REVIEW QUESTIONS FOR THE QUALIFYING EXAM

(answers highlighted may or may not be correct)

LESSON 1: CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

PROBLEM 1: TRUE OR FALSE

1. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair
presentation.
2. According to PAS 1, an entity shall make an explicit and unreserved statement of compliance with the PFRSs in the notes only if the
entity complies with all the requirements of PFRSs.
3. PAS1 encourages, but does not require, the presentation or the preceding year's financial statements as comparative information to the
current year's financial statements.
4. According to PAS 1, assets and liabilities or income and expenses are offset, unless separate presentation is required or permitted by a
PFRS.
5. According to PAS 1, PFRSs apply to financial statements as well as to other information presented in an annual report, a regulatory
filing, or another document.
6. According to PAS 1, the line item "Cash and cash equivalents" should always be presented first in the statement of financial position.
7. PAS 1 does not prescribe an order or format of presenting items in the financial statements.
8. An entity may omit the notes when presenting general purpose financial statements.
9. If profit or loss is P100 while other comprehensive income is P20, total comprehensive income must be P120.
10. PAS 1 requires the disclosure of an entity's domicile and legal form, its country of incorporation and the address of its registered office
and a description of the nature of its operations and its principal activities.

PROBLEM 2: MULTIPLE CHOICE

1. The objective of PAS 1 is

a. to ensure comparability by prescribing the basis for presentation of general purpose financial statements.
b. to ensure the faithful representation of financial statements.
c. to ensure the relevance of information presented in the financial statements.
d. to prescribe the recognition and measurement principles applicable to assets, liabilities, income and expenses.

2. Entity A's financial statements in the current period is comparable with Entity A's financial statements in the previous period. This type of
comparability is called a. Inter-comparability
b. Intra-comparability
c. Extra-comparability
d. Intro-comparability

3. The scope of PAS 1 is

a. the preparation and presentation of general purpose financial statements.
b. the recognition, measurement and disclosure requirements for specific transactions and other events.
c. the presentation of general purpose financial statements as well as all other information contained in an entity's annual report.
d. all of these

4. The statement of financial position is also called

a. positions statement.
b. balance sheet.
c. income statement.
d. all of these

5. When preparing financial statements, PAS 1 requires management to assess the entity's ability to continue as a going concern. The
assessment covers a minimum period of
a. at least one year from the end of the reporting period.
b. at least two years from the end of the reporting period.
c. at least five years from the end of the reporting period.
d. there is no such requirement.

6. Which of the following is not considered an appropriate application of offsetting under PAS 1?
a. Presenting a gain from the sale of a noncurrent asset net of the related selling expenses.
b. Deducting foreign exchange losses from foreign exchange gains and presenting only the net amount.
c. Deducting unrealized losses from unrealized gains from trading securities and presenting only the net amount.
d. Deducting accumulated depreciation from the equipment account and presenting only the carrying amount.

7. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the preceding period if certain instances occur.
Which of the following is not one of those instances? (Assume all of the following has a material effect)
a. Retrospective application of an accounting policy.
b. Retrospective restatement
c. Reclassification of items in the financial statements
d. Change in the frequency of reporting

8. The PFRSs apply to which of the following?

a. A management's review of the entity's financial performance during the period vis-à-vis its targets for that period contained in the
entity's annual report, which also includes the entity's financial statements.
b. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed together with the financial
statements.
c. Environmental reports required by the Department of Environment and Natural Resources (DENR) that are included in the entity's
annual report.
d. Explanatory material and other information that are disclosed in the notes to the financial statements.

9. This is the most commonly used method of presenting a statement of financial position. It facilitates the computation of liquidity and
solvency ratios.
a. Classified presentation
b. Unclassified presentation
c. Classified as to liquidity
d. Based on liquidity

10. Which of the following best reflects the definition of normal operating cycle under PAS 1?
a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished
goods, and sell the finished goods.
b. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished
goods, sell the finished goods on account, and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on account and settle the account.
d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished goods on account and collect the receivables.

11. Who is responsible for the preparation and fair presentation of an entity's financial statements in accordance with the PFRSs?
a. Accountant
b. Auditor
c. Management
d. Government regulatory body

12. The statement of financial position may be presented either showing current/noncurrent distinction (classified) or based on liquidity
(unclassified). PAS 1 encourages a(an)

a. classified presentation
b. unclassified presentation.
c. combination of classified and unclassified presentation
d. none of these

13. Which of the following is a current asset

a. Deferred tax asset expected to reverse within 3 months from the reporting date
b. Property, plant and equipment
c. Non-trade note receivable due in 13 months
d. Accounts receivable

14. Which of the following statements is incorrect regarding the provisions of PAS 1?

a. An entity is required to present separate sections of profit or loss and other comprehensive income.
b. Presenting an income statement or statement of profit or loss in addition to a statement of other comprehensive income is permitted
when an entity elects to use the "two-statement presentation.
c. Presenting an income statement or statement of profit or loss alone without a
statement of other comprehensive income is allowed.
d. Presenting comprehensive income as a note disclosure only is prohibited.

15. When a separate statement of profit or loss (income statement) is presented,

a. it shall be displayed immediately before the statement presenting comprehensive income.

b. it shall be displayed immediately after the statement presenting comprehensive income.
c. it shall be displayed alone. The entity may opt not to present information on comprehensive income.
d. Any of these.

16. Which of the following is not correct when an entity opts to use the "two-statement presentation of income and expenses?
a.
The separate income statement forms part of a complete set of financial statements and shall be displayed immediately before the
statement presenting comprehensive income.
b. The profit or loss section is not presented anymore in the statement presenting comprehensive income.
c. The profit or loss section is required to be presented in the statement presenting comprehensive income.
d. The separate statement presenting comprehensive income begins with the amount of profit or loss.

17. Entity A reclassifies a gain that was previously recognized in other comprehensive income to the current period's profit or loss. According
to PAS 1, how should Entity A present the reclassification adjustment in the other comprehensive income section of the statement of
comprehensive income?

a. as an addition
b. only at net of tax
c. as a deduction
d. none of these

18. Which of the following is a current liability?

a. Deferred tax liability

b. An obligation for which the entity has an unconditional right to defer.
c. A long-term obligation that becomes payable on demand because of a breach of loan agreement but the lender agrees before the balance
sheet date to provide a grace period for the lender to rectify the breach.
d. An obligation for which the entity has a conditional right to defer.

19. According to PAS 1, items of other comprehensive income are presented according to the following groupings

a. ordinary and extraordinary items

b. by nature and by function
c. those that are subsequently reclassified to profit or loss and those that are not
d. continuing and discontinued operations

20. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an
entity shall disclose all of the following, except

a. the period covered by the financial statements.

b. the reason for using a longer or shorter period.
c. the fact that amounts presented in the financial statements are not entirely comparable.
d. a quantification of the possible adjustments that would eliminate the effects of the longer or shorter reporting period.

21. PAS 1 applies to which of the following?

a. The preparation and presentation of general purpose financial statements.

b. The recognition and measurement of specific assets, liabilities, income and expenses.
c. The disclosure requirements for specific transactions and other events. d. All of these.

