its net assets are 10% or more of the combine assets of all operating
segments.
c. Its net assets are 10% or more of the combine net assets of all
operating segments.
d. Its assets are 10% or more of the total assets of the entity.

4. Operating segments that do not meet of the any quantitative thresholds

a. Cannot be considered reportable.

b. Maybe considered reportable and separately disclosed if
management believes that information about the segments would be
useful to the users of the financial statements.
c. Maybe considered and separately disclosed if the information is for
internal use only.
d. Maybe considered reportable and separately disclose if this is the
practice within the economic environment in which the entity operates.

5. What is the quantitative requirement for the revenue that must be

reported by reportable operating segments?

a. The total external and internal revenue of all reportable segments is

75% or more of the entity external revenue.
b. The total external revenue of all reportable segments is 75% or more
of entity external and internal revenue.
c. The total external revenue of all reportable segments is 75% or
more of the entity external revenue.
d. The total internal revenue of all reportable segments is 75% or more
of the entity internal revenue.

6. Two or more operating segments may be aggregated into a single

operating segment if (choose the incorrect one)

a. The aggregation is consistent with the core principle of segment

reporting.
b. The segments have similar characteristics.
c. The segments are similar in the nature of product or service, nature
of production process, class of customer, method of product distribution
and regulatory environment.
d. The segments have dissimilar characteristics.
7. What is the practical limit to the number of reportable operating
segments?

a. Five segments
b. Ten segments
c. No precise limit but if the number increases above five, the entity
shall consider whether a practical limit has been reached.
d. No precise limit but if the number increases above ten, the entity
shall consider whether a practical limit has been reached.

8. Which is correct concerning segment reporting?

I. An operating segment identified as a reportable segment in the

immediately preceding period shall continue to be reported separately
in the current period even if it no longer meets any of the quantitative
thresholds, if management judges the segment to be of continuing
significance.
II. If an operating segment is identified as reportable segment in the
current period in accordance with the quantitative thresholds, prior
segment data presented for comparative purposes shall be restated to
reflect the newly reportable segment even if that segment did not satisfy
any of the quantitative thresholds in the prior period.

a. I only
b. II only
c. I and II
d. Neither I nor II
9. Under PFRS 8, an entity shall disclose for each period

I. General information about the operating segment.

II. Information about segment for profit or loss, including specified
revenue and expenses included in profit or loss, segment assets and
segment liabilities.
III. Reconciliations of total segment revenue, total segment profit or loss,
total segment assets and total segment liabilities to the corresponding
amounts in the entity’s financial statement.

a. I only
b. I and II only
c. I and III only
d. I, II and III

10. An entity shall disclose which of the following general information?

I. Factors used to identify the entity’s reportable segments including

the basis of organization.
II. Types of products and services from which each reportable segment
derives its revenue.

a. I only
b. II only
c. Both I and II
d. Neither I nor II
ANSWERS 11-28

1. d 6. d
2. d 7. d
3. a 8. c
4. b 9. d
5. c 10. c

QUESTION 11-29 multiple choice (PRFS 8)

1. An entity shall disclose for each reportable segment a measure of all

the following, except

a. Profit or loss
b. Total assets if such amount is regularly provided to the chief
operating decision maker
c. Total liabilities if such amount is regularly provided to the chief
operating decision maker.
d. Net assets

2. An entity shall disclose for each reportable segment all of the following
specified amounts included in the measure of profit or loss, except

a. Revenue from external customers

b. Revenue from transactions with other operating segments of the
same entity
c. Interest revenue
d. Gain on disposal of investment

3. An entity shall disclose for each reportable segment all the following
specified amounts included in the measure of profit or loss, except

a. Depreciation and amortization

b. The entity’s interest in the profit or loss of associates and joint
ventures accounted for by the equity method.
c. Income tax expense
d. General corporate expenses

4. An entity shall disclose for each reportable segment which of the

following specified amounts that are included in the measure of segment
assets?

a. The amount of investment in associates and joint ventures

accounted for by the equity method.
b. Financial instrument
c. Deferred tax assets
d. Postemployment benefits assets

5. Which of the following statements in relation to reporting is true?

I. If an entity changes the way it is structured internally so its

reportable segments change, the comparative information for earlier
periods must be restated.
II. Disclosure is always required of the profit or loss of each reportable
segment.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

6. Which of the following statements in relation to information about profit

or loss or a reportable operating segment is true?

I. The measurement of profit or loss to be disclosed for each

reportable segment is defined in PFRS 8.
II. The profit or loss disclosed for a reportable segment shall relate to
the total assets attributed to that segment.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

7. Entity-wide disclosure include all of the following, except

a. Information about products and services

b. Information about geographical areas
c. Information about major customers
d. Information about intersegment sales or transfers
8. Information about geographical areas includes all of the following,
except

a. Revenue from external customers for each product or service.

b. Revenue from external customer in entity’s country of domicile and in
all foreign operations in total.
c. Separate disclosure of material revenue from external customers
attributed to an individual foreign country.
d. Noncurrent assets other than financial instruments, deferred tax
assets and postemployment benefit assets in the entity’s country domicile
and all foreign countries in total

9. The “major customer” disclosure includes all the following, except

a. The fact of the entity’s reliance on major customers.

b. The total amount of revenue from each such customer.
c. The identity of the segment or segments reporting the revenue from
major customers.
d. The identity of the major customer.

