NAME: ________________________________________________ SECTION: ____________________ 5.

An entity shall disclose in the notes to financial statements

I. The amount of dividends proposed or declared before the financial statements are
INSTRUCTIONS: Write the letter of the correct answer. NO ERASURES, ALTERATIONS and
authorized for issue but not recognized as distribution during the period and the
SUPERIMPOSITIONS ALLOWED.
related amount per share
1. Which is not a purpose of the notes to financial statements? II. The amount of any cumulative preference dividends not recognized
a. To present information about the basis of preparation of the financial statements and a. I only
the specific accounting policies used b. II only
b. To disclose the information required by the Philippine Financial Reporting Standards c. Both I and II
that is not presented elsewhere in the financial statement d. Neither I nor II
c. To provide additional information which is not presented on the face of the financial 6. The cross-reference between each line item in the financial statements and any related
statements but that is necessary for a fair representation information disclosed in the notes to financial statements
d. To provide information about the financial position, financial performance and cash a. Is voluntary
flows of an entity that is useful to a wide range of users in making economic decisions b. Is mandatory
2. Notes to financial statements are beneficial in meeting the disclosure requirements of c. Depends on the industry
financial reporting. The notes to financial statements should not be used to d. Is either voluntary or mandatory
a. Describe significant accounting policies 7. The presentation of the notes to financial statements in a systematic matter
b. Describe depreciation methods employed by the entity a. Is voluntary
c. Describe the principles and methods peculiar to the industry in which the entity b. Is mandatory
operates when these principles and methods are predominantly followed by the c. Is mandatory, as far as applicable
industry d. Is either voluntary or mandatory
d. Correct an improper presentation in the financial statements 8. An entity shall disclose in the summary of significant accounting policies
3. Indicate the proper order of presenting the notes to financial statements. a. The measurement basis used in preparing the financial statements
I. Statement of compliance with PFRS b. All the measurement bases specified in PFRS irrespective of whether they were used by
II. Other disclosures, such as contingent liabilities, unrecognized contractual the entity in preparing the financial statements
commitments and nonfinancial disclosures c. The measurement basis used in preparing the financial statements and the accounting
III. Supporting information for items presented on the face of the financial statements policies used that are relevant to an understanding of the financial statements
IV. Summary of significant accounting policies d. All of the measurement bases and the accounting policy choices available to the entity
a. I, II, III, and IV specified in PFRS irrespective of whether they were used by the entity in preparing the
b. I, IV, III, and II financial statements
c. I, III, IV, and II 9. Disclosure of information about key sources of estimation uncertainty
d. I, IV, II, and III a. Is voluntary
4. An entity is required to disclose certain nonfinancial information. Which is not embraced in b. Is mandatory
this disclosure? c. Is either voluntary or mandatory
a. A description of the nature of the entity’s operations and its principal activities d. Depends on the industry
b. The name of the parent entity and the ultimate parent of the group 10. Disclosure of information about judgements, apart from those involving estimations, that,
c. Domicile and legal form of the entity, its country of incorporation a d address of the management has made in the process of applying the accounting policies and that have the
registered office most significant effect on the amounts recognized in the financial statements
d. Names and addresses of the corporate directors and officers a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
11. What is the purpose of information presented in the notes to financial statements? 17. The disclosure of accounting policies is important to financial statements users in
a. To provide disclosures required by generally accepted accounting principles determining
b. To correct improper presentation in the financial statements a. Net income for the year
c. To provide recognition of amounts not included in the total of financial statements b. Whether accounting policies are consistently applied form year to year
d. To present management’s responses to auditor comments c. The value of the obsolete items included in ending inventory
12. Which of the following information shall be disclosed in the summary of significant d. Whether the working capital position in adequate for future operations
accounting policies? 18. Accounting policies disclosed in the notes to financial statements typically include all of the
a. Refinancing debt subsequent to the reporting period following, except
b. Guarantees of indebtedness of others a. The cost flow assumption used c. Significant estimate made
c. Criteria for determining which investments are treated as cash equivalents b. The depreciation method used d. Significant inventory purchasing policies
d. Adequacy of pension plan assets relative to vested benefits 19. Significant accounting policies may not be
13. The summary of significant accounting policies shall disclose a. Selected on the basis of judgment
a. The composition of property, plant, and equipment and the depreciation method used b. Selected from existing acceptable alternatives
b. The composition of property, plant, and equipment only c. Unusual or innovative in application
c. The depreciation method used only d. Omitted from financial statement disclosure
d. Neither the composition of property, plant, and equipment and the depreciation 20. Which of the following is not commonly a required disclosure of accounting policies?