22. In 20x3, Entity A makes a retrospective application of an accounting policy that has a material effect on the information in the statement
of financial position as at the beginning of the preceding period. Entity A wishes to provide comparative information in addition to the
minimum requirement of PAS 1, i.e., Entity A will be presenting its 20x3 financial statements together with the 20x2 and 20x1 financial
statements. In this case, the additional statement of financial position required by PAS 1 will be dated

a. as at January 1, 20x3.
b. for the period ended 20x1.
c. as at January 1, 20x1.
d. as at January 1, 20x2.

23. Entity A wants to change the presentation of and the classification of some items in its financial statements. Which of the following
statements is incorrect?

a. Entity A can make the change if it is required by a PFRS.

b. Entity A can make the change if the change is expected to result in reliable and more relevant information to the users of its financial
statements.
c. Entity A may be required to provide an additional balance sheet dated as at the beginning of the preceding period.
d. Entity A can make the change only if it makes an irrevocable promise not to make another change within the next five years.

24. The financial statements of Entity A shows line items described as "Other current assets,” “Other noncurrent liabilities," and
"Miscellaneous expenses." Which of the following is correct?

a. Entity A considers the items included in these line items as dissimilar and cannot be included in material classes of similar items and are
also individually immaterial to warrant separate presentation.
b. Entity A considers the items included in these line items as individually material but with dissimilar nature or function.
c. Entity A considers the items included in these line items as comprising a material class of similar items.
d. This manner of presenting items is unacceptable under PAS 1.

25. According to PAS 1, a complete set of financial statements includes which of the following?

a. Income tax return

b. Directors' reports
c. Notes
d. All of these
 26. PAS 1 requires an entity to present an additional statement of financial position as at the beginning of the preceding period when an entity
makes any of the following except

a. the retrospective application of an accounting policy.

b. the retrospective restatement of items in the financial statements.
c. the reclassification of items in the financial statements.
d. the prospective application of a change in accounting estimate.

27. The statement of financial position of which of the following entities does not show current and noncurrent distinctions among assets and
liabilities?

a. Banks and other financial institutions

b. Mining companies
c. Trading enterprises
d. Manufacturing firms

28. Which of the following is not an acceptable method of presenting income and expenses?

a. Presenting income and expenses that affect profit or loss and those that are components of other comprehensive income in a single
statement.
b. Presenting an income statement in addition to a statement that presents comprehensive income.
c. Presenting an income statement alone without a statement that presents comprehensive income.
d. All of these are acceptable methods of presentation.

29. This method of presenting expenses is more difficult to apply but has the potential of providing more relevant information to users. Its
downside, however, is that it involves considerable judgment and may require arbitrary allocations.

a. Classified presentation
b. Based on liquidity
c. Nature of expense
d. Function of expense

30. Which of the following is not a purpose of the notes?

a. to present information about the basis of preparation of the financial statements and the specific accounting policies
b. to disclose the information required by PFRSS that is not presented elsewhere in the financial statements
c. to provide information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of the
financial statements.
d. to rectify inappropriate accounting policies

QUIZ 3 LESSON: PAS 1- PRESENTATION OF FINANCIAL STATEMENTS

PROBLEM 1: TRUE OR FALSE

1. An entity may omit the notes when presenting general purpose financial statements.
2. According to PAS 1, the line item "Cash and cash equivalents" should always be presented first in the statement of financial position.
3. According to PAS 1, assets and liabilities or income and expenses are offset, unless separate presentation is required or permitted by a
PFRS.
4. According to PAS 1, PFRSs apply to financial statements as well as to other information presented in an annual report, a regulatory
filing, or another document.
5. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair
presentation.
6. PAS 1 requires the disclosure of an entity's domicile and legal form, its country of incorporation and the address of its registered office
and a description of the nature of its operations and its principal activities.
7. PAS1 encourages, but does not require, the presentation or the preceding year's financial statements as comparative information to the
current year's financial statements.
8. If profit or loss is P100 while other comprehensive income is P20, total comprehensive income must be P120.
 9. According to PAS 1, an entity shall make an explicit and unreserved statement of compliance with the PFRSs in the notes only if the
entity complies with all the requirements of PFRSs.

PROBLEM 2: MULTIPLE CHOICE

1. Which of the following statements is incorrect regarding the provisions of PAS 1?

a. Presenting comprehensive income as a note disclosure only is prohibited.
b. Presenting an income statement or statement of profit or loss alone without a statement of other comprehensive income is allowed.
c. An entity is required to present separate sections of profit or loss and other comprehensive income.
d. Presenting an income statement or statement of profit or loss in addition to a statement of other comprehensive income is permitted
when an entity elects to use the "two-statement presentation.

2. When preparing financial statements, PAS 1 requires management to assess the entity's ability to continue as a going concern. The
assessment covers a minimum period of
a. at least two years from the end of the reporting period.
b. there is no such requirement.
c. at least one year from the end of the reporting period.
d. at least five years from the end of the reporting period.

3. Entity A reclassifies a gain that was previously recognized in other comprehensive income to the current period's profit or loss.
According to PAS 1, how should Entity A present the reclassification adjustment in the other comprehensive income section of the
statement of comprehensive income? a. as an addition
b. only at net of tax
c. as a deduction
d. none of these

4. The statement of financial position of which of the following entities does not show current and noncurrent distinctions among assets
and liabilities? a. Mining companies
b. Trading enterprises
c. Manufacturing firms
d. Banks and other financial institutions

5. Which of the following is a current liability?

a. Deferred tax liability
b. A long-term obligation that becomes payable on demand because of a breach of loan agreement but the lender agrees before the
balance sheet date to provide a grace period for the lender to rectify the breach.
c. An obligation for which the entity has an unconditional right to defer.
d. An obligation for which the entity has a conditional right to defer.

6. Which of the following is a current asset?

a. Accounts receivable
b. Property, plant and equipment
c. Non-trade note receivable due in 13 months
d. Deferred tax asset expected to reverse within 3 months from the reporting date

7. PAS 1 applies to which of the following?

a. The preparation and presentation of general purpose financial statements.
b. The recognition and measurement of specific assets, liabilities, income and expenses.
c. The disclosure requirements for specific transactions and other events. d. All of these.

8. This is the most commonly used method of presenting a statement of financial position. It facilitates the computation of liquidity and
solvency ratios. a. Classified presentation
b. Unclassified presentation
c. Classified as to liquidity
d. Based on liquidity

9. When a separate statement of profit or loss (income statement) is presented,

a. it shall be displayed immediately before the statement presenting comprehensive income.
b. it shall be displayed immediately after the statement presenting comprehensive income.
c. it shall be displayed alone. The entity may opt not to present information on comprehensive income.
d. Any of these.
10. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the preceding period if certain instances
occur. Which of the following is not one of those instances? (Assume all of the following has a material effect)
a. Retrospective application of an accounting policy.
b. Change in the frequency of reporting
c. Reclassification of items in the financial statements
d. Retrospective restatement

11. Which of the following is not an acceptable method of presenting income and expenses?
a. Presenting income and expenses that affect profit or loss and those that are components of other comprehensive income in a single
statement.
b. Presenting an income statement in addition to a statement that presents comprehensive income.
c. Presenting an income statement alone without a statement that presents comprehensive income.
d. All of these are acceptable methods of presentation.

