PAS 1: PRESENTATION OF FINANCIAL STATEMENTS

1. Which is incorrect concerning fair presentation of financial statements?

a. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
Philippine Financial Reporting Standards
b. Financial statements shall present fairly the financial position, performance and cash flows of an
enterprise
c. An enterprise whose financial statements comply with PFRS shall make an explicit and
unreserved statement of such compliance in the notes
d. Inappropriate accounting treatments are rectified either by disclosure the accounting policies or
by note or explanatory material

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

3. Offsetting in the financial statements is accomplished when

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

4. Which of the following does not result to a fair presentation of financial information?
a. Selecting and applying accounting policies in accordance with IFRS
b. Presenting information including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information
c. Providing additional disclosures when specific requirements of IFRS is insufficient to enable
users to understand the impact of particular transactions on the entity’s financial position and
financial performance
d. Disclosing inappropriate accounting policies used either by notes or explanatory material,
without rectification

5. Which is incorrect concerning the basic features in the preparation and presentation of financial
statements?
a. An entity shall prepare its financial statements, except for cash flow information, under the
accrual basis of accounting.
b. The presentation and classification of items in the financial statements shall be retained from
one period to the next.
c. Asset and liabilities, income and expenses, shall not be offset unless required or permitted by
another IFRS.
d. Comparative information need not be disclosed in respect of the previous period for all
numerical information in the financial statements

6. Which is incorrect concerning the concept of materiality and aggregation?

a. Materiality depends on the size and nature of the item judged in the particular circumstances of
its omission or misstatements
b. Specific disclosure requirements of an IFRS must be met event if the resulting information is not
material.
c. Items of a dissimilar nature or function shall be presented separately unless they are immaterial
d. Information is material if its nondisclosure could influence the economic decisions of users
taken on the basis of the financial statements

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 7. Which of the following is not a component of a complete set of financial statements?
a. Statement of financial position
b. Statement of changes in equity
c. Notes, comprising a summary of significant accounting policies and other explanatory notes
d. Additional statements such as environment reports and value added statements

8. The statement of financial position is useful for analyzing all of the following, except
a. Liquidity
b. Solvency
c. Profitability
d. Financial flexibility

9. The operating cycle of an entity

a. Is set by 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 that 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

10. Which of the following shall not be classified as a current liability?

a. An obligation expected to be settled in the entity’s normal operating cycle
b. An obligation held primarily for the purpose of being traded
c. An obligation due to be settled within twelve months after the reporting period
d. An obligation for which the entity has an unconditional right to defer settlement for at least
twelve months after the reporting period

11. Which of the following is not a criterion for classifying an asset as current?
a. It is expected to be realized, or intended for sale or consumption in the normal course of the
entity’s normal operating cycle
b. It is expected to be realized within twelve months after the reporting period
c. It is cash or cash equivalent restricted for the purchase of a non-current asset within 12 months
after the reporting period
d. It is held primarily for the purpose of being traded

12. Which of the following shall not be classified as a current asset?

a. A receivable from a customer not collectible within one year
b. Current tax asset
c. Goodwill arising from a business combination accounted for as an acquisition
d. Noncurrent assets classified as Held for Sale under IFRS 5 Discontinued Operations and Non-
current Assets Held for Sale

13. Which of the following statements regarding assets is not valid?

a. An asset represents a probable economic benefit
b. Assets are obtained or controlled as a result of past transactions and probable future events
c. Assets reported on the statement of financial position include both financial and non-financial
assets
d. Assets include costs that have not yet been matched with revenue.

14. Which obligations are classified as current liabilities even if they are due to be settled after more than
twelve months from the end of the reporting period?
a. Payables arising from purchase of goods and consumption of services relating to entities
conduct of primary operations
b. Long-term financial liabilities
c. Bank overdrafts
d. Cash dividends payable

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 15. Which of the following is incorrect concerning assets?
a. The future economic benefit embodied in an asset is the potential to contribute directly or
indirectly to the flow of cash and cash equivalents to the entity
b. Physical form is not essential to the accounting recognition of an item as an asset
c. In determining the existence of an asset, the right of ownership is essential
d. The asset of an entity results from past transaction or other past event