method used a. The measurement basis used in the financial statements
14. Financial statements shall include disclosure of material transaction between related parties, b. Personnel involved in drafting the summary of significant accounting policies, including
except those who made the judgement apart from those involving estimations
a. Nonmonetary exchange by affiliates c. Disclosure required by PFRS, like the reason why the entity’s ownership interest does
b. Sales of inventory by a subsidiary to the parent when consolidated financial statements not constitute control
are prepared d. The nature of an entity’s operations and the policies that users of the financial
c. Expense allowance for executives which exceed normal business practice statements would expect to be disclosed for that type of equity
d. An entity’s agreement to act as surety for a loan to the chief executive officer 21. An example of an inventory accounting policy that should be disclosed in a summary of
15. During the current year, an entity engaged in the following transactions: significant accounting policies is the
I. Payment of key management personnel compensation a. Composition of inventory into raw materials, work in process and finished goods
II. Sales to affiliated entities b. Major backlogs of inventory orders
c. Method used for pricing inventory
Which of the two transactions should be disclosed as related party transaction in the entity’s
d. All of these should be disclosed in the summary of significant accounting policies
separate financial statements for the current year?
22. Which of the following should be defined as intentional distortion of financial statement?
a. Neither I nor II c. II only a. Error c. Error and Fraud
b. I only d. Both I and II b. Fraud d. Neither error or fraud
16. Which of the following statements is incorrect regarding notes to financial statements? 23. Typical contractual situations that are disclosed in the notes to the statement of financial
a. PFRS requires specific note disclosures including disaggregation of investors into position include all of the following except,
classifications such as merchandise, production supplies, work in process, and finished a. Debt Covenants c. Lease Obligations
goods b. Advertising Contracts d. Pension Obligations
b. PFRS requires a maturity analysis for receivables 24. Which of the following is not a required supplemental disclosure for the statement of
c. PFRS requires that all notes be clear, simple to understand and nontechnical in nature financial position?
d. All of the choices are correct regarding notes to financial statements a. Contingency c. Accounting Policy
b. Financial Forecast d. Contractual Situation
 30. Unrelated parties include all of the following, except
a. Providers of finance in the course of their normal dealings with an entity by virtue only
25. The full disclosure principle is best described by which of the following?
of those dealings
a. All information related to an entity’s operating objectives must be disclosed in the
b. Two ventures simply because they share joint control over a joint venture
financial statements.
c. Single customer with whom an entity transacts a significant volume of business merely
b. Information about each account balance appearing in the financial statements is to be
by virtue of the resulting economic dependence
included in to the notes to financial statements.
d. Key management personnel and close family members of such individuals
c. Enough information should be disclosed in the financial statements so a person wishing
31. Close family members of an individual include all of the following, except
to invest in the entity can make a wise decision.
a. The individual’s spouse and children
d. Disclosure of any financial facts significant enough to influence the judgement of an
b. Children of individual’s spouse
informed reader.
c. Dependents of the individual or individual’s spouse
26. A party is related to an entity if the party, directly or indirectly, through one or more
d. Brothers and sisters of the individual
intermediaries
32. If there have been transaction between related parties, an entity shall disclose
I. Controls, is controlled by or is under common control with the entity.
I. Nature of the relationship
II. Has an interest in the entity that gives it significant influence over the entity.
II. Information about the transaction and outstanding balance
III. Has joint control over entity.
a. I only
a. I and II only
b. II only
b. I and III only
c. Both I and II
c. II and III only
d. Neither I nor II
d. I, II, and III
33. The minimum disclosures about related party transaction necessary for an understanding of
27. A related party transaction is a transfer of resources or obligations
the financial statements include all of the following, except
a. Between related parties when a price is charged
a. The amount of the transaction
b. Between related parties, regardless of whether a price is charged
b. The amount of outstanding balance
c. Between unrelated parties when a price is charged
c. Allowance for doubtful accounts related to the outstanding balance
d. Between unrelated parties, regardless of whether a price is charged
d. Nature of the relationship
28. Control is
34. An entity that entered into certain related party transaction would be required to disclose all
I. The power to govern the financial and operating policies of an entity so as to obtain
of the following information, except
benefits from its activities
a. Nature of the relationship between parties
II. The power to participate in the financial and operating policy decisions of an entity
b. Nature of any future transactions planned between the parties and the terms involved
but not control of the policies
c. Peso amount of the transactions for each of the periods for which an income statement
a. I only
is presented
b. II only
d. Amount due from or to related parties on the date of each statement of financial
c. Both I and II
position presented
d. Neither I nor II
35. This is a pricing policy between related parties which sets the price by reference to
29. Related parties include all of the following, except
comparable goods sold in an economically comparable market to a buyer unrelated to the
a. Affiliates
seller.
