Financial Statement Presentation

Question 1

The statement of financial position of a reporting entity presents a structured summary of the

a. Assets, liabilities and equity at the reporting date
b. Cash receipts and payments of cash during the period
c. Profits and losses not reported in income of the period
d. Revenue and expenses arising during the reporting period

Answer 1

a. Assets, liabilities and equity at the reporting date

Question 2

Under PAS 1, assets in the statement of financial position are broadly classified into

a. Current and non current
b. Tangible and intangible
c. Depreciable and non-depreciable
d. Monetary and non-monetary

Answer 2

a. Current and non current

Question 3

Under PAS 1, which of the following does not refer to a current asset?

a. It is held primarily for the purpose of being traded
b. It is a cash or cash equivalent restricted for more than 12 months from cut off date
c. It is expected to be realized within 12 months after the cut off date
d. It is expected to be realized, sold or consumed within the entity’s normal operating

Answer 3

b. It is a cash or cash equivalent restricted for more than 12 months from cut off date

Question 4

Offsetting of assets and liabilities is

a. Allowed in all cases
b. Not allowed in all cases
c. Allowed unless not permitted by PFRS
d. Not allowed unless permitted by PFRS

Answer 4

d. Not allowed unless permitted by PFRS

Question 5

Which of the following is not an acceptable presentation of the statement of financial

a. Assets presented in the order of liquidity
b. Non-controlling interests presented within equity
c. Provisions presented as part of the liability section
d. Deferred tax liabilities presented as part of current liabilities

Answer 5

d. Deferred tax liabilities presented as part of current liabilities

Question 6

Which one of the following statements best describes the “going concern” assumption?

a. The expenses of an entity exceed its income
b. When current liabilities of an entity exceed current assets
c. The ability of the entity to continue in operation for the foreseeable future
d. The potential to contribute to the flow of cash and cash equivalents to the entity

Answer 6

c. The ability of the entity to continue in operation for the foreseeable future

Question 7

Which of the following is not a feature of financial information’s comparability characteristic?

a. Comparability is not uniformity
b. A comparison requires at least two items
c. Consistency, although related to comparability, is not the same
d. Consistency is the goal, comparability help to achieve the goal

Answer 7

d. Consistency is the goal, comparability help to achieve the goal

Question 8

Consistency in financial reporting requires that

a. Gains and losses should not appear in the statement of financial performance
b. Effect of changes in accounting treatment to be properly disclosed
c. Accounting procedures be adopted that give a consistent rate of return
d. Expenses be reported as change against the period in which they are incurred

Answer 8

d. Expenses be reported as change against the period in which they are incurred

Question 9

14. COVID Company, a parent company has reported the following current account in its financial
    records as of December 31, 2019:

Cash and cash equivalents P 3,000,000
Loans and receivables 20,000,000
Merchandise inventory 2,000,000
Prepaid expense 500,000

Included in the loans and receivables is a P5,000,000 loan to VIRUS Company, a subsidiary.
The loan is repayable on demand but the demand feature is primarily a form of protection or a tax-
driven feature of the loan and it is the intention of both parties that the loan will remain outstanding
for foreseeable future.

What is the correct amount of current asset should COVID Company report in its December
31, 2019 financial position?

a. P 20,500,000 c. P 25,000,000
b. P 23,500,000 d. P 25,500,000

Answer 9

ANSWER: A. P20,500,000. The receivable from VIRUS Company will be classified as long-term since it is
the intention of both parties to collect or pay the loan on the foreseeable future. Since this is a
transaction between related parties, collection can be extended beyond 12 months.

Question 10

Accounts payable, net of P121,000 debit balance, P1,089,000Ǣ 
customer’s account with credit	
balance,  P120,000;  
advances  to  employees,  P45,000;  
unearned  commission  income,	
P288,000; 
provision for warranties, P258,000; 
provision for uncollectible accounts, P20,000;	
bonds payable, P5,000,000; 
discount on bonds payable, P 250,000; 
deferred gain, P100,00 and	
Fair value adjustment on equity investment (credit balance), P60,000.	

What total amount of liabilities should be reported in the company’s statement of financial
position?
a. P 6,626,000 c. P 6,746,000
b. P 6,726,000 d. P 6,786,000

Answer 10

ANSWER: (B) P6,726,000. COMPUTATION: Accounts payable (1,089,000 + 121,000) = 1,210,000;
Customers Account = P 120,000; Unearned commission = P 288,000; Provision for warranties =
P258,000; Bonds Payable, net (5,000,000 - 250,000) = P4,750,000; Deferred gain = P100,000, TOTAL
= P 6,726,000.

Question 11

17. STAY is a full-service technology company. They provide equipment, and installation services
    as well as training. Customers can purchase any product or service separately or as a bundled
    package. HOME Corporation purchased computer equipment, installation and training for a
    total cost of P120,000 on March 15, 2018. Estimated standalone fair values of the equipment,
    installation and training are P75,000, P50,000 and P25,000 respectively. The journal entry to
    record the transaction on March 15, 2018 will include a
    a. Credit to Sales Revenue for P120,000
    b. Debit to Unearned Service Revenue of P25,000
    c. Credit to Unearned Service Revenue of P20,000
    d. Credit to Service Revenue of P50,000

Answer 11

a. Credit to Sales Revenue for P120,000

Question 12

12. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
    PFRS. A fair presentation requires an entity (choose the incorrect one)

a. To select and apply accounting policies in accordance with standards.
b. To present information including accounting policies, in a manner that provides
relevant and reliable information.
c. To provide additional disclosures when specific requirements of PFRS is insufficient to
enable users to understand the impact of particular transactions on the entity’s
financial position and financial performance.
d. To disclose inappropriate accounting policies used either by notes or explanatory
material without rectification.