16. What is the usual presentation of the statement of financial position in the Philippines?
a. Current assets plus noncurrent assets minus current and noncurrent liabilities equals equity
b. Noncurrent assets before current assets, noncurrent liabilities before current liabilities and
equity after liabilities
c. Equity before assets and liabilities, noncurrent liabilities before current liabilities and noncurrent
assets before current assets
d. Current assets before noncurrent assets, current liabilities before noncurrent liabilities and
equity after liabilities

17. The concept of earnings

a. Includes changes in market value of equity investments at fair value through other
comprehensive income
b. Includes foreign currency translation adjustments
c. Includes gains resulting from the sale of a productive asset in an arm’s length transaction
d. Is the same as total comprehensive income

18. Costs that can be reasonably associated with specific revenues but not with specific products should be
a. Charged to expense in the period incurred
b. Allocated to specific products based on the best estimate of the production processing time
c. Expensed in the period in which the related revenue is recognized
d. Capitalized and then amortized over a period not to exceed 60 months

19. Which statement is incorrect concerning the presentation of the statement of comprehensive income?
a. The nature of expense method means that expenses are aggregated according to their nature
and are not reallocated among various functions within the entity
b. The function of expense method means that the expenses are classified according to their
function as cost of sales, distribution or administrative activities
c. PAS 1 requires the use of the cost of sales method than the nature of expense method
d. The choice between the functional and natural presentation depends on historical and industry
factors and the nature of the entity

20. Which of the following is not a component of other comprehensive income?

a. Foreign currency translation adjustment
b. Unrealized gains and losses on financial assets through profit or loss
c. Unrealized gains and losses on financial assets through other comprehensive income
d. Change in the minimum pension liability

PAS 7 STATEMENT OF CASH FLOWS

1. How should repayment of a long-term loan comprising repayment of principal and interest due be
treated in a statement of cash flows?
a. The principal repayment is investing cash flow and the interest payment is either operating or
financing cash flow
b. The principal payment is a financing cash flow and the interest payment is either an operating
cash flow or financing cash flow
c. The principal repayment is a financing cash flow and the interest payment is either operating or
investing cash flow
d. The principal repayment is a financing cash flow and the interest payment is netted against
interest received on bank deposit and the net amount shown as operating cash flow

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 2. How should a gain from the sale of equipment for cash be reported in a statement of cash flows using
the indirect method?
a. In investing activities as a reduction of the cash inflow from the sale
b. In investing activities as a cash outflow
c. In operating activities as a deduction from profit
d. In operating activities as an addition to profit

3. Which statement is incorrect concerning the statement of cash flows?

a. Entities are required to report cash flows from operating activities using the indirect method
b. An entity should report separately major classes of gross cash receipts and gross cash
payments arising from investing and financing activities
c. Investing and financing transactions that do not require use of cash should be excluded from
the statement of cash flows
d. An entity should disclose the components of cash and cash equivalents and should present a
reconciliation of the amount in the statement of ca flows with the equivalent items reported in
the statement of financial position

4. In a statement of cash flows, if used equipment is sold at a gain, the amount shown, as a cash flow
from investing activities equals the carrying amount of the equipment
a. Plus the gain
b. Plus the gain and less the amount or tax attributable to the gain
c. Plus both the gain and the amount of tax attributable to the gain
d. With no addition or subtraction

5. In a statement of cash flows, if used equipment is sold at loss, the amount shown, as a cash flow from
investing activities equals the carrying amount of the equipment
a. Less the loss and plus the amount of tax attributable to the loss
b. Less both the loss and the amount of tax attributable to the loss
c. Less the loss
d. With no addition or subtraction

6. An entity (other than a financial institution) receives dividends from its investment in shares. How
should it disclose the dividends received in the statement of cash flows?
a. Operating cash inflow
b. Either as operating cash inflow or as investing cash inflow
c. Either as operating cash inflow or as financing cash inflow
d. As an adjustment in the “operating activities” section of the cash flow because it is included in
the net income for the year

7. Which of the following information would be added back to the profit when reporting cash flow from
operating activities using the indirect method?
a. Excess of treasury share acquisition cost over sales proceeds
b. Amortization of patents
c. Bond premium amortization
d. Gain from debt restructuring