12. The scope of PAS 1 is

a. the preparation and presentation of general purpose financial statements.
b. the recognition, measurement and disclosure requirements for specific transactions and other events.
c. the presentation of general purpose financial statements as well as all other information contained in an entity's annual report.
d. all of these

13. PAS 1 requires an entity to present an additional statement of financial position as at the beginning of the preceding period when an
entity makes any of the following except
a. the retrospective restatement of items in the financial statements.
b. the retrospective application of an accounting policy.
c. the reclassification of items in the financial statements.
d. the prospective application of a change in accounting estimate.

14. The financial statements of Entity A shows line items described as "Other current assets,” “Other noncurrent liabilities," and
"Miscellaneous expenses." Which of the following is correct?
a. This manner of presenting items is unacceptable under PAS 1.
b. Entity A considers the items included in these line items as comprising a material class of similar items.
c. Entity A considers the items included in these line items as dissimilar and cannot be included in material classes of similar items
and are also individually immaterial to warrant separate presentation.
d. Entity A considers the items included in these line items as individually material but with dissimilar nature or function.

15. In 20x3, Entity A makes a retrospective application of an accounting policy that has a material effect on the information in the statement
of financial position as at the beginning of the preceding period. Entity A wishes to provide comparative information in addition to the
minimum requirement of PAS 1, i.e., Entity A will be presenting its 20x3 financial statements together with the 20x2 and 20x1 financial
statements. In this case, the additional statement of financial position required by PAS 1 will be dated
A. for the period ended 20x1.
B. as at January 1, 20x3. C. as at January 1, 20x1. D. as at January 1, 20x2.

16. Who is responsible for the preparation and fair presentation of an entity's financial statements in accordance with the PFRSs? a. Auditor
b. Management
c. Government regulatory body
d. Accountant

17. This method of presenting expenses is more difficult to apply but has the potential of providing more relevant information to users. Its
downside, however, is that it involves considerable judgment and may require arbitrary allocations. a. Nature of expense
b. Based on liquidity
c. Function of expense
d. Classified presentation

18. According to PAS 1, a complete set of financial statements includes which of the following?
a. Income tax return
b. Directors' reports
c. Notes
d. All of these

19. According to PAS 1, items of other comprehensive income are presented according to the following groupings
a. those that are subsequently reclassified to profit or loss and those that are not
b. continuing and discontinued operations
c. by nature and by function
d. ordinary and extraordinary items

20. Which of the following best reflects the definition of normal operating cycle under PAS 1?
a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on account and settle the account.
 b. For a manufacturing entity, this is the usual time it takes for the entity to sell finished goods on account and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into
finished goods, sell the finished goods on account, and collect the receivables.

21. Entity A's financial statements in the current period is comparable with Entity A's financial statements in the previous period. This type
of comparability is called a. Inter-comparability
b. Intra-comparability
c. Extra-comparability
d. Intro-comparability

22. Entity A wants to change the presentation of and the classification of some items in its financial statements. Which of the following
statements is incorrect? a. Entity A can make the change if it is required by a PFRS.
b. Entity A may be required to provide an additional balance sheet dated as at the beginning of the preceding period.
c. Entity A can make the change only if it makes an irrevocable promise not to make another change within the next five years.
d. Entity A can make the change if the change is expected to result in reliable and more relevant information to the users of its
financial statements.

23. The statement of financial position is also called

a. positions statement.
b. balance sheet.
c. income statement.
d. all of these

24. Which of the following is not correct when an entity opts to use the "two statement presentation of income and expenses?
a. The separate statement presenting comprehensive income begins with the amount of profit or loss.
b. The separate income statement forms part of a complete set of financial statements and shall be displayed immediately before the
statement presenting comprehensive income.
c. The profit or loss section is not presented anymore in the statement presenting comprehensive income.
d. The profit or loss section is required to be presented in the statement presenting comprehensive income.

25. Which of the following is not considered an appropriate application of offsetting under PAS 1?
a. Deducting foreign exchange losses from foreign exchange gains and presenting only the net amount.
b. Deducting accumulated depreciation from the equipment account and presenting only the carrying amount.
c. Deducting unrealized losses from unrealized gains from trading securities and presenting only the net amount.
d. Presenting a gain from the sale of a noncurrent asset net of the related selling expenses.

26. The PFRSs apply to which of the following?

a. Explanatory material and other information that are disclosed in the notes to the financial statements.
b. A management's review of the entity's financial performance during the period vis-à-vis its targets for that period contained in the
entity's annual report, which also includes the entity's financial statements.
c. Environmental reports required by the Department of Environment and
Natural Resources (DENR) that are included in the entity's annual report.
d. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed together with the financial
statements.

27. The statement of financial position may be presented either showing current/non-current distinction (classified) or based on liquidity
(unclassified).
PAS 1 encourages a(an)
a. classified presentation
b. unclassified presentation.
c. combination of classified and unclassified presentation
d. none of these

28. The objective of PAS 1 is

a. to prescribe the recognition and measurement principles applicable to assets, liabilities, income and expenses.
b. to ensure comparability by prescribing the basis for presentation of general purpose financial statements.
c. to ensure the faithful representation of financial statements.
d. to ensure the relevance of information presented in the financial statements.

29. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an
entity shall disclose all of the following, except
a. the period covered by the financial statements.
b. a quantification of the possible adjustments that would eliminate the effects of the longer or shorter reporting period.
c. the fact that amounts presented in the financial statements are not entirely comparable.
d. the reason for using a longer or shorter period.

QUIZ 4 LESSON: PAS 7 – STATEMENT OF CASH FLOWS

PROBLEM 1: TRUE OR FALSE

 1. According to PAS 7, the indirect method of presenting cash flows relating to operating activities shows each major class of gross cash
receipts and gross cash payments.
2. Only transactions that have affected cash and cash equivalents are included in the statement of cash flows. Non-cash transactions are
excluded and disclosed only.
3. Cash flows are presented in the statement of cash flows into four activities.
4. Non-financial institutions have the option of classifying interest income received as either investing activities or operating activities.
5. Cash flows relating to income and expenses are normally classified as investing activities in the statement of cash flows.

PROBLEM 2: MULTIPLE CHOICE

1. Which of the following cash flows is presented in the operating activities section of a statement of cash flows?
a. cash receipts from issuing shares or other equity instruments and cash payments to redeem them
b. cash receipts from the sale of goods, rendering of services, or other forms of income
c. cash payments by a lessee for the reduction of the outstanding liability relating to a lease
d. cash receipts from issuing notes, loans, bonds and mortgage payable and other short-term or long-term borrowings, and their
repayments

2. This method of presenting cash flows from (used in) operating activities involves adjusting accrual basis profit or loss for the effects of
changes in operating assets and liabilities and effects of non-cash items. a. Direct method
b. Reverse method
c. Indirect method
d. Inverse method

3. In the statement of cash flows of a non-financial institution, interest expense paid is presented under
a. financing activities.
b. operating or financing activities.
c. operating activities.
d. investing activities.

