THEORY OF ACCOUNTS

Module 2 Financial Statement Presentation

2.1. IAS 1 Presentation of Financial Statements 1

2.2. IAS 7 Statement of Cash Flows 11

2.3. IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors 16

2.4. IAS 10 Events After the Reporting Period 20

2.5. IAS 24 Related Party Disclosures 22

2.6. IFRS 5 Noncurrent Assets Held for Sale and

Discontinued Operations 26
TOAMOD2.1 IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

Effective date Periods beginning on or after 1 January 2005

Scope IAS 1 applies to all general purpose financial statements that are prepared and
presented in accordance with International Financial Reporting Standards (IFRSs).
Objective The objective of IAS 1 is to prescribe the basis for presentation of general purpose
financial statements, to ensure comparability both with the entity's financial statements
of previous periods and with the financial statements of other entities. IAS 1 sets out the
overall requirements for the presentation of financial statements, guidelines for their
structure and minimum requirements for their content. Standards for recognizing,
measuring, and disclosing specific transactions are addressed in other Standards and
Interpretations.

OVERALL CONSIDERATIONS
1. Fair presentation and compliance with IFRS
Financial statements are required to be presented fairly as set out in the framework and in accordance
with IFRS and are required to comply with all requirements of IFRSs.
a. IAS 1 requires an entity to make an explicit and unreserved statement of compliance in the notes.
b. Inappropriate accounting policies are not rectified either by disclosure of the accounting policies
used or by notes or explanatory material.
c. IAS 1 acknowledges that in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Conceptual Framework. In such a case, the entity
may be permitted to depart from the requirement of an IFRS if the relevant regulatory framework
requires, or otherwise does not prohibit, such a departure. Shall disclose the following:
• that management has concluded that the financial statements present fairly the entity’s
financial position, financial performance and cash flows
• that it has complied with applicable IFRSs, except that it has departed from a particular
requirement to achieve a fair presentation
• the title of the IFRS from which the entity has departed, the nature of the departure,
including the treatment that the IFRS would require, the reason why that treatment would be
so misleading in the circumstances
• for each period presented, the financial effect of the departure on each item in the financial
statements that would have been reported in complying with the requirement
2. Going concern
Financial statements are required to be prepared on a going concern basis (unless entity is in liquidation or
has ceased trading or there is an indication that the entity is not a going concern). If management has
significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be
disclosed.
3. Accrual basis of accounting
Entities are required to use accrual basis of accounting except for cash flow information.
4. Presentation consistency
An entity is required to retain presentation and classification from one period to the next unless:
• it is apparent that another presentation or classification would be more appropriate following a
significant change in the nature of the entity’s operations or a review of its financial statements
• an IFRS requires a change in presentation
If comparative amounts are changed or reclassified, an entity is required to disclose the following:
• the nature of the reclassification
• the amount of each item or class of items that is reclassified
• the reason for the reclassification
5. Materiality and aggregation
Each material class of similar assets and items of dissimilar nature or function is to be presented
separately. The Standards do not provide a quantitative or qualitative threshold in determining
materiality, it is a matter of professional judgment.
6. Offsetting
Offsetting of assets and liabilities or income and expenses is not permitted unless required by other IFRSs.
7. Comparative information
At least 1 year of comparative information (unless impractical). Listed entities in the Philippines are
required to disclose as a minimum three (3) of each statements of comprehensive income, statements of
changes in equity, and statements of cash flows.

When an entity changes the end of its reporting period and presents financial statements for a period
longer or shorter than one (1) year, it shall disclose the following:
• the period covered by the financial statements
• the reason for using a longer or shorter period
• the fact that amounts presented are not entirely comparable

2 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

COMPLETE SET OF FINANCIAL STATEMENTS
A complete set of financial statements includes:
● a statement of financial position (balance sheet) at the end of the period
● a statement of profit or loss and other comprehensive income for the period (presented as a single
statement, or by presenting the profit or loss section in a separate statement of profit or loss,
immediately followed by a statement presenting comprehensive income beginning with profit or
loss)
● a statement of changes in equity for the period
● a statement of cash flows for the period
● notes, comprising a summary of significant accounting policies and other explanatory notes
● comparative information prescribed by the standard.

An entity may use titles for the statements other than those stated above. All financial statements are
required to be presented with equal prominence.

When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items
in its financial statements, or when it reclassifies items in its financial statements, it must also present a
statement of financial position as at the beginning of the earliest comparative period.

Reports that are presented outside of the financial statements – including financial reviews by
management, environmental reports, and value added statements – are outside the scope of IFRSs.

