lOMoARcPSD|47414042

Quiz LET - MCQ

Bachelor of Science in Accountancy (University of Saint Louis)

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)
 lOMoARcPSD|47414042

Quiz 3- PAS 1

1. According to PAS 1, an entity shall make an explicit and unreserved statement of compliance with the PFRSs in
the notes only if the entity complies with all the requirements of PFRSs. (T/F)
TRUE
2. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial
statements that achieve a fair presentation. (T/F)
TRUE
3. PAS1 encourages, but does not require, the presentation or the preceding year's financial statements as
comparative information to the current year's financial statements. (T/F)
FALSE
4. According to PAS 1, assets and liabilities or income and expenses are offset, unless separate presentation is
required or permitted by a PFRS. (T/F)
FALSE
5. According to PAS 1, PFRSs apply to financial statements as well as to other information presented in an annual
report, a regulatory filing, or another document. (T/F)
FALSE
6. According to PAS 1, the line item "Cash and cash equivalents" should always be presented first in the statement
of financial position. (T/F)
FALSE
7. PAS 1 does not prescribe an order or format of presenting items in the financial statements. (T/F)
TRUE
8. An entity may omit the notes when presenting general purpose financial statements. (T/F)
FALSE
9. If profit or loss is P100 while other comprehensive income is P20, total comprehensive income must be P120.
(T/F)
TRUE
10. PAS 1 requires the disclosure of an entity's domicile and legal form, its country of incorporation and the address
of its registered office and a description of the nature of its operations and its principal activities. (T/F)
TRUE

1. Objective of PAS 1 is to ensure comparability by prescribing the basis for presentation of general purpose financial
statements.

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 Intra-Comparability

3. The Scope of PAS 1 is the preparation and presentation of general purpose financial statements.
4. The statement of financial position is also called Balance Sheet
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 at least one year from the end of the reporting period.

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

7. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of the preceding period if
certain instances occur. Which of the following is not one of those instances? (Assume all of the following has a material

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

effect)
Change in the frequency of reporting

8. The PFRSs apply to which of the following?

a. 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.
b. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to be filed together with the
financial statements.
c. Environmental reports required by the Department of Environment and Natural Resources (DENR) that are included in
the entity's annual report.
d. 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.
Classified Presentation
Which of the following best reflects the definition of normal operating cycle under PAS 1?
a. 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.
b. 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, sell the finished goods on account, and collect the receivables.
c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw materials on account and settle
the account.
d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished goods on account and collect the
receivables.

10.Who is responsible for the preparation and fair presentation of an entity's financial statements in accordance with the
PFRSs? Management

11.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) Classified Presentation

12. Which of the following is a current asset

a. Deferred tax asset expected to reverse within 3 months from the reporting date
b. Property, plant and equipment
c. Non-trade note receivable due in 13 months
d. Accounts receivable

13.Which of the following statements is incorrect regarding the provisions of PAS 1?

a. An entity is required to present separate sections of profit or loss and other comprehensive income.
b. 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.
c. Presenting an income statement or statement of profit or loss alone without a statement of other comprehensive
income is allowed.
d. Presenting comprehensive income as a note disclosure only is prohibited.
A&C

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

it shall be displayed immediately before the statement presenting comprehensive income.
1. Which of the following is not correct when an entity opts to use the "two-statement presentation of income and
expenses?
a. The separate income statement forms part of a complete set of financial statements and shall be displayed

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

immediately before the statement presenting comprehensive income.

b. The profit or loss section is not presented anymore in the statement presenting comprehensive income.
1. 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? as a deduction
1. Which of the following is a current liability?

a. Deferred tax liability

b. An obligation for which the entity has an unconditional right to defer.
c. 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.
d. An obligation for which the entity has a conditional right to defer.

1. According to PAS 1, items of other comprehensive income are presented according to the following groupings
a. those that are subsequently reclassified to profit or loss and those that are not
1. 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

a. the period covered by the financial statements.

b. the reason for using a longer or shorter period.
c. the fact that amounts presented in the financial statements are not entirely comparable.
d. a quantification of the possible adjustments that would eliminate the effects of the longer or shorter reporting period.

