38 Chapter 1 Statement of Financial Position
PROBLEMS
PROBLEM 1: TRUE OR FALSE
1. PAS 1 Presentation of Financial Statements requires an entity to
make an explicit statement of compliance with PFRSs.
2. According to PAS 1, an entity is never allowed, in any
circumstance, to depart from a provision of a PFRS.
3. According to PAS 1, material items are presented separately
on the face of the financial statements while individually
immaterial items with similar nature are aggregated and
presented under a single line item.
4. PAS 1 Presentation of Financial Statements encourages, but does
not require, the presentation of the preceding year's financial
statements as comparative information to the current year's
1
·, financial statements.
5'· Current liabilities are obligations that are expected to be
liquidated through the use of current assets or the creation of
other current liabilities.
6. Unless there is evidence to the contrary, accounts receivable is
presented in the statement of financial position as current
asset.
7. Investments in held for trading securities are always
presented in the statement of financial position as current
assets.
8. Unless there is evidence to the contrary, investment in equity
securities measured at FVOO is presented in the statement of
financial position as current asset.
l 9. Investments in associates are non-current assets.
10. Investment properties are presumed to be current assets.
I
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f
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. General purpose financial statements cater to what type of
needs of users?
a. common needs c. a and b
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b. specific needs d. loving and caring needs
39
2. A complete set of financial statements does not include
a. Statement of financial position
b. Statement of profit or loss and OCI
c. Statement of retained earnings
d. Notes
3. ABC Co.'s depreciation expense for the period is overstated.
Which of the following statements is incorrect?
a. ABC Co.'s financial statements provide relevant
information but that information is not faithfully
represented.
b. ABC Co. cannot rectify the error by simply making
appropriate disclosures in the notes.
c. ABC Co. can rectify the error by simply ma:king
appropriate disclosures in the notes.
d. ABC Co.' s financial statements do not comply with the
general feature of fair presentation.
4. According to PAS 1, this general feature of financial
statements requires the presentation of the last year's financial
statements together with the current year's financial
statements.
a. Frequency of reporting
b . Comparability
c. Comparative information
d. Two-statement presentation
5. Which of the following is an example of offsetting under PAS
1?
a. Deducting the accumulated depreciation of an item of
property, plant and equipment and presenting only the
net amount on the face of the statement of financial
position.
b. Deducting allowance for bad debts from the related
receivable and presenting only the net amount on the face
of the statement of financial position.
 40 Chapter 1 Statement of Financial Position
41
c. Deducting the related selling costs from the sale price Discount on loan payable 740,000
when computing for the gain or loss on the sale of an item Interest payable (due in 20x2) 340,000
of property, plant and equipment. Provision for probable loss on lawsuit 430,000
d. Adding the debit balance in "Fair value adjustments" to Ordinary share capital 4,000,000
the initial measurement of held for trading securities when Share premium
600,000
determining the investment's carrying amount. I Retained earnings 1,640,000
1
., Revaluation surplus
90,000
6. When is an entity not required to present an additional Translation loss on foreign operation 30,000
balance sheet dated as of the beginning of the preceding I Totals 12,700,000 12,700,000
period?
Requirements:
a. The entity changes an accounting policy.
b. The entity makes a correction of a prior period error. a. Prepare the statement of financial position of Morning Co.
c. The makes a reclassification adjustment. Make a proper heading for the financial statement. Apply the
d . The entity changes the frequency of its reporting. general feature of "materiality and aggregation."
b. Prepare notes showing the breakdown of line items in the
7. The trial balance of Morning Co. prepared as of December 31, financial statement. Make proper cross-referencing of those
20x1 is shown below: notes; use "Note 6" as your first cross-reference.
