Colegio de San Juan de Letran

ACCTG 118

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY THEORY OF ACCOUNTS

FINANCIAL STATEMENTS

1)Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence?

1. 1. Investors using statistical models
   2. Corporate management
   3. Financial analyst
   4. Independent Certified Public Accountant

2. The most useful information in predicting the future cash flows is
   1. Information about the current cash flows
   2. Current earnings based on accrual accounting
   3. Information regarding the accounting policies used
   4. Information regarding the results obtained by using wide variety of accounting policies

3. The accrual basis for accounting is most useful for
   1. Determining the amount of income tax liability.
   2. Predicting short-term financial performance.
   3. Predicting long-term financial performance.
   4. Determining the amount of dividends to shareholders

4. The financial statements prepared under GAAP
   1. Do not articulate with one another.
   2. Reflect a single measurement which is historical cost.
   3. Are not highly precise best estimate and judgement must be made.
   4. Contain a limited number of future projections.

5. In measuring financial performance, accrual accounting is used because
   1. Cash flows are considered less important.
   2. It provides a better indication of ability to generate cash flows than cash basis.
   3. It recognizes revenue when cash is received and expenses when cash is paid.
   4. It is one of the implicit assumptions.

6. Which of the following is not an objective of financial reporting?
   1. To provide information about assets and claims against those assets.
   2. To provide information that is useful in assessing sources and uses cash.
   3. To provide information that is useful in lending and investing decisions.
   4. To provide information about the liquidation value of an entity.

7. Which of the following is not an objective of financial reporting?
   1. Financial reporting shall provide information about resources and charges in them.
   2. Financial reporting shall provide information useful in evaluating stewardship of management.
   3.      Financial reporting shall provide information useful in investment, credit and similar decisions.
   4. Financial reporting shall provide information useful in assessing cash flow prospects.

8. Financial reporting pertains to
   1. Individual business entities, rather than to industries or an economy as a whole or to members of society as consumers.

1. 2. Individual business entities and an economy as a whole or to members of society as consumers.
   3.      Individual business entities and an economy as a whole, rather than to industries or to members of society as consumers.
   4. Individual business entities, industries and an economy as a whole, rather than to members of society as consumers.

9. During a period when an entity is under the direction the direction of a particular management, financial reporting will directly provide information about
   1. Both entity performance and management performance.
   2. Management performance but not entity performance.
   3. Entity performance but not management performance.
   4. Neither entity performance nor management performance.

10. The objective of financial reporting is based on
    1. The needs for conservatism.
    2. Reporting on the management’s stewardship.
    3. Generally accepted accounting principle.
    4. The needs of the users of the information.

11. As part of the objective of financial reporting, the phrase “assessing cash flow projects” is interpreted to mean
    1. Cash basis accounting is preferred over accrual basis accounting.
    2. Information about the financial effects of cash receipts and cash payments is generally considered the best indicator of an entity’s present and continuing ability to generate favorable cash flows.
    3.      Over the long-run, trends in revenue and expenses are generally more meaningful than trends in cash receipts and disbursements.
    4. All of the choices are correct regarding “assessing cash flow projects”.

12. An objective of financial reporting is to provide
    1. Information about the investors in the entity.
    2. Information about the liquidation value of the resources of the entity.
    3. Information that is useful in assessing cash flow prospects.
    4. Information that will attract new investors.

13. Which is an objective of financial reporting?
    1. To provide information that is useful in making investing and credit decisions.
    2. To provide information that is useful to management.
    3. To provide information to those investing in the entity.
    4. To provide information about ways to solve internal and external conflicts about the entity.

14. The objective of financial reporting is to provide information
    1. That is useful for decision making.
    2. About assets, liabilities and equity.
    3. About the financial performance during a period.
    4. That allows owners to assess performance of management.

15. Which of the following best described the term “financial performance”?
    1. The nature, expenses and net income or loss for a period of an entity.
    2. The assets, liabilities and equity of an entity.
    3. The total assets minus total liabilities.
    4. The cash flows minus total cash outflows.