1. PAS 1 applies to which of the following?

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

b. The recognition and measurement of specific assets, liabilities, income and expenses.
c. The disclosure requirements for specific transactions and other events.
d. All of these.

1. 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 PAS 1 will be dated
as at January 1, 20x2.
1. 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?

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

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

1. The financial statements of Entity A shows line items described as "Other current assets," "Other noncurrent
liabilities," and "Miscellaneous expenses." Which of the following is correct?

a. 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.
b. Entity A considers the items included in these line items as individually material but with dissimilar nature or function.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

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

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

a. Income tax return

b. Directors' reports
c. Notes
d. All of these

1. 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

a. the retrospective application of an accounting policy.

b. the retrospective restatement of items in the financial statements.
c. the reclassification of items in the financial statements.
d. the prospective application of a change in accounting estimate.

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

a. Banks and other financial institutions

b. Mining companies
c. Trading enterprises
d. Manufacturing firms

1. Which of the following is not an acceptable method of presenting income and expenses?

a. Presenting income and expenses that affect profit or loss and those that are components of other comprehensive
income in a single statement.
b. Presenting an income statement in addition to a statement that presents comprehensive income.
c. Presenting an income statement alone without a statement that presents comprehensive income.
d. All of these are acceptable methods of presentation.

1. 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.
Function of Expense
1. Which of the following is not a purpose of the notes?

a. to present information about the basis of preparation of the financial statements and the specific accounting policies
b. to disclose the information required by PFRSS that is not presented elsewhere in the financial statements
c. to provide information that is not presented elsewhere in the financial statements but is relevant to an understanding
of any of the financial statements.
d. to rectify inappropriate accounting policies

1.What is the operating cycle?

The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of
goods, to the collection of receivable, and then to purchasing inventory all over again.
Describe the formula for quick or acid test ratio.
(Cash + short-term investments + Accounts Receivable)/Current Liabilities.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

2.What is a valuation account used for?

Used to increase or decrease the book value of an item to a measure of current value.

3.What is another name for the balance sheet? The statement of financial position.

4. Define "net realizable value". The amount the firm expects to receive from the sale or collection of an item.

5. Define "current liability". A liability expected to be extinguished through the use of current assets or by the
incurrence of other current liabilities.

6. How are current assets listed on the balance sheet? Declining order of liquidity.
7. Define "measurement base". The attribute of an account being measured and reported.
8. Do International Financial Reporting Standards (IFRS) allow the term "reserve" on the balance sheet?
Yes, the term reserve is allowed.

9. What are the steps of the accounting cycle?

(1) Analyze source documents, (2) Post to ledger, (3) Make adjusting entries, (4) Prepare trial balance, (5) Prepare
income statement, balance sheet, and cash flow statements, (6) Close temporary accounts.

10.What should financial statements do according to International Financial Reporting Standards (IFRS)?
Fairly present the underlying financial position and financial performance of the entity by faithfully representing the
underlying economic reality the firm faced during the period.

11.What does a chart of accounts do? Assigns account numbers to accounts for use in computerized information
systems.

12.What is the classification for an asset that is held for trading? Current Asset.

13. What kinds of transactions are recorded in special journals? High volume similar transactions are recorded in special
journals.
14. What do control accounts report? The aggregate balance of several subsidiary accounts.
15.What type of balance sheet is required under International Financial Reporting Standards (IFRS)?
Statement of Financial Position items must be classified as current and non-current.

16.What is the overall objective of financial statements under International Financial Reporting Standards (IFRS)?
To provide information about the financial position, financial performance and cash flows of an entity that is useful to
a wide range of users in making economic decisions.

17.How are unusual or infrequent items reported?

They must be separately reported if material as a component of income from continuing operations.

