INTERIM FINANCIAL REPORTING

SHORT QUESTIONS:

1. What is “interim financial reporting”?

2. Is it required to prepare interim financial statements?
3. What are the two views on interim financial reporting?
4. Explain fully the “integral view” of interim financial reporting.
5. Explain fully the “independent view” of interim financial reporting.
6. Which view on interim financial reporting is followed in practice?
7. What are the components of an interim financial report?
8. Explain disclosure of compliance of interim financial reports with PFRS.
9. Give examples of selected explanatory notes.
10. Explain the presentation of comparative interim financial statement.
11. What are the basic principles of interim financial reporting?
12. Explain the measurement of inventories for the interim financial reporting.
13. Explain the treatment of seasonal, cyclical of occasional revenue for interim financial reporting.
14. Explain the treatment of uneven costs for interim financial reporting.
15. Explain the treatment of the year-end bonuses for interim financial reporting.
16. Explain the treatment of irregular costs for interim financial reporting.
17. Explain the treatment of the following for the interim financial reporting:
a. Depreciation and amortization;
b. Paid vacation and holiday leave;
c. Income tax; and
d. Gains and losses.

Multiple Choice. Identify the letter of the choice that best completes the statement or answers the questions.

1. Which statement is correct concerning interim financial reporting? Statement 1. PAS 34 mandates which entities are
required to publish interim financial reports, how frequently, or how soon after the end of an interim period.
Statement 2. Entities that provide interim financial reports in conformity with generally accepted accounting
principles shall conform to the recognition measurement and disclosure principles set out in the standard. [A]
Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
2. The Securities and Exchange Commission and Philippine Stock Exchange require entities covered by the reportorial
requirements of the Revised Securities Act to file [A] Quarterly interim financial reports within 45 days after the end
of each of the first three quarters. [B] Quarterly interim financial reports within 30 days after the end of each of the
first three quarters. [C] Semiannual interim financial reports within 45 days after the end of the first six months. [D]
Semiannual interim financial reports within 30 days after the end of the first six months.
3. Interim financial report means a financial report containing Statement 1. A complete set of financial statements.
Statement 2. A set of condensed financial statements [A] Statement 1 only. [B] Statement 2 only. [C] Both
statements. [D] None of the above.
4. An interim financial report shall include, as a minimum, all of the following components, except [A] Condensed
statement of financial position and statement of comprehensive income. [B] Condensed statement of cash flows. [C]
Condensed statement of changes in equity. [D] Accounting policies and explanatory notes.
5. Publicly traded entities are encouraged to provide interim financial reports [A] At least at the end of the half year
and within 60 days of the end of the interim period. [B] Within a month of the half year-end. [C] On a quarterly
basis. [D] Whenever the entity wishes.
6. Which is incorrect concerning presentation of comparative interim financial statements? [A] Statement of financial
position as of the end of the current interim period and comparative statement of the current interim period and
comparative statement of financial position as of the end of the immediately preceding fiscal year. [B] Income
statements for the current interim period and cumulatively for the current financial year to date with comparative
income statement for the immediately preceding year. [C] Statement of changes in equity cumulatively for the
current financial year to date with comparative statement for the immediately preceding year. [D] Statement cash
flows cumulatively for the current financial year to date with comparative statement for the comparable year to
date period of the immediately preceding year.
7. The entity’s financial year ends December 31 and the entity presents financial statements in its quarterly interim
financial report on September 30, 2019. Which is an incorrect presentation of the comparative interim financial
statements? [A] Statement of financial position at September 30, 2019, Statement of financial position at December
31, 2018. [B] Income statement for nine months ending September 30, 2019, Income statement for 9 months ending
September 30, 2018, Income statement for three months ending September 30, 2018. [C] Statement of cash flows
for nine months ending September 30, 2019, Statement of cash flows for year ending December 31, 2018. [D]

