STATEMENT OF FINANCIAL POSITION

Define a statement of financial position.

 A statement of financial position is a formal statement showing the three elements comprising
financial position, namely assets, liabilities and equity.
 Inventors, creditors and other statement users analyze the statement of financial position to evaluate
such factors as liquidity, solvency and the need of the entity for additional financing.
 Liquidity is the ability of the entity to meet currently maturing obligations. Solvency is the ability of
cash over the long term to meet maturing obligations.
 Information about liquidity and solvency is useful in predicting the ability of the entity to comply
with the future financial commitments and to pay dividends to shareholders.

Define current assets.

 PAS 1, paragraph 66, provides that an entity should classify an asset as current when:
o The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or
use to settle a liability for at least twelve months after the reporting period.
o The entity holds the asset primarily for the purpose of trading.
o The entity expects to realize the asset within twelve months after the reporting period.
o The entity expects to realize the asset or intend to sell or consume it within the entity’s
normal operating cycle.

What is the presentation of current assets in the statement of financial position?

 Current assets are usually listed in the statement of financial position in the order of liquidity. The
line items under current assets are
o Cash and cash equivalents
o Financial assets at fair value profit as loss such as trading securities and other investments
quoted equity instrument.
o Trade and other receivables
o Inventories
o Prepaid expenses

Define noncurrent assets.

 The caption noncurrent asset is a residual definition
 PAS 1, paragraph 66, simply states the that an entity shall classify all other assets not classified as
current as noncurrent

Define current liabilities.

 PAS 1, paragraph 69, provides that an entity shall classify liability as current when:
o The entity expects to settle the liability within the entity’s normal operating cycle.
o The entity holds the liability primarily for the purpose of trading.
o The liability is due to be settled within twelve months after reporting period.
o The entity does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period.

Explain the presentation of current liabilities.

 PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial position
shall include the following line items for current liabilities:
o Trade and other payables
o Current provisions
o Short-term borrowing
o Current portion of long-term debt
o Current tax liability
  The term trade and other payables is a line item for accounts payable, notes payable, accrued
interest on note payable and accrued expenses.
 No objection can be raised if the trade accounts and notes payable are separately presented.

What are noncurrent liabilities?

 The term noncurrent liabilities is a residual definition.
 PAS 1, paragraph 69, provides that all liabilities not classified as current liabilities are classified as
noncurrent liabilities. Examples of noncurrent liabilities are:
o Noncurrent portion of long-term debt
o Finance lease liability
o Deferred tax liability
o Long-term obligation to entity officers
o Long-term deferred revenue

Explain the treatment of a currently maturing long-term debt.

 A liability which is due to be settled within twelve months after the reporting period is classified as
current , even if:
o The original term was for a period longer then twelve months.
o An agreement to refinance or to reschedule payment on a long-term basis is completed after
the reporting period and before the financial statements are authorized for issue.
o However, if the refinancing on a long-term basis is completed on or before the end of
reporting period, the refinancing is an adjusting event and therefore the obligation is
classified as noncurrent.

Explain the treatment of a currently maturing obligation if there is a discretion to refinance.

 If entity has the discretion to refinance or roll over an obligation for at least twelve months after the
reporting period under an existing loan facility, the obligation is classified as noncurrent eve if it
would otherwise be due within shorter period.
 The reason for this treatment is that such obligation is considered to form part of the entity’s long-
term refinancing because the entity has the unconditional right under the existing loan agreement to
defer payment for at least twelve months after the end of the reporting period.
 Note that the refinancing or rolling must be at the discretion of the entity.
 Otherwise, if the refinancing or rolling over is not at the discretion of the entity, the obligation is
classified as a current liability.

What are covenants?

 Covenants are often attached to borrowing agreements which represents undertakings by the
borrower. These covenants are actually restriction on the borrower as to undertaking further
borrowings, paying dividends, maintaining specified level of working capital and so forth.
 Under these covenants, if certain conditions relating to the borrower’s financial situation are
breached, the liability becomes payable on demand.

