Presentation of Financial Statements

Statement of Financial Position

Page 1

Problem 8-5 (IAS 1)

1. The major financial statements include all, except

a. Statement of financial position

b. Statement of changes in financial position

c. Statement of comprehensive income

d. Statement of changes in equity

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 present a statement of financial position and

a statement of comprehensive income.

c. To present relevant, reliable, comparable and

understandable information to investors.

d. To present financial statements in accordance

with all applicable standards.

3. To meet the objective of financial reporting,

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 distributions to owners in

their capacity as owners

d. Nature of business activities

4. Financial statements must be prepared at least

a. Annually

b. Quarterly

c. Semiannually

d. Every two years

5. When entity changed the end of reporting period

longer or shorter than one year, the entity shall

disclose all, except

a. Period covered by the financial statements

b. The reason for using a longer or shorter period

c. The fact that the amounts presented are not

entirely comparable

d. The fact that similar entities have done so

Problem 8-6 (IAS 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 a 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 asset 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 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 form 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 or services within a clearly

identifiable operating cycle

b. Is a financial institution

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 assets before noncurrent assets,

current liabilities before noncurrent liabilities

and equity after liabilities

b. Noncurrent assets before current assets,

noncurrent liabilities before current liabilities

and equity after liabilities.

c. Current assets before noncurrent assets,

noncurrent liabilities before current liabilities

and equity after liabilities.

d. Noncurrent assets before current assets,

current liabilities before noncurrent liabilities

and equity after liabilities.

9. A financial liability due within twelve months after

the reporting period shall be classified 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 the reporting period.

d. When it is refinanced on a long-term basis on or

before the end of the reporting period.

10. When an entity breaches 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

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.

Problem 8-7 (IFRS)

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 investments

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

statement of 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 the statement of financial position?

a. Investment property

b. Number of shares authorized

c. Contingent asset

d. Shares 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 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 liability

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.

Problem 8-8 (AICPA)

1. In analyzing an entity's 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 flows

2. Which 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.

3. The essential characteristics of an asset include all

of the following, except

a. The asset is the result of past event.

b. The asset provides future economic benefit.

c. The cost of the asset can be measured reliably.

d. The asset is tangible.

4. Conceptually, asset valuation accounts are

a. Assets

b. Neither assets nor liabilities

c. Part of shareholders' equity

d. Liabilities

5. Working capital is

a. The group of assets needed by the entity to

operate profitably.

b. Capital which has been reinvested in business.

c. Unappropriated retained earnings.

d. Current assets less current liabilities.

6. As generally used, the term net assets represents

a. Retained earnings

b. Current assets less current liabilities

c. Total contributed capital

d. Total assets less total liabilities

7. Treasury shares should be reported as

a. Current asset

b. Investment

c. Other asset

d. Reduction of shareholders' equity

8. 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.

9. When classifying assets as current and noncurrent

a. The amounts at which current assets are carried

and reported 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.

10. The basis for classifying assets as current or

noncurrent is the period of time normally required

to convert cash invested in

a. Inventory back into cash or 12 months,

whichever is shorter.

b. Receivables back into cash or 12 months,

whichever is longer.

c. Property, plant and equipment back into cash

or 12 months, whichever is longer.

d. Inventory back into cash or 12 months,

whichever is longer.

Problem 8-9 (AICPA)

1. Which should be classified as current asset?

a. Trade installment accounts receivable normally

collectible in 18 months

b. Cash designated for the redemption of callable

preference shares

c. Cash surrender value of a life insurance policy

d. A deposit on machinery ordered, delivery of

which will be made within six months.

2. Which should not be considered as current asset?

a. Installment notes receivable due over 18

months in accordance with normal trade

practice.

b. Prepaid taxes

c. Trading securities

d. Cash surrender value of life insurance policy

3. Current assets should never include

a. A receivable not collectible within one year

b. Current tax asset

c. Goodwill arising in business combination

d. Premium paid on a bond 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 investments

5. Which of the following is not a noncurrent

investment?

a. Cash surrender value of life insurance policy

b. Franchise

c. Land held for speculation

d. A sinking fund

Problem 8-10 (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 flows

3. What is one criticism 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 that

cannot be recorded objectively

4. 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

5. Which is a limitation of a statement of financial

position?

a. Many items that are of financial value are

omitted.

b. Judgement and estimates 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 or otherwise converted into cash

is referred to as

a. Solvency

b. Financial flexibility

c. Liquidity

d. Exchangeability

7. Which of the following is not an acceptable major

asset classification?

a. Current assets

b. Investments

c. Property, plant and equipment

d. Deferred charges

8. What is an example of an item 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 in the

statement of financial position under

a. Noncurrent assets

b. Current liabilities

c. Noncurrent liabilities

d. Current assets

10. Which of the following is usually classified as a

noncurrent asset?

a. Plant expansion fund

b. Prepaid rent

c. Supplies

d. Goods in process

Problem 8-11 (IAA)

1. Notes to financial statements

a. Are relatively unimportant facts that do not

belong in the basic financial statements.

b. Document the source of financial statement

facts.

c. Are an integral part of an entity's financial

statements.

d. Are irrelevant facts that are immaterial in

amount.

2. Which of the following best demonstrates the full

disclosure principle?

a. The separate income statement

b. The auditor's report

c. The tax return

d. The notes to financial statements

3. To meet the needs of full disclosure, entities use

supplemental information including

a. Parenthetical comments or modifying

comments placed on the face of the financial

statements.

b. Disclosure notes conveying additional insights

about operations, accounting principles,

contractual agreements and pending litigation.

c. Supplemental financial statements that report

more detailed information.

d. All of these are correct.

4. The recognition and measurement concepts

recognize which of the following as a principle

rather than an assumption?

a. Time period

b. Monetary unit

c. Going concern

d. Full disclosure

5. The full disclosure principle requires a balance

between

a. Comparability and consistency

b. Relevance and cost effectiveness

c. Reliability and neutrality

d. Timeliness and predictive value