1.

A complete set of financial statements includes the following components, except

a. Statement of financial position, statement of comprehensive income, statement of
cash flows.
b. Statement of changes in equity.
c. Notes, comprising a summary of significant accounting policies and other
explanatory information.
d. Reports and statements such as environmental reports and value added statements.

2. What is the objective of financial statements?

a. To provide information about the financial position, financial performance and
changes in financial position of an entity that is useful to a wide range of
users in making economic decisions.
b. To prepare and present a statement of financial position, statement of
comprehensive income, statement of cash flows and statement of changes in
equity.
c. To prepare and present relevant, reliable, comparable and understandable
information to investors and creditors.
d. To prepare and present financial statements in accordance with all applicable
PFRS and Interpretations.

3. To meet the objective of providing information about financial position, financial

performance and cash flows of an entity, financial statements should provide
information about all of the following except,
a. Assets, liabilities and equity
b. Income and expenses, including gains and losses.
c. Contributions by and distribution to owners in their capacity as owners.
d. Nature of business activities.

4. Which of the following is true concerning the objective of financial statements?

I. Financial statements do not provide all the information that the users may
need to make economic decisions since these largely portray the financial
effects of past events and do not necessarily provide nonfinancial
information.
II. Financial statements show the results of the stewardship of management or
accountability of management for the resources entrusted to it.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

5. The primary responsibility for the preparation and presentation of the financial
statements of an entity is reposed in the
a. Management of the entity
b. Internal auditor
c. External auditor
d. Controller

6. Which of the following statements is incorrect concerning fair presentation of

financial statements?
a. Fair presentation requires the faithful representation of the effects of
transactions and other events.
b. Financial statements shall present fairly the financial position, financial
performance and cash flows of an entity.
c. In virtually all circumstances, a fair presentation is achieved by compliance
with applicable PFRS.
d. An entity whose financial statements comply with PFRS shall not make an explicit
and unreserved statement of such compliance in notes.

7. Which of the following cannot be considered fair presentation?

a. To select and apply accounting policies in accordance with applicable PFRS.
b. To present information in a manner that provides relevant, reliable, comparable
and understandable information.
 c. To provide additional disclosures when compliance with specific PFRS is
insufficient to understand the entity’s financial position and financial
performance.
d. To rectify inappropriate accounting policies either by disclosure of the
accounting policies used or by notes or explanatory information.

8. Which of the following entities is a going concern?

a. Management intends to liquidate the entity.
b. Management intends to cease the entity’s operations.
c. Management has no realistic alternative but to cease the entity’s operations.
d. None of the above.

9. The effects of transactions and other events on economic resources and claims are
depicted in the periods in which these effects occur even if the resulting cash
receipts and payments occur in a different period.
a. Accrual accounting
b. Cash accounting
c. Modified accrual accounting
d. Modified cash accounting

10. Which of the following statements is true in relation to materiality?

I. Materiality provides that the specific requirements of PFRS need not be
met if the resulting information is not material.
II. Materiality depends on the relative size and nature of the item judged in
the particular circumstances of the omission.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

11. Financial statements must be prepared at least

a. Annually
b. Quarterly
c. Semiannually
d. Every two years

12. It is the presentation and classification of financial statement items on a uniform

basis from one accounting period to the next.
a. Comparable information
b. Consistency of presentation
c. Aggregation
d. Accrual basis

13. A third statement of financial position as at the beginning of the earliest

comparative period is required
a. When an entity applies an accounting policy retrospectively.
b. When an entity makes a retrospective restatement of items in the financial
statements.
c. When an entity reclassifies items in the financial statements
d. In all of the above cases.

14. Technically, offsetting in financial statements is accomplished when

a. The allowance for doubtful accounts is deducted from accounts receivable
b. The accumulated depreciation is deducted from property, plant and equipment.
c. The total liabilities are deducted from total assets to arrive at net assets.
d. Gains or losses from disposal of noncurrent assets are reported by deducting from
the proceeds the carrying amount of the assets and the related disposal cost.