4. Entity A declares cash dividends in 20x1 and pays the dividends in 20x2. How should Entity A report the dividends paid in the
statement of cash flows for 20x1 a. 20x1, None; 20x2, Financing activities
b. 20x1, None; 20x2, Operating or Financing
c. 20x1, Operating activities; 20x2, None
d. 20x1, Financing activities; 20x2, None

5. Entity A had the following balances at December 31, 20x2:

a.

3,800,000
b. 3,100,000
c. 2,800,000
d. 1,500,000

6. Entity A had the following balances at December 31, 20xl:

a.

860,000
b. 110,000
c. 460,000
d. 385,000

7. Which of the following is included in the investing activities section of the statement of cash flows?
a. Acquisition and sale of investments in held for trading securities.
b. Acquisition and sale of short-term investments in cash equivalents.
c. Acquisition and sale of items of property, plant and equipment that are routinely manufactured in the entity's ordinary course of
business and are to be held for rentals and reclassified to inventories when the assets cease to be rented and become held for sale.
d. Cash inflow from repayment of loan.
 8. Which of the following is included in the financing activities section of the statement of cash flows?
a. loans to other parties and collections thereof (other than loans made by a financial institution)
b. cash receipts and cash payments in the acquisition and disposal of property, plant and equipment, investment property, intangible
assets and other noncurrent assets
c. cash receipts from issuing shares or other equity instruments and cash payments to redeem them
d. cash payments for purchases of goods and services

9. Which of the following is presented in the activities section of the statement of cash flows?
a. Exchange differences from translating foreign currency denominated cash flows.
b. Bank overdrafts that can be offset.
c. Acquisition of equipment through issuance of note payable.
d. Purchase of a treasury bill three months before its maturity date.

10. Entity A acquires equipment by paying a 10% down payment and issuing a note payable for the balance. How should Entity A report
the transaction in the statement of cash flows?
a. Down payment, None; Note payable, None
b. Down payment, Investing activities; Note payable, None
c. Down payment, Investing activities; Note payable, Financing activities
d. Down payment, Financing activities; Note payable, None

QUIZ 5 LESSON: PAS 2 – INVENTORIES

PROBLEM 1: TRUE OR FALSE
1. Import duties, freight-in and non-refundable purchase taxes form part of the cost of inventories.
2. Trade discounts are added to the cost of inventories.
3. Raw materials inventory is not written down below cost if the finished goods to which they will be incorporated are expected to be sold
at or above cost. TRUE
4. According to PAS 2, inventories are measured at net realizable value.
5. The maintenance costs of a machine used in the manufacturing process are not included in the cost of inventories.
6. According to PAS 2, net realizable value and fair value less costs to sell are the same.
7. Reversals of inventory write-downs may exceed the amount of the original writedown previously recognized.
8. If the cost of an inventory is P8 while its net realizable value is P6, the amount of write-down is P2.
9. The cost of factory management is included in the cost of inventory.
10. Storage costs of part-finished goods may be included in the cost of inventory, but not storage costs of finished goods.

PROBLEM 2: MULTIPLE CHOICE

1. Which of the following statements is incorrect regarding the use of cost formulas?
a. PAS 2 requires the use of specific identification of costs for inventories that are not ordinarily interchangeable.
b. Entities may choose between the FIFO and the Weighted Average cost formulas for inventories that are ordinarily interchangeable.
c. Different cost formulas may be used for each class of inventory with dissimilar nature and use.
d. Only one formula shall be used for all inventories regardless of differences in their nature and use.

2. Inventories are usually written-down to net realizable value

a. on an item by item basis.
b. on the basis of their classification, for example, as all finished goods, all work in process and all raw materials and supplies.
c. every year.
d. on the basis of their relative stand-alone selling prices.

3. Which of the following is not included as part of the cost of an inventory?

a. Purchase cost, net of trade discount
b. Direct labor cost
c. Freight in
d. Selling cost

4. Conversion costs do not include which of the following costs?

a. Production Overhead
b. All of these are included
c. Direct materials
d. Direct labor

5. These deal with the computation of cost of sales and cost of ending inventory a. net realizable value
b. perpetual inventory system
c. cost formulas
d. costing

6. In which of the following instances is a write-down of inventories to net realizable value may not be required?
a. the inventories are damaged
b. the inventories have become wholly or partially obsolete
c. the estimated costs to complete or costs to sell have increased
d. selling prices are rising because demand has increased
 7. Entity A buys and sells two types of products Product A and Product B. Items of Product A are not ordinarily interchangeable while
items of Product B are ordinarily interchangeable. According to PAS 2, what cost formula shall Entity A use? (specific identification
'SI’, first-in, first out ‘FIFO’, weighted average ‘WA’) a. Product A – SI; Product B - FIFO or WA
b. Product A – SI, FIFO or WA; Product B - SI, FIFO or WA
c. Product A – FIFO; Product B - WA
d. Product A – SI; Product B - SI

8. Entity A is a distributor of oil. Entity A's inventories are ordinarily interchangeable. Entity A maintains a specific level of inventory
such that the latest purchases are the ones dispatched first to the sales outlets. Consequently, the latest purchases are sold first. Which of
the following cost formulas shall be used by Entity A? a. Last-in, First-out (LIFO)
b. Weighted Average
c. FIFO
d. Weighted Average or FIFO

9. Entity A's inventories consist of items that are ordinarily interchangeable.

According to PAS 2, which of the following cost formulas shall Entity A use? a. Specific identification
b. Weighted Average
c. FIFO
d. Weighted Average or FIFO

10. Write-downs of inventories to their net realizable value are recognized a. in profit or loss
b. in other comprehensive income
c. directly in equity
d. any of these
QUIZ 6 LESSON: PAS 41 - AGRICULTURE

1. Which of the following costs should not be included in costs to sell?

a. Levies by regulatory agencies
b. Transport costs
c. Commissions to brokers and dealers
d. Transfer taxes and duties

2. Which of the following is considered an agricultural produce? a. dried fruit

b. picked or harvested fruit
c. fruit cocktail
d. fruit tree

3. Which of the following is an agricultural activity?

a. fish farming
b. poaching
c. hunting in the forest
d. deforestation

4. Which of the following is outside the scope of PAS 41?

a. mango trees and other plants that produce agricultural products repeatedly over a long period of time
b. dairy cattle used in the production of milk
c. rice plants and other crops that produce agricultural products only once
d. chickens used in the production of meat

5. According to PAS 41, a biological asset or agricultural produce is recognized when all of the following criteria are met except
a. the entity controls the asset as a result of past events
b. it is probable that future economic benefits associated with the asset will flow to the entity
c. the asset represents a present obligation as at the end of the reporting period
d. the fair value or cost of the asset can be measured reliably

6. Which of the following is considered a biological asset?

a. Pig
b. Piggy bank
c. Ham
d. Carcass

7. Where there is production cycle of more than one year for a biological asset, PAS 41 encourages separate disclosure of a. Price change
only
b. Physical change and price change
c. Total change in value
d. Physical change only

8. All of the following would be classified as biological assets, except? a. Trees

b. Dairy cattle
c. Eggs
d. Chickens

9. An entity owns a number of herds of cattle. Where should changes in the fair value of a herd of cattle be recognized in the financial
statements? a. In other comprehensive income only
 b. In the statement of cash flows only
c. In profit or loss only
d. In profit or loss or other comprehensive income

10. Agricultural produce is measured at fair value less costs to sell at the point of harvest
a. except when fair value cannot be measured reliably,in which case, the initial measurement is at cost.
b. except when costs to sell cannot be measured reliably, in which case, the initial measurement is at fair value.
c. both statements
d. without exception.