STATEMENT OF FINANCIAL POSITION

16. Which is not within the definition of a liability?
    1. The signing of a three-year employment contract at a fixed annual salary.
    2. An obligation to provide goods or services in the future.
    3. A note payable with no specified maturity date.
    4. A present obligation that is estimated in amount.

17. Noncurrent liabilities include
    1. Bonds payable
    2. Accrued benefit cost
    3. Deferred tax liability
    4. All of these are noncurrent liabilities

18. Which item is not a current liability?
    1. Unearned revenue
    2. Stock dividend payable
    3. The current maturing portion of long-term debt
    4. Trade accounts payable

19. Which of the following best described the term “liability”?
    1. An excess of equity over current assets.
    2. Resources to meet financial commitments when due.
    3. The residual interest in the assets of the entity after deduction all of the liabilities.
    4. A present obligation arising from past event.

20. For a liability to exist
    1. There must be a past event.
    2. The exact amount must be known.
    3. The identity of the party to whom the liability is owned must be known.
    4. There must be an obligation to pay cash in the future.

21. An operating cycle
    1. Is twelve months or less in length.
    2. Is the average time required for an entity to collect accounts receivable.
    3.       Is used to determine current assets when the operating cycle is longer than one year.
    4. Starts with accounts receivable and ends with cash

22. Accrued revenue would normally appear in the statement of financial position under
    1. Noncurrent assets
    2. Current liabilities
    3. Noncurrent liabilities
    4. Current assets

23. Which of the following items would normally be excluded from the computation of working capital?
    1. Advances from customers.
    2. The portion of the long-term debt that matures within one year after the reporting period.
    3. Prepaid insurance
    4. Cash surrender value of life insurance policy

24. Which should be classified as a noncurrent asset?
    1. Plant expansion fund
    2. Prepaid rent
    3. Supplies
    4. Goods in process

25. The correct order to present current assets is
    1. Cash, inventories, prepaid items, accounts receivable.
    2. Cash, inventories, accounts receivable, prepaid items.
    3. Cash, accounts receivable, prepaid items, inventories.
    4. Cash, accounts receivable, inventories, prepaid items.

26. The term “deficit” refers to
    1. An excess of current assets over current liabilities.
    2. An excess of current liabilities over current assets.
    3. A debit balance in retained earnings.
    4. A loss that is reported as a prior period error.

27. Which of the following is not a noncurrent investment?
    1. Cash surrender value of life insurance.
    2. Franchise
    3. Land held for speculation.
    4. A sinking fund

28. Equity investment held to finance future construction of additional plant should be classified as
    1. Current assets
    2. Property, plant and equipment
    3. Intangible assets
    4. Long-term investments

29. Which statement is incorrect regarding assets?
    1. An asset represents a probable future economic benefits.
    2. An asset is obtained or controlled as a result of probable future event.

1. Assets reported in the statement of financial position include current and noncurrent assets.
2. Assets include costs that have not yet been matched with revenue.

30. The essential characteristics of an asset include all, except
    1. The asset is the result of past event.
    2. The asset provides future economic benefit.
    3. The cost of the asset can be measured reliably.
    4. The asset is tangible.

NOTES TO FINANCIAL STATEMENTS

1. Which of the following is not a required disclosure of accounting policies?
   1. The measurement basis used.
   2. Key management personnel involved in drafting the summary of significant accounting policies.
   3. Disclosures required by the standards.
   4. The nature of operations and the policies that the users of the financial statements would expect to be disclosed.

2. Which of the following should be disclosure in a summary of significant accounting policies?
   1. Type of executory contract.
   2. Amount for cumulative effect of change in accounting policy.
   3. Claims of equity holders.
   4. Depreciation method followed

3. Which of the following information should be disclosure in the summary of significant accounting policies?

1. 1. Refinancing of debt subsequent to the reporting period.
   2. Guarantee of indebtedness of others.
   3. Criteria for determining which investments are treated as cash equivalent.
   4. Adequacy of pension plan assets relative to the defined benefit obligation.