b. Associates
a. No price method
c. Individuals owning, directly or indirectly, an interest in the voting power of the reporting
b. Cost plus method
entity that gives them significant influence over the entity
c. Resale price method
d. Two entities that have a common director
d. Uncontrolled price method
36. Which of the following is not a related party?
a. A director of the entity
b. The parent of the entity
c. A shareholder of the entity that holds 1% stake in the entity
d. The son of the chief executive officer of the entity
37. PAS 24 requires the disclosure of compensation of key management personnel. Which of the
following would not be considered “compensation” for this purpose?
a. Short-term benefits
b. Share based payments
c. Termination benefits
d. Reimbursement of out-of-pocket expenses
38. To enable financial statement users to form a view about the effects of the related party
transactions, PAS 24 require certain disclosure to be made. Which of the following is not a
mandated disclosure?
a. Relationship between parents and subsidiaries irrespective of whether there have been
transactions between those related parties
b. Names of all the “associates” that an entity has dealt with during the year
c. Name of the entity’s parent and, if different, one ultimate controlling party
d. If neither the entity’s parent nor its ultimate controlling entity produces financial
statements available for public use, then the name of the next most senior parent that
does no.
39. If there have been related party transactions during the year, an entity is required to make,
at a minimum, certain disclosures. Which of the following is not a required minimum
disclosure?
a. The amount of the related party transactions
b. The amount of the outstanding related party-balance and the terms and conditions
along with the details of guarantees given and received
c. The amount of similar transactions with unrelated parties to establish that comparable
related party transaction have been entered into at arm’s length.
d. Allowance for doubtful debts related to the amount of outstanding related party
balance and expense recognized during the year in respect of bad or doubtful account
debts due from related parties
40. The minimum disclosures prescribed under PAS 24 are to be made separately for certain
categories of related parties. Which of the following is not among the list of categories
specifies under the standard for purposes of separate disclosure?
a. Entities with joint control or significant influence over the entity
b. The parent of the entity
c. An entity that has a common director with the entity
d. Joint ventures in which the entity is a venture
41. All of the following fall within the definition of an entity’s related party, except
a. Joint venture in which the entity is a venture
b. A postemployment benefit plan for the benefit of the employees of the entity’s parent
c. An executive director of an entity
d. The partner of the key manager is a major supplier of the entity
42. Which of the following statements in relation to compensation is true?
I. Compensation includes social security contributions paid by the entity
II. Compensation includes postemployment benefits paid on behalf of a parent of
the entity in respect of the entity
a. I only
b. II only
c. Both I and II
d. Neither I nor II
43. Which of the following statements in relation to related parties is true?
I. A party is related to another entity that it is jointly controlled by
II. A party is related to another entity that it controls.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
44. The financial statements are authorized for issue
a. When the board of directors reviews the financial statements and authorizes them for
issue.
b. When the financial statements are made available to shareholders
c. When the shareholders approved the financial statements at their annual meeting.
d. When the approved financial statements are filed with a regulatory body.
45. Adjusting events after the reporting period include all of the following, except?
a. The settlement of a court case after the issuance of the financial statements that
confirms that the entity has a present obligation.
b. Bankruptcy of a customer occurring between the end of the reporting period and date
of issuance of financial statements
c. Determination after reporting period and before the issuance of the financial
statements of the cost of asset purchased before the reporting period.
d. The discovery of fraud or errors between the end of reporting period and the date of
issuance of financial statements
46. Which of the following events after the reporting period would require adjustment of the
accounts before issuance the issuance of financial statements?
a. Loss of a plant as a result of fire
b. Change in the quoted market price of financial asset held as an investment
c. Loss on an uncollectible accounts receivable resulting from a customer’s major flood loss
d. Loss on a lawsuit; the outcome of which was deemed uncertain at year-end.
47. Non adjusting events after reporting period that generally result in disclosure include all of
the following, except
 a. A major business combination after reporting period
b. Announcing plan to discontinue an operation
c. Major purchase of asset or expropriation of major asset after reporting period
d. Destruction of a major production plant by a fire before the end of the reporting period
48. Which of the following events after the reporting period would generally require disclosure
in the financial statements?
a. Retirement of the entity president
b. Settlement of litigation when the event that gave rise to the litigation occurred prior to
the statement of financial position date
c. Strike of employees
d. Issue of a large amount of ordinary shares
49. Events after the end of the reporting period are defined as
a. Events, favorable and unfavorable, that occur between the end of the reporting period
and the date of the entity’s next annual financial statements
b. Events, favorable and unfavorable, that occur between the end of the reporting period
and the date of the entity’s next interim or annual financial statements
c. Events, favorable and unfavorable, that occur between the end of the reporting period
and the date when the financial statements are authorized for issue
d. Events, favorable and unfavorable, that occur between the end of the reporting period
and the entity’s next annual financial statements.