8. Which of the following items involving trade accounts receivable is most likely to appear in the
statement of cash flows?
a. Balance in the allowance for doubtful accounts
b. Collection of an account previously written off
c. Sales return and allowances
d. Change in net sales

9. Under the indirect method, cash paid to suppliers can be computed as cost of goods sold for the period
a. Plus the increase in inventory and minus the increase in accounts payable
b. Plus the decrease in inventory and minus the increase in accounts payable
c. Minus the increase in inventory plus an increase in accounts payable
d. Minus a decrease in inventory and plus an increase in accounts payable

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 10. When preparing a reconciliation of profit to cash from operations, an increase in the ending inventory
over the beginning inventory will result in adjustment to reported profit because
a. Cash is increased because inventory is a current asset
b. Inventory is an expense deducted in computing earnings, but is not a use of cash.
c. The net increase in inventory is part of the difference between cost of goods sold and cash paid
to suppliers
d. All changes in non-cash accounts must be disclosed

11. A loss on sale of machinery in the ordinary course of business should be presented in a statement of
cash flows prepared under the indirect method as
a. Inflow from operating activities
b. Inflow from investing activities
c. Adjustment to reconcile net income to cash from operating activities
d. Outflow from investing activities

12. How should an unrealized gain on foreign currency transaction be presented in a statement of cash
flows?
a. As an inflow in the financing activities section because it arises from a foreign currency
transaction
b. It should be ignored as it is an unrealized gain
c. It should be ignored as it is an unrealized gain but should be disclosed in the footnotes to the
financial statements by way of an abundant precaution
d. As an adjustment to the profit on the operating activities section

13. Proceeds from the sale of investments in ordinary shares accounted for by the equity method would be
classified into which of the following section of the statement of cash flows?
a. Operating
b. Investing
c. Financing
d. Noncash item

14. On a reconciliation of profit to cash provided by operations depreciation is added back to profit
because depreciation will
a. Be a direct outflow of cash not included in net income
b. Reduce the amount of profit but does not involve an outflow of cash
c. Reduce the amount of profit and involves an inflow of cash
d. Is an outflow of cash to a fund established for the replacement of assets

15. Which of the following is not a financing activity?

a. Cash proceeds from issuing shares or other equity instruments
b. Cash repayments of amounts borrowed
c. Cash payments by a lessee for the reduction of the outstanding liability relating to the finance
lease
d. Cash advances and loans made by financial institutions

16. In preparing a statement of cash flows, which of the following transactions would be considered an
investing activity?
a. Sale of a business segment
b. Issuance of bonds payable at a discount
c. Purchase of treasury share
d. Sale of share capital

17. When preparing a statement of cash flows (indirect method), an increase in ending inventory over
beginning inventory will result in an adjustment to reported net earnings because
a. Cash was increased while cost of goods sold was decreased
b. Cost of goods sold on an accrual basis is lower than on a cash basis
c. Acquisition of inventory is an investment activity
d. Inventory purchased during the period was less than inventory sold resulting in a net cash
increase

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 18. An entity should prepare a statement of cash flows and should present is a/an
a. Supplementary financial statement
b. Note to financial statement
c. Supporting schedule for the amount appearing as cash and cash equivalent
d. Integral part of the entity’s basic financial statements

19. It is an objective of the statement of cash flows to

a. Disclose changes during the period in all asset and all equity accounts
b. Disclose the change in working capital during the period
c. Provide information about the operating, investing and financing activities of an entity during a
period
d. None of these

20. Which statements is incorrect concerning cash flows?

a. Cash comprises cash on hand and demand deposit
b. Cash equivalents are 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
c. Cash flows are inflows and outflows of cash only.
d. Cash flows include movements between items that constitute cash and cash equivalents,
because these components are part of the cash management of an entity.