4. Which is the purpose of information presented in the notes to financial statements?
   1. To provide disclosures required by GAAP.
   2. To correct improper presentation in the financial statements.
   3.          To provide recognition of amounts not included in the total of the financial statements.
   4. To present management response to auditor comments.

5. Application of the standard of adequate disclosures
   1. Is theoretically describe but not practical because cost of complete disclosure exceeds the benefits.
   2. Is violated when important financial information is buried in the note to financial statements.
   3.       Is demonstrated by the use of supplementary information presenting the effects of changing prices.
   4. Requires that the financial statements should be consistent and comparable.

6. The standard of adequate disclosure is best described by which of the following?
   1. All information related to the business of an entity and operating objectives is required to be disclosed in the financial statements.
   2. Information about each account balance appearing in the financial statements is to be included in the notes to financial statements.
   3.        Enough information should be disclosed in the financial statements so a person wishing to invest in the entity can make wise decisions.
   4. Disclose of any financial facts significant enough to influence the judgement of an informed user.

7. An example of an inventory accounting policy that should be disclosed in a summary of significant accounting policies is
   1. Composition of inventory into raw materials, work in process and finished goods.
   2. Major backlogs inventory orders.
   3. Method used for pricing inventory.
   4. All of these should be disclosed in the summary of significant accounting policies.

8. Which of the following should be defined as intentional distortion of financial statement?
   1. Error
   2. Fraud
   3. Error and fraud
   4. Neither error nor fraud.

9. Significant accounting policies may not be
   1. Selected on the basis of judgment.
   2. Selected from existing acceptable alternatives.
   3. Unusual or innovative in application.
   4. Omitted from financial statement disclosure.

10. Accounting policies disclosed in the notes to financial statements typically include all of the following, except:
    1. The cost flow assumption.
    2. The depreciation method.
    3. Significant estimates.
    4. Significant inventory purchasing policies.

11. The disclosure of accounting policies is important to financial statement readers in determining

1. 1. Net income for the year.
   2. Whether accounting policies are consistently applied from year to year.
   3. The value of obsolete goods included in ending inventory.
   4. Whether the working capital position is adequate for future operations.

12. Which of the following is not a method of disclosing pertinent information?
    1. Supporting schedule
    2. Parenthetical explanation
    3. Cross reference and contra item
    4. All of these are methods of disclosing pertinent information

13. Notes to financial statement
    1. Must be quantifiable.
    2. Must qualify as an element.
    3. Amplify or explain items presented in the financial statements.
    4. All of the choices are correct regarding notes to financial statement

14. Which of the following is incorrect regarding notes to financial statement?
    1. IFRS requires a specific note disclosures including disaggregation of inventories into classifications such as merchandise, production supplies, work in process and finished goods.
    2. IFRS requires a maturity analysis for receivable.
    3.      IFRS requires that all notes should be clear, simple to understand and nontechnical in nature.
    4. All of the choices are correct regarding notes to financial statement.

15. Disclosure of information about judgments
    1. Is voluntary
    2. Is mandatory
    3. Is either voluntary or mandatory
    4. Depends on the industry

RELATED PARTY

1. A parent entity has a wholly-owned subsidiary. During the current year, the parent sold goods to the subsidiary. The subsidiary paid a part of the debt before the year-end and then encountered financial difficulties. The subsidiary is not expected to be able to pay the remainder of the balance and therefore it has been provided as uncollectible. Administration costs are incurred as a result of the parent credit controllers chasing the deb. All of the following are required to be disclosed in relation to this arrangement, except
   1. The administration costs of the credit control department incurred in chasing the debt
   2. Details of any guarantee received in relation to the outstanding balance.
   3. The provision in relation to the debt being uncollectible.
   4. The amount of the transaction and outstanding balance.

