CHAPTER 1: FINANCIAL STATEMENT

Question 1

1. A complete set of financial statements includes all, except
   a. Statement of financial position
   b. Statement of changes in equity
   c. Notes to financial statements
   d. Environmental reports

Answer 1

d. Environmental reports

Question 2

2. What is the objective of financial statements?
   a. To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users
   b. To prepare a statement of financial position and statement of comprehensive income
   c. To present relevant, reliable, comparable and understandable information
   d. To prepare financial statements in accordance with all applicable standards

Answer 2

a. To provide information about the financial position, financial performance and changes in financial position useful to a wide range of users

Question 3

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

Answer 3

a. Management of the entity

Question 4

4. The major financial statements include all, except
   a. Statement of financial position
   b. Income statement
   c. Statement of cash flows
   d. Statement of retained earnings

Answer 4

d. Statement of retained earnings

Question 5

5. 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

Answer 5

b. Statement of changes in financial position

Question 6

1. When an entity changed the reporting period longer or shorter than one year, an 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 amounts presented in the financial statements are not entirely comparable.
   d. The fact that similar entities in the geographical area in which the entity operates have done so.

Answer 6

d. The fact that similar entities in the geographical area in which the entity operates have done so.

Question 7

2. Which is not a component of financial statements?
   a. Statement of financial position
   b. Statement of changes in equity
   c. Report of board of directors
   d. Notes to financial statements

Answer 7

c. Report of board of directors

Question 8

3. Which is included in a complete set of financial statements!
   a. A statement of compliance with local legislation
   b. A statement of changes in equity
   c. Statements of financial position for the last five years
   d. Value added statement

Answer 8

b. A statement of changes in equity

Question 9

4. Which is included within the financial statements?
   a. A statement of retained earnings
   b. Accounting policies
   c. An auditor’s report
   d. Board of directors’ report

Answer 9

b. Accounting policies

Question 10

5. An entity shall clearly identify each financial statement and display all of the following, except
   a. Name of the reporting entity.
   b. Names of major shareholders of the entity.
   c. The presentation currency.
   d. Whether the financial statements cover the individual entity or a group of entities.

Answer 10

b. Names of major shareholders of the entity.

Question 11

1. Which statement 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.

Answer 11

d. An entity whose financial statements comply with PFRS shall not make an explicit and unreserved statement of such compliance in notes.

Question 12

2. Which of the following cannot be considered fair presentation of financial statements?

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

Answer 12

d. To rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory information.

Question 13

3. Which statement indicates a going concern?

a. Management intends to liquidate the entity.
b. Management intends to cease the operations of the entity.
c. Management has no realistic alternative but to cease the operations of the entity.
d. None of these would indicate going concern

Answer 13

d. None of these would indicate going concern

Question 14

4. An entity is permitted to depart from a particular standard if all conditions are satisfied, except
   a. In extremely rare circumstances.
   b. When management concludes that compliance with the standard would be misleading.
   c. When the departure from the standard is necessary to achieve fair presentation.
   d. When the Conceptual Framework for Financial Reporting prohibits such a departure.

Answer 14

d. When the Conceptual Framework for Financial Reporting prohibits such a departure.

Question 15

5. The effects of transactions and other events on economic resources and claims are depicted in the periods in which those 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

Answer 15

a. Accrual accounting

Question 16

6. Financial statements must be prepared at least
   a. Annually
   b. Quarterly
   c. Semiannually
   d. Every two years

Answer 16

a. Annually

Question 16

8. The presentation and classification of items in the financial statements shall be retained from one accounting period to the next.
   a. Consistency of presentation
   b. Materiality
   c. Aggregation
   d. Comparability

Answer 16

a. Consistency of presentation

Question 16

7. 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.
   d. Gain or loss from disposal of noncurrent asset is reported by deducting from the proceeds the carrying amount of the asset and the related disposal cost.

Answer 16

d. Gain or loss from disposal of noncurrent asset is reported by deducting from the proceeds the carrying amount of the asset and the related disposal cost.

Question 17

9. A third statement of financial position as at beginning of the earliest comparative period presented 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. Under all of these circumstances

Answer 17

d. Under all of these circumstances

Question 18

10. Which statement in relation to financial statements in incorrect?
    a. General purpose financial statements do not and cannot provide all of the information that primary users need.
    b. General purpose financial statements are designed to show the value of the reporting entity.
    c, General purpose financial statements are intended to provide common information to users.
    d. Financial statements are largely based on estimate and judgment rather than exact depiction.

Answer 18

b. General purpose financial statements are designed to show the value of the reporting entity.

Question 18

1. Items of dissimilar nature or function
   a. Must always be presented separately.
   b. Must not be presented separately.
   c. Must be presented separately if material.
   d. Must be presented separately even if immaterial.

Answer 18

c. Must be presented separately if material.

Question 18

2. 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.
   d. The judgment of management.

Answer 18

c. The relative size and nature of the omission.

Question 19

3. An entity must disclose** comparative information** for
   a. The previous comparable period for all amounts.
   b. The previous comparable period for all amounts and for all narrative and descriptive information.
   c. The previous comparable period for all amounts and for all narrative and descriptive information relevant to an understanding of the financial statements.
   d. The previous two comparable periods for all amounts.

Answer 19

c. The previous comparable period for all amounts and for all narrative and descriptive information relevant to an understanding of the financial statements.

Question 20

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

Answer 20

c. Must reclassify the comparative amounts unless it is impracticable to do so.

Question 21

5. An entity shall present a. The statement of cash flows more prominently. b. The statement of financial position more prominently. c. The income statement more prominently. d. Each financial statement with equal prominence.

Answer 21

d. Each financial statement with equal prominence.

Question 22

1. Which would likely prepare the most accurate financial forecast for an entity based on empirical evidence? a. Investors using statistical models b. Corporate management c. Financial analysts d. Independent certified public accountants

Answer 22

b. Corporate management

Question 23

2. What is the most useful information in predicting future cash flows? a. Information about current cash flows b. Current earnings based on accrual accounting c. Information regarding the accounting policies used d. Information regarding financial position

Answer 23

b. Current earnings **based on accrual accounting**

Question 24

3. The accrual basis of accounting is most useful for a. Determining the amount of income tax liability. b. Predicting short-term financial performance. c. Predicting long-term financial performance. d. Determining the amount of dividends to shareholders.

Answer 24

c. Predicting long-term financial performance.

Question 25

4. **Accrual accounting** is used because a. Cash flows are considered less important. b. It provides a better indication of ability to generate cash flows than cash basis. c. It recognizes revenue when cash is received. d. It is one of the implicit assumptions.

Answer 25

b. It provides a **better indication** of ability to generate cash flows than cash basis.

Question 25

5. The financial statements prepared **under GAAP** a. Do not articulate with one another. b. Reflect a single measurement which is historical cost. c. Are not highly precise because estimate and judgment must be made. d. Contain a limited number of future projections.

Answer 25

c. Are **not highly precise** because estimate and judgment must be made.