STRUCTURE AND CONTENT

1. Identification of the financial statements
Financial statements must be clearly identified and distinguished from other information in the same
published document, and must identify:
● Name of the reporting entity
● Whether the financial statements cover the individual entity or a group of entities
● The statement of financial position date (or the period covered)
● The presentation currency (as defined by IAS 21 The Effects of Changes in Foreign Exchange Rates)
● The level of rounding used (e.g. thousands, millions)
2. Reporting period
There is a presumption that financial statements will be prepared at least annually.
If the annual reporting period changes and financial statements are prepared for a different period, the
entity must disclose the reason for the change and state that amounts are not entirely comparable.
3. Statement of financial position
Present current and non-current items separately; or Present items in order of liquidity
Current assets Current liabilities
a. Expected to be realized in, or is intended for sale a. Expected to be settled in the entity’s normal
or consumption in the entity’s normal operating operating cycle
cycle b. Held primarily for trading
b. Held primarily for trading c. Due to be settled within 12 months
c. Expected to be realized within 12 months d. The entity does not have an unconditional right to
d. Cash or cash equivalents. defer settlement of the liability for at least 12
months.
All other assets are required to be classified as non- All other liabilities are required to be classified as
current. non-current.
Line items Further information
The line items to be included on the face of the statement of financial Regarding issued share capital
position are: and reserves, the following
a. property, plant and equipment disclosures are required:
b. investment property ● numbers of shares
c. intangible assets authorized, issued and fully
d. financial assets (excluding amounts shown under (e), (h), and (i)) paid, and issued but not fully
e. investments accounted for using the equity method paid
f. biological assets ● par value (or that shares do
g. inventories not have a par value)
h. trade and other receivables ● a reconciliation of the number
i. cash and cash equivalents
of shares outstanding at the
j. assets held for sale
beginning and the end of the
k. trade and other payables
period
l. provisions
m. financial liabilities (excluding amounts shown under (k) and (l)) ● description of rights,
n. current tax liabilities and current tax assets, as defined in IAS 12 preferences, and restrictions

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 3

 o. deferred tax liabilities and deferred tax assets, as defined in IAS 12 ● treasury shares, including
p. liabilities included in disposal groups shares held by subsidiaries
q. non-controlling interests, presented within equity and associates
r. issued capital and reserves attributable to owners of the parent. ● shares reserved for issuance
under options and contracts
Additional line items, headings and subtotals may be needed to fairly ● a description of the nature
present the entity's financial position.
and purpose of each reserve
within equity.
Further sub-classifications of line items presented are made in the
statement or in the notes, for example:
NOTE: Additional disclosures
a. classes of property, plant and equipment
are required in respect of
b. disaggregation of receivables
entities without share capital
c. disaggregation of inventories in accordance with IAS 2 Inventories
and where an entity has
d. disaggregation of provisions into employee benefits and other
reclassified puttable financial
items
instruments.
e. classes of equity and reserves.
4. Statement of profit or loss and other comprehensive income
Concepts of profit or loss and comprehensive income Examples of items recognized outside of
Profit or loss – the total of income less expenses, excluding profit or loss:
the components of other comprehensive income. ● Changes in revaluation surplus (IAS 16
and IAS 38)
Other comprehensive income – items of income and expense ● Remeasurements of a net defined benefit
(including reclassification adjustments) that are not liability or asset (IAS 19)
recognized in profit or loss as required or permitted by ● Exchange differences from translating
other IFRSs.
functional currencies into presentation
currency (IAS 21)
Total comprehensive income – the change in equity during a
period resulting from transactions and other events, other ● Gains and losses on remeasuring
than those changes resulting from transactions with owners available-for-sale financial assets (IAS 39)
in their capacity as owners. ● The effective portion of gains and losses
on hedging instruments in a cash flow
NOTE: All items of income and expense recognized in a hedge (IAS 39 or IFRS 9)
period must be included in profit or loss unless a Standard ● Gains and losses on remeasuring an
or an Interpretation requires otherwise (i.e. instead to be investment in equity instruments where
included in other comprehensive income). the entity has elected to present them in
other comprehensive income (IFRS 9)
● The effects of changes in the credit risk of
a financial liability designated as at fair
value through profit and loss (IFRS 9)
● Correction of errors and the effect of
changes in accounting policies (IAS 8)
Choice in presentation Basic requirements
An entity presents all items of income and expense The statement(s) must present:
recognized in a period, either: a. profit or loss
a. In a single statement of comprehensive b. total other comprehensive income
income c. comprehensive income for the period
b. In two statements: a statement displaying d. an allocation of profit or loss and
components of profit or loss (separate income comprehensive income for the period between
statement) and a second statement of other non-controlling interests and owners of the
comprehensive income parent.
Line items
Profit or loss section or statement NOTE: Expenses recognized in
The following minimum line items must be presented in the profit profit or loss should be analyzed
or loss section (or separate statement of profit or loss, if presented): either by nature (raw materials,
a. revenue staffing costs, depreciation, etc.) or
b. gains and losses from the derecognition of financial assets by function (cost of sales, selling,
measured at amortized cost administrative, etc.)
c. finance costs
d. share of the profit or loss of associates and joint ventures
accounted for using the equity method
e. certain gains or losses associated with the reclassification of
financial assets
f. tax expense
g. a single amount for the total of discontinued items
Other comprehensive income section NOTE: Line items within other
The other comprehensive income section is required to present line comprehensive income are required