2. Which of the following most likely would be a related party transaction requiring disclosures?
   1. The entity borrowed P1,000,000 from the Southwest Bank issuing noninterest bearing note.
   2. The entity borrowed P500,000 from Eastwest Bank with no scheduled terms for how or when funds will be repaid.
   3.      The entity borrowed P2,000,000 from Northwest Bank at a rate significantly above the prevailing market rate.
   4. All of these are related party transactions.

3. Related party transactions include all of the following, except:
   1. A venture sold goods to the joint venture.

1. 2. Sold a car to the uncle of the entity’s finance directors.
   3.         Sold goods to another entity owned by the daughter of the entity’s managing directors.
   4. All of these are related party transactions.

4. Disclosures of related party transactions include all, except:
   1. Nonmonetary exchange by affiliates.
   2. Sales of inventory by a subsidiary to the parent.
   3. Expense allowances for executives which exceeds normal business practice.
   4. An entity’s agreement to act as security for a loan to the chief executive officer.

5. All of the following are related party transactions, except:
   1. Transferred goods from inventory to a subsidiary.
   2. Sold an entity car to the wife of the managing director.
   3. Sold an asset to an associate.
   4. Took out a huge bank loan.

6. Which of the following is not a related party of an entity?
   1. A shareholders of the entity owning 20%.
   2. An entity providing banking facilities to the entity.
   3. An associate of the entity.
   4. Key management personnel of the entity.

7. Which of the following should be included in key management personnel compensation?
   1. Social security contributions.
   2. Postemployment benefits.
   3. Social security contributions and Postemployment benefits.
   4. Social security contributions, Postemployment benefits and Dividends to shareholders.

8. All of the following are related parties, except:
   1. Joint venture in which the entity is a venture.
   2. A postemployment benefit plan for the employee.
   3. An executive director of the entity.
   4. The partner of the key manager is a major supplier of the entity.

9. Which of the following is not required as a separate related party disclosure?
   1. The son of the chief executive officer of the entity.
   2. The parent of the entity.
   3. An entity has a common director with the entity.
   4. Joint venture in which the entity is a venture.

10. Which of the following is not required minimum disclosure about related party transaction?
    1. The amount of related party transaction.
    2. The amount of the outstanding balance.
    3.     The amount of similar transaction with unrelated parties to establish that comparable related party transaction has been entered at arm’s length
    4. Doubtful debt related to the outstanding balance.

11. Which of the following is not a mandated disclosure about related party transaction?
    1. Relationship between the parent and subsidiaries irrespective of whether there have been transactions between the related party.
    2. Names of all of the associates that an entity has dealt with during the year.
    3. Names of the entity’s parent and, if different, the ultimate controlling party.
    4. If neither the entity’s parent nor the ultimate controlling entity procedures financial statements available for public use, then the name of the next senior parent that does so.

12. Which would not be considered key management personnel compensation?
    1. Short-term benefits

1. 2. Share-based payments
   3. Termination benefits
   4. Reimbursement of out-of-pocket expenses

13. An entity that entered into certain related party transactions would be required to disclose all of the following information, except:
    1. Nature of the relationship between the parties to the transactions.
    2. Nature of any future transactions planned between the parties and the terms involved.
    3. Peso amount of the transactions.
    4. Amount due from or to related parties at the end of the reporting period.

14. The minimum disclosure about related party transactions include all of the following, except:
    1. The amount of the transactions.
    2. Amount of outstanding balance.
    3. Allowance of doubtful accounts related to the outstanding balance.
    4. Nature of the relationship.

15. Close family members of an individual include all of the following, except:
    1. The individual’s spouse and children.
    2. Children of the individual spouse.
    3. Dependents of the individual or individual’s spouse.
    4. Brothers and sisters of the individual.