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Statement of changes in equity for nine months ending September 30, 2019, Statement of changes in equity for nine
months ending September 30, 2018.
8. Which statement is incorrect concerning interim financial reporting? [A] To save time and cost, entities often use
estimates to measure inventories at interim dates to a greater extent than at annual reporting dates. [B]
Depreciation and amortization for an interim period shall be based only on assets owned during the interim period.
[C] The cost of planned major periodic maintenance or overhaul that is expected to occur late in the year is not
anticipated for interim purposes, unless an event has caused the entity to have legal or constructive obligation. [D]
Charitable contribution, employee training costs and other costs that are expected to be incurred irregularly during
the financial year shall be accrued at the end of interim reporting period.
9. A bonus is anticipated for interim purposes when Statement 1. The bonus is a legal obligation or past practice would
make the bonus a constructive obligation for which the entity has no realistic alternative but make the payment.
Statement 2. A reliable estimate of the obligation can be made. [A] Statement 1 only. [B] Statement 2 only. [C] Both
statements. [D] None of the above.
10. Which statement is correct concerning interim financial reporting? Statement 1. An entity shall apply the same
accounting policies in its interim financial statements as are applied in its annual financial statements. Statement 2.
If an entity’s interim financial report is in compliance with PFRS, that fact shall be disclosed. [A] Statement 1 only. [B]
Statement 2 only. [C] Both statements. [D] None of the above.
11. Under PAS 34, interim financial reports shall be published [A] Once a year at any time in that year. [B] Within one
month of the half year-end. [C] On a quarterly basis. [D] Whenever the entity wishes.
12. If an entity does not prepare interim financial reports [A] The year-end financial statements are deemed not to
comply with PFRS. [B] The year-end financial statements’ compliance with PFRS is not affected. [C] The year-end
financial statements will not be acceptable under local legislation [D] Interim financial reports shall be included in
the year-end financial statements.
13. Interim financial reports shall include as a minimum [A] A complete set of financial statements. [B] A condensed set
of financial statements and selected notes. [C] A statement of financial position an income statement only. [D] A
condensed statement of financial position, income statement and statement of cash flows only.
14. PAS 34 states a presumption that anyone reading interim financial reports shall [A] Understand all Philippine
Financial Reporting Standards. [B] Have access to the records of the entity. [C] Have access to the most recent
annual report. [D] Not make decisions based on the report.
15. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the entity’s sales are in
the period. August to October. Because the entity’s business is seasonal, PAS 34 suggests [A] Additional notes be
written in the interim reports about seasonal nature of the business. [B] Disclosure of financial information for the
latest and comparative 12-month period in addition to the interim report. [C] Additional disclosure in the accounting
policy note. [D] No additional disclosure.
16. Which of the following is not true regarding interim financial reporting? [A] Decline inventory shall be deferred to
future interim periods. [B] Use of the gross margin method for computing cost of goods sold must be disclosed. [C]
Costs and expenses not directly associated with interim revenue must be allocated to interim periods on a
reasonable basis. [D] Gains and losses that arise in an interim period shall be recognized in the interim period in
which they arise if they would not normally be deferred at year-end.
17. Which of the following statements in relation to an interim financial report is true? Statement 1. An interim financial
report may consist of a complete set of financial statements. Statement 2. An interim financial report may consist of
a condensed set of financial statements. [A] Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None
of the above.
18. Which of the following statements in relation to interim financial reporting is true? Statement 1. It is necessary to
count inventories in full at the end of each interim period. Statement 2. The net realizable value of inventories is
determined by reference to selling prices at the interim date. [A] Statement 1 only. [B] Statement 2 only. [C] Both
statements. [D] None of the above.
19. An entity is preparing interim financial statements for the six months ended June 30, 2019. In the interim financial
statements for the six months ended June 30, 2019, a statement of financial position at June 30, 2019 and a
statement of comprehensive income for the six months ended June 30, 2019 shall be presented. In addition all of
the following shall be presented, except [A] Statement of financial position at June 30, 2018. [B] Statement of
financial position at December 31, 2018. [C] Statement of comprehensive income for the half year ended June 30,
2018. [D] Statement of cash flows for the half year ended June 30, 2018.
20. An entity is preparing its financial statements for the first half of its financial year ending June 30, 2019. One class of
inventory has a cost per unit of P500 and a net realizable value at June 30, 2019 of P480 per unit. The business is
seasonal and the net realizable value at December 31, 2019 is expected to be P550. The entity’s budget for the year
scheduled a major refurbishment project from April to June 2019. For legal reasons, the contract for the
refurbishment was not signed until July 15, 2019, on which date the work was started.