Explain the effect of breach of covenants on the classification of the liabilities.

 PAS 1, paragraph 74, provides that “the liability is classified as current even if the lender has
agreed, after the reporting period and before the statements are authorized for issue, not to demand
payment as a consequence of the breach.”
 This liability is classified as current because at a reporting date the borrower does not have an
unconditional right to defer payment for at least twelve month after the reporting period.
 However, paragraph 75 provides that the liability is classified as noncurrent if the lender has agreed
on or before the end of reporting period to provide grace period ending at least twelve months after
the end of reporting period.
What is the meaning of equity?
 Equity is the residual interest in the assets of the entity after deducting all of the liabilities. Simply
stated, equity means “net assets” or total assets minus liabilities.
 The terms used in reporting the equity of an entity depending in the form of the business
organization are:
o Owner’s equity in a proprietorship
o Partners’ equity in a partnership
o Shareholders’ equity in a corporation
 However, the term equity may simply be used for all business organizations. QUESTION 10-13

As a minimum, what are the line items on the face of the statement of financial position?
 PAS 1, paragraph 54, provides that as a minimum, the face of the statement of financial position
shall include the following:
o Cash and cash equivalents
o Financial assets (other than 1, 3 and 6)
o Trade and other receivables
o Inventories
o Property, plant and equipment
o Investments in associates accounted for by the equity method
o Intangible assets
o Investments property
o Biological assets
o Total of assets classified as held for sale and assets included in disposal group classified as
held for sale
o Trade and other payables
o Current tax liability
o Deferred tax asset and deferred tax liability
o Financial liabilities (other than 11 and 14)
o Financial included in disposal group classified as held for sale
o Noncontrolling interest
o Share capital and reserves
o The listing of the line items is not exclusive.
 PAS 1 simply provides a list of items that are so different in nature and function to warrant separate
presentation in the face of the statement of financial positions.
 Paragraph 55 provides that additional line items, headings and subtotals shall be presented in the
face of the statement of financial position when such presentation is relevant to the understanding of
the financial position of an entity.

Explain the presentation of assets and liabilities in the statement of financial position.
 PAS 1, paragraph 60, provides that an entity shall present current and noncurrent assets, and current
and noncurrent liabilities on the face of the statement of financial position.
 Current and noncurrent presentation of assets and liabilities provides useful information when the
entity supplies goods or services within a clearly identifiable operating cycle.
 In the Philippines, the common practice is to present in the statement of financial position current
assets, current liabilities before noncurrent liabilities, and equity after liabilities.
 Other formats may be equally appropriate provided the distinction is clear. This is in accordance
with paragraph 7 of the Preface to IAS 1.
 However, all assets and liabilities are presented broadly in the order of liquidity when suc
presentation is reliable and more relevant.
  Note that the format of the statement of financial position as illustrated in the appendix to IAS 1
present assets, liabilities and equity as follows:
o Noncurrent assets Current assets Equity
o Noncurrent liabilities Current liabilities
o This is the practice in the other jurisdiction, like the United Kingdom.

QUESTION 10-15 Multiple Choice (PAS 1)

1. When there is much variability, the operating cycle is measured at

a. The mean value
b. The median value
c. Twelve months
d. Three years

2. The operating cycle of an entity

a. Is the time between the acquisition of materials entering into a process and
their realization in cash.
b. Is the period of time normally elapsed in converting trade receivables back into cash.
c. Is the period of one year
d. Refers to the seasonal variation experienced by entities.

3. An entity shall classify an asset as current under all of the following conditions, except
a. The entity expects to realize the asset or intends to sell or consume it within the
entity’s normal operating cycle.
b. The entity holds the assets for the purpose of trading.
c. The entity expects to realize the asset within twelve months after the reporting period.
d. The asset is cash or a cash equivalent that is restricted to settle a liability for more
than twelve months after the reporting period.

4. An entity shall classify a liability as current when under all of the following conditions, except

a. The entity expects to settle the liability within the entity’s normal operating cycle.
b. The entity holds the liability primarily for the purpose of trading.
c. The liability is due to be settled within twelve months after the reporting period.
d. The entity has an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period.

