NAME:_________________________________ b.
Income and expenses, including
SCORE:__________ gains and losses.
c. Contributions by and distribution to
FAR 05 owners in their capacity as owners.
d. Nature of business activities.
1. A complete set of financial statements
includes the following components, 4. Which of the following is true concerning
except the objective of financial statements?
a. Statement of financial position, I. Financial statements do not
statement of comprehensive provide all the information that
income, statement of cash flows. the users may need to make
b. Statement of changes in equity. economic decisions since these
c. Notes, comprising a summary of largely portray the financial
significant accounting policies and effects of past events and do
other explanatory information. not necessarily provide
d. Reports and statements such as nonfinancial information.
environmental reports and value- II. Financial statements show the
added statements. results of the stewardship of
management or accountability
2. What is the objective of financial of management for the
statements? resources entrusted to it.
a. To provide information about the a. I only
financial position, financial b. II only
performance and changes in c. Both I and II
financial position of an entity that is d. Neither I nor II
useful to a wide range of users in
making economic decisions. 5. The primary responsibility for the
b. To prepare and present a statement preparation and presentation of the
of financial position, statement of financial statements of an entity is
comprehensive income, statement reposed in the
of cash flows and statement of a. Management of the entity
changes in equity. b. Internal auditor
c. To prepare and present relevant, c. External auditor
reliable, comparable and d. Controller
understandable information to
investors and creditors. 6. Which of the following statements is
d. To prepare and present financial incorrect concerning fair presentation of
statements in accordance with all financial statements?
applicable PFRS and Interpretations. a. Fair presentation requires the
faithful representation of the
3. To meet the objective of providing effects of transactions and other
information about financial position, events.
financial performance and cash flows of b. Financial statements shall present
an entity, financial statements should fairly the financial position, financial
provide information about all of the performance and cash flows of an
following except, entity.
a. Assets, liabilities and equity
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c. In virtually all circumstances, a fair d. Modified cash accounting
presentation is achieved by
compliance with applicable PFRS. 10. Which of the following statements is true
d. An entity whose financial in relation to materiality?
statements comply with PFRS shall I. Materiality provides that
not make an explicit and the specific requirements of
unreserved statement of such PFRS need not be met if the
compliance in notes. resulting information is not
material.
7. Which of the following cannot be II. Materiality depends on the
considered fair presentation? relative size and nature of
a. To select and apply accounting the item judged in the
policies in accordance with particular circumstances of
applicable PFRS. the omission.
b. To present information in a manner a. I only
that provides relevant, reliable, b. II only
comparable and understandable c. Both I and II
information. d. Neither I nor II
c. To provide additional disclosures
when compliance with specific PFRS 11. Financial statements must be prepared at
is insufficient to understand the least
entity’s financial position and a. Annually
financial performance. b. Quarterly
d. To rectify inappropriate accounting c. Semiannually
policies either by disclosure of the d. Every two years
accounting policies used or by notes
or explanatory information. 12. It is the presentation and classification of
financial statement items on a uniform
8. Which of the following entities is a going basis from one accounting period to the
concern? next.
a. Management intends to liquidate a. Comparable information
the entity. b. Consistency of presentation
b. Management intends to cease the c. Aggregation
entity’s operations. d. Accrual basis
c. Management has no realistic
alternative but to cease the entity’s 13. A third statement of financial position as
operations. at the beginning of the earliest
d. None of the above. comparative period is required
a. When an entity applies an
9. The effects of transactions and other accounting policy retrospectively.
events on economic resources and claims b. When an entity makes a
are depicted in the periods in which these retrospective restatement of items
effects occur even if the resulting cash in the financial statements.
receipts and payments occur in a different c. When an entity reclassifies items in
period. the financial statements
a. Accrual accounting d. In all of the above cases.
b. Cash accounting
c. Modified accrual accounting
2
14. Technically, offsetting in financial narrative and descriptive
statements is accomplished when information when it is relevant to an
a. The allowance for doubtful accounts understanding of the financial
is deducted from accounts statements of the current period.
receivable d. The previous two comparable
b. The accumulated depreciation is periods for all amounts reported.
deducted from property, plant and
equipment. 18. When the classification of items in the
c. The total liabilities are deducted financial statements is changed, the entity
from total assets to arrive at net a. Must not reclassify the comparative
assets. amounts.
d. Gains or losses from disposal of b. Can choose whether to reclassify the
noncurrent assets are reported by comparative amounts.
deducting from the proceeds the c. Must reclassify the comparative
carrying amount of the assets and amounts, unless it is impracticable to
the related disposal cost. do so.
d. Must reclassify the current year
15. Items of dissimilar nature or function amounts only.
a. Must always be presented
separately 19. An entity shall present
b. Must not be presented separately a. The statement of cash flows more
c. Must be presented separately in prominently than other statements.
financial statements if the items are b. The statement of financial position
material. more prominently than the other
d. Must be presented separately in statements.
financial statements even if these c. The statement of comprehensive
items are immaterial. income more prominently that the
other statements.
