CFAS - Chapter 4: Multiple Choice

• Financial Statements


  provide information about economic resources of the reporting entity, claims against the entity and changes in the economic resources and claims
• Consolidated Financial Statements


  financial statements prepared when the reporting entity comprises both the parent and its subsidiaries
• Unconsolidated Financial Statements


  financial statements prepared when the reporting entity is the parent alone
• Combined Financial Statements


  financial statements prepared when the reporting entity comprises two or more entities that are not linked by a parent and subsidiary relationship
• Reporting Entity


  an entity required or chooses to prepare financial statements
• Reporting Entity


  can be a single entity or a portion of an entity, or can comprise more than one entity
• Reporting Entity


  not necessarily a legal entity
• Reporting Period


  the period when financial statements are prepared for general purpose financial reporting
• Accounting Assumptions


  basic notions or fundamental premises on which the accounting process is based
• Accounting Assumptions


  postulates
• Accounting Assumptions


  serve as the foundation or bedrock of accounting in order to avoid misunderstanding but rather enhance the understanding and usefulness of the financial statements
• Going Concern


  accounting entity is viewed as continuing in operation indefinitely
• Accounting Entity


  entity is separate from the owners, managers, and employees who constitute the entity
• Time Period


  the indefinite life of an entity is subdivided into accounting periods which are usually of equal length
• natural business year


  A 12-month period that ends on any month when the business is at the lowest or experiencing slack season
• calendar year


  a 12-month period that ends on December 31
• Stable of the peso


  purchasing power of the peso is stable or constant and that its instability is insignificant and therefore may be ignored
• Quantifiability Aspect


  assets, liabilities, equity, income and expenses should be stated in terms of a unit if measure which is the peso in the Philippines
• Stable peso postulate


  amplification of the going concern assumption so much so that adjustments are unnecessary to reflect any changes in purchasing power
• Types of financial statements:

  • consolidated financial statements
  • unconsolidated financial statements
  • combined financial statements
• Interim financial statements

  • not required but optional
• Interim Reporting

  Financial statements may be prepared on an interim basis for example three months,six months or nine months. Less than 12 months
• Interim Financial Statements

  1. Assets,liabilities and equity at the end of the reporting period
  2. Insome and expenses during the reporting period
• To help users of financial statements to identify and assess change in trends, financial statements also provide comparative information for at least one preceding reporting period.
• Going Concern

  The going concern postulate is the very foundation of the cost principle.
• What is the general objective of financial statements?a. To provide information about economic resources of an entity, claims against the entity and changes in the economic resources and claims.b. To assess future cash flows to the entityc. To assess management stewardship of economic resourcesd. To satisfy the information needs of users of financial statements

  a
• A reporting entity isa. Necessarily a legal entityb. Necessarily an economic entityc. An entity that is required or chooses to prepare financial statementsd. A regulatory government authority

  c
• A reporting entitya. Can be a single entityb. Can be a portion of a single entityc. Can comprise more than one entityd. All of these can be considered a reporting entity

  d
• If the reporting entity comprises both the parent and its subsidiaries, the financial statements are referred to asa. Consolidated financial statementsb. Unconsolidated financial statementsc. Combined financial statementsd. Separate financial statements

  a
• Combined financial statements provide financial information abouta. The parent and its subsidiaries b. The parentc. The subsidiariesd. Two or more entities without a parent- subsidiary relationship

  d
• Which best describes the term going concern?a. When current liabilities exceed current assetsb. The ability of the entity to continue in operation for the foreseeable futurec. The potential to contribute to the flow of cash and cash equivalent to the entityd. The expenses exceed income

  b
• Which is an implication of the going concern assumption?a. The historical cost principle is credibleb. Depreciation and amortization polices are justifiable and appropriate c. The current and non current classification of assets and liabilities is justifiable and significant d. All of these are an implication of going conern

  d
• The relatively stable economic, political and social environment supportsa. Conservatism b. Materialityc. Timelinessd. Going concern

  d
• Which of the following is not a basic assumption underlying financial accounting?a. Economic entity assumptionb. Going concern assumptionc. Periodicity assumption d. Historical cost assumption

  d
• Which basic assumption may not be followed when an entity in bankruptcy reports financial results?a. Economic entity assumptionb. Going concern assumptionc. Periodicity assumptiond. Monetary unit assumption

  b
• The economic entity assumptiona. Is inapplicable to unincorporated businessesb. Recognize the legal aspects of business organizationc. Requires periodic income measurementd. Is applicable to all forms of business organization

  d
• What is being violated if an entity provides financial reports in connection with a new product introduction?a. Economic entityb. Periodicityc. Monetary unitd. Continuity

  a
• Which underlying assumption serves as the basis for preparing financial statements at regular artificial points in time?a. Accounting entityb. Going concernc. Accounting periodd. Stable monetary unit

  c
• Which basic accounting assumption us threatened by the existence of severe inflation in the economy?a. Monetary unit assumptionb. Periodicity assumption c. Going concern assumption d. Economic entity assumption

  a
• Inflation is ignored in accounting due toa. Economic entity assumptionb. Going concern assumption c. Monetary unit assumptiond. Time period assumption

  c