5. Which obligations are classified as current even if these are due to be settled after more
than twelve months from the end of reporting period?
a. Trade payables and accruals for employee and other operating cost
b. Current portion of interest-bearing liabilities
c. Bank overdrafts
d. Dividends payable

6. Current and noncurrent presentation of assets and liabilities provides useful information when
the entity
a. Supplies goods and services within a clearly identifiable operating cycle
b. Is a financial position
c. Is a public utility
d. Is a nonprofit organization

7. A presentation of assets and liabilities in increasing or decreasing order of liquidity

provides information that is reliable and more relevant than a current and noncurrent
presentation for
a. Financial institution
b. Public utility
 c. Manufacturing entity
d. Service provider

8. In the Philippines, the common practice is to present in the statement of financial position
a. Current asset before noncurrent assets, current liabilities before noncurrent liabilities
and equity after liability
b. Noncurrent assets before current assets, noncurrent liabilities before current liabilities and
equity after liability
c. Current assets before noncurrent assets, noncurrent liabilities before current liabilities
and equity after liability
d. Noncurrent assets before current assets, current liabilities before noncurrent liabilities
and equity after liability

9. Financial liability due within twelve months aster the reporting period shall be classifies
as noncurrent
a. When it is refinanced on a long-term basis before the issue of financial statements
b. When the entity has no discretion to refinance for at least twelve months
c. When it is refinanced on a long-term basis after the end of reporting period
d. When it is refinanced on a long-term basis on or before the end of reporting period

10. When the entity breaches under a long-term loan agreement on or before the end of the reporting
period with the effect that the liability become payable on demand, the liability is classified as
a. Current under all circumstances
b. Noncurrent under all circumstances
c. Current if the lender has agreed after the reporting period and before the issuance of
the statements not to demand payment as a consequence of the breach.
d. Noncurrent if the lender agreed after the reporting period to provide a grace period for
at least twelve months after the reporting period.
QUESTION 10-15 Multiple Choice (PAS 1)

1. In presenting a statement of financial position, an entity

a. Must make the current and noncurrent presentation
b. Must present assets and liabilities in order of liquidity
c. Must choose either the current and noncurrent or the liquidity presentation, meaning
free choice of presentation
d. Must make the current and noncurrent presentation, except when a presentation based
on liquidity provides information that is reliable and more relevant

2. Assets to be sold, consumed or realized as part of the normal operating cycle are
a. Current assets
b. Noncurrent assets
c. Classified as current or noncurrent in accordance with other criteria
d. Noncurrent investment

3. Liabilities that an entity expects to settle within the normal operating cycle are classified as
a. Noncurrent liabilities
b. Current or noncurrent liabilities in accordance with other criteria
c. Current liabilities
d. Equity

4. In which section of the statement of financial position should cash that is restricted for
the settlement of a liability due 18 months after the reporting period be presented?
a. Current assets
b. Equity
c. Noncurrent liabilities
d. Noncurrent assets

5. In which section of the statement of financial position should employment taxes that are due
for settlement in 15 months’ time be presented?
a. Current liabilities
b. Current assets
c. Noncurrent liabilities
d. Noncurrent assets

6. An entity has a loan due for repayment in six months’ time but the entity has the option to
refinance for repayment two years later. The entity plans to refinance this loan. In which
section of the financial position should this loan be presented?
a. Current liabilities
b. Current assets
c. Noncurrent liabilities
d. Noncurrent assets

7. Which of the following must be included on the face of statement of financial position?
a. Investment property
b. Number of shares authorized
c. Contingent asset
d. Share in an entity owned by that entity
 8. Which of the following is not required to be presented as minimum information on the face of the
statement of financial position?
a. Investment property
b. Investment accounted under the equity method
c. Biological asset
d. Contingent liability

9. Which of the following must be included as a line item in the statement of financial position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax asset

10. Which statement about the statement of financial position is not true?
a. Biological assets should be reported in the statement of financial position.
b. The number of shares authorized for issue should be reported in the statement of
financial position or the statement of changes in equity or in the notes.
c. Provisions should be recognized in the statement of financial position.
d. A revaluation surplus on a noncurrent asset in the current year should be recognized
in the income statement.