18.What items are not shown on the income statement? Prior period adjustments;
Foreign currency translation adjustments;
Unrealized gains and losses on available for sale (AFS) securities;
Unrecognized pension items;
Cumulative effect of changes in accounting principle;
Unrealized gains and losses on cash flow hedges.

19.Does accounting income take a transactions-based determination of income or a change in net worth?
Accounting income is transaction based.

20.Define "losses". Decreases in equity or net assets from peripheral or incidental transactions.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

21.What represent increases in net assets or settlements of liabilities by providing goods and services? Revenues
22. Define "expenses". Decreases in net assets or incurrence of liabilities through the provision of goods or services.

23.What is the order of income statement presentation?

Income from Continuing Operations;
Income from Discontinued Operations (net of tax);
Extraordinary Items (net of tax);
Net Income.
23.What is economic income? The change in the net worth of a business enterprise during an accounting period.
24.Define "gains". Increases in equity or net assets from peripheral or incidental transactions.
25. What is comprehensive income? Net income + other comprehensive income items.

26. What are the forms of the statement of comprehensive income? Single statement and two statements.
27. What does the single-step income statement present? Total revenues and gains less total expenses and losses.
28. Is a separate statement of other comprehensive income one of the formats permitted under International Financial
Reporting Standards (IFRS)? Yes, this is one of the formats permitted under IFRS.

29.What two formats are accepted under International Financial Reporting Standards (IFRS) for Income Statement
presentation? Single-step and multiple-step income statements.

30. What does the multiple-step income statement present?

Includes multiple subtotals of revenues, expenses, gains, and losses. (Sales - Cost of Goods Sold = Gross profit; Gross
profit - operating expenses = income from operations; Income from operations + or − other income / expenses=
Income B/F Taxes; IBT − taxes = Net Income.)

31.What is operating margin? The excess of operating revenues over operating expenses.
32.How are expenses classified under International Financial Reporting Standards (IFRS)?
They are classified by business function or nature of the expense.

33.Are extraordinary items allowed in International Financial Reporting Standards (IFRS)?

No, extraordinary items are not allowed.
34.What type of account is accumulated other comprehensive income (AOCI)? Owner's equity.
35.What are the types of statements of other comprehensive income?
1) Single statement of net income and comprehensive income; and 2) two separate statements: a statement of net
income and a statement of comprehensive income.

36.What are other comprehensive income items? Unrealized gains and losses on securities available for sale,
unrecognized pension gains and losses, foreign currency translation adjustments, certain derivative gains and losses.

37. What are the two ways of reporting comprehensive income? As a separate statement of comprehensive income or
as part of the income statement.

38.What is net income plus or minus other components of comprehensive income? Comprehensive income.
39.Does International Financial Reporting Standards (IFRS) allow revaluation of plant assets and intangibles to fair value
as other comprehensive income item? Yes, allows this.

40.What is comprehensive income? Net income plus or minus unrealized gains and losses on securities available for
sale, unrealized pension cost, certain unrealized gains and losses on derivatives, and foreign currency translation
adjustments.

41.What is the main purpose of disclosing comprehensive income? To report the net change in equity in a single
amount.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

42. What is other comprehensive income (OCI) reclassification adjustment? When an OCI item from previous year is
removed from accumulated other comprehensive income (AOCI).
43. How many years of Owners' Equity (OE) must be reported by Securities and Exchange Commission (SEC) registrants?
Three years of OE statements.
43.What do vertical format statements allow accountants to do?
Check accuracy by comparing total Owner's Equity (OE) computed as (1) the sum of each transaction affecting OE and
(2) the sum of individual OE account balances.
44. How are accounts listed in the vertical format? They are listed in separate columns.
45.Is the Statement of Changes in Equity required under International Financial Reporting Standards (IFRS)? Yes.
46. In what type of format does the Statement of Changes in Equity appear? The format is vertical and horizontal.
47.Does accumulated other comprehensive income (AOCI) have its own column in the vertical format? Yes.
48.List the other names for Statement of Changes in Equity. Statement of Changes in Owners' Equity, Owners' Equity
Statement, Statement of Shareholders' Equity, and Statement of Owners' Equity.