Answer 12

d. To disclose inappropriate accounting policies used either by notes or explanatory
material without rectification.

Question 13

13. Which is incorrect concerning the concept of materiality and aggregation?

a. Materiality depends on the size and nature of the item judged in the particular
circumstances of its omission or misstatements.
b. Materiality provides that the specific disclosure requirements of a PFRS must be met
even if the resulting information is not material.
c. Items of a dissimilar nature or function shall be presented separately unless they are
immaterial.
d. Information is material if its nondisclosure could influence the economic decisions of
users taken on the basis of the financial statements.

Answer 13

b. Materiality provides that the specific disclosure requirements of a PFRS must be met
even if the resulting information is not material.

Question 14

16. Presented below are account balances and related information on December 31, 2019 or
    COVID Company:

Cash on hand and in bank, P1,200,000; Accounts receivable, P950,000; Notes Receivable,
P1,000,000; Merchandise Inventory, P1,500,000; Prepaid Expenses, P400,000.

The following are relevant information related to the above accounts:
1. Included in the cash in bank account is a time deposit of P200,000 with a term of six
months.
2. Provisions of P500,000 is to be made on the accounts receivable for future returns and
discounts which were considered probable
3. The accounts receivable includes a P500,000 assigned receivable, and P300,000 factored
to a finance company for which the company has transferred significant amount of risks
and rewards of ownership.
4. The note receivable does not include a P200,000 discounted to a finance company for
which the company is contingently liable in case the maker fails to settle on March 31,
2020 (maturity date)
5. The merchandise inventory includes a P100,000 from a consignor
6. The prepaid expense is the total cost of two year insurance expiring on June 30, 2021.

What amount of current asset should be reported in the December 31, 2019 statement of financial
position?

a. P 4,500,000 c. P 4,700,000
b. P 4,600,000 d. P 4,900,000

Answer 14

b. P 4,600,000

Question 15

17. STAY is a full-service technology company. They provide equipment, and installation services
    as well as training. Customers can purchase any product or service separately or as a bundled
    package. HOME Corporation purchased computer equipment, installation and training for a
    total cost of P120,000 on March 15, 2018. Estimated standalone fair values of the equipment,
    installation and training are P75,000, P50,000 and P25,000 respectively. The journal entry to
    record the transaction on March 15, 2018 will include a
    a. Credit to Sales Revenue for P120,000
    b. Debit to Unearned Service Revenue of P25,000
    c. Credit to Unearned Service Revenue of P20,000
    d. Credit to Service Revenue of P50,000

Answer 15

a. Credit to Sales Revenue for P120,000

Question 16

18. Jay Company provided the following information on December 31, 2019:
    ccounts payable, net of debit balances of P100,000 in creditors’ accounts 1,900,000
    Accrued expenses 500,000
    Bonds payable due December 31, 2020 3,000,000
    Discount on bonds payable 200,000
    Deferred tax liability 400,000
    Income tax payable 700,000
    Cash dividend payable 800,000
    Stock dividend payable 300,000
    Note payable - 6%, due March 1, 2020 1,500,000
    Note payable - 8%, due October 1, 2020 1,000,000

The 2019 financial statements were issued on March 31, 2020.
On March 1, 2020, the 6% note
payable was refinanced on a long-term basis. Under the loan agreement for the 8% note payable, the entity has the discretion to refinance the obligation for at least twelve months
after December 31, 2019. The deferred tax liability is based on temporary differences that will
reverse in 2020. A sinking fund of P3,000,000 was set aside to pay the bonds payable upon
maturity. What amount should be reported as total current liabilities on December 31, 2019?

a. 8,300,000
b. 9,300,000
c. 9,000,000
d. 5,500,000

Answer 16

a. 8,300,000

Question 17

32. COVID Company reported the following balances as of December 31, 2019:
    Net income P 1,000,000
    Depreciation Expense 150,000
    Gain on sale of equipment 200,000
    Equipment, cost 2,000,000
    Accumulated Depreciation_Equipment 500,000
    Increase in trademark 300,000
    Decrease in Financial Asset at FVOCI 200,000
    Increase in Notes Payable 500,000

Net cash flows provided by financing activities for 2019 was

a. P 1,600,000 c. P 1,400,000
b. P 1,500,000 d. P 2,100,000

Answer 17

d. P 2,100,000

Question 18

33. Romantic Corp.’s transactions for the year ended December 31, 2019, included the following:

Purchased real estate for P550,000 cash which was borrowed from a bank.
Sold available-for-sale investment securities for P500,000.
Paid dividends of P600,000.
Issued 500 shares of common stock for P250,000.
Purchased machinery and equipment for P125,000 cash.
Paid P450,000 toward a bank loan.
Romantic’s net cash used in investing activities for 2009 was
a. P175,000
b. P375,000
c. P675,000
d. P50,000

Answer 18

a. P175,000