QUESTION 10-17 Multiple choice (AICPA Adapted)

1. In analyzing financial statements, which financial statement would a potential investor
primarily use to assess liquidity and financial flexibility?
a. Statement of financial position
b. Income statement
c. Statement of retained earnings
d. Statement of cash flow

2. Which is an essential characteristic of an asset?

a. The claims to the benefits are legally enforceable
b. An asset is tangible
c. An asset is obtained at a cost
d. An asset is a present economic resource

3. Conceptually, asset valuation accounts are

a. Assets
b. Neither assets nor liabilities
c. Part of shareholders’ equity
d. Liabilities

4. Working capital is
a. Asset which enable the entity to operate profitability.
b. Capital which has been reinvested in the business.
c. Unappropriated retained earnings
d. Current assets less current liabilities

5. The basis for classifying asset as current or noncurrent is the period of time normally
elapsed from the time the entity expends cash to the time it converts
a. Inventory back into cash or 12 months, whichever is shorter.
b. Receivables back into cash or 12 months, whichever is longer.
c. Tangible fixed assets back into cash or 12 months, whichever is longer.
d. Inventory back into cash or 12 months, whichever is longer.
 6. The operating cycle concept
a. Causes the distinction between current and noncurrent to depend on cash
realization within one year.
b. Permits some assets to be classified as current even through more than one year
removed from becoming cash.
c. Has become obsolete.
d. Affects the income statement only.

7. When classifying assets as current and noncurrent

a. Current must reflect realizable cash value.
b. Prepayments are included in other assets.
c. Current assets are determined by the seasonal nature.
d. Assets are classified as current if reasonably expected to be realized in cash or
consumed during the normal operating cycle.

8. The term net assets represents

a. Retained earnings
b. Current assets less current liabilities
c. Total contributed capital
d. Total assets less total liabilities

9. Treasury shares should be reported as

a. Current assets
b. Investment
c. Other asset
d. Reduction of shareholders’ equity

10. The term deficit refers to

a. An excess of current assets over current liabilities
b. An excess of current liabilities over current assets
c. A debit balance in retained earnings
d. A prior period error

QUESTION 10-18 Multiple choice (AICPA Adapted)

1. Which should be classified as current asset?
a. Trade accounts receivable normally collectible in 18 months
b. Cash for the redemption of preference shares
c. Cash surrender value
d. A deposit on machinery ordered within six months

2. Which should not be considered as a current asset?

a. Installment accounts receivables due over 18 months in accordance with normal trade
practice
b. Prepaid taxes
c. Financial asset held for trading
d. Cash surrender value

3. Current assets should never include

a. A receivable not collectible within one year
b. Current tax asset
c. Goodwill arising in a business combination
 d. Premium paid o a bond in investment

4. Equity investments held to finance construction of additional plant should be classified as

a. Current assets
b. Property, plant and equipment
c. Intangible assets
d. Noncurrent investment

5. Which of the following is not a noncurrent investment

a. Cash surrender value
b. Franchise
c. Land held for speculation
d. A sinking fund

QUESTION 10-19 Multiple choice (IAA)

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

2. The statement of financial position is useful for all of the following, except
a. To compute rate of return
b. To analyze cash inflows and outflows for the period
c. To evaluate capital structure
d. To assess future cash flow

3. What is one criticism not normally aimed at a statement of financial position?

a. Failure to reflect current value in value information
b. The extensive use of separate classifications
c. An extensive use of estimate
d. Failure to include items of financial value that cannot be recorded objectively

4. The statement of financial position

a. Omits many times that are of financial value
b. Makes very limited use of judgment and estimate
c. Uses fair value for most assets and liabilities
d. All of the choices are correct