Debits Credits PROBLEM 3: EXERCISE
Cash on'hand 60,000 1. The trial balance of Evening Co. as of December 31, 20xl is
Cash in bank 1,000,000 shown below:
Accounts receivable 2,000,000
Allowance for doubtful accounts 300,000 Debits Credits
Advances to employees 40,000 Cashon hand
120,000
Inventories 1,200,000 Cashin bank
980,000
Advances to suppliers 30,000 Accounts receivable 2,000,000
Held for trading securities 800,000 Allowance for doubtful accounts
300,000
Investment in equity securities - FVOCI 300,000 Advances to employees 40,000
) Investment property 900,000 Advances to officers (due in 20x3) 130,000
Advances to affiliates (no agreed due date)
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Land 2,200,000 670,000
Building 3,400,000 Inventories
200,000
Accumulated depreciation - Bldg. 700,000 · Dairy cattle (used to produce milk) 1,200,000
II Accounts payable 720,000 Advances to suppliers 30,000
Accrued liabilities 80,000 Fair value of plan assets 1,000,000
500,000 Land (held for long term capital appreciation)
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Income tax payable 900,000
Deferred tax liability 300,000 Land (office building site) 1,200,000
Loans payable (due in 20x3) 3,000,000 Building 4,800,000
____________________________
42 Ch
_ a...!p_t_e~
r ll Statement of Financial Position 43
Accumulated depreciation - Bldg. 1,600,000 3. Answer the requirements INDIVIDUALLY FIRST. Next,
Patent 440,000 compare your answers with your study partner. Discuss any
Accumulated amortization - Patent 80,000 differences between your answers. Agree on your final
Web site costs 250,000 answer. You will be graded as a couple based on your final
Accumulated amortization - Web site 50,000 answer. Good luck.
Accounts payable 720,000
Utility payables 80,000I The adjusted trial balance of Friendships Co. as of December 31,
Loans payable (short-term bank loan) Z,SOO,OOO 20xl is shown below:
Discount on loan payable 740,000
Provision for probable loss on lawsuit 430,000 Debits Credits
Deposit liability for returnable containers Cashon hand 62,350
(short-term) 120,000 Cash in bank - BPI (Savings) 1,720,500
Present value of defined benefit obligation 2,700,000 Cash in bank - BPI (Current) 1,890,234
Ordinary share capital 4,000,000 Cash in bank - BOO (Current) 567,891
Share premium 600,000 Accounts receivable 8,341,689
Share premium - Share warrants outstanding 300,000 Allowance for doubtful accounts 347,182
Share premium - Treasury shares 70,000 Advances to employees 57,610
Retained earnings 1,030,000 Loans receivable (due in 20x4) · 9,827,341
Reserves for contingencies 190,000 Unearned interest income 1,234,819
Translation gain on foreign operation 30,000 Raw materials inventory 1,237,398
Treasury shares 100,000 Work.m process inventory
. 7,987,908
Totals l 4,BOO,OOO 14,BOO,OO0 · Finished goods inventory 12,892,309
Prepaid income tax 234,125
Requirements: Prepaid supplies 890,239
a. Prepare the statement of financial position of Evening Co. Advances to suppliers 34,981
Make a proper heading for the financial statement. Observe Held for trading securities 2,834,079
compliance with the general feature of "materiality and Investment in equity securities- FVOCI 987,234
Investment in associate 1,290,347
aggregation."
Interest receivable (due on Mar. 1, 20x2) 946,013
b. Prepare notes showing the breakdown of line items in the
Land 8,980,751
financial statement. Make proper cross-referencing of those
Building 3,419,877
notes; use "Note 6" as your first cross-reference.
Accumulated depreciation - Bldg. 712,930
Equipment 917,387
Accumulated depreciation - Equipt. 234,125
PROBLEM 4: CLASSROOM ACTIVITY
Accounts payable 9,071,239
INSTRUCTIONS: 889,712
1. Find a study partner (preferably a smart one .... or cute). Accrued liabilities
721,346
2. Imagine that you and your study partner are accountants. Income tax payable
Deferred tax asset 1,092,387
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44 Chapter 1 !Statement of Financial Position 45
Deferred tax liability 918,732
Loans payable (due in 20x2) 8,000,000 12. A complete set of financial statements includes
Discount on loan payable 746,252 a. directors' reports c. notes
Interest payable (due on July 1, 20x2) 341,782 b. income tax return d . all of these
Deferred credits 712,788
Provision for warranty obligations 432,187 1 . An additional statement of financial position as at the
3
Ordinary share capital 20,000,000 beginning of the preceding period is prepared when an entity
Share premium 6,000,000 makes (choose the incorrect statement)
Retained earnings - unrestricted 15,144,664
a. retrospective application
Retained earnings - appropriated 1,200,000
b . retrospective restatement
Revaluation surplus 873,984
c. prospective application
Unrealized gains on equity securities - FVOCI 123,412 1
d. makes reclassification adjustments.