11. Land that is related to agricultural activity is measured

a. At the resale value separate from the biological asset that is being grown on the land.
b. At fair value in combination with the biological asset that is being grown on the land.
c. At fair value.
d. In accordance with PAS 16, Property, Plant and Equipment, or PAS 40, Investment Property.

12. Which of the following is a biological asset that is accounted for under PAS 41? a. mango tree
b. harvested mango fruit
c. rice plant
d. extra rice

13. Which of the following would be classified as agricultural produce?

a. Apple
b. Butter
c. Tree
d. Bush

14. Which of the following would be classified as a product that is the result of processing after harvest?
a. Cheese
b. Wool
c. Bananas
d. Cotton

15. According to PAS 41, biological assets are initially measured at?
a. cost less accumulated depreciation and accumulated impairment losses b. cost
c. fair value less costs to sell
d. fair value

16. Biological transformation results from asset changes through all of the following, except
a. Degeneration
b. Production of agricultural produce
c. Growth
d. Procreation

17. Which of the following statements is correct regarding the measurement of assets related to agricultural activities?
a. The gain or loss arising from the initial measurement of biological asset or agricultural produce is recognized in profit or loss.
b. No gain or loss can arise on the initial recognition of a biological asset.
c. Agricultural produce is initially and subsequently measured at fair value less costs to sell.
d. Biological assets are initially and subsequently measured at fair value.

18. An unconditional government grant related to the biological asset that has been measured at fair value less cost to sell shall be
recognized as a. Income when the grant becomes receivable
b. Income when the grant application has been submitted.
c. A deferred credit when the grant becomes receivable.
d. A deferred credit when the grant has been approved.

19. Which of the following is not dealt with by PAS 41?

a. The initial measurement of agricultural produce harvested from the entity’s biological assets.
b. The accounting for biological assets
c. The processing of agricultural produce after harvesting.
d. The accounting treatment of government grant received in respect of biological assets.

20. Which of the following is a biological asset that is accounted for under PAS 41? a. bearer plant
b. plants used for beautification
c. dairy cattle used to produce milk
d. dead animals used for display
MIDTERM EXAMINATION

LESSON 2: PAS 1 - PRESENTATION OF FINANCIAL STATEMENTS PAS 7 – STATEMENT OF CASH FLOWS

PROBLEM 1: TRUE OR FALSE

 1. An entity may omit the notes when presenting general purpose financial statements.
2. PAS 1 encourages, but does not require, the presentation or the preceding year’s financial statements as comparative information to the
current year’s financial statements.
3. If profit or loss is PHP100 while other comprehensive income is PHP20, the total comprehensive income is PHP120.
4. According to PAS 1, the line item “Cash and Cash Equivalents” should always be presented first in the statement of financial position.
5. According to PAS 1, assets and liabilities or income and expenses are offset, unless separate presentation is required or permitted by
PFRS.
6. According to PAS 1, PRFSs apply to financial statements as well as to other information presented in an annual report, a regulatory
filing, or another document.
7. PAS 1 requires the disclosure of an entity’s domicile and legal form, its country of incorporation and the address of its registered office
and a description of the nature of its operations and its principal activities.

PROBLEM 2: MULTIPLE CHOICE

1. Notes to financial statements

a. All of these are characteristics of notes to financial statements

b. Amplify or explain items presented in the body of financial statements
c. Must qualify as an element
d. Must be quantifiable

2. The income statement reveals

a. Assets and equity for a period of time

b. Assets and equity at a point in time
c. Net income at a point in time
d. Net income for a period of time

3. Alternatively, which of the following is classified as an operating cash flow?

a. Dividend received
b. Interest received
c. Dividend paid
d. Interest paid – (finance cost)

4. Technically, offsetting in financial statements is accomplished when

a. The allowance for doubtful accounts is deducted from accounts receivable

b. Gains or losses from disposal of noncurrent assets are reported by deducting from the proceeds the carrying amount of the assets
and the related disposal cost
c. The accumulated depreciation is deducted from property, plant and equipment
d. The total liabilities are deducted from total assets to arrive at net assets

5. An entity shall prepare and present a statement of cash flows as

a. Note to financial statement

b. Supporting schedule for amount appearing as cash and cash equivalent
c. Supplementary financial statement
d. Integral part of the entity’s basic financial statement

6. Which of the should be defined as intentional distortion of financial statement?

a. Fraud
b. Neither error nor fraud
c. Error and fraud
d. Error

7. How should repayment of a long-term loan comprising repayment of the principal amount and interest due to date be treated in a
statement of cash flows?

a. The repayment of the principal loan is a financing cash flow and the interest repayment is either an operating cash flow or
investing cash flow
b. The repayment of the principal loan is an investing cash flow and the interest repayment is either an operating cash flow or
investing cash flow
 c. The repayment of the principal is a financing cash flow and the interest payment is netted against interest received on bank
deposits and the net amount of interest is shown as operating cash flow
d. The repayment of the principal loan is a financing cash flow and the interest payment is either an operating cash flow or a
financing cash flow
8. Which of the following statements is incorrect regarding notes to financial statements?

a. IFRS requires a maturity analysis for receivables

b. IFRS requires specific note disclosures including disaggregation of inventories into classifications such as merchandise, production
supplies, goods in process, and finished goods
c. IFRS requires that all notes should be clear, simple to understand and nontechnical in nature
d. All of the choices are correct regarding notes financial statements

9. Conceptually, net income is a measure of

a. Change of wealth
b. Capital maintenance

10. The two-statement approach of presenting comprehensive income is preparing

a. A combined income statement and a statement of changes in equity

b. A separate income statement and a separate statement of comprehensive income
c. A comparative statement of comprehensive income
d. A combined statement of comprehensive income and retained earnings

11. How should a gain from sale of equipment for cash be reported in a statement of cash flows using the indirect method?

a. In operating activities as a deduction from income

b. In investing activities as a cash outflow
c. In investing activities as a reduction of the cash inflow from the sale
d. In operating activities as an addition to income

12. An entity shall present

a. The statement of financial position more prominently than the other statements
b. The statement of comprehensive income more prominently than the other statements
c. Each financial statement with equal prominence
d. The statement of cash flows more prominently than the other statements

