University of Pangasinan

ACC 103

PRESENTATION OF FINANCIAL STATEMENTS PROBLEM 2: MULTIPLE CHOICE

1)The objective of PAS 1 is

1. 1. To ensure comparability by prescribing the basis for presentation of general purpose financial statements.
   2. To ensure the faithful representation of financial statements.
   3. To ensure the relevance of information presented in financial statements.
   4. 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
   1. Inter-comparability
   2. Intra-comparability
   3. Extra-comparability
   4. Intro-comparability

3. The scope of PAS 1 is
   1. The preparation and presentation of general purpose financial statements.
   2. The recognition, measurement and disclosure requirements for specific transactions and other events.
   3. The presentation of general purpose financial statements as well as all other information contained in an entity annual report.
   4. All of these.

4. The statement of financial position is also called
   1. Balance sheet.
   2. Income statement.
   3. Positions statement
   4. 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
   1. At least one year from the end of the reporting period.
   2. At least two years from the end of the reporting period.
   3. At least five years from the end of the reporting period.
   4. There is no such requirement.

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

7. PAS 1 requires an entity to provide and additional balance sheet dated as of the beginning of the preceding period if certain instances occur. Which of the

following is not one of these instances? (Assume all of the following has a material effect)

1. 1. Retrospective application of an accounting policy.
   2. Retrospective restatement
   3. Reclassification of items in the financial statements
   4. Change in the frequency of reporting

8. The PFRSs apply to which of the following?
   1. 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.
   2. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed together with the financial statements.
   3. Environmental reports required by the Department of Environment and Natural Resources (DENR) that are included in the entity’s annual report.
   4. 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.
   1. Classified presentation                                                  c. Classified as to liquidity

1. 2. Unclassified presentation                                            d. Based on liquidity

10. Which of the following best reflects the definition of the normal operating cycle under PAS 1?
    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, and sell the finished goods.
    2. For a manufacturing entity, this is the usual times 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.
    3. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on account and settle the acoount.
    4. For a manufacturing entity, this is the usual times it takes for the entity to sell finished goods on account and collect the receivables.

PROBLEM 3: MULTIPLE CHOICE

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

1. 2. Management                                                                    d.      Government regulatory body

2. 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)
   1. Classified presentation                                                  c. combination of a and b

1. 2. Unclassified presentation                                            d. none of these

3. Which of the following is a current asset?

1. 1. Deferred tax asset expected to reverse within 3 months from the reporting date
   2. Property, plant and equipment

1. 3. Non-trade note receivable due in 13 months

1. 4. Accounts receivable

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

1. 1. An entity is required to present separate sections of profit or loss and other comprehensive income
   2. 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.
   3. Presenting an income statement or statement of profit or loss alone without a statement of other comprehensive income is allowed.
   4. Presenting comprehensive income as a note disclosure only is prohibited.

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

1. 1. it shall be displayed immediately before the statement presenting comprehensive income
   2. it shall be displayed immediately after the statement presenting comprehensive income
   3. it shall be displayed alone. The entity may opt not to present information on comprehensive income.
   4. Any of these.

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

7. 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?
   1. as an addition                                                                                    c. only at net of tax

1. 2. as a deduction                                                                                   d. none of these

8. Which of the following is a current liability?

1. 1. Deferred tax liability

1. 2. An obligation for which the entity has an unconditional right to defer.

1. 3. 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.
   4. An obligation for which the entity has a conditional right to defer.

9. According to PAS 1, items of other comprehensive income are presented according to the following groupings
   1. ordinary and extraordinary items

1. 2. by nature and by function

1. 3. those that are subsequently reclassified to profit or loss and those that are not
   4. continuing and discontinued operations

10. 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
    1. the period covered by the financial statements.

1. 2. the reason for using a longer or shorter period.

1. 3. the fact that amounts presented in the financial statements are not entirely comparable.
   4. a quantification of the possible adjustments that would eliminate the effects of the longer or shorter reporting period.

PROBLEM 4: FOR CLASSROOM DISCUSSION

Scope

1. PAS 1 applies to which of the following?

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

1. 2. The recognition and measurement of specific assets, liabilities, income and expenses.

1. 3. The disclosure requirements for specific transactions and other events.

1. 4. All of these.

General features

2. 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 the PAS 1 will be dated
   1. as at January 1, 20x1.                                                      c. as at January 1, 20x3.

1. 2. as at January 1, 20x2.                                                      d.       for the period ended 20x1.