PAS 8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

1. XYZ Inc, changes its method of valuation of inventories from weighted-average method to first-in first-
out (FIFO) method. XYZ Inc., should account for this change as
a. A change in estimate and account for it prospectively.
b. A change in accounting policy and account for it prospectively
c. A change in accounting policy and account for it retrospectively
d. Account for it as a correction of an error and account for it retrospectively

2. Change in accounting policy does not include

a. Change in useful life from 10 years to 7 years
b. Change in method of valuation of inventory from FIFO to weighted-average
c. Change of method of valuation of inventory from weighted-average to FIFO
d. Change from the practice (convention) of paying as Christmas bonus one month’s salary to staff
before the end of the year to the new of paying one-half month’s salary only

3. When a public shareholding company changes an accounting policy voluntarily, it has to

a. Inform shareholders prior to taking the decision
b. Account for it retrospectively
c. Treat the effect of the change as an extraordinary item
d. Treat it prospectively and adjust the effect of the change in the current period and future
periods

4. When it is difficult to distinguish between a change of estimate and a change in accounting policy, then
an entity should
a. Treat the entire change in estimate with appropriate disclosure
b. Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in
accounting policy and treat each one accordingly.
c. Treat the entire change as a change in accounting policy.
d. Since this change is a mixture of two types of changes, it is best if it is ignored in the year of
the change; the entity should then wait for the following year to see how the change develops
and then treat it accordingly.

5. When an independent valuation expert advises an entity that the salvage value of its plant and
machinery was drastically changed and thus the change is material, the entity should
a. Retrospectively change the depreciation charged based on the revised salvage value.
b. Change the depreciation charge and treat it as a correction of an error
c. Change the annual depreciation for the current year and future years
d. Ignore the effect of the change on annual depreciation, because changes in salvage values
would normally affect the future only since these are expected to be recovered in future.

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 6. An entity wishes to accelerate its depreciation policy because of changes in the useful life of the asset.
How should the change be dealt with?
a. By retrospective restatement
b. By retrospective application
c. By prospective application
d. By disclosure of an error

7. In determining which accounting policy is suitable for the preparation of the financial statements, an
entity should look to
a. IFRS only
b. IFRICs only
c. The Framework only
d. IFRS, IFRICs and the Framework

8. Where is it impracticable to determine the period-specific effects of the change on comparative

information for one or more prior periods presented, the retrospective application or restatement is
applied
a. Retrospectively only to the extent that it is practicable
b. Prospectively only to the extent that it is practicable
c. Retrospectively to the extent that estimates can be made
d. Prospectively to the extent estimates can be made

9. Applying a requirement of a Standard or Interpretation is impracticable when the entity cannot apply it
after making every effort to do so. Which of the following is not included in the definition of
impracticable?
a. The effects of the retrospective application are not determinable.
b. The retrospective application requires assumptions about what management’s intentions would
have been at the time.
c. The retrospective application requires significant estimates of amounts
d. The entity would find the determination of the effects to be immaterial

10. Standards are normally published in advance of the required implementation date. In the intervening
period, where a new/revised standard that is relevant to an entity has been issued but is not yet
effective, the entity should
a. Disclose this fact together with the impact
b. Not disclose any information
c. Only apply the standard at the implementation date
d. Only disclose the fact that the standard has been issued

PAS 10 EVENTS AFTER THE REPORTING PERIOD

1. ABC Limited decided to operate a new amusement park that will cost P1 million to build in the year
2019. Its financial year-end is December 31, 2019. ABC Limited has applied for the letter of guarantee
for P700,000. The letter of guarantee was issued on March 31, 2020. The audited financial statements
have been authorized to be issued on April 18, 2020. The adjustment required to be made to the
financial statements for the year ended December 31, 2010, should be
a. Booking a P700,000 long-term payable
b. Disclosing P700,000 as a contingent liability in 2019 financial statement
c. Increasing the contingency reserve by P700,000
d. Do nothing

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 2. A new drug named EEE was introduced by Genius, Inc., in the market on December 1, 2019. Genius
Inc., financial year-end is in December 31, 2019. It was only the company that was permitted to
manufacture this patented drug. The drug is used by patients suffering from an irregular heartbeat. On
March 31, 2020, after the drug was introduced, more than 1,000 patients died. After a series of
investigations, authorities discovered that when this drug was simultaneously used with BBB, a drug
used to regulate hypertension, the patient’s blood would clot and the patient suffered a stroke. A
lawsuit for P100,000,000 has been filed against Genius, Inc. The financial statements were authorized
for issuance on April 30, 2020. Which of the following options is the appropriate accounting treatment
for this post-reporting period under PAS 10?
a. The entity should provide P100,000,000 because this is an “adjusting event” and the financial
statements were authorized to be issued after the accident.
b. The entity should disclose P100,000,000 as a contingent liability because it is an “adjusting
event.”
c. The entity should disclose P100,000,000 as a contingent liability because it is a present
obligation with an improbable outflow.
d. Assuming the probability of the lawsuit being decided against Genius Inc., is remote, the entity
should disclose it in the footnotes, because it is a nonadjusting material event.