13. Which can qualify as cash equivalent?

a. Preference shares with specified redemption date and acquired three months before redemption date
b. Equity instrument
c. One-year BSP treasury bill
d. Six-month money market placement

14. An entity must present additional line items in a statement of financial position when

a. Such presentation is required by the tax authorities of the jurisdiction in which the entity operates
b. Such presentation is a generally accepted practice in the sector in which the entity operates
c. Such presentation is relevant to an understanding of the entity’s financial position
d. Such presentation is relevant to an understanding of the entity’s financial position and financial performance

15. The scope of PAS 1 is

a. The preparation and presentation of general purpose financial statements

16. Accumulated other comprehensive income should be reported as component of

a. Neither retained earnings nor share premium
b. Retained earnings
c. Share premium
d. Retained earnings and share premium
17. Cash comprises

a. Cash on hand and demand deposits

b. Cash on hand and cash equivalents
c. Demand deposits and cash equivalents
d. Cash on hand, demand deposits and cash equivalents

18. An entity shall report separately cash flows arising from investing and financing activities using

a. Direct method
b. Either direct method or indirect method
c. Indirect method
d. Neither direct method nor indirect method
19. In the statement of cash flows, interest received and dividend received may be classified alternatively as cash flow from

a. Investing activities
b. Revenue activities
c. Financing activities
d. Operating activities

20. It is the presentation and classification of financial statement items on a uniform basis from one accounting period to the next.

a. Accrual basis
b. Consistency of presentation
c. Aggregation
d. Comparable information

21. Which of the following must be included on the face of the statement of financial position?
a. Investment property
b. Shares in an entity owned by that entity
c. Contingent asset
d. Numbers of shares authorized

22. Significant accounting policies may not be

a. Omitted from financial statement disclosure

b. Selected from existing acceptable alternatives
c. Unusual or innovative in application
d. Selected on the basis of judgement

23. An entity purchased a building and the seller accepted payment partly in equity shares and partly in debentures of the entity. The
transaction shall be treated in the statement of cash flows as which of the following?

a. The purchase of the building is investing cash outflow and the issuance of debentures is financing cash inflow while the issuance
of shares is investing cash inflow.
b. The transaction should be ignored totally since it is a noncash transaction.
c. The purchase of the building is investing cash outflow and the issuance of shares and the debentures are financing cash inflows.
d. The transaction does not belong in a statement of cash flows and shall be disclosed only in the notes to financial statements.

24. In analyzing financial statements, which financial statement would a potential investor primarily use to assess liquidity and financial
liability?

a. Income statement
b. Statement of retained earnings
c. Statement of cash flows
d. Statement of financial position

25. This is the most commonly used method of presenting a statement of financial position. It facilitates the computation of liquidity and
solvency ratios.

a. Classified presentation
b. Unclassified presentation
c. Classified as to liquidity
d. Based on liquidity
26. Cash equivalents are

a. Short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to an
insignificant risk of changes in value
b. Short and long-term highly liquid investments that are readily convertible to known amount of cash and which are subject to an
insignificant risk of changes in value
c. Investments subject to an insignificant risk of changes in value
d. Short-term highly liquid investments that are readily convertible to known amount of cash

27. Items of dissimilar nature or function

a. Must always be presented separately

b. Must not be presented separately
c. Must be presented separately in financial statements if these items are material
d. Must be presented separately in financial statements even if these items are immaterial

28. What is the purpose of reporting comprehensive income?

a. To report transaction with owners

b. To replace net income with a better measure
c. To combine income from continuing operations with income from discounted operations
d. To report a measure of overall entity performance

29. Cash receipts from issuing shares and other equity instruments are

a. Cash inflows from investing activities

b. Cash outflows for investing activities
c. Cash inflows from financing activities
d. Cash outflows for financing activities

30. What is the purpose of information presented in the notes to financial statements?

a. To provide recognition of amounts not included in the financial statements

b. To provide disclosures required by generally accepted accounting principles
c. To correct improper presentation in the financial statements
d. To present management response to auditor comments

31. An entity has a loan due for repayment in six months’ time but the entity has the option to refinance for repayment two years later. The
entity plans to refinance this loan. In which section of the statement of financial position should this loan be presented?

a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets

32. When there is much variability, the operating cycle is measured at

a. Three years
b. The mean value
c. Twelve months
d. The median value

33. Separate line items in an analysis of expenses by function include

a. Cost of sales, administrative and distribution costs

b. Purchases, transport costs, employee benefits, depreciation, extraordinary items
c. Depreciation, purchases, transport costs, employee benefits and advertising costs
d. Purchases, distribution costs, administrative costs, employee benefits, depreciation taxes

34. The summary of significant accounting policies shall disclose

a. Neither the composition of property, plant and equipment nor the depreciation method used
 b. The composition of property, plant and equipment and the depreciation method used
c. The depreciation method used only
d. The composition of property, plant and equipment only

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

a. Must present assets and liabilities in order of liquidity

b. Must choose either the current and noncurrent or the liquidity presentation, meaning free choice of presentation
c. Must make the current and noncurrent presentation, except when a presentation based on liquidity provides information that is
reliable and more relevant
d. Must make the current and noncurrent presentation

36. In a statement of cash flows using indirect approach for operating activities, an increase in inventory is presented as

a. Addition to net income

b. Outflow of cash
c. Deduction from net income
d. Inflow and outflow of cash

37. Which of the following is not a generally accepted practice of presenting the income statement?

a. The condensed income statement

b. The consolidated income statement
c. Including prior period errors in determining net income
d. Including gain and loss from discontinued operation in determining net income

38. Separate line items in an analysis of expenses by nature include

a. Purchases, distribution costs, administrative costs, employee benefits, depreciation, taxes

b. Cost of sales, administrative and distribution costs
c. Depreciation, purchases, transport costs, employee benefits and advertising costs
d. Purchases, transport costs, employee benefits, depreciation, extraordinary items

39. Cash receipts from royalties, fess, commissions and other revenue are

a. Cash outflows for operating activities

b. Cash inflows from operating activities
c. Cash inflows from investing activities
d. Cash outflows for financing activities

40. These are the principal-revenue producing activities of the entity

a. Financing activities
b. Investing activities
c. Borrowing activities
d. Operating activities

41. Staff costs are

a. Cost of sales
b. Administrative expenses
c. Distribution expenses
d. Allocated to the three categories according to the function of the employee

42. The disclosure of accounting policies is important to financial statement users in determining
whether accounting policies are consistently applied from year to year

43. An entity must report each of the line items required by PFRS

a. Even if the amount recognized for the line item is nil

b. Unless the line item is either immaterial or irrelevant
c. Under all circumstances
 d. Unless the amount recognized for the line item is nil

44. The definition of normal operating cycle under PAS 1

For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials, process those raw materials into finished
goods, sell the finished goods on account, and collect the receivables.

