CONCEPTUAL FRAMEWORK

• Which of the following represents a form of communication through financial reporting but not through financial statements?

  a. Statement of financial position

  b. President's letter

  c. Income statement

  d. Notes to financial statements

  b. President's letter
• The statement of financial position is useful for analyzing all of the following, except

  a. Liquidity

  b. Solvency

  c. Profitability

  d. Financial flexibility

  c. Profitability
• The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as

  a. Solvency

  b. Financial flexibility

  c. Liquidity

  d. Exchangeability

  c. Liquidity
• The statement of financial position provides a basis for all of the following, except

  a. Computing rate of return.

  b. Evaluating capital structure.

  c. Determining increase in cash due to operations.

  d. Assessing liquidity and financial flexibility.

  c. Determining increase in cash due to operations.
• 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 flows

  b. To analyze cash inflows and outflows for the period
• One criticism not normally aimed at a statement of financial position prepared using current accounting and reporting standards is

  a. Failure to reflect current value information

  b. The extensive use of separate classifications

  c. An extensive use of estimate

  d. Failure to include items of financial value

  b. The extensive use of separate classifications
• The statement of financial position

  a. Omits many items 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

  a. Omits many items that are of financial value
• Which is a limitation of the statement of financial position?

  a. Many items that are of financial value are omitted.

  b. Judgment and estimate are used.

  c. Current fair value is not reported.

  d. All of these

  d. All of these
• When there is much variability in the duration of the normal operating cycle, the operating cycle is measured at

  a. The mean value

  b. The median value

  c. Twelve months

  d. Three years

  c. Twelve months
• The operating cycle of an entity

  a. Is the time between the acquisition of materials entering into a process and their realization in cash or cash equivalent.

  b. Causes the distinction between current and non current items to depend on whether they will affect cash within one year.

  c. Is the period of time normally elapsed from the time the entity expends cash to the time it converts trade receivables back into cash.

  
  

  a. Is the time between the acquisition of materials entering into a process and their realization in cash or cash equivalent.
• An entity shall classify an asset as current when (choose the incorrect one)

  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 expects to realize the asset within twelve months after the reporting period.

  c. The asset is cash or a cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period.

  c. The asset is cash or a cash equivalent that is restricted to settle a liability for more than twelve months after the reporting period.
• An entity shall classify a liability as current when (choose the incorrect one)

  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 entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

  c. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
• Which obligations are classified as current liabilities even if they are due to be settled after more than twelve months from the end of the 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

  a. Trade payables and accruals for employee and other operating cost
• A long-term debt that is due to be settled within twelve months after the end of the reporting period is classified as non current when

  I. An agreement to refinance or reschedule payment on a long-term basis is completed after the end of the reporting period and before the financial statements are authorized for issue.

  II. The entity has the discretion to refinance or roll over the obligation for at least twelve months after the end of the reporting period under an existing loan facility.

  II only
• When an entity breaches a covenant under a long-term loan agreement on or before the end of the reporting period with the effect that the liability becomes payable on demand, the liability is classified as non current when

  I. The lender has agreed after the end of the reporting period and before the financial statements are authorized for issue not to demand payment as a consequence of the breach.

  II. The lender has agreed on or before the end of the reporting period to provide a grace period ending at least twelve months after that date.

  II only
• In the Philippines, the common practice is to present in the statement of financial position

  a. Current assets before non current assets, current liabilities before non current liabilities and equity after liabilities.

  b. Non current assets before current assets, non current liabilities before current liabilities and equity after liabilities.

  c. Current assets before non current assets, non current liabilities before current liabilities and equity after liabilities.

  
  

  a. Current assets before non current assets, current liabilities before non current liabilities and equity after liabilities
• Current and noncurrent presentation of assets and liabilities provides useful information when the entity

  a. Supplies goods or services within a clearly identifiable operating cycle

  b. Is a financial institution

  c. Is a public utility

  d. Is a nonprofit organization

  a. Supplies goods or services within a clearly identifiable operating cycle
• 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. Government-owned entity

  d. Service provider

  a. Financial institution
• In presenting a statement of financial position, an entity

  
  

  
  

  Must make the current and noncurrent presentation, except when a presentation based on liquidity provides information that is reliable and more relevant.