5. Which is a limitation of a statement of financial position?

a. Many times that are of financial value are omitted
b. Judgment and estimate are used
c. Current fair value is not reported
d. All of these are a limitation of the statement of financial position

6. The amount of time that is expected to elapse until an asset is realized into cash id referred to as
a. Solvency
b. Financial flexibility
c. Liquidity
d. Exchangeability
7. Which is not an acceptable major asset classification?
a. Current assets
b. Investments
c. Property, plant, and equipment
d. Deferred charges

8. Which is not an element of working capital?

a. Accrued interest on notes receivable
b. Goodwill
c. Goods in process
d. Temporary investments

9. Accrued revenue would normally appear under

a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets

10. Which is classified as a noncurrent asset?

a. Plant expansion fund
b. Prepaid rent
c. Supplies
d. Goods in process
CHAPTER 14: Statement of Comprehensive Income
Statement of Changes in Equity
QUESTION 14-11 Multiple choice (PAS 1)

1. The term comprehensive income

a. Must be reported on the face of the income statement.
b. Includes all changes in equity except those resulting from investments by and distributions to
owners.
c. Is the net change in owners' equity for the period.
d. Is synonymous with the term net income.

2. It is the total of income less expenses, excluding the components of other comprehensive income.
a. Comprehensive income
b. Profit of loss
c. Accounting income
d. Economic income

3. This term comprises items of income and expense including reclassification adjustments that are
not recognized in profit or loss as required or permitted by PFRS.
a. Comprehensive income
b. Other comprehensive income
c. Profit or loss
d. Retained earnings

4. All of the following components of OCI should be reclassified to profit or loss, expect
a. Gain or loss from translating the financial statements of a foreign operation
b. Gain or loss on remeasuring debt investment at fair value through other comprehensive income
c. The affective portion of gain or loss on hedging instrument in a cash flow hedge
d. Gain or loss on remeasuring equity investment at fair value through other comprehensive income

5. Earnings
a. Include certain gains excluded from comprehensive income
b. Are the same as comprehensive income.
c. Exclude certain gains and losses included in comprehensive income
d. Include certain gains and losses excluded from comprehensive income

6. Which of the following components of OCI should be reclassified to retained earnings?

a. Revaluation surplus
b. Remeasurements of defined benefit plan
c. Gain or loss attributable to credit risk of a financial liability designated at fair value through
profit or loss
d. All of these components of OCI should be reclassified to retained earnings

7. The two-statement approach of presenting comprehensive income is preparing

a. A comparative statement of comprehensive income
b. A combined statement of comprehensive income and retained earnings
c. A combined income statement and a statement of changes in equity
d. A separate income statement and a separate statement of comprehensive income
8. Total comprehensive income for the period is presented
a. Showing separately the total amount attributable to owners of the parent and the
noncontrolling interest.
b. Showing separately an analysis of expenses, by function.
c. Showing separately an analysis of expenses by nature.
d. Showing separately profit or loss and the total of other comprehensive income.

QUESTION 14-12 Multiple choice (IFRS)

1. An entity shall present an analysis of expenses using a classification based on
a. The nature of expenses
b. The function of expenses
c. Either the nature of expenses or the function of expenses, whichever provides information that is
reliable and more relevant.
d. Either the nature of expenses or the function of expenses, whichever the entity would prefer to
present.

2. Separately line items in an analysis of expenses by nature include

a. Purchases, transport costs, employee benefits, depreciation, extraordinary items.
b. Purchases, distribution costs, administrative costs, employee benefits, depreciation, taxes.
c. Depreciation, purchases, transport costs, employee benefits, and advertising costs.
d. Cost of goods sold, administrative and distribution costs.

3. Separately line items in an analysis of expenses by function include

a. Purchase, transport costs, employee benefits, depreciation, extraordinary items
b. Purchases, distribution costs, administrative costs, employee benefits depreciation taxes
c. Depreciation, purchases, transport costs, employee benefits and advertising costs
d. Cost of goods sold, administrative and distribution costs

4. Under IFRS, the extraordinary item presentation

a. Has not changed from current rules
b. Has been eliminated.
c. Has been eliminated from the net of tax presentation.
d. Has been eliminated from EPS reporting.