45. It is the total of income less expenses, excluding the components of other comprehensive income

a. Profit or loss
b. Comprehensive income
c. Accounting income
d. Economic income

46. This term comprises items of income and expense including reclassification adjustments, that are not recognized in profit or loss as
required or permitted by PFRS

a. Other comprehensive income

b. Profit or loss
c. Comprehensive income
d. Retained earnings

47. An entity shall classify an asset as current under all of the following conditions, except

a. The entity expects to realize the asset within twelve months after the reporting period
b. The asset is cash or a cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period
c. The entity holds the asset for the purpose of trading
d. The entity expects to realize the asset or intends to sell or consume it within the entity’s normal operating cycle.

48. In a statement of cash flows, interest payments to lenders and other creditors shall be classified as

a. Financing activities
b. Operating activities
c. Lending activities
d. Borrowing activities

49. Entity’s A financial statements in the current period is comparable with Entity’s A financial statements in the previous period. This type
of comparability is called

a. Extra-comparability
b. Inter-comparability
c. Intra-comparability
d. Intro-comparability

50. A dividend declared by the entity before year-end and payable to the shareholders three months after the end of reporting period is
classified as

a. Non-current liability
b. A current liability
c. A current asset
d. Equity

51. Which of the following is not a required disclosure of accounting policies?

a. Disclosures required by PFRS

b. The measurement basis used in the financial statements
c. The nature of operations and the policies that the users of the financial statements would expect to be disclosed
d. Key management personnel involved in preparing the summary of significant accounting policies

52. Financial statements must be prepared at least

a. Annually
b. Quarterly
 c. Monthly
d. Semi-annually

53. At the beginning of the current year, an entity sold used equipment for a cash amount equaling its carrying amount for both book and
tax purposes. During the year, the entity replaced the equipment by paying cash and signing a note payable for new equipment. The cash
paid for the new equipment exceeded the cash received for the old equipment. How should these equipment transactions be reported in
the entity’s statement of cash flows?

a. Cash outflow equal to the cash paid less the cash received
b. Cash inflow equal to the cash received and a cash outflow equal to the cash paid and note payable
c. Cash outflow equal to the cash paid and note payable less the cash received
d. Cash inflow equal to the cash received and cash outflow equal to the cash paid

54. An entity shall prepare how many statements of financial position as a result of retrospective application, retrospective restatement and
reclassification of items in the financial statements?

a. Two
b. Three
c. Four
d. One

55. Who is responsible for the preparation and fair presentation of an entity’s financial statements in accordance with the PFRSs?

a. Accountant
b. Auditor
c. Management
d. Government regulatory body

56. When an entity changes the end of the reporting period longer or shorter than one year, an entity shall disclose all of the following,
except

a. The fact that similar entities in the geographical area in which the entity operates have done so in the current year.
b. Period covered by the financial statements
c. The fact that amounts presented in the financial statements are not entirely comparable
d. The reason for using a longer or shorter period

57. The income statement would help in which of the following?

a. Evaluate solvency
b. Evaluate future financial flexibility
c. Evaluate liquidity
d. Estimate amount, timing and uncertainty of future cash flows

58. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the preceding period if uncertain instances
occur. Which of the following is not one of those instances? (Assume all of the following has a material effect)

a. reclassification of items in the financial statements

b. retrospective restatement
c. retrospective application of an accounting policy
d. change in the frequency of reporting

59. Cash advances and loans made by financial institution are usually classified as

a. Financing activities
b. Component of cash and cash equivalents
c. Operating activities
d. Investing activities

60. Comprehensive income includes

a. Both profit or loss and other comprehensive income

b. Neither profit or loss nor other comprehensive income
c. Profit or loss
d. Other comprehensive income
61. The operating cycle of an entity
Is the time between the acquisition of materials entering into a process and their realization in cash

62. In a statement of cash flows, dividend payments to shareholders shall be classified as

a. Cash inflows from financing activities

b. Cash outflows for investing activities
c. Cash outflows for financing activities
d. Cash inflows from investing activities

63. The statement of financial position is useful for analyzing all of the following, except

a. Need for additional financing

b. Solvency
c. Liquidity
d. Profitability

64. The limitations of the income statement include all of the following, except

a. Income measurement involves judgment

b. Only actual amounts are reported in determining net income
c. Income numbers are affected by the accounting method
d. Items that cannot be measured reliably are not reported

65. Which of the following terms cannot be used to describe a line item in the statement of comprehensive income?

a. Extraordinary item
b. Revenue
c. Gross profit
d. Profit before tax

66. The notes to financial statements should not be used to

a. Describe significant accounting policies

b. Describe depreciation methods employed
c. Describe the principles and methods peculiar to the industry in which the entity operates
d. Correct an improper presentation in the financial statements

67. An entity shall disclose in the summary of significant accounting policies

a. The measurement basis used in preparing the financial statements

b. The measurement basis used in preparing the financial statements and the accounting policies used
c. All the measurement bases specified in IFRS irrespective of whether these were used by the entity
d. All of the measurement bases and the accounting policy choices available to the entity specifies in the IFRS irrespective whether
these were used

68. A presentation of assets and liabilities in increasing or decreasing order of liability provides information that is reliable and more
relevant than a current and noncurrent presentation for

a. Manufacturing entity
b. Public utility
c. Financial institutions
d. Service provider

69. The term “net assets” represents

a. Total assets less total liabilities

b. Total contributed capital
c. Current assets minus current liabilities
d. Retained earnings
70. It is the change in equity during a period resulting from transactions and other events, other than changes resulting from transactions
with owners in their capacity as owners

a. Comprehensive income
b. Retained earnings
c. Profit or loss
d. Other comprehensive income

71. The objective of PAS 1 is

To ensure comparability by prescribing the basis for presentation of general purpose financial statements

72. How should repayment of a long-term loan comprising repayment of the principal amount and interest due to date be treated in a
statement of cash flows? The repayment of the principal loan is a financing cash flow and the interest payment is either an operating
flow or a financing cash flow.

73. Cash that is restricted for the settlement of a liability due 18 months after the reporting period
Non-current Assets

74. An entity shall present an analysis of expenses using a classification based on Either the nature of expenses or the function of expenses,
whichever provides information that is reliable and more relevant

75. Current and non-current presentation of assets and liabilities provide useful information when the entity

a. Supplies good or services within a clearly identifiable operating cycle

b. Is a financial institution
c. Is a public utility
d. Is a nonprofit organization

76. The PFRSs apply to which of the following?

a. Explanatory material and other information that are disclosed in the notes to the financial statements.
b. A management’s review of the entity’s financial performance during the period vis-à-vis targets for that period contained in the
entity’s annual report, which also includes the entity’s financial statements.
c. Environmental reports required by the Department of Environment and Natural Resources (DENR) that are included in the entity’s
annual report.
d. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed together with the financial
statements.