Totals 66,958,902 66,958,902
Requirements: 4. According to PAS 1 Presentation of Financial Statements, · the
a. Prepare the statement of financial position of Friendships Co. general features of financial statements include all of the
like a pro. following, except
b. Prepare notes showing the breakdown of line items in the a. Fair presentatiort and compliance with PFRSs
financial statement. Make proper cross-referencing of those b. Comparability of presentation
notes; use "Note 4" as your first cross-reference. c. Materiality and aggregation,
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· d. Comparative information
PROBLEM 5: MULTIPLE CHOICE-THEORY S. Accord ing to PAS 1 Presentation of Financial Statements,
1. The purpose of general purpose financial statements is to inappropriate accounting policies are
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provide information about the a. rectified either by disclosure of the accounting policies
used or by notes or explanatory material.
a. economic resources and obligations of an entity that 1s b. not rectified either by disclosure of the accounting policies
useful to a wide range of users in making economic
used or by notes or explanatory material.
decisions.
b. financial position and financial performance of an entity
that is useful to a wide range of users in making economic
decisions.

c. permitted as long as they are used consistently from

period to period.
d. disclosed in the notes only.
c. financial position, financial performance, and cash flows 16 When an entity changes the end of its reporting period and
of an entity that is useful to a limited range of users in ·

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presents financial statements for a period longer or shorter
making economic decisions. than one year, an entity shall disclose all of the following,
d. financial position, financial performance, and cash flows
except
of an entity that is useful to a wide range of users in
making economic decisions.
a. the period covered by the financial statements.
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 46 Chapter 1 Statement of Financial Position
47
b. the reason for using a longer or shorter period. statements of previous periods and with the financial
c. the fact that amounts presented in the financial statements statements of other entities.
are not entirely comparable. b. PAS 1 shall be applied to all-purpose financial statements
d. a quantification of the possible adjustments that would prepared and presented in accordance with Philippine
eliminate the effects of the longer or shorter reporting Financial Reporting Standards (PFRSs).
period . c. The application of PFRSs, with additional disclosure when
necessary, is presumed to result in financial statements
7. The statement of financial position may be presented either that achieve a fair presentation.
showing current/non-current distinction (classified) or based 1 d. Inappropriate accounting policies are not rectified either
on liquidity (unclassified). PAS 1 Presentation of Financial by disclosure of the accounting policies used or by notes
Statements encourages the . or explanatory material.
a. classified presentation c. combination of a and b
b. unclassified presentation d. none of these 11. Financial statements are a structured representation of the
financial position and financial performance of an entity. The
8. In a classified statement financial position, PAS 1 Presentation objective of general purpose financial statements is to provide
of Financial Statements requires deferred tax assets and information about an entity's (choose the incorrect statement)
deferred tax liabilities to be presented as a. financial position c. cash flows
a. current items c. either a or b b. financial performance d. valuation
b. noncurrent items d . none of these
12. The general features listed in PAS 1 includes the following
9. PAS 1 Presentation of Financial Statements I. Fair Presentation and compliance with PFRSs
a . prescribes the order or format in which an entity presents Il. Accounting Entity
items in the financial statements. ffi. Going Concern
b. does not prescribe the order or format in which an entity IV. Accrual Basis of Accounting
presents items in the financial statements. V. Consistency of Presentation
c. prescribes some order or some format in which an entity VI. Materiality and Aggregation
presents items in the financial statements. _ VU. Offsetting
d. does not deal with the presentation of items in the Vffi. Comparability
financial statements.
a. I, II, III, IV, V, VI c. I, III, IV, V, VI, VII
10. All of the following statements correctly refer to t.l-te b. I, II, III, IV, V, VI, VII d. all of these
provisions of PAS 1 Presentation of Financial Statements, except
a. The objective of PAS 1 is to prescribe the basis for 13. In virtually all circumstances, a fair presentation is achieved
presentation of general purpose financial statements, to by compliance with applicable PFRSs. A fair presentation also
ensure comparability both with the entity's financial requires an entity (choose the incorrect statement)
48 Cllapter 1 Statement of Financial Position
49
a. to select and apply accounting policies in accordance with a. PAS 1 requires an entity to present assets and liabilities in
PAS 8 Accounting Policies, Changes in Accounting Estimates the order of liquidity only when a liquidity presentation
and Errors. PAS 8 sets out a hierarchy of authoritative provides information that is reliable and is more relevant
guidance that management considers in the absence of a than a current/non-current presentation.