16. Materiality depends on d. Each financial statement with equal
a. The nature of the omission or prominence.
misstatement.
b. The absolute size of the omission or 20. Which of the following information is not
misstatement. specifically a required disclosure in
c. The relative size and nature of the relation to financial statements?
omission or misstatement judged in a. Name of the reporting entity or
the surrounding circumstances. other means of identification and
d. The judgment of management. any change in that information from
the previous year.
17. An entity must disclose comparative b. Names of the shareholders of the
information for entity.
a. The previous comparable period for c. Level of rounding used in presenting
all amounts reported. the financial statements
b. The previous comparable period for d. Whether the financial statements
all amounts reported and for all cover the individual or a group of
narrative and descriptive entities.
information.
c. The previous comparable period for 21. The statement of financial position is
all amounts reported, and for all useful for all of the following except
3
a. To compute rate of return before the end of the reporting period
b. To analyze cash inflows and outflows with the effect that the liability becomes
for the period payable on demand, the liability is
c. To evaluate capital structure classified as noncurrent when
d. To assess future cash flows I. The lender as agreed after the end
of the reporting period and before
22. Which criticism is not normally aimed at a the financial statements are
statement of financial position? authorized for issue not to
a. Failure to reflect current value demand payments as a
information. consequence of the breach.
b. The extensive use of separate II. The lender has agreed on or
classifications before the end of the reporting
c. An extensive use of estimate period to provide a grace period
d. Failure to include items of financial ending at least twelve months
value after that date
a. Both I and II
23. The statement of financial position b. Neither I nor II
a. Omits many items that are of c. I only
financial value d. II only
b. Makes very limited use of judgment
and estimate 26. Which is not a purpose of the notes to
c. Use fair value for most assets and financial statements?
liabilities a. To present information about the
d. All of the choices are correct. basis of preparation Of the financial
statements and the specific
24. A long-term debt that is due to be settled accounting policies used
within twelve months after the end of the b. To disclose the information
reporting period is classified as noncurrent required by Philippine Financial
when Reporting Standards that is not
I. An agreement to refinancing or presented elsewhere in the financial
reschedule payment on a long- statements.
term basis is completed after the c. To provide additional information
end of the reporting period and which is not presented on the face
before the financial statements of financial statements but that is
are authorized for issue. necessary for a fair presentation.
II. The entity has the discretion to d. To provide information about the
refinance or roll over the financial position, financial
obligation for at least twelve performance and cash flows of an
months after the end of the entity that is useful to a wide range
reporting period under an of users in making economic
existing loan facility. decisions.
a. I only
b. II only 27. The notes to financial statements should
c. Both I and II not be used to
d. Neither I nor II a. Describe significant accounting
policies
25. When an entity breaches a covenant b. Describe depreciation methods
under a long-term loan agreement on or employed
4
c. Describe the principles and
methods peculiar to the industry 31. What is the purpose of information
which the entity operates presented in the notes to financial
d. Correct an improper presentation in statements?
the financial statements a. To provide disclosures required by
generally accepted accounting
28. Indicate the proper order of presenting principles.
the notes to financial statements b. To correct improper presentation in
I. Statement of compliance with the financial statements.
PFRS c. To provide recognition of amounts
II. Other disclosures, such as not included in the financial
contingent liabilities, statements.
unrecognized contractual d. To present management response
commitments and nonfinancial to auditor comments
disclosures
III. Supporting information for items 32. Which of the following information shall
presented on the face of the be disclosed in the summary of significant
financial statements account policies?
IV. Summary of significant accounting a. Refinancing of debt subsequent to
policies. the reporting period.
a. I, II, III and IV b. Guarantee or indebtedness of
b. I, IV, III and II others
c. I, III, IV and II c. Criteria for determining which
d. I, IV, II and III investments are classified as cash
equivalents.