77. The presentation of the notes to financial statements in a systematic manner

a. Is mandatory, as far as practicable

b. Depends on the industry
c. Is voluntary
d. Is mandatory

78. Which of the following entities is a going concern?

a. Management intends to cease the entity’s operations

b. Management intends to liquidate the entity
c. Management has no realistic alternative but to cease the entity’s operations
d. None of the choices

79. The cross-reference between each line item in the financial statements and any related information disclosed in the notes to financial
statements

a. Is voluntary
b. Is either voluntary or mandatory
c. Is mandatory
d. Depends on the industry
80. Which can qualify as cash equivalent?

a. Preference shares with specified redemption date and acquired three months before redemption date
b. Equity instrument
c. One-year BSP treasury bill
d. Six-month money market placement

81. An entity shall classify a liability as current under all of the following conditions, except

a. The entity has an unconditional right to defer settlement of the liability for at least twelve months from the end of the reporting
period.
b. The liability is due to be settled within twelve months after the reporting period.
c. The entity holds the liability primarily for the purpose of trading.
d. The entity expects to settle the liability within the entity’s normal operating cycle.

82. When preparing financial statements, PAS 1 requires management to assess the entity’s ability to continue as a going concern. The
assessment covers a minimum period of

a. At least two years from the end of the reporting period

b. At least five years from the end of the reporting period
c. At least one year from the end of the reporting period
d. There is no such requirement.

83. There are amounts reclassified to profit or loss in the current period but were recognized in other comprehensive income in the current
or previous period.

a. Reclassification adjustments
b. Correcting entries
c. Prior period errors
d. Unusual or irregular items
QUIZ 7
LESSONS: PAS 32 and PFRS 9 – FINANCIAL INSTRUMENTS

1. Financial assets include all of the following, except

a. Prepaid Expense
b. Cash in bank
c. Trade accounts receivable
d. Loans receivable

2. Under IFRS, the presumption is that equity investments are

a. Held for trading
b. Held as financial assets at fair value
c. Held for trading and held to profit from price changes
d. Held to profit from price changes

3. What is the presentation of preference dividend on mandatorily redeemable preference shares?

a. finance cost as component of other comprehensive income
b. finance cost as a component of profit or loss
c. deducted from retained earnings
d. deducted from share premium

4. Which is not classified as a financial instrument?

a. convertible bond
b. foreign currency contract
c. warranty provision
d. loan receivable

5. Which of the following is not a characteristic of a financial asset held for trading?
a. It is acquired principally for the purpose of selling or repurchasing it in the near term.
b. It is a derivative that is designated as an effective hedging instrument.
c. It is a derivative that is not designated as an effective hedging instrument.
d. On initial recognition, it is part of a portfolio of financial assets that are managed together and for which there is evidence of a
recent actual pattern of short-term profit taking.

6. What are the conditions for offsetting financial asset and financial liability?
a. a netting agreement
b. a legal right of offset and an intention to settle net or simultaneously
c. a legal right of offset
d. the existence of a clearing mechanism or net settlement of an expectation of net settlement

7. Which of the following financial instruments would not be classified as financial liability?
a. a preference share that must be redeemed by the issuer for cash on a future date
b. a contract for the delivery of as many of the entity’s ordinary shares as are equal in value to a fixed amount of cash on a future date
c. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary shares in return for a fixed
price d. an issued perpetual debt instrument

8. The irrevocable election to present subsequent changes in fair value in other comprehensive income is applicable only to
a. Investment in equity instrument that is not held for trading
b. Investment in equity instrument that is held for trading.
c. Financial asset measured at amortized cost.
d. Financial asset measured at fair value

9. Entities are required to measure financial asset based on all of the following, except
a. Whether the financial asset is a debt or an equity investment
b. The business model for managing financial assets
c. The contractual cash flow characteristics of the financial asset
d. All of the choices are required

10. How does the standard distinguish between the measurement methods to be used?
a. By reviewing the business model and the contractual cash flow characteristics of the instrument
b. By reviewing the business model and the risks and rewards of the transaction.
c. By reviewing the realizability and the contractual cash flow characteristics of
the instrument
d. By reviewing the realizability of the instrument and risks and rewards of
ownership.

11. What is the principle for recognition of a financial asset?

a. A financial asset is recognized when it is probable that future economic benefits will flow to the entity.
b. A financial asset is recognized when the entity obtains control of the instrument.
c. A financial asset is recognized when the entity obtains the risks and rewards of ownership of the financial asset.
d. A financial asset is recognized when the entity becomes a party to the contractual provisions of the instrument

12. Impairments of debt investments are

a. Based on discounted contractual cash flows.
 b. Recognized as component of other comprehensive income
c. Based on fair value for nontrading investments and on negotiated value for held for collection investments
d. Evaluated at each reporting date for every held for collection investment

13. Depending on the business model for managing financial assets, an entity shall classify financial assets subsequent to initial recognition
at a. Amortized cost
b. Fair value though other comprehensive income
c. Fair value through profit or loss
d. All of these are used in measuring financial assets

14. A debt investment shall be measured at fair value through other comprehensive income
a. When the debt investment is held for trading.
b. When the debt investment is not held for trading
c. By irrevocable designation
d. When the business model is to collect contractual cash flows that are solely payments of principal and interest and also to sell the
financial asset

15. How should preference shares that are redeemable mandatorily be presented in the statement of financial position? a. Non-current
financial liability
b. Current financial liability
c. Equity
d. Either current or non-current financial liability depending on redemption date

16. Which should be classified as financial assets?

a. Patent
b. Inventory
c. Trade accounts Receivable
d. Land

17. It is any contract that evidences residual interest in the assets of an entity after deducting all of the liabilities a. Equity instrument
b. Debt instrument
c. Loan and receivable
d. Financial asset with indeterminable fair value

18. All of the following financial assets shall be measured at fair value through profit or loss, except
a. Financial assets held for trading
b. Financial assets designated on initial recognition as at fair value through profit or loss
c. Investments in quoted equity instruments
d. Financial assets at amortized cost
19. A financial instrument is any contract that gives rise to
a. A financial asset
b. A financial liability
c. A financial asset of one entity and a financial liability of another entity
d. A financial asset of one entity and a financial liability or equity instruments of another entity

20. A debt investment shall be measured subsequently at amortized cost

a. By irrevocable election
b. When the debt investment is managed and evaluated on document risk-management strategy.
c. When the debt investment is held tor trading
d. When the business model is to collect contractual cash flows that are solely payments of principal and interest

21. Debt investments reported at amortized cost are

a. Managed and evaluated based on a documented risk management strategy
b. Held for collection debt investments
c. Trading debt investments
d. All these are correct

22. Debt investments not held for collection are reported at

a. Amortized cost
b. Fair value
c. The lower of amortized cost and fair value
d. Net realizable value

23. In which of the following circumstances is derecognition of a financial asset not appropriate?
a. All the risks and rewards of ownership of the transferred asset have been transferred.
b. The entity has retained substantially all the risks and rewards of ownership of the transferred asset.
c. The entity has lost control of the transferred asset
d. The contractual rights to the cash flows of the financial asset have expired

24. Financial liabilities include all of the following, except

a. Notes payable
b. Trade accounts payable
c. Bonds payable
 d. Income tax payable

25. What financial assets are assessed for impairment?

a. Debt investments at FVPL
b. Equity investments at FVPL
c. Debt investments at amortized cost and debt investments at FVOCI
d. Equity investments at FVOCI

ANGEL CHRISTINE L. AROJO

BSA-1st Year