10. Under PFRS 8, which of the following statements is true about major
customer disclosure?

I. A major customer is defined as one providing revenue which amounts

to 10% or more combined external revenue of all operating segments.
II. The identities of major customers need not to be disclosed.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

ANSWERS 11-29
1. d 6. d
2. d 7. d
3. d 8. a
4. a 9. d
5. c 10. c

QUESTION 11-30 Multiple choice (IFRS)

1. What is the definition of “major customers”?

a. Those customers that individually account for revenue of 10% or

more of the entity external revenue.
b. Those customers that individually accounts for revenue of 10% or
more entity external and internal revenue.
c. Those customers that individually account revenue of at least 90% of
the entity revenue.
d. Those customers who have been dealing with the entity for at least 5
years regardless of volume of revenue.
2. A chemical entity has no overseas sales. The entity produces different
products from process. The entity sells its product to small businesses,
larger national business and multinational entities. Internal reports are
reviewed by the chief operating decision maker on this basis. The
management of the entity proposed to disclose just one business segment.
Can entity disclose just one business segment because it sells all of its
products nationally?

a. Yes, PFRS 8 will allow the entity to disclose a single business

segment.
b. No, the entity can identify three different sets of customer and
shall therefore disclose information on that basis.
c. Yes, even though there are three different groups of customer they all
present the same risk to the entity
d. PFRS 8 on “segment reporting” is silent on this matter.

3. An entity is in the entertainment industry and organizes outdoor concerts

in four different areas of the world, Europe, North America, Australia and
Japan. The entity reports to the board directors on the basis of each of the
four regions. The records show the profitability for each of the four regions.
The concerts are two types: popular music and classical music. What is the
appropriate basis for segment reporting in this entity?

a. The segments shall be reported by class of business, that is popular

and classical music
b. The segments shall be reported by region, so Australia and Japan
would be combined.
c. The segment information shall be reported as North America and the
rest of the world.
d. Segment information shall be reported for each of the four
different regions.
4. An entity is engaged in the manufacturing industry and has recently
purchased an 80% holding in a small financial service group. This group
does not meet any of the threshold criteria for a reportable segment. Can
entity disclose the financial service group as a separate operating
segment?

a. No, because it does not meet any of the criteria for a reportable
segment
b. Yes, even though it does not meet the criteria for a reportable
segment, an entity can disclose operating segments separately if
management believes that information about the segment would be
useful to the users of the financial statements.
c. The entity can disclose only 80% of the results and the net assets of
the financial service group.
d. Because of the disparity in type of business, the entity shall disclose
its segmental information on a geographical basis.

5. An entity manufacturer suits, cloth bed linen and various cotton and
manmade fiber products. The entity has several segments which are
reported internally as follows:

Segments Sales Profit Segments assets

Suits 40% 45% 50%

Shirts 30% 35% 33%
Bed linen 15% 10% 7%
Blinds 8% 6% 5%
Cloth 7% 4% 5%
 100% 100% 100%

The table represents the percentages of sales, profit and segment assets
that are attributable to be different segments. The entity wants to present
bed linen and cloth as single segment but is wondering whether the
information can be aggregated. How would segmental information be
presented in the financial statements?

a. Bed linen and cloth, suits, and shirts would all be shown as
separate segments with blinds in the other category.
b. All of the segments shall be presented separately.
c. Suits, shirts, bed linen would be separate segments with blinds and
cloth shown as a single segment.
d. Suits and cloth would be one segment with shirts, bed linen and
blinds shown as other separate segments.

ANSWERS 11-30
1. a
2. b
3. d
4. b
5. a
 Prior Period Error Correction
1. When the current year’s ending inventory is overstated

a. The current year’s cost of goods sold is overstated.

b. The current year’s total assets are understated.
c. The current year’s net income is overstated.
d. The next year’s income is overstated.

2. If the beginning inventory in the current year is overstated, and that is the only error
in the current year, the income for the current year would be.

a. Understated and assets correctly stated.

b. Understated and assets overstated
c. Overstated and assets overstated
d. Understated and assets understated

3. Which of the following would result if the current year’s ending inventory is
understated in the cost of goods sold calculation?

a. Cost of goods sold would be overstated

b. Total assets would be overstated
c. Net income would be overstated
d. Retained earnings would be overstated

4. Which of the following is a counterbalancing error?

a. Understated depletion expense

b. Bond premium underamortized
c. Prepaid expense adjusted incorrectly
d. Overstated depreciation expense

5. Which error will not self-correct in the next year?

a. Accrued expense not recognized at year-end

b. Accrued revenue not recognized at year-end
c. Depreciation expense overstated for the current year
d. Prepaid expenses not recognized at year-end

6. The overstatement of ending inventory in the current year would cause

a. Retained earnings to be understated in the current year-end statement of

financial position.
b. Cost of goods sold to be understated in the income statement of next year.
c. Cost of goods sold to be overstated in the income statement of the current
year.
d. Statement of financial position not to be misstated in the next year-end.
7. Failure to record the expired amount of prepaid rent expense would not

a. Understate expense
b. Overstate net income
c. Overstate owners’ equity
d. Understate liabilities

8. Failure to record accrued salaries at the end of an accounting period results in

a. Overstated retained earnings

b. Overstated assets
c. Overstated revenue
d. Understated retained earnings

9. Failure to record depreciation at the end of an accounting period results in

a. Understated income
b. Understated assets
c. Overstated expense
d. Overstated assets

10. If at the end of current reporting period, an entity erroneously excluded some goods
from ending inventory and also erroneously did not record the purchase of these
goods, these errors would cause

a. The ending inventory to be overstated

b. The retained earnings to be understated
c. No effect on net income, working capital and retained earnings
d. Net income to be understated
Which of the following concepts or principles relates most directly to
reporting accounting changes and errors?
b. Consistency

. An example of an item that should be reported as a prior period

adjustment is the

c. correction of an error in financial statements of a prior year.