QUESTION 14-13 Multiple choice (AICPA Adapted)

1. What is the purpose of reporting comprehensive income?
a. To report transactions with owners
b. To report a measure of overall entity performance
c. To replace net income with a better measure
d. To combine income from continuing operations with income from discontinued operations

2. Which of the following changes during a period is not a component of other comprehensive income?
a. Remeasurement of defined benefit plan
b. Treasury share, at cost
c. Foreign currency translation adjustment
d. Unrealized gain on equity instrument measured at fair value through other comprehensive income

3. Other comprehensive income includes all of the following, except

a. Unrealized gain on forward contract designated as cash flow hedge
b. Loss from translating the financial statement of a foreign operation
c. Actual gain on defined benefit obligation
 d. Dividend paid to shareholders

4. All of the following are a component of other comprehensive income, except

a. Foreign currency translation adjustment
b. Unrealized gain and loss on financial asset held for trading
c. Deferred loss on derivative financial instrument designated as cash flow hedge
d. Change in revaluation surplus

5. Which of the following is not an acceptable option of reporting other comprehensive income?
a. In a separate statement of comprehensive income
b. In a single statement of comprehensive income
c. In the notes
d. In a statement of changes in equity

6. When a complete set of financial statement is presented, comprehensive income and the
components should
a. Appear as a part of discontinued operations.
b. Be reported net of related income tax affect, in total and individually.
c. Appear in a supplemental schedule in the notes.
d. Be displayed in a statement that has the same prominence as other financial statements.

7. Why is reclassification adjustment used when reporting other comprehensive income?

a. To reclassify an item of comprehensive income as another item of comprehensive income
b. To avoid double counting of items
c. To make net income equal comprehensive income
d. To adjust the income tax effect

8. Unusual and infrequent gain and loss should be reported

a. As an extraordinary item net of tax below income from continuing operations.
b. As an extraordinary item net of tax within income from continuing operations.
c. As a separate line item within income from continuing operations.
d. As a separate line item below income from continuing operations.

QUESTION 14-14 Multiple choice (IAA)

1. The limitations of the income statement include all of the following, except
a. Items that cannot be measured reliably are not reported.
b. Only actual amounts are reported in net income.
c. Income measurement involves judgment.
d. Income numbers are affected by the accounting method.

2. Which of the following would represent the least likely use as an income statement?
a. Use by customer to determine an entity's ability to provide needed goods and services
b. Use by labor unions to examine earnings closely as a basis for salary discussions
c. Use by government to formulate tax policy
d. Use by investors interested in financial position

3. The income statement would help in which of the following?

a. Evaluate liquidity
b. Evaluate solvency
c. Estimate amount, timing and uncertainty of future cash flows
d. Estimate future financial flexibility
4. Investors and creditors use income statement information for each of the following, except
a. To evaluate the future performance of an entity
b. To provide a basis for predicting future performance.
c. To help assess the risk and uncertainty of achieving future cash flows.
d. To evaluate the past performance of an entity.

5. The income statement would help in which of the following?

a. Assess capital structure
b. Determine financial position
c. Estimate future cash flows
d. Estimate need for additional financing

QUESTION 14-15 Multiple choice (IAA)

1. The income statement reveals
a. Resources and equity at a point in time
b. Resources and equity a period of time
c. Net earnings at a point in time
d. Net earnings for a period of time.