EVENTS AFTER THE REPORTING PERIOD

1. An entity’s financial statements for the year ended April 30 were approved by the finance director on July 7 and a public announcement of the profit for the year was made on July
   10. The board of directors authorized the financial statements for issue on July 15 and the financial statements were approved by the shareholders on July 20. After what date should considered no longer be given as to whether the financial statements on April 30 need to reflect adjusting and non-adjusting events?
       1. July 7
       2. July 10
       3. July 15
       4. July 20

2. Which of the following statements is true in relation to events after reporting period?

1. Notes to financial statements should give details of material adjusting events included in those financial statements.
2. Notes to financial statements should give details of material non-adjusting events included in those financial statements.
3.     A decline in market value of investments would normally be classified as an adjusting events.
4. The settlement of a long-running court case would normally be classified as a non- adjusting event.

3. An entity deals exclusively with foreign currency transactions. Subsequent to the end of reporting period and before the date of authorization of the issuance of the financial statements, there were abnormal fluctuations in foreign currency rate. What should be reported at the current year-end?

1. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations.
2. Adjust the foreign exchange year-end balances to reflect all abnormal fluctuations and not just adverse movements.
3. Disclose the post-reporting period event.
4. Ignore the post-reporting period event.

4. An entity built a new factory building during the current year-end and before the issuance of financial statements, the building was destroyed by fire and the claim against the insurance entity proved futile because the cause of the fire was negligence on the part of the caretaker of the building. What should be reported at the current year-end?

1. Write-off the carrying amount of the building.
2. Make a provision for one-half of the carrying amount of the building.
3. Make a provision for three-fourths of the carrying amount of the building.
4. Disclose non-adjusting events in the notes to financial statements.

5. An entity decided to build and operate an amusement park next year. The entity has applied for a letter of guarantee which was issued before the issuance of the financial statements of the current year. What is the adjusting required at the current year-end?

1. Book a long-term payable for the amount of guarantee.
2. Disclose the guarantee as a contingent liability.
3. Increase the contingent reserve.
4. Do nothing.

6. At the end of the current reporting period, an entity carried a receivable from a major customer who declared bankruptcy after the end of the reporting period and before issuance of financial statements. What should be reported at the current year-end?

1. Disclose the fact that the customer has declared bankruptcy.
2. Make a provision for the event after the reporting period in the financial statements.
3. Ignore the event and wait for the outcome of the bankruptcy.
4. Reverse the sale pertaining to the receivable in the comparative statement for the prior period.

7. Events that occur after the current year-end but before the financial statements are issued and affect the realizability of accounts receivable should be

1. Discuss only in the management annual report.
2. Disclosed only in the notes to financial statements.
3. Used to record an adjustment to bad debt expense.
4. An adjusting directly to retained earnings.

8. Non-adjusting events include all, except:

1. The entity announced the discontinuation of an operation.
2. The entity entered into an agreement to purchase the leased building.
3. Destruction of a major production plant by fire.
4. A mistake in the calculation of allowance for uncollectible accounts receivable.

9. Adjusting events are those that

1. Provide evidence of conditions that existed at the end of the reporting period.
2. Are indicative of conditions that arose after the end of the reporting period.
3.      Are indicative of conditions that arose after the approval of the financial statements by shareholders.
4. Provide for conditions that existed after the date the financial statements were issued.

10. After the reporting period are favorable or unfavorable events occur between

1. The end of the reporting period and the date of the next annual financial statements.
2. The end of the reporting period and the date of the next interim or annual financial statements.
3.         The end of the reporting period and the date when the financial statements are authorized for issue.
4. The end of the reporting period and the date of the next interim financial statements.

11. Which of the following events after the end of reporting period would generally require disclosure?

1. Retirement of key management personnel.

2. Settlement of litigation when the event that gave rise to the litigation occurred in a prior period.
3. Strike of employees.
4. Issuance of a large amount of ordinary shares.

12. Which of the following events after the end of reporting period would require adjustment?

1. Loss of plant as a result of fire.
2. Change in the market price of investment.
3. Loss on inventory resulting from flood loss.
4. Loss on a lawsuit the outcome of which was deemed uncertain at year-end.