29. Which of the following is a method of d. Adequacy of pension plan assets
disclosing relevant financial information? relative to vested benefits
a. Supporting schedule
b. Parenthetical explanation 33. The summary of significant accounting
c. Cross reference policies shall disclose
d. All of these a. The composition of property, plant
and equipment and the
30. An entity shall disclose in the summary of depreciation method used
significant accounting policies b. The composition of property, plant
a. The measurement basis used in and equipment only
preparing the financial statements. c. The depreciation method used only
b. All the measurement bases d. Neither the composition of
specified in IFRS irrespective of property, plant and equipment nor
whether these were used by the the depreciation method used
entity.
c. The measurement basis used in 34. Financial statements shall include
preparing the financial statements disclosure of material transactions
and the accounting policies used. between related parties except,
d. All of the measurement bases and a. Nonmonetary exchange between
the accounting policy choices affiliated entities
available to the entity specified in b. Sale of inventory by a subsidiary to
IFRS irrespective of whether these the parent when consolidated
were used. financial statements are prepared.
5
c. Expense allowance for executives 38. Accounting policies disclosed in the notes
which exceed normal business to financial statements typically include all
practice of the following, except
d. An entity’s agreement to act as a. The cost flow assumption
surety for a loan to the chief c. Significant estimate
executive officer. b. The depreciation method
d. Significant inventory purchasing
35. Which of the following transactions policy
should be disclosed as related party
transaction in the entity’s separate 39. Significant accounting policies may not be
financial statements for the current year? a. Selected on the basis of judgment
a. Key management personnel b. Selected from existing acceptable
compensation alternatives
b. Sales to affiliated entities c. Unusual or innovative in application
c. Key management personnel d. Omitted from financial statements
compensation and sales to affiliated disclosure
entities
d. Neither key management personnel 40. Which of the following is not a required
compensation no sales to affiliated disclosure of accounting policies?
entities. a. The measurement basis used in the
financial statements.
36. Which of the following is incorrect b. Key management personnel involved in
regarding notes to financial statements? preparing the summary of significant
a. IFRS requires specific note disclosures accounting policies.
including disaggregation of inventories c. Disclosures required by IFRS
into classifications such as merchandise, d. The nature of operations and the
production supplies, goods in process, and policies that the users of the financial
finished goods. statements would expect to be disclosed.
b. IFRS requires a maturity analysis for
receivables. 41. All of the following fall within the
c. IFRRS requires that all notes should be definition of an entity’s related party,
clear, simple to understand and except
nontechnical in nature. a. Joint venture in which the entity is a
d. All of the choices are correct regarding venture
notes to financial statements. b. A postemployment benefit plan for
the benefit of the employees
37. The disclosure of accounting policies is c. An executive director of the entity.
important to financial statement users in d. The partner of a key manager is a
determining major supplier of the entity.
a. Net income for the year.
b. Whether accounting policies are 42. Which of the following is included in key
consistently applied from year to year. management personnel compensation?
c. The value of obsolete ending inventory. a. Social security contribution.
d. Whether the working capital position is b. Postemployment benefit.
adequate for future operations. c. Social security contribution and
postemployment benefit.
d. Neither social security contribution
no postemployment benefit.
6
a. Transferred goods from inventory to a
43. Which of the following statements in shareholder owning 40% of the entity’s
relation to related parties is true? ordinary shares
a. A party is related to another entity b. Sold an entity car to the wife of the
that it jointly controls. managing director
b. A party is related to another entity c. Sold an asset to an associate
that it controls. d. Took out at huge bank loan
c. A party is related to another entity
that it exercises significant 47. A parent entity has wholly-owned
influence. subsidiary. During the current year, the
d. All of these statements are true. parent sold goods to the subsidiary. The
subsidiary paid a part of this debt before
44. An entity has a 70% subsidiary and is a the year-end and then encountered
venture in a joint venture. During the financial difficulties. Administration costs
financial year-end, are incurred as a result of the parent’s
the entity sold goods to both subsidiary credit department chasing the debt. All of
and joint venture. Consolidated financial the following are required to be disclosed
statements are prepared combining the in relation to this arrangement, except
financial statements of the entity and the a. The administration costs of the credit
subsidiary. In the separate financial department incurred in chasing the debt.
statements of the entity for the current b. Details of any guarantee received in
year, disclosures is required for the relation to the outstanding balance.
transactions with c. The provision in relation to the debt
a. Neither subsidiary nor joint venture being uncollectible.
b. Subsidiary d. The amount of transaction and
c. Joint venture outstanding balance.
d. Both subsidiary and joint venture
48. An entity has entered into a joint venture
45. An entity completed the following with an affiliate to secure access to
transactions in the current year: additional inventory. Under the joint
I. Sold a car to the uncle of the entity’s venture agreement, the entity will
finance director. purchase the output of the venture at
II. Sold goods to another entity owned by prices negotiated on an arm’s length basis.
the daughter of the entity’s managing Which of the following must be disclosed
director. about the related party transaction?
a. The amount due to the venture at the
Which transaction would required end of reporting period.
disclosure in the financial statements of b. The peso amount of the purchases.
the entity? c. The amount due to the venture at the
a. Neither I nor II c. II end of reporting period and the peso
only amount of the purchases
b. I only d. Both d. Neither the amount due to the venture
I and II nor the peso amount of the purchases
46. All of the following are related party 49. Which of the following is not a related
transactions, except party of an entity?
a. A shareholder of the entity owning 30%
of the ordinary shares.