2. Conceptually, net income is a measure of

a. Wealth
b. Change of wealth
c. Capital maintenance
d. Cash flow

3. Which term cannot be used to describe a line item in the statement of comprehensive income?
a. Revenue
b. Gross income
c. Income before tax
d. Extraordinary

4. Comprehensive income includes all, except

a. Revenue and gain
b. Expense and loss
c. Preference share dividend
d. Unrealized gain and loss on derivative contract

5. Comprehensive income includes all, except

a. Dividend revenue
b. Loss on disposal of asset
c. Investment by owners
d. Unrealized gain on trading investment

QUESTION 14-16 Multiple Choice (IAA)

1. Income determination is arrived at by
a. Measuring the change in owners' equity
b. Identifying the change in the purchasing power
c. Using a transaction approach
d. Applying the value added concept
2. Net income equals
a. Assets minus liabilities
b. Revenue minus cost of goods sold
c. Revenue minus expenses
d. Cash receipts minus cash payments

3. Comprehensive income always

a. Is the same as net income
b. Is greater than net income
c. Is less than net income
d. Could be greater than or less than net income

4. Gains are
a. Inflows from selling a product to a customer
b. Increases in equity resulting from transfer of assets to the entity from owners
c. Increases in equity from peripheral transactions
d. All of these can be considered gains

5. Change in equity from nonowner sources is

a. Comprehensive income
b. Revenue
c. Expense
d. Gain or loss

QUESTION 14-17 Multiple choice (IFRS)

1. In the statement of changes in equity, the effect of a change in accounting policy is presented
a. Separately for each component of equity.
b. In aggregate for tor total equity.
c. In total for the amount attributable to owners of the parent and the noncontrolling interest.
d. Separately for the total amount attributable to owners of parent and the noncontrolling interest

2. In the statement of changes in equity, the effect of the correction of a prior period error is presented
a. Separately for each component of equity.
b. In aggregate for total equity.
c. In total for the amount attributable to owners of the parent and the noncontrolling interest.
d. Separately for the total amount attributable to owners of the parent and the noncontrolling interest.

3. Which does not appear in the statement of retained earnings?

a. Net loss
b. Prior period error
c. Preference share dividend
d. Other comprehensive income

4. Which appears first in a statement of retained earnings?

a. Net income
b. Prior period error
c. Cash dividend
d. Share dividend

5. Corrections of errors in prior are included in

a. Retained earnings
b. Other comprehensive income
c. Net income
d. Share premium
CHAPTER 11 NOTES TO FINANCIAL STATEMENTS

QUESTION 11-8 Multiple choice (PAS 1)

1. Which is a purpose of the notes to financial statements?

a. To present information about the basis of preparation of financial statements and
accounting policies used.
b. To disclose the information required by PFRS but not presented elsewhere in the
financial statements.
c. To provide additional information not presented but necessary for a fair presentation.
d. All of these can be considered a purpose of the notes to financial statements.

2. Which is the first item in presenting the notes to financial statements?

a. Statement of compliance with PFRS
b. Other disclosures, such as contingent liabilities, unrecognized contractual commitments
and nonfinancial disclosures
c. Supporting information for items presented on the face of the financial statements
d. Summary of significant accounting policies

3. An entity is required to disclose all of the following nonfinancial information, except

a. A description of the nature of the entity's operations and the principal activities
b. The name of the parent entity and the ultimate parent
c. Domicile and legal form of the entity, the country of incorporation and address of the
registered office.
d. Names and addresses of directors and officers.

4. Notes to financial statements

a. Are relatively unimportant facts
b. Document the source of financial statement facts
c. Are an integral part of financial statements
d. Are irrelevant and immaterial facts

QUESTION 11-9 Multiple choice (IFRS)

1. The presentation of the notes to financial statements in systematic manner

a. Is voluntary
b. Is mandatory
c. Is mandatory, as far as practicable
d. Depends on the industry

2. The cross-reference between each line item in the financial statements and any related
information disclosed in the notes to financial statements
a. Is voluntary
b. Is mandatory
c. Depends on the industry
d. Is either voluntary or mandatory

3. Disclosure of information about key sources of estimation uncertainty

a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
 d. Depends on the industry

4. Disclosure of information about judgments

a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry

QUESTION 11-10 Multiple choice (AICPA Adapted)

1. What is the purpose of information presented in the notes to financial statements?

a. To provide disclosures required by generally accepted accounting principles
b. To correct improper presentation in the financial statements
c. To provide recognition of amounts not included in the financial statements
d. To present management response to auditor comments

2. The notes to financial statements should not be used to

a. Describe significant accounting policies.
b. Describe depreciation methods employed.
c. Describe the principles and methods peculiar to the industry in which the entity operates.
d. Correct an improper presentation in the financial statements.