Standard or an Interpretation that specifically applies to b. Financial statements are often made more understandable
an item. by presenting information in thousands or millions of
b. to present information, including accounting policies, in a units of the presentation currency. This is acceptable as
manner that provides relevant, reliable, comparable and long as the level of rounding in presentation is disclosed
understandable information. and material information is not omitted.
c. to have its financial statements examined by an external c. PFRSs apply to financial statements and to other
party information presented in an annual report or other
d. to provide additional disclosures when compliance with document.
the specific requirements in IFRSs is insufficient to enable d . Financial statements shall be presented at least annually.
users to understand the impact of particular transactions,
other events and conditions on the entity's financial
position and financial performance. PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
14. All of the following are examples of offsetting, except 1. Mare Co.'s December 31, 20xl, balance sheet reported the
a. presenting accounts receivable net of allowance for doubtful following current assets:
Cash 70,000
accounts.
Accounts receivable 120,000
b. gains and losses on the disposal of non-c:urrent assets,
Inventories 60,000
including investments and operating assets, are reported by
Total 250,000
deducting from the proceeds on disposal the carrying
amount of the asset and related selling expenses
c. expenditure related to a provision that is recognized in An analysis of the accounts disclosed that accounts receivable
accordance with PAS 37 Provisions, Contingent Liabilities and consisted of the following:
Contingent Assets and reimbursed under a contractual
arrangement with a third party (for example, a supplier's Trade accounts 96,000
warranty agreement) are be netted against the related Allowance for uncollectible accounts (2,000)
reimbursement. Selling price of Mare's unsold goods out on
d. foreign exchange gains and losses or gains and losses consignment, at 130% of cost, not included in Mare's
arising on financial instruments held for trading are netted ending inventory 26,000
and presented as net gains or net losses in the income .Total* 120,000
statement
At December 31, 20xl, the total of Mare's current assets is
15. Which of the following statements is incorrect? a. 224,000 b. 230,000 c. 244,000 d. 270,000
(A.ICPA)
50 Chapter 1 l Statement of Financial Position 51
• Mint uses the percentage-of-completion method to account for
2. Mill Co.' s trial balance included the following account long-term construction contracts· for financial statement and
balances at December 31, 20x3: income tax purposes. All receivables on these contracts are
Accounts payable 15,000 considered to be collectible within twelve months.
Bonds payable, due 20x4 25,000 ' • During 20x3, estimated tax payments of P450,000 were
Discount on bonds payable, due 20x4 3,000 charged to prepaid taxes. Mint has not recorded income tax
Dividends payable 1/31/x4 8,000 expense. There were no temporary or permanent differences,
Notes payable, due 20x5 20,000 and Mint's tax rate is 30%.
What amount should be included in the current liability section of In Mint's December 31, 20x3 balance sheet, what amount should
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Mill's December 31, 20x3 balance sheet? 1 be reported as:
a. 45,000 b. 51,000 c. 65,000 d . 78,000 \ 3. Total retained earnings?
(AICPA)
[ a. 1,950,000 b. 2,110,000 c. 2,400,000 d . 2,560,000 -\
. . I (AICPA)
The next three items are based on the following: \ 4. Total noncurrent liabilities?
The following trial balance of Mint Corp. at December 31, 20x3, : a. 1,620,000 b. 1,780,000 c. 2,320,000 d. 2,480,000
has been adjusted ,except for income tax expense. ' (AICPA) .
___________________Dr_.____C_r_.__ \ 5. Total current assets?
Cash 600,000 l a. 5,000,000 b. 5,450,000 c. 5,700,000 d. 6,150,000
Accounts receivable, net 3,500,000 \ (AICPA)
Cost in excess of billings on long-term \ 6. When preparing a draft of its 20x3 statement of financial
1,600,000
contracts · position, Mont, Inc. reported net assets totaling P875,000.
Billings in excess of costs on long-term Included in the asset section of the statement of financial
contracts 700,000 position were the following:
Prepaid taxes 450,000 Treasury share of Mont, Inc. at cost 24,000
Property, plant, and equipment, net 1,480,000 Idle machinery 11,200
Note payable - noncurrent 1,620,000 Cash surrender value of life insurance on corporate
Ordinary share capital 750,000 executives 13,700
Share premium 2,000,000 Allowance for decline in market value of noncurrent
Retained earnings - unappropriated 900,000 equity investments 8,400
Retained earnings - restricted for note
payable 160,000 At what am~unt should Mont's net assets be reported in the
Earnings from long-term contracts 6,680,000 D_ecember 31, 20x3 statement of financial position?
Costs and e~enses 5,180,000 a. 851,000 b. 850,100 c. 842,600 d . 834,500
(AlCPA)
Totals 12,810,000 12,810,000
Other financial data for the year ended December 31, 20x3, are