13. Adjusting events after the end of reporting period include all of the following, except:

1. The settlement of a court case after the issuance of the financial statements that confirms that the entity had already a present obligation.
2. Bankruptcy of a customer which occurs after the end of the reporting period but before issuance of financial statements.
3. Discovery of errors that show that the financial statements were incorrect.
4. Determination after the end of the reporting period and before issuance of financial statements of the cost of asset purchased before end of reporting period.

14. Financial statements are authorized for issue

1. When the board of directors reviews and authorizes the financial statements for issue.
2. When shareholders approve the financial statements at their annual meeting.
3. When the financial statements are filed with the regulatory agency.
4. When a supervisory board made solely of non-executives approves the financial statements.

STATEMENT OF COMPREHENSIVE INCOME

1. A transaction that is unusual in nature and infrequent in occurrence should be presented as
   1. Component of income from continuing operations, but not net of applicable income tax.
   2. Component of income from continuing operations, net of applicable income tax.
   3. Component of income from discontinued operations, net of applicable income tax.
   4. Prior period error, net of applicable income tax.

2. How should exchange gain or loss resulting from foreign currency transaction be accounted for?
   1. Included as component of income from continuing operations for the period in which the rate changes.
   2. Included as component of other comprehensive income for the period in which the rate changes.
   3. Included in the statement of financial position.
   4. Included in net income for gain but deferred for loss.

3. Under a strict transaction approach to income measurement, which of the following would not be considered a transaction?
   1. Sale of goods at certain mark up.
   2. Payment of salaries.
   3.      Adjustment of inventory at the lower of cost and net realizable value when the net realizable value is below cost.
   4. Exchange for inventory for an equipment.

4. Income determination is arrived at by
   1. Measuring the change in equity.
   2. Identifying the change in the purchasing power.

1. 3. Using a transaction approach.
   4. Applying the value added concept.

5. Which of the following options for displaying other comprehensive income is preferred?
   1. A continuation from net income in the income statement.
   2. A separate statement that begins with net income.
   3. In the statement of changes in equity.
   4. A continuation from net income in the income statement or a separate statement that begins with net income.

6. Other comprehensive income should be reported as a component of
   1. Retained earnings
   2. Share premium
   3. Both retained earnings and share premium
   4. Neither retained earnings nor share premium

7. Which of the following items would cause net income to differ from comprehensive income?
   1. Unrealized loss on the financial asset measured at fair value through other comprehensive income.
   2. Unrealized loss on the financial asset held for trading.
   3. Loss on exchange of similar asset.
   4. Loss on exchange of dissimilar asset.

8. Why is reclassification adjustment is used when reporting other comprehensive income?
   1. To reclassify an item of comprehensive income as other item of comprehensive income.
   2. To avoid double counting of items.
   3. To make net income equal comprehensive income.
   4. To adjust for the income tax effect of reporting other comprehensive income.

9. Which of the following is not an acceptable option of reporting components of other comprehensive income?
   1. In a separate statement of comprehensive income.
   2. In a single statement of comprehensive income.
   3. In the notes.
   4. In the statement of changes in equity.

10. When     a     complete     set     of     general      purpose     financial      statements     is     presented, comprehensive income and its components should
    1. Appear as a part of discontinued operations.
    2. Be reported net of related income tax effect, in total and individually.
    3. Appear in a supplemental schedule in the notes to the financial statements.
    4. Be displayed in a statement that has the same prominence as other financial statements.

11. The term “comprehensive income”
    1. Must be reported on the face of the income statement.
    2. Includes all changes in equity during a period except those resulting from investments by and distributions to owners.
    3. Is the net change in owners’ equity for the period.
    4. Is synonymous with the term “net income.

12. What is the purpose of reporting comprehensive income?
    1. To report changes in equity due to transactions with owners.
    2. To report a measure of overall entity performance.
    3. To replace net income with a better measure.
    4. To combine income from continuing operations with income from discontinued operations.

