Sample Mid Term Exam: Financial Reporting

1. Which one of the following would be shown in the 'other comprehensive income'
section of the statement of profit or loss and other comprehensive income?
(a) A revaluation gain on an investment property
(b) Profit on sale of an investment
(c) Receipt of a government grant
(d) Gain on revaluation of a factory building

2. Inappropriate accounting policies are rectified by:

(a) Disclosure of the accounting policies used
(b) Notes
(c) Explanatory material
(d) All of above.
3. 3Which of the following is appropriate statement regarding compliance with IFRSs?
(a) These financial statements have been prepared in accordance with most of IFRSs.
(b) These financial statements have been prepared in accordance with all the IFRSs
except IAS 8 and IAS 2.
(c) These financial statements have been prepared in accordance with IFRSs.
(d) These financial statements have been prepared in accordance with selected IFRSs.
4. If it is impractical to make a retrospective application to a period:
(a) Make the change only to the current period
(b) Apply the change to the earliest period that is practical
(c) Do not make the change at all
(d) Make the change in next year
5. Adjustment of the carrying amount of an asset or a liability or the consumption of an
asset as a result of change in assessment. This defines:
(a) A change in accounting estimate
(b) Accounting policies
(c) Misstatements
(d) Correction of error.
6. Which of the following body/institution decides on accounting rules that must be
applied by companies in Pakistan?
(a) Federal Government
(b) Securities and Exchange Commission of Pakistan
(c) State Bank of Pakistan
 (d)The Institute of Chartered Accountants of Pakistan.
7. Which of the following body/institution is responsible for recommending accounting
standards for notification by Securities and Exchange Commission of Pakistan?
(a) Pakistan Institute of Corporate Governance
(b) Pakistan Stock Exchange
(c) The Institute of Chartered Accountants of Pakistan
(d) Pakistan Chamber of Commerce.

8. How does IAS 1 define the 'operating cycle' of an entity?

(a) The time between acquisition of assets for processing and delivery of finished goods
to customers
(b) The time between delivery of finished goods and receipt of cash from customers
(c) The time between acquisition of assets for processing and payment of cash to
suppliers
(d) The time between acquisition of assets for processing and receipt of cash from
customers.

9. Good will :
(a) can only be recognize when assets are acquired as part of a business.
(b) recognized as an asset
(c) measured at its cost at the date of acquisition
(d) All of the above

10. Acquisition related costs that are directly attributable to a business combination:
(a) do not form part of the consideration transferred, rather they are expensed as
incurred.
(b) are included in calculation of Goodwill
(c) none of the above
(d) All the above.

11. An asset is impaired if:

A. Its carrying amount equals the amount to be recovered through use (or sale) of the
asset.
B. Its carrying amount exceeds the amount to be recovered through use (or
sale) of the asset
C. The amount to be recovered through use (or sale) of the asset exceeds its carrying
amount
D. If it has been damaged
12. Under IAS 36 Impairment of Assets, if the fair value less costs to sell of an asset
cannot be determined then or is zero :
 A. the asset is not impaired
B. the recoverable amount is the value in use
C. the net realizable value is used
D. the carrying value of the asset remains the same

13. IAS 36 applied to which of the following assets:

A. Inventories.
B. Financial assets including property plant and equipment and intangible assets.
C. Assets held for sale.
D. Property, plant, and equipment and intangible assets

14. In accordance with IAS 8, how is a change in accounting estimate accounted for?
A. By changing the current year figures but not the previous years' figures
B. By changing the current year figures and the previous years' figures
C. No alteration of any figures but disclosure in the notes
D. Neither alteration of any figures nor disclosure in the notes
15. According to IAS 8 how should a material error in the previous financial reporting
period be accounted for in the current period?
A. By making an adjustment in the financial statements of the current period through
the statement of profit or loss, and disclosing the nature of the error in a note.
B. By making an adjustment in the financial statements of the current period as a
movement on reserves, and disclosing the nature of the error in a note.
C. By restating the comparative amounts for the previous period at their correct
value, and disclosing the nature of the error in a note.
D. By restating the comparative amounts for the previous period at their correct
value, but without the requirement for a disclosure of the nature of the error in a
note.

15. Specific principles bases conventions rules and practices applied in presenting
financial statements. This defines:
A. Accounting estimates
B. Accounting policies
C. Prospective application
D. Accounting method.
16. Applying a new policy to transactions as if that policy had always been applied. This
is:
A. Retrospective restatement
B. Retrospective application
C. Change in accounting estimate
D. Prospective application
 17. Which one of the following would not necessarily lead to a liability being classified as
a current liability?
A. The liability is expected to be settled in the course of the entity's normal operating
cycle.
B. The liability has arisen during the current accounting period.
C. The liability is held primarily for the purpose of trading.
D. The liability is due to be settled within 12 months after the end of the reporting
period.
18. An entity purchased a property 15 years ago at a cost of Rs. 100,000 and have been
depreciating it at a rate of 2% per annum, on the straight-line basis. The entity has had
the property professionally revalued at Rs. 500,000. What is the revaluation surplus
that will be recorded in the financial statements in respect of this property?
A. Rs. 400,000
B. Rs. 500,000
C. Rs. 530,000
D. Rs. 430,000
E.

Question 1

Indicate how Petersen Ltd should treat the following events in its financial statements at 30
June 2019. You are not required to draft the financial statement notes.
(a) On 15 August 2019, Michael Ltd, a major customer of Petersen Ltd, indicated that it
had found an alternative supplier. At this date Michael Ltd owed no amount to
Petersen Ltd.

21.5 (a) This is a non-

adjusting event, which should
be disclosed by way of a note
to the
financial statements. If the
event is of such magnitude that
the going concern basis of
valuation is no longer
appropriate, then consistent
with paragraph 14 of AASB
110,
adjustments would be made
directly to the financial
statements.
(b)
This would be a non-adjusting event. Disclosure would be required in the notes to the
financial statements.

(b) On 30 June 2019, Lynch Ltd owed Petersen Ltd $234 900. On 24 July 2019, Petersen
Ltd received notice that Lynch Ltd had become insolvent. It had ceased trading in
May 2019.

(c) On 31 July 2019, a major flood damaged the premises of Petersen Ltd. Inventory
amounting to $324 600 was destroyed and repairs to office equipment and buildings
will amount to a further $564 000.
 (d) On 12 August 2019, Petersen Ltd settled a negligence claim lodged by one of its
customers. The claim arose on 7 March 2019, when an employee accidentally
removed the customer’s ear while shaving him with a sharp razor.

1. A company has a machine in its statement of financial position at a carrying amount

of Rs.300,000.
The machine is used to manufacture the company’s best-selling product range, but the entry
of a new competitor to the market has severely affected sales.
As a result, the company believes that the future sales of the product over the next three years
will be only Rs.150,000, Rs.100,000 and Rs.50,000. The asset will then be sold for Rs.25,
000.
An offer has been received to buy the machine immediately for Rs.240,000, but the company
would have to pay shipping costs of Rs.5, 000.
Market changes indicate that the asset may be impaired and so the recoverable amount for the
asset must be calculated.