15. Items of dissimilar nature or function

a. Must always be presented separately
b. Must not be presented separately
c. Must be presented separately in financial statements if the items are material.
 d. Must be presented separately in financial statements even if these items are
immaterial.

16. Materiality depends on

a. The nature of the omission or misstatement.
b. The absolute size of the omission or misstatement.
c. The relative size and nature of the omission or misstatement judged in the
surrounding circumstances.
d. The judgment of management.

17. An entity must disclose comparative information for

a. The previous comparable period for all amounts reported.
b. The previous comparable period for all amounts reported and for all narrative and
descriptive information.
c. The previous comparable period for all amounts reported, and for all narrative
and descriptive information when it is relevant to an understanding of the
financial statements of the current period.
d. The previous two comparable periods for all amounts reported.

18. When the classification of items in the financial statements is changed, the entity
a. Must not reclassify the comparative amounts.
b. Can choose whether to reclassify the comparative amounts.
c. Must reclassify the comparative amounts, unless it is impracticable to do so.
d. Must reclassify the current year amounts only.

19. An entity shall present

a. The statement of cash flows more prominently than other statements.
b. The statement of financial position more prominently than the other statements.
c. The statement of comprehensive income more prominently that the other statements.
d. Each financial statement with equal prominence.

20. Which of the following information is not specifically a required disclosure in

relation to financial statements?
a. Name of the reporting entity or other means of identification and any change in
that information from the previous year.
b. Names of the shareholders of the entity.
c. Level of rounding used in presenting the financial statements
d. Whether the financial statements cover the individual or a group of entities.

21. 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

22. Which criticism is not normally aimed at a statement of financial position?

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

23. The statement of financial position

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

24. A long-term debt that is due to be settled within twelve months after the end of
the reporting period is classified as noncurrent when
I. An agreement to refinancing 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.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

25. 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 noncurrent when
I. The lender as agreed after the end of the reporting period and before the
financial statements are authorized for issue not to demand payments 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
a. Both I and II
b. Neither I nor II
c. I only
d. II only

26. Which is not a purpose of the notes to financial statements?

a. To present information about the basis of preparation Of the financial statements
and the specific accounting policies used
b. To disclose the information required by Philippine Financial Reporting Standards
that is not presented elsewhere in the financial statements.
c. To provide additional information which is not presented on the face of financial
statements but that is necessary for a fair presentation.
d. To provide information about the financial position, financial performance and
cash flows of an entity that is useful to a wide range of users in making
economic decisions.

27. 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 which the entity
operates
d. Correct an improper presentation in the financial statements

28. Indicate the proper order of presenting the notes to financial statements
I. Statement of compliance with PFRS
II. Other disclosures, such as contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures
III. Supporting information for items presented on the face of the financial
statements
IV. Summary of significant accounting policies.
a. I, II, III and IV
b. I, IV, III and II
c. I, III, IV and II
d. I, IV, II and III

29. 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

30. 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 specified in IFRS irrespective of whether these were
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 specified in IFRS irrespective of whether these were used.

31. 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

32. Which of the following information shall be disclosed in the summary of significant
account policies?
a. Refinancing of debt subsequent to the reporting period.
b. Guarantee or indebtedness of others
c. Criteria for determining which investments are classified as cash equivalents.
d. Adequacy of pension plan assets relative to vested benefits

33. The summary of significant accounting policies shall 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

34. Financial statements shall include disclosure of material transactions between

related parties except,
a. Nonmonetary exchange between affiliated entities
b. Sale of inventory by a subsidiary to the parent when consolidated financial
statements are prepared.
c. Expense allowance for executives which exceed normal business practice
d. An entity’s agreement to act as surety for a loan to the chief executive officer.

35. Which of the following transactions should be disclosed as related party

transaction in the entity’s separate financial statements for the current year?
a. Key management personnel compensation
b. Sales to affiliated entities
c. Key management personnel compensation and sales to affiliated entities
d. Neither key management personnel compensation no sales to affiliated entities.