Practice MCQ’s for Conceptual Framework

1. The income statement reveals

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

2. Comprehensive income includes all of the following, except

a. Dividend revenue
b. Loss on disposal of asset
c. Investment by owners
d. Unrealized holding gain

3. The components of OCI include all, except

a. Unrealized gain on derivative contract designated as cash flow hedge
b. Translation loss
c. Dividend paid to shareholders
d. Actuarial gain on defined benefit plan

4. Which is not a component of OCI?

a. Foreign currency translation adjustment
b. Unrealized gain on financial asset held for trading
c. Unrealized gain on derivative contract designated as cash flow hedge
d. Change in revaluation surplus

5. Other comprehensive income should be reported as component of

a. Retained earnings
b. Share premium
c. Both retained earnings and share premium
d. Neither retained earnings nor share premium

6. Which of the following does not appear in the statement of retained earnings?
a. Net loss
b. Prior period error
c. Preference share dividend
d. Other comprehensive income

7. Which of the following does not appear in the statement of retained earnings?
a. Net income
b. Prior period adjustment
c. Discontinued operation
d. Dividend declared

8. Information in the income statement helps users to

a. Evaluate the past performance of the entity.
b. Provide a basis for predicting future performance.
c. Assess the amount, timing and risk or uncertainty of future cash flows.
d. All of these.

9. Other comprehensive income shall include all of the following, except

a. Net unrealized loss on available for sale securities c. Revaluation surplus
b. Foreign currency translation gain d. Dividends paid to stockholders

10. Which of the following information is not specifically a required disclosure of PAS 1?
a. Name of the reporting entity or other means of identification, and any change in that
information from the previous year.
b. Names of major shareholders of the entity.
c. Level of rounding used in presenting the financial statements.
d. Whether the financial statements cover the individual entity or a group of entities.

11. The disclosure of accounting policies

a. May describe policies that are peculiar to the reporting company’s industry.
b. Should not appear in the notes to the financial statements
c. Should not describe unusual or innovative applications of GAAP.
d. Is encouraged but not required

12. Financial statements must be prepared at least

a. Annually
b. Quarterly
c. Semiannually
d. Every two years
13. The overall objective of financial reporting is to provide information
a. That is useful for decision making
b. About assets, liabilities and equity
c. About financial performance during a period
d. That allows owners to assess performance of management

14. Which of the following must be included in the statement of financial position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax

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

16. The components financial statements include all of the following, except
a. Statement of financial position c. Statement of cash flows
b. Statement of comprehensive income d. Statement of retained earnings

17. A third statement of financial position at the beginning of the earliest comparative period is
required
a. When an entity applies an accounting policy retrospectively.
b. When an entity makes a restrospective restatement of items in the financial statements.
c. When an entity reclassifies items in the financial statements.
d. In all of the above cases.

18. The statement of financial position provides a basis for all of the following, except
a. Computing rate of return.
b. Evaluating the capital structure of the entity.
c. Determining the increase in cash due to operations.
d. Assessing the liquidity and financial flexibility of the entity.

19. Immaterial amounts of similar nature and function shall be grouped or condensed as one
line item in the financial statements.
a. Aggregation c. Offsetting
b. Accounting policy d. Comparability

20. An entity shall present

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

21. The effects of transaction and other events are recognized when they occur, recorded in the
accounting records and reported in the financial statements of the periods to which they relate.
a. Going concern c. Time period
b. Entity d. Accrual basis
22. Which of the following reports is not a component of the financial statements?
a. Statement of financial position c. Director’s reports
b. Statement of changes in equity d. Notes to the financial statements

23. Which of the following is a limitation of the statement of financial position?

a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these

24. Corrections of errors in prior period are included in

a. Retained earnings
b. Other comprehensive income
c. Net income
d. Share premium

25. Working capital is

a. The group of assets which enables the entity to operate profitably
b. Total current assets
c. Total current assets minus total current liabilities
d. Capital invested in business

26. The term “net assets” represents

a. Retained earnings
b. Current assets less current liabilities
c. Total paid in capital
d. Total assets less total liabilities

27. Which of the following is not a noncurrent investment?

a. Cash surrender value of life insurance
b. Franchise
c. Land held for speculation
d. A sinking fund

28. The term “deficit” refers to

a. An excess of current assets over current liabilities
b. An excess of current liabilities over current assets
c. A debit balance in retained earnings
d. A loss that is reported as a prior period error
29. Which should be classified as a noncurrent asset?
a. Plant expansion fund
b. Prepaid rent
c. Supplies
d. Goods in process

30. Accrued revenue would normally appear in the balance sheet under
a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets

31. Which item is not a current liability?

a. Unearned revenue
b. Share dividend payable
c. Current portion of long-term debt
d. Trade accounts payable

32. Which statement is correct concerning presentation of information on the face of the
statement of financial position?
I. Additional line items, headings and subtotals shall be presented on the face of the statement
of financial position when such presentation is relevant to an understanding of the entity’s financial
position.
II. The standard does not prescribe the order or format in which items are to be presented.
a. I only c. Both I and II
b. II only d. Neither I nor II

33. The operating cycle of an entity

a. Is set be the industry’s trade association usually on an average length of time for all firms
which are members of the association.
b. Is the time between the acquisition of assets for processing and their realization in cash or
cash equivalents.
c. Is the period of time normally elapsed from the time the entity expends cash to the time it
converts trade receivables back into cash.
d. Causes the distinction between current and noncurrent items to depend on whether they will
affect cash within one year.

34. When an entity’s normal operating cycle is not clearly identifiable, it is assumed to be
a. Twelve months c. Three months
b. Six months d. Twenty-four months
35. A liability shall be classified as current when it satisfies any of the following criteria
(choose the incorrect one)
a. It is expected to be settled in the entity’s normal operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is due to be settled within twelve months after the statement of financial position date.
d. It is expected to be paid for in cash

36. An asset shall be classified as current when it satisfies any of the following criteria, except
a. The entity expects to realize or intends to sell or consume the asset within the operating
cycle.
b. The entity expects to realize the asset within twelve months from the statement of financial
position date.
c. It is a restricted cash or cash equivalent asset
d. It is held primarily for the purpose of trading

37. Which obligations are classified as current liabilities even if they are due to be settled after
more than twelve months from the statement of financial position date?
a. Trade payables and accruals from employee and other operating cost.
b. Current portion of noncurrent financial liabilities.
c. Bank overdrafts
d. Dividend payable

38. Investment securities held for the purpose of retiring bonds payable should be classified as
a. Current assets c. Deferred bond liability
b. Noncurrent assets d. Intangible assets

39. Which one of the following is not required to be presented as minimum information on the
face of the statement of financial position?
a. Investment property c. Biological assets
b. Investments accounted under the equity method d. Contingent liability

40. The concept of “earnings”

a. Includes changes in market value of FA at FVOCI.
b. Includes foreign currency translation adjustments
c. Includes gains resulting from the sale of a productive asset in an arm’s length transaction
d. Same as comprehensive income.