49. What is the direct method on the statement of cash flows? This method presents actual inflows and outflows from
cash operations. Must also disclose the indirect method (reconciliation of net income to cash flows from operations)
as a supporting schedule.

50.When is a Statement of Cash Flows required? For all business enterprises that report both financial position
(Balance Sheet) and results of operations (Income Statement) for a period.
51. What is reported on the Statement of Cash Flows? Information about the cash receipts and cash payments for an
entity;
52.The difference between net income and net operating cash flows; Information about investing and financing
activities which do not involve cash inflows or outflows.
53. What is the indirect method on the statement of cash flows? Reconciles net income to cash flows from operating
activities.
54.Name the two formats permitted for the statement of cash flows. Indirect. Direct.

55.What is the cash flow category for collections of principal amounts on loans made to other entities?
The category is Investing.
56. What is the cash flow category for interest paid and received? This category is Operating Activities.
57. What is the basic purpose of the statement of cash flows? The basic purpose is to provide information about the
cash receipts and cash payments for an entity to help investors, creditors, and others.

58. Name the four major sections in the direct method cash flow statement.
Operating cash flows;
Investing cash flows;
Financing cash flows.
Reconciliation of net income and net operating cash flows.

59.List the required categories for the Statement of Cash Flows.

Net cash inflow or outflow from Operating Activities;
Net cash inflow or outflow from Investing Activities;
Net cash inflow or outflow from Financing Activities;
Effects of Foreign Currency Translation;
Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the
Balance Sheet;
Non-cash Investing and Financing Activities.

60.What is the reporting basis of the statement of cash flows? The reporting basis is cash and cash
equivalents.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

61.Where are non-cash investing and financing activities reported? They are reported on the face of the
Statement of Cash Flows or as a separate disclosure.

What is the cash flow category for principal payments on short-term and long-term loans (from financial
institutions or dealers) made to acquire plant assets? The category is Financing.
What is the cash flow category for loans made to other entities? The category is Investing.
What is the cash flow category for dividends paid? The category is Financing.

What are some examples of cash outflows classified as Investing Activities? Purchase of long-term assets;
Lending to others; Investment in debt and equity securities held to maturity and available for sale);
Purchase of productive assets (not inventory).

What are some examples of cash outflows classified as Financing Activities?

Repurchase of own stock;
Paying back lenders (principal only);
Payment of dividends.
What is the cash flow category for purchases of trading securities? The category is Operating.

What are some examples of cash inflows classified as Investing Activities?

Sale of long-term assets; Collection of loan principal;
Disposal of held to maturity (HTM) and available for sale (AFS) debt and equity securities;
Sale of productive assets (not inventory)

Where is the cash effect on foreign currency translation reported? It is reported as a separate part of the
reconciliation of the change in cash and cash equivalents during the period.

What is the cash flow category for purchases of securities available for sale? The category is Investing.

What is the cash flow category for principal payments on short-term and long-term loans from financial
institutions made to acquire inventory for resale? The category is Financing.

What are some examples of cash inflows classified as Financing Activities?

Sale of own stock; Proceeds from borrowing

What is the cash flow category for principal payments on short-term and long-term loans from suppliers made
to acquire inventory for resale? The category is Operating.

Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be
added to or subtracted from accrual based net income? An increase in accounts payable should be added.
Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be
added to or subtracted from accrual based net income? A decrease in unearned revenue should be
subtracted.
Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable
be added to or subtracted from accrual based net income? An increase in accounts receivable should be
subtracted.
What is the purpose of the operating section of the statement of cash flows under the indirect method?
The purpose is to adjust accrual net income to net cash flow from operating activities.
What is the purpose of the operating section of the statement of cash flows under the direct method?
The purpose is to show all cash inflows and outflows for operating activities.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)

 lOMoARcPSD|47414042

Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added
to or subtracted from accrual based net income? A decrease in inventory should be added.

Downloaded by catherine rodaje (catherinerodaje9@gmail.com)