7
b. An entity providing banking facilities to use, then the name of the next most
the entity. senior parent that does so.
c. An associate of the entity
d. Key management personnel of the 54. Which of the following is not a required
entity minimum related party disclosure?
a. The amount of the related party
50. Which of the following transactions most transaction.
likely would be a related party transaction b. The amount of the outstanding related
requiring disclosure? party balance and the terms and
a. The entity borrowed P1,000,000 from conditions.
Southwest Bank issuing a noninterest- c. The amount of similar transaction with
bearing note. unrelated parties to establish that
b. The entity borrowed P2,000,000 from comparable related party transactions
Northwest Bank at a rate significantly gave been entered into at arm’s length.
above the prevailing market rate. d. Allowance for doubtful accounts related
c. The entity borrowed P500,000 form to the outstanding related party balance.
Eastwest bank with no scheduled terms
for how or when funds will be repaid. 55. Which of the following is not specified as
d. All of these would be disclosed as separate related party disclosure?
related party transactions. a. Entity with joint control or significant
influence over the entity.
51. Which of the following is not a related b. The parent of the entity
party? c. An entity that has a common director
a. A director of the entity with the entity
b. The parent of the entity d. Joint venture in which the entity is a
c. A shareholder that holds 1% stake in the venturer
entity
56. A development stage entity is defined as
52. Which of the following would not be one devoting substantially all efforts in
considered key management personnel establishing a new business and
compensation? a. Planned operations have not
a. Short-term benefits commenced
b. Share based payments b. Planned principal operations have
c. Termination benefits commenced but the has been no
d. Reimbursement of out-of-pocket significant revenue.
expenses c. Planned operations have not
commenced and planned principal
53. Which of the following is not a mandated operations have commenced but there
related party disclosure? has been no significant revenue.
a. Relationship between parent and
subsidiaries. 57. A development stage entity
b. Names of all the associates that an a. Issues an income statement that shows
entity has dealt with during the year. only cumulative amounts from the entity’s
c. Name of the entity’s parent and the inception
ultimate controlling party. b. Issues an income statement that is the
d. If neither the entity’s parent nor the same as an established operating entity.
ultimate controlling party produces c. Issues an income statement that is the
financial statements available for public same as an established operating entity
8
and shows cumulative amounts from the P4,000,000 claim from the insurance entity will
entity’s inception. however be received on February 15, 2020.
d. Does not issue an income statement. What amount should be reported as profit
before tax in the financial statements.
58. Financial reporting by a development a. 2,000,000 c. 4,000,000
stage entity differs from an established
operating entity in regard to note b. 9,000,000 d. 6,000,000
disclosure
a. Only 2. During 2015, Marian Company was sued by a
b. And expense recognition principles only competitor for P5,000,000 for infringement of a
c. And revenue recognition principles only patent. Based on the advice of the legal
d. And revenue and expense recognition counsel, the entity accrued the sum of
principles P3,000,000 as a provision in the financial
statements for the year ended December 31,
59. Deficits during the development stage 2015. Subsequently, on March 15, 2016, the
should be Supreme Court decided in favor of the party
a. Reported as organization cost alleging infringement of the patent and ordered
b. Report as part of shareholder’s equity the defendant to pay the aggrieved party a sum
c. Capitalized and written off in the first of P 3,500,000. The financial statements were
year. prepared by the entity’s management on
d. Capitalized and amortized over a five- February 15, 2016 and approved by the board
year period. of directors on March 31, 2016. What amount
d. Capitalized and amortized over a five- should be recognized as secured liability on
year period December 31, 2015?
a. 5,000,000 c. 3,000,000
60. A statement of cash flows for a b. 3,500,000 d. 1,500,000
development stage entity
a. Is the same as that of an established 3. Carla Company carried a provision of
operating entity and shows cumulative P2,000,000 in the draft financial statements for
amounts from inception. the year ended December 31, 2016 in relation
b. Shows only cumulative amounts from to an unresolved court case. On January 31,
the inception 2016, when the financial statements for the
c. Is the same as that of an established year ended December 31, 2015, had not yet
operating entity but does not show authorized for issue, the case was settled and
cumulative amounts from inception the court decided the final total damages to be
d. Is not presented. paid by the entity at P3,000,000. What amount
should be adjusted on December 31, 2015 in
PROBLEMS: relation to this event?