3. An entity shall disclose in the summary of significant accounting policies

a. The measurement basis used in preparing the financial statements.
b. All the measurement bases irrespective of whether used by the entity.
c. The measurement basis used in preparing the financial statements and the accounting policies used.
d. All of the measurement bases and the accounting policy choices available to the entity irrespective
of whether used.

4. Which of the following information should be disclosed in the summary of significant

accounting policies?
a. Refinancing of debt subsequent to the reporting period
b. Guarantee of indebtedness of others
c. Criteria for determining which investments are treated as cash equivalents
d. Adequacy of pension plan assets relative to vested benefits

5. The summary of significant accounting policies should disclose

a. Proforma effect of retroactive application of an accounting change
b. Basis of profit recognition on fong term construction contracts
c. Adequacy of pension plan assets in relation to vested benefits
d. Future lease payments

6. The summary of significant accounting policies should disclose

a. The composition of property, plant and equipment and the depreciation method used
b. The composition of property, plant and equipment only
c. The depreciation method used only
d. Neither the composition of property, plant and equipment nor the depreciation method used

7. Which of the following should be included in the summary of significant accounting policies?
a. Property, plant and equipment recorded at cost with the depreciation computed principally
by straight line method
 b. A business component was sold during the current year
c. Breakdown of sales attributable to business components
d. Future ordinary share dividends are expected to approximate sixty percent of earnings

8. Which of the following is not a required disclosure of accounting policies?

a. The measurement basis used
b. Key management personnel involved in drafting the summary of significant accounting policies
c. Disclosures required by Standards
d. The nature of operations and the policies that the users of the financial statements would expect
to be disclosed

QUESTION 11-11 Multiple choice (IAA)

1. Notes to financial statements
a. Must be quantifiable.
b. Must qualify as an element.
c. Amplify items presented in the financial statements.
d. All of these are characteristics of notes to financial statements.

2. Which is incorrect regarding notes to financial statements?

a. IFRS requires specific note disclosures including disaggregation of inventories.
b. IFRS requires a maturity analysis for receivables.
c. IFRS requires that all notes should be clear, simple to understand and nontechnical in nature.
d. All of the choices are correct regarding notes to financial statements.

3. The disclosure of accounting policies is important to financial statement users in determining

a. Net income for the year.
b. Whether accounting policies are consistently applied from year to year.
c. The measurement of obsolete inventory.
d. Whether the working capital position is adequate.

4. The standard of adequate disclosure is best described by which of the following?

a. All information related to operating objectives must be disclosed in the financial statements.
b. Information about each account balance appearing in the financial statements is included in
the notes.
c. Enough information should be disclosed in order that a prospective investor can make a
wise decision.
d. Disclosure of any financial facts significant enough to influence the judgment of a primary user.

5. Application of the full disclosure principle

a. Is theoretically desirable but not practical because the cost of complete disclosure exceeds
the benefit.
b. Is violated when important financial information is buried in the notes to financial statements.
c. Is demonstrated by the use of supplementary information presenting the effects of changing prices.
d. Requires that the financial statements should be consistent and comparable.

6. An inventory accounting policy that should be disclosed in a summary of significant

accounting policies is
a. Composition of inventory into raw materials, work in process and finished goods
b. Major backlog of inventory orders
c. Method used for pricing inventory
d. All of these should be disclosed in the summary of significant accounting policies
7. Significant accounting policies may not be
a. Selected on the basis of judgment
b. Selected from existing acceptable alternatives
c. Unusual or innovative in application
d. Omitted from financial statement disclosure

8. Which of the following is a method of disclosing relevant financial information?

a. Supporting schedule
b. Parenthetical explanation
c. Cross reference
d. All of these are methods of disclosure