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Which of the following statements is true? Statement 1. The inventory shall be carried at its cost per unit of P500 on
June 30, 2019. Statement 2. The cost of the major refurbishment project shall be accrued on June 30, 2019. [A]
Statement 1 only. [B] Statement 2 only. [C] Both statements. [D] None of the above.
21. Interim financial statements are usually presented on a [A] Monthly basis. [B] Quarterly basis. [C] Semiannual basis.
[D] Nine-month basis.
22. For interim financial reporting, an inventory loss from a market decline in the second quarter shall be recognized as
a loss [A] In the fourth quarter. [B] Proportionately in each of the second, third and fourth quarters. [D]
Proportionately in each of the first, second, third and fourth quarters. [D] In the second quarter.
23. If annual major reports made in the first quarter and paid for in the second quarter clearly benefit the entire year,
when should the repairs be expensed? [A] An allocated portion in each of the last three quarters. [B] An allocated
portion in each quarter of the year. [C] In full in the first quarter. [D] In full in the second quarter.
24. For external reporting purposes, it is appropriate to use estimated gross profit rate to determine the cost of goods
sold for Statement 1. Interim reporting. Statement 2. Year-end reporting. [A] Statement 1 only. [B] Statement 2 only.
[C] Both statements. [D] None of the above.
25. For interim financial reporting, an expropriation gain occurring in the second quarter shall be [A] Recognized ratably
over the last three quarters. [B] Recognized ratably over all four quarters with the first quarter being restated. [C]
Recognized in the second quarter. [D] Disclosed by footnote in the second quarter.
26. Advertising costs incurred shall be deferred to provide an appropriate expense in each period for Statement 1.
Interim reporting. Statement 2. Year-end reporting [A] Statement 1 only. [B] Statement 2 only. [C] Both statements.
[D] None of the above.
27. An inventory loss from a market price decline occurred in the first quarter. However, in the third quarter the
inventory had a market price recovery that exceeded the market decline that occurred in the first quarter. For
interim financial reporting, the peso amount of net inventory should [A] Decrease in the first quarter by the amount
of the market price decline and increase in the third quarter by the amount of the market price recovery. [B]
Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the
amount of decrease in the first quarter. [C] Not be affected in the first quarter and increase in the third quarter by
the amount of the market price recovery that exceeded the amount of the market price decline. [D] Not be affected
in either the first quarter or the third quarter.
28. Due to a decline in market price in the second quarter, an entity incurred an inventory loss. The market price is
expected to return to previous levels by the end of the year at the end of the year, the decline had not reversed.
When should the loss be reported in the entity’s interim income statement? [A] Ratably over the second, third and
fourth quarters. [B] Ratably over the third and fourth quarters. [C] In the second quarter only. [D] In the fourth
quarter only.
29. How is income tax expense for the third quarter interim period computed? [A] The annual rate multiplied by the
third quarter pretax earnings. [B] The estimated tax for the first three quarters based on annual rate less a similar
estimate for the first two quarters. [C] The rate applicable during the third quarter multiplied by four times the third
quarter pretax earnings. [D] One-half of the difference between total estimated annual income tax expense and the
income tax for the first two quarters.
30. Conceptually, interim financial statements can be described as emphasizing [A] Timeliness over reliability. [B]
Reliability over relevance. [C] Relevance over comparability. [D] Comparability over neutrality.