1. Elaine Company prepared draft financial a. 3,000,000 c. 1,000,000
statements that allowed the profit before tax b. 2,000,000 d. 0
for the year ended December 31, 2019 at
P9,000,000. The board of directors authorized 4. Pink Company is completing the preparation
the financial statements for issue on March 20, of the draft financial statements for the year
2019. A fire secured at one of Elaine’s sites on ended December 31, 2015. The financial
January 15, 2020 with resulting damage statements are authorized for issue on March
amounting to P7,000,000, only P4,000,000 of 31, 2016. On January 31, 2016, a dividend of
which is covered by insurance. The repairs will P2,000,000 was declared and a contractual
take place and be paid for in April 2020. The profit share payment of P200,000 was made,
9
both based on the profit for the year ended comprehensive income securities that is
December 31, 2015. On February 15, 2016, a expected to be sold in 2017 and a P9,000
customer went into liquidation having owed the investment in Day Company bonds that
entity P900,000 for the past 5 months. No are expected to be held until their
allowances had been made against this debt in December 31, 2025 maturity date.
the draft financial statements. On March 1, 3. Property and equipment include buildings
2016, a manufacturing plant was destroyed by costing P63,400, inventory costing
fire resulting in a financial loss of P2,500,000. P30,500 and equipment costing P29,600
What total amount should be recognized in 4. Intangible assets include patents that cost
profit or loss for the year ended December 31, P8,200 and on which P2,300 amortization
2015 to reflect adjusting events after the end of have accumulated, and treasury shares
reporting period? that cost P1,800.
a. 2,000,000 c. 2,500,000 5. Other assts include prepaid insurance
b. 3,600,000 d. 1,100,000 (which expires on November 30, 2017)
P2,900, sinking fund for bond retirement
You have been engaged to examine the P7,000, and trademarks that cost P5,200
financial statements of NORTH COTABATO and on which P1,500 amortization has
Company for the year 2016. The client provides accumulated.
you with the following information given below: 6. Current liabilities include accounts
payable P19,400, bonds payable (maturity
NORTH COTABATO COMPANY date December 31, 2027) P40,000, and
STATEMENT OF FINANCIAL POSITION accrued income taxes payable P7,200.
AS OF DECEMBER 31, 2016 7. Long-term liabilities include accrued
wages P4,100 and mortgage payable
Current P Current P (which is due in five equal annual
assets 44,300 liabilities 66,600 payments starting December 31, 2017)
Long-Term 13,600 Long-term 24,100 P20,000.
Investment liabilities 8. Contributed capital includes ordinary
s shares (P5 par) P11,000 and preference
Property 123,50 Contribute 17,000 shares P2,400, premium on ordinary
and 0 d capital shares, P14,700, and unrealized changes
equipment in value of securities available for sale
Intangible 7,700 Unrealized 22,500 P1,100.
assets capital 9. Unrealized capital includes premium on
Other 13,600 Retained 72,500 bonds payable P4,300, premium on
assets earning preference shares, P2,400, premium on
Total P Total Liab P ordinary shares P14,700 , and unrealized
assets 202,70 & Equities 202,70 increase in value of securities available for
0 0 sale P1,100.
10. Retained earnings includes unrestricted
The following information is available: retained earning, P37,800, allowance for
1. Current assets include cash P3,800, doubtful accounts P700 and accumulated
accounts receivable P18,500, note depreciation on buildings and equipment
receivable (maturity date July 1, 2018) of P21,000 and P13,000 respectively.
P10,000 and land P12,000.
2. Long- term investments include a P 4,600 Questions:
investment in fair value through other Based on the above data, compute for the
following as of December 31, 2016.
10
5. Current Asset
a. 54,300 c. 60,300
b. 59,600 d. 62,500
6. Total Assets
a. 166,200 c. 169,100
b. 140,200 d. 166,900
7. Current Liabilities
a. 34,700 c. 74,700
b. 50,700 d. 30,700
8. Total noncurrent liabilities
a. 95,000 c. 56,000
b. 60,300 d. 64,300
9. Total stockholder’s equity
a. 71,200 c. 71,900
b. 73,000 d. 74,800
11