• Assets to be sold, consumed or realized as part of the entity's normal operating cycle are

  a. Current assets.

  b. Noncurrent assets.

  c. Classified as current or noncurrent in accordance with other criteria.

  d. Noncurrent investments

  a. Current assets.
• Liabilities that an entity expects to settle in its normal operating cycle are

  a. Classified as noncurrent liabilities

  b. Classified as current or noncurrent liabilities in accordance with other criteria

  c. Classified as current liabilities

  d. Classified as equit

  c. Classified as current liabilities
• An entity must present each of the line items required by PFRS

   

  a. Even if the amount recognized for the line item is nil

  b. Unless the amount recognized for the line item is nil

  c. Unless the line item is either immaterial or irrelevant

  d. Under all circumstances

  c. Unless the line item is either immaterial or irrelevant
• An entity must present additional line items in a statement of financial position when

  a. Such presentation is relevant to an understanding of the entity's financial position.

  b. Such presentation is a generally accepted practice in the sector in which the entity operates.

  c. Such presentation is required by the tax authorities of the jurisdiction in which the entity operates.

  d. Such presentation is relevant to an understanding of the entity's financial position and financial performance.

  A. Such presentation is relevant to an understanding of the entity's financial position.
• 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

  d. Noncurrent assets
• 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

  a. Current liabilities
• 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 statement of financial position should this loan be presented?

  a. Current liabilities

  b. Current assets

  c. Noncurrent liabilities

  d. Noncurrent assets

  c. Noncurrent liabilities
• A dividend declared by the entity before year-end and payable to the shareholders three months after the end of reporting period is classified as

  a. A noncurrent liability

  b. A current liability

  c. Equity

  d. A current asset

  b. A current liability
• Which of the following must be included on the face of an entity's statement of financial position?

  a. Investment property

  b. Number of shares authorized

  c. Contingent liability

  d. Shares in an entity owned by that entity

  a. Investment property
• 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

  d. Contingent liability
• Which of the following must be included in an entity's 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

  d. Deferred tax
• Which of the following statements is true?

  I. Biological assets should be shown in the statement of financial position.

  II. The number of shares authorized for issue should be shown in the statement of financial position or the statement of changes in equity or in the notes.

  Both I and II
• Which of the following statements is true?

  I. Provisions should be recognized in the statement of financial position.

  II. A revaluation surplus on noncurrent assets in the current year should be recognized in the statement of changes in equity.

   I only
• Which of the following statements is true?

  I. Dividends paid should be recognized in the statement of comprehensive income.

  II. A loss on disposal of assets should be recognized in the statement of changes in equity.

  Neither I nor II
• In analyzing an entity's financial statements, which financial statement would a potential investor primarily use to assess the entity's liquidity and financial flexibility?

  a. Statement of financial position

  b. Income statement

  c. Statement of retained earnings

  d. Statement of cash flows

  a. Statement of financial position
• Which of the following is an essential characteristic of an asset?

  a. The claims to an asset's benefits are legally enforceable

  b. An asset is tangible

  c. An asset is obtained at a cost

  d. An asset provides future benefits

  d. An asset provides future benefits
• Conceptually, asset valuation accounts are

  a. Assets

  b. Neither assets nor liabilities

  c.Part of shareholders' equity

  d. Liabilities

  b. Neither assets nor liabilities
• Working capital is

  a. The group assets which enables the entity to operate profitably.

  b. Capital which has been reinvested in the business.

  c. Unappropriated retained earnings.

  d. Current assets less current liabilities.

  d. Current assets less current liabilities.
• An example of an item which is not an element of working capital is

  a. Accrued interest on note receivable

  b. Goodwill

  c. Work in process

  d. Temporary investment

  b. Goodwill
• As generally used, the term "net assets" represents

  a. Retained earnings of an entity

  b. Current assets less current liabilities

  c. Total paid in capital of an entity

  d. Total assets less total liabilities

  d. Total assets less total liabilities
• When classifying assets as current and noncurrent for reporting purposes

  Assets are classified as current if they are reasonably expected to be realized in cash or consumed during the normal operating cycle.