3. 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?
   1. Entity A can make the change if it is required by a PFRS.

1. 2. 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.
   3. Entity A may be required to provide an additional balance sheet dated as at the beginning of the preceding period.
   4. Entity A can make the change only if it makes an irrevocable promise not to make another change within the next five years.

4. The financial statement of Entity A shows line items described as “Other current assets,” “Other noncurrent liabilities,” and “Miscellaneous expenses.” Which of the following is correct?
   1. 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.
   2. Entity A considers the items included in these line items as individually material but with dissimilar nature or function.

1. 3. Entity A considers the items included in these line items as comprising a material class of similar items.
   4. This manner of presenting items in unacceptable under PAS 1.

Complete set of financial statements

5. According to PAS 1, a complete set of financial statements includes which of the following?
   1. Income tax return

1. 2. Director’s reports

1. 3. Notes

1. 4. All of these

Additional Statement of financial position

6. 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
   1. the retrospective application of an accounting policy.

1. 2. the retrospective restatement of items in the financial statements.

1. 3. the reclassification of items in the financial statements.

1. 4. the prospective application of a change in accounting estimate.

Statement of financial position

7. The statement of financial position of which of the following entities does not show current and noncurrent distinctions among assets and liabilities?
   1. Banks and other financial institutions

1. 2. Mining companies

1. 3. Trading enterprises

1. 4. Manufacturing firms

8. The principles of PAS 1 in relation to the classification of liabilities as current or noncurrent favor the current classification. PAS 1 provides stricter conditions for

classifying liabilities as noncurrent. Which of the following statements best reflects a valid reason?

1. 1. Noncurrent liabilities are usually more material in terms of size compared to current liabilities.
   2. Most primary users are concerned more with an entity’s current liabilities when making economic decisions because of the shorter duration of time before they cause an outflow of economic resources.
   3. The stricter conditions for noncurrent classification address the potential misuse of classification in order to present favorably the entity’s liquidity.
   4. All of these.

Statement of profit or loss and other comprehensive income

9. Which of the following is not an acceptable method of presenting income and expenses?
   1. Presenting income and expenses that affect profit or loss and those that are components of other comprehensive income in a single statement.
   2. Presenting an income statement in addition to a statement that presents comprehensive income.
   3. Presenting income statement alone without a statement that presents comprehensive income.
   4. All of those are acceptable methods of presentation.

10. 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.
    1. Nature of expense                                                          c. Classified presentation

1. 2. Function of expense                                                      d. Based on liquidity

Notes

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

1. 1. to present information about the basis of preparation of the financial statements and the specific accounting policies

1. 2. to disclose the information required by PFRS that is not presented elsewhere in the financial statements
   3. to provide information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of the financial statements
   4. to rectify inappropriate accounting policies.

PAS 2 Inventories

PROBLEM 2: MULTIPLE CHOICE

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

1. 1. Purchase cost, net of trade discount

1. 2. Direct labor cost

1. 3. Freight in

1. 4. Selling cost

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

1. 1. Direct materials                                                                c. Production

1. 2. Direct labor                                                                         d. All of these are included

3. These deal with the computation of cost of sales and cost of ending inventory.

1. 1. net realizable value                                                         c. cost formulas

1. 2. perpetual inventory system                                        d.. costing

4. 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?
   1. Specific identification                                                     c. Weighted Average

1. 2. FIFO                                                                                       d. b or c

5. Which of the following statements is incorrect regarding the use of cost formulas?

5. 1. PAS 2 requires the use of specific identification of costs for inventories that are not ordinarily interchangeable.
   2. Entities may choose between FIFO and Weighted Average cost formulas for inventories that are ordinarily interchangeable.
   3. Different cost formulas may be used for each class of inventory with dissimilar nature and use.
   4. Only one formula shall be used for all inventories regardless of differences in their nature and use.
6. Entity A’s 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’)

Product A                                                                                                   Product B

1. 1. SI                                                                                              FIFO or WA

1. 2. SI, FIFO, or WA                                                                   SI, FIFO, or WA

1. 3. FIFO                                                                                        WA

1. 4. SI                                                                                              SI

7. 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?
   1. Last-in. first-out (LIFO)                                                    c. Weighted Average

1. 2. FIFO                                                                                        d. b or c

8. In which of the following instances is a write-down of inventories to net realizable value may not be required?
   1. the inventories are damaged

1. 2. the inventories have become wholly or partially obsolete