50. Adjusting events are those that
a. Provide evidence of conditions that existed at the end of the reporting period
b. Are indicative conditions that arose after the end of the reporting period.
c. Are favorable or unfavorable and indicative of conditions that rose after the end of the
reporting period
d. Provide conditions that existed after the date the financial statements were authorized
for issue
51. When after the date of the reporting period an occurs that is indicative of conditions that
arose after the end of reporting period
I. The entity shall disclose the nature and effect of the event in the financial
statements
II. The entity shall adjust the related amounts recognized in the financial statements
a. I only c. Both I and II
b. II only d. Neither I nor II
52. The factory and several items of equipment were damaged in an earthquake after the end of
the reporting period but before the issuance of financial statements. What is the treatment
for the quake damage?
a. An adjusting event
b. A non-adjusting event
c. Neither an adjusting event nor a non-adjusting event
d. Both an adjusting event and a non-adjusting event
53. Events that occur after the current year-end but before the financial statements are
authorized for issue and provide evidence about conditions that existed at the current year-
end and affect the realizability of accounts receivable should be
a. Discussed only in the management commentary of the annual report
b. Disclosed only in the notes to the financial statements
c. Used to record an adjustment to bad debt expense for the year
d. Used to record and adjustment directly to retained earnings
54. An entity’s financial statements for the year ended April 30, 2020 were approved by the
finance director on July 2, 2020 and a public announcement of the profit for the year was
made on July 10, 2020
The board of directors authorized the financial statements for issue on July 15, 2020 and the
financial statements were approved by the shareholders on July 20, 2020
After what date should consideration no longer be given as to whether the financial
statements on April 30, 2020 need to reflect adjusting and non-adjusting events?
a. July 7, 2020 c. July 15, 2020
b. July 10, 2020 d. July 20, 2020
55. Which of the following statement/s is/are true in relation to events after the reporting
period?
I. Notes to the financial statements shall give details of all material adjusting events
included in those financial statements
II. Notes to the financial statements shall give details of material non-adjusting events
which could influence the economic decision of users.
a. I only c. Both I and II
b. II only d. Neither I nor II
56. Which of the following statements is true in relation to events after reporting period?
I. A decline in the market value of investments should normally be classified as an
adjusting event
II. The settlement of a long-running case should normally be classified as a non-
adjusting event
a. I only c. Both I and II
b. II only d. Neither I nor II
57. All of the following events would be classified as non-adjusting events after the reporting
period, except
a. The entity announced the discontinuance of the assembly operation
b. The entity entered into an agreement to purchase the freehold of the currently lease
office building
c. Destruction of a major production plant by fire
d. A mistake was discovered in the calculation of the allowance for uncollectible accounts
receivable
58. State the correct order of the hierarchy of financial reporting standards under PAS 8.
I. PFRSs comprising PASs, PFRSs and Interpretations
 II. Other accounting literature and industry practices 65. Changes in accounting estimates are accounted for
III. Requirements in other PFRSs dealing with similar transactions a. By retrospective restatement
IV. Management’s Judgment b. By prospective application
V. Standards issued by other standard-setting bodies that use a similar conceptual c. By retrospective application
framework d. Not accounted for
VI. Conceptual Framework 66. The effect of change in accounting estimate
a. I, III, VI, V, IV, II a. Affects the year of change only
b. I, III, VI, V, II, IV b. Affects the year of change and subsequent years
c. I, IV, III, VI, V, II c. Is recognized directly in retained earnings
d. I, III, VI, IV, V, II d. A or B
59. It results from change in measurement basis 67. Correction of Prior period error are accounted for as
a. Change in accounting policy c. Error a. By retrospective restatement
b. Change in accounting estimate d. any of these b. By prospective application
60. It results from changes in the realization (or incurrence) of expected inflow (or outflow) of c. By retrospective application
economic benefits from assets (or liabilities) d. Not accounted for
a. Change in accounting policy c. Error
b. Change in accounting estimate d. any of these
61. Accounting policies shall be changed only when the change
a. Is required by PFRSs
b. Results in a more relevant and reliable information
c. Required by legislation
d. A or B
62. According to PAS 8, changes in accounting policies are accounted for as
a. Retrospectively
b. Prospectively
c. Retrospectively, unless retrospective application is too costly
d. Based on specific transitional provision of relevant PFRS or in the absence of transitional
provision, by retrospective application by restatement of the beginning balance of
retained earnings and by restatement of previously presented financial statements,
unless impracticable
63. A voluntary change in accounting policy is accounted for
a. By retrospective restatement c. By retrospective application
b. By prospective application d. Not accounted for
64. Early application of a PFRS is
a. A voluntary change in accounting policy
b. Required in most cases
c. Sometimes required under PFRSs
d. Not a voluntary change in accounting policy