3. At the reporting period, ABC Inc. carried receivable from XYZ, a major customer, at P10million. The
“authorization date” of the financial statements is on February 16, 2020. XYZ declared bankruptcy on
Valentine’s Day (February 14, 2020). ABC Inc. will
a. Disclose the fact that XYZ has declared bankruptcy in the footnotes
b. Make a provision for this post-reporting period event in its financial statements (as opposed to
disclosure in footnotes).
c. Ignore the event and wait for the outcome of the bankruptcy because the event took place
after the year-end.
d. Reverse the sale pertaining to this receivable in the comparatives for the prior and treat this as
an “error” under PAS 8.

4. Excellent Inc. built a new factory building during 2019 at a cost of P20 million. At December 31, 2019,
the net book value of the building as P19million. Subsequent to year-end, March 15, 2020, the building
was destroyed by fire and the calm against the insurance company proved futile because the cause of
the fire was negligence on the part of the caretaker of the building. If the date of authorization of the
financial statements for the year ended December 31, 2019 was March 31, 2020, Excellent Inc. should
a. Write off the net book value to its scrap value because the insurance claim would not fetch any
compensation
b. Make a provision for one-half of the net book value of the building
c. Make a provision for three-fourths of the net book value of the building based on prudence
d. Disclose this nonadjusting event in the footnotes

5. International Inc. deals extensively with foreign entities, and its financial statements reflect these
foreign currency transactions. Subsequent to reporting period, and before the “date of authorization” of
the issuance of the financial statements, there were abnormal fluctuations in foreign currency rates.
International Inc. should
a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuation in
foreign exchange rates
b. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign
exchange rates (and not just the adverse movements)
c. Disclose the post-balance sheet event in footnotes as a nonadjusting event
d. Ignore the post-balance sheet event

PAS 24 RELATED-PARTY DISCLOSURE

1. Which of the following is not a related party as envisaged by PAS 24?
a. A director of the entity
b. The parent company of the entity
c. A shareholder of the entity that holds 1% stake in the entity
d. The son of the chief executive officer of the entity

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 2. PAS 24 requires disclosure of compensation of key management personnel. Which of the following
would not be considered “compensation” for this purpose?
a. Short-term benefits
b. Share-based payments
c. Termination benefit
d. Reimbursement of out-of-pocket expenses

3. To enable financial statements users to form a view about the effects of the related-party transactions,
PAS 24 requires certain disclosures to be made. Which of the following disclosures is not a mandated
disclosure under PAS 24?
a. Relationship between the parents and subsidiaries irrespective of whether there have been
transactions between those related parties
b. Names of all the “associates” that an entity has dealt with during the year
c. Name of the entity’s parent and, if different the ultimate controlling entity
d. If neither the entity’s parent nor its ultimate controlling entity produces financial statements
available for public use, then the name of the next most senior parent that does so.

4. If there has been related party transactions during the year, an entity needs to make, at a minimum,
certain disclosures. Which of the following is not a required minimum disclosure under PAS 24?
a. The amount of the related-party transactions
b. The amount of the outstanding related-party balances and their terms and conditions along
with details of guarantees given and received
c. The amounts of similar transactions with unrelated (third) parties to establish that comparable
related-party transaction have been entered at arm’s length
d. Provisions for doubtful debts related to the amount of outstanding related party balances and
expense recognized during the year in respect of bad or doubtful debts due from related parties

5. The minimum disclosures prescribed under PAS24 are to be made separately for certain categories of
related parties. Which of the following is not among the list of categories specified under the Standard
for the purpose of separate disclosure?
a. Entities with joint control or significant influence over the entity
b. The parent company of the entity
c. An entity that has a common director with the entity
d. Joint ventures in which the entity is a venture

-END-

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