(BOOK BASED) Chapter 3

C) I, II, and III

Which of the following information is provided by general-purpose financial statements?

I. An enterprise’s financial position as of a given date
II. An enterprise’s performance for a specific period of time
III. An enterprise’s cash flows for a specific period of time
IV. An enterprise’s economic decisions made during a specific period of time

A) I and II
B) II and III
C) I, II, and III
D) I, II, III, and IV

B) II, III, and IV

Which of the following are components of a complete set of financial statements?

I. Manufacturing schedule
II. Statement of comprehensive income
III. Statement of cash flows
IV. Statement of financial position

A) I, II, III, and IV
B) II, III, and IV
C) I, II, and IV
D) I, III, and IV

A) Materiality and aggregation

This basic feature supports the presentation of each material item separately in the financial statements. Likewise, immaterial amounts of similar nature are grouped and reported as a single item in the financial statements

A) Materiality and aggregation
B) Offsetting
C) Consistency of presentation
D) Fair presentation

A) comparability

When the entity changes the presentation of financial statements or reclassifies items in the financial statements of the current period, it shall restate prior period financial statements to achieve the feature of

A) comparability
B) compliance with IFRS
C) consistency
D) offsetting

A) annually

Financial statements should be prepared at least

A) annually
B) semiannually
C) quarterly
D) monthly

C) not allowed, unless permitted or required by PFRS

Offsetting assets and liabilities is

A) allowed, unless not permitted by PFRS
B) allowed in all cases
C) not allowed, unless permitted or required by PFRS
D) not allowed in all cases

C) True, true, false, true

Which of the following statements is true, and which is false?

I. Financial statements should present fairly the financial position, performance and cash flows of an enterprise.
II. Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in presenting financial statements.
III. When preparing financial statements, management should assume a liquidation of an enterprise.
IV. In the absence of a specific requirement on policies, management should develop policies to ensure that the financial statements provide relevant and reliable information.

A) All statements are true
B) True, true, false, false
C) True, true, false, true
D) All statements are false

B) meet all obligations as they come due

An analysis of an enterprise's financial position is useful in assessing a firm's solvency, which is the ability to

A) satisfy short-term obligations
B) meet all obligations as they come due
C) maintain IAS levels of preference and ordinary dividends
D) survive a major economic downturn

A) Criteria for determining which investments are treated as cash equivalents

Which of the following information should be disclosed in the summary of significant accounting policies?

A) Criteria for determining which investments are treated as cash equivalents
B) Guarantee of indebtedness of others
C) Business combination after the end of the reporting period
D) Refinancing of debt subsequent to the end of the reporting period

C) correct an improper financial statement presentation

The notes to the financial statements should not be used to

A) present disclosures required by generally accepted accounting principles
B) describe the accounting policies adopted by the enterprise
C) correct an improper financial statement presentation
D) describe the basis for resolving uncertainties in the financial statements

D) I, II, III, IV and VI

The components of the financial statements include

I. statement of financial position
II. statement of comprehensive income
III. statement of cash flows
IV. statement of changes in equity
V. environmental reports and value-added statements
VI. summary of accounting policies and explanatory notes

A) I, II, III, IV, V and VI
B) I, II, III, IV and V
C) I, II, III and IV
D) I, II, III, IV and VI

B) profitability

The statement of financial position is useful for analyzing all of the following except

A) liquidity
B) profitability
C) solvency
D) financial flexibility

C) required to restate its prior year’s financial statements and include a restated statement of financial position as at the beginning of the preceding period presented

When an entity makes retrospective adjustment for a change in accounting policy, correction of prior period error or reclassification of an element in financial statements, the entity is

A) required to restate its prior year’s financial statements
B) required to include a restated statement of financial position as at the beginning of the preceding period presented
C) required to restate its prior year’s financial statements and include a restated statement of financial position as at the beginning of the preceding period presented
D) is not required to present additional financial statements other than the five components of financial statements

D) Materiality and aggregation

Which of the following is applied when small amounts of expenses of varied nature are grouped and reported as one-line item “Miscellaneous Expenses” in the statement of comprehensive income?

A) Consistency of presentation
B) Comparative information
C) Cost constraint
D) Materiality and aggregation

B) comparative information

ABC Corporation switched from the use of the first-in, first-out method to the weighted average method during 2023, because most players in the industry adopt the weighted average. As a result of this change. ABC restated its 2022 financial statements to give retrospective adjustments for the adoption of the weighted average method. This requirement for restatement of financial statements aims to achieve the basic feature of

A) consistency of presentation
B) comparative information
C) going concern
D) materiality and aggregation

D) Going concern

Which basic feature supports the classification of assets and liabilities as current and non-current?

A) Accrual basis
B) Comparative information
C) Frequency of reporting
D) Going concern

B) Statement of comprehensive income

Which financial statement presents elements resulting in changes in equity other than those from transactions with owners?