13. Investors and creditors use an income statement for all of the following, except:
    1. To evaluate the future performance of the entity.
    2. To provide a basis for predicting future performance.
    3. To help assess the risk and uncertainty of achieving future cash flows.
    4. To evaluate the past performance of the entity.

14. Which of the following would represent the least likely use of an income statement?
    1. Use by customers to determine the ability to provide needed goods and services.
    2. Use by labor unions to examine earnings closely as a basis for salary discussion.
    3. Use by government agencies to formulate tax policies.
    4. Use by investors interested in the financial position.

15. Income statement provides information that helps predict
    1. The amount of future cash flows.
    2. The timing of future cash flows.
    3. The uncertainty of future cash flows.
    4. All of these are provided by the income statement.

STATEMENT OF CHANGES IN EQUITY

1. Under the financial capital maintenance concept, a profit is earned
   1. If the monetary amount of net assets at the end exceeds the monetary value of net assets at the beginning, after excluding any distributions to and contributions from owners.
   2. If the monetary amount of net assets at the beginning exceeds the monetary value of net assets at the end, after excluding any distributions to and contributions from owners.
   3.      If the monetary amount of net assets at the end exceeds the monetary value of net assets at the beginning.
   4. If the monetary amount of net assets at the beginning exceeds the monetary value of net assets at the end.

2. Which of the following statements regarding the term “profit” is true?

1. Profit is any amount over and above that required to maintain the capital at the beginning of the period.
2. Profit is the residual amount that remains after expenses have been deducted from income.
   1. I only
   2. II only
   3. Both I and II
   4. Neither I nor II

3. Which capital maintenance concept is applied respectively to net income and other comprehensive income?
   1. Financial capital and Financial capital
   2. Physical capital and Physical capital
   3. Financial capital and Physical capital
   4. Physical capital and Financial capital

4. The physical capital maintenance concept requires the adoption of which measurement basis?
   1. Historical cost
   2. Current cost
   3. Realizable cost
   4. Present value

5. The financial capital maintenance concept requires that net assets shall be measured at
   1. Current cost
   2. Historical cost
   3. Historical cost adjusted for changes in purchasing power.
   4. Current cost adjusted for changes in purchasing power.

6. An entity made a very large arithmetical error in the calculation of depreciation. The correction of the error when discovered in the next year should be treated as
   1. Increase in depreciation expense for the year when error is discovered.
   2. A component of income for the year when the error is discovered but separately reported.
   3. Other expense for the year when the error was made.
   4. A prior period adjustment.

7. Correction of errors in prior period are included in
   1. Retained earnings
   2. Other comprehensive income
   3. Net income
   4. Share premium

8. Which of the following would not appear in the statement of retained earnings?
   1. Net loss
   2. Prior period adjustment
   3. Discontinued operation
   4. Dividend declared

9. Which of the following would appear first in the statement of retained earnings?
   1. Net income
   2. Prior period adjustment
   3. Cash dividend
   4. Share dividend

10. Which of the following does not appear in the statement of retained earnings?
    1. Net loss
    2. Prior period adjustment
    3. Preference share dividend
    4. Other comprehensive income

11. Which of the following statements is true?

1. An entity presenting a single statement of comprehensive income shall present a statement of changes in equity.
2. An entity presenting a separate income statement and separate statement of comprehensive income shall present a statement of changes in equity.
   1. I only
   2. II only
   3. Both I and II
   4. Neither I nor II

12. Which of the following should be presented in the statement of changes in equity?
    1. Investments by owners.
    2. Distributions to owners.
    3. Change in ownership interest in subsidiary that does not result in a loss of control.
    4. All of the these are presented in the statement of changes in equity.

13. In the statement of changes in equity, the effects of the correction of a prior period error are presented
    1. Separately for each component of equity.
    2. In aggregate for total equity.