A) Statement of financial position
B) Statement of comprehensive income
C) Statement of changes in equity
D) Statement of cash flows

A) Statement of financial position

Which financial statement presents elements at a moment in time?

A) Statement of financial position
B) Statement of comprehensive income
C) Statement of changes in equity
D) Statement of cash flows

C) II, III, and IV

Which financial statement presents information for a period of time?

I. Statement of financial position
II. Statement of comprehensive income
III. Statement of changes in equity
IV. Statement of cash flows

A) I, II, III, and IV
B) II and III
C) II, III, and IV
D) I, II, and III

A) Statement of comprehensive income

Which financial statement, when used with other financial information, helps users to assess the ability of the enterprise to generate cash and other resources that it is likely to control in the future?

A) Statement of comprehensive income
B) Statement of financial position
C) Statement of changes in equity
D) Statement of cash flows

B) Publicly listed entities

Which entities are required by the Securities and Exchange Commission to issue sustainability reports in addition to the annual financial statements?

A) All entities registered with the SEC
B) Publicly listed entities
C) Small and medium-sized entities
D) Partnerships and corporations

A) People, planet, and profit concept

Which concept gives equal prominence to the planet and people, in addition to the traditional focus on profit in an entity’s annual report?

A) People, planet, and profit concept
B) The three Ps concept
C) The triple-bottom line concept
D) The competitive advantage concept

A) To promulgate rules and laws governing the practice of accounting profession in the Philippines

What is the main purpose of the Securities and Exchange Commission?

A) To promulgate rules and laws governing the practice of accounting profession in the Philippines
B) To protect investors ensuring that they have adequate information
C) To develop financial and accounting standards in the Philippines
D) To unite the practicing CPAs in the Philippines and develop them into world-class professionals

A) Full IFRS/PFRS

AEG Corporation is a private corporation whose assets total P200 million and liabilities total P120 million. It is in the process of filing an application with the SEC for the initial public offering of its share capital. For financial reporting, AEG shall apply the

A) Full IFRS/PFRS
B) IFRS/PFRS for SMEs
C) PFRS for Small Entities
D) either PFRS for Small Entities or Income Tax Reporting

A) Full IFRS/PFRS

XYZ Corporation is a thrift-bank operating in the National Capitol Region and intends to put up branches in the nearby provinces. Its total assets are P280 million and liabilities are expected to reach P220 million. For financial reporting, XYZ Corporation shall apply

A) Full IFRS/PFRS
B) IFRS/PFRS for Small Entities
C) PFRS for Small Entities
D) either PFRS for Small Entities or Income Tax Reporting

E) none of the above

Which of the following entities may describe its financial statements as being in compliance with IFRS for SMEs?

A) Metropolitan Bank and Trust Company
B) Philippine Long Distance Telephone Company
C) SM Group of Companies
D) any of the above, provided meeting the quantitative thresholds
E) none of the above

A) A retail company with total assets of P5 million

Which of the following shall appropriately apply for the PFRS for Small Entities?

A) A retail company with total assets of P5 million
B) Commercial bank with total assets of P300 million
C) Car manufacturing company with total liabilities of P200 million
D) Supermarket chain with total liabilities of P260 million

TRUE

TRUE or FALSE

The matching principle requires that expenses be recorded in the same period as the revenues they help to generate

FALSE

TRUE or FALSE

Under the accrual basis of accounting, revenue os recognized when cash is received, regardless of when the sale occurs

FALSE

TRUE or FALSE

The cost of principle states that assets should be recorded at their current market value rather than their historical cost

TRUE

TRUE or FALSE

A company can choose to capitalize expenses as long it is consistently applied across reporting periods

FALSE

TRUE or FALSE

The revenue recognition principle allows for revenue to be recognized before the goods or services are delivered, as long as there is a reasonable expectation of payment

TRUE

TRUE or FALSE

The accounting equation, assets = liabilities + equity, must always be in balance after every transaction

TRUE

TRUE or FALSE

Depreciation id an allocation of the cost of a tangible asset over its useful life, and it affects both the balance sheet and the income statement

FALSE

TRUE or FALSE

FS prepared under IFRS must always be in compliance with GAAP

TRUE

TRUE or FALSE

The going concern assumption implies that a company will continue to operate indefinitely, unless there is evidence to the contratory

TRUE

TRUE or FALSE

In the accrual accounting method , expenses are recognized when they are incurred, regardless of when cash is paid

FALSE

TRUE or FALSE

An income statement provides a summary of a company’s financial position at a specific point in time

FALSE

TRUE or FALSE

The economic entity assumption allows for the personal transactions of owners to be combined with the business transactions for reporting purposes

FALSE

TRUE or FALSE

The conservation principle suggests that revenues should be recognized as soon as they are possible, while expenses and liabilities should only be recognized when they are assured

FALSE

TRUE or FALSE

The principle of uniformity requires that all companies use the same accounting methods and practices in their financial reporting

FALSE

TRUE or FALSE

The time period assumption prohibits businesses from dividing their operations into artificial time periods for financial reporting