4 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

items which are to be categorized into two
● classified by their nature, and categories:
● grouped between those items that will or will not be ● Those that could subsequently
reclassified to profit and loss in subsequent periods. be reclassified to profit or loss
● Those that cannot be
An entity shall disclose reclassification adjustments relating to reclassified to profit or loss.
components of other comprehensive income.
Other requirements
a. Additional line items may be needed to fairly present the entity's results of operations.
b. Items cannot be presented as 'extraordinary items' in the financial statements or in the notes.
c. Certain items must be disclosed separately either in the statement of comprehensive income or in
the notes, if material, including:
● write-downs of inventories to net realizable value or of property, plant and equipment to
recoverable amount, as well as reversals of such write-downs
● restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
● disposals of items of property, plant and equipment
● disposals of investments
● discontinuing operations
● litigation settlements
● other reversals of provisions
5. Statement of cash flows
Refer to TOAMOD2.2 IAS 7 Statement of Cash Flows for an in-depth discussion.
6. Statement of changes in equity
Information required to be presented:
a. On the face of the statement:
● total comprehensive income for the period, showing separately amounts attributable to owners of
the parent and to non-controlling interests
● the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income
● reconciliations between the carrying amounts at the beginning and the end of the period for each
component of equity, separately disclosing:
a. profit or loss
b. other comprehensive income (an analysis of other comprehensive income by item is required
to be presented either in the statement or in the notes)
c. transactions with owners, showing separately contributions by and distributions to owners
and changes in ownership interests in subsidiaries that do not result in a loss of control

b. Either on the face of the statement or in the notes:

● amount of dividends recognized as distributions
● the related amount per share
7. Notes to the financial statements
The notes must:
● present information about the basis of preparation of the financial statements and the specific
accounting policies used
● disclose any information required by IFRSs that is not presented elsewhere in the financial
statements and
● provide additional information that is not presented elsewhere in the financial statements but
is relevant to an understanding of any of them

Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note.

Other disclosures
a. Judgments and key assumptions – judgments management has made in the process of applying the
entity's accounting policies that have the most significant effect on the amounts recognized in the financial
statements and key assumptions concerning the future, and other key sources of estimation uncertainty
at the end of the reporting period, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.

b. Dividends – the amount of dividends proposed or declared before the financial statements were
authorized for issue but which were not recognized as a distribution to owners during the period, and the
related amount per share, and the amount of any cumulative preference dividends not recognized.

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 5

c. Capital disclosures – information about its objectives, policies and processes for managing capital.
• qualitative information about the entity's objectives, policies and processes for managing capital,
including
o description of capital it manages
o nature of external capital requirements, if any
o how it is meeting its objectives
● quantitative data about what the entity regards as capital
● changes from one period to another
● whether the entity has complied with any external capital requirements and
● if it has not complied, the consequences of such non-compliance.

d. Puttable financial instruments –

● summary quantitative data about the amount classified as equity
● the entity's objectives, policies and processes for managing its obligation to repurchase or redeem
the instruments when required to do so by the instrument holders, including any changes from the
previous period
● the expected cash outflow on redemption or repurchase of that class of financial instruments
● information about how the expected cash outflow on redemption or repurchase was determined.

e. Other information –
● domicile and legal form of the entity
● country of incorporation
● address of registered office or principal place of business
● description of the entity's operations and principal activities
● if it is part of a group, the name of its parent and the ultimate parent of the group
● if it is a limited life entity, information regarding the length of the life.
8. Third Statement of Financial Position
The improvement clarifies in regard to a third statement of financial position required when an entity
changes accounting policies, or makes retrospective restatements or reclassifications:
● Opening statement is only required if impact is material
● Opening statement is presented as at the beginning of the immediately preceding comparative
period required by IAS 1 (e.g. if an entity has a reporting date of 31 December 2012 statement of
financial position, this will be as at 1 January 2011)
● Only include notes for the third period relating to the change.

1. The objective of IAS 1 Presentation of Financial Statements is to prescribe the basis for presentation of
general purpose financial statements, to ensure
a. intracomparability b. intercomparability c. faithful representation d. a and b

2. General purpose financial statements are those statements that cater to the
a. common and specific needs of a wide range of external and internal users.
b. common needs of a wide range of external and internal users.
c. common needs of a wide range of external users.
d. specific needs of a wide range of external users.

3. The purpose of general purpose financial statements is to provide information about the
a. economic resources and obligations of an entity that is useful to a wide range of users in making
economic decisions.
b. financial position and financial performance of an entity that is useful to a wide range of users in
making economic decisions.
c. financial position, financial performance and cash flows of an entity that is useful to a limited range of
users in making economic decisions.
d. financial position, financial performance and cash flows of an entity that is useful to a wide range of
users in making economic decisions.

4. A complete set of financial statements includes

a. directors’ report b. income tax return c. notes d. all of these

5. An additional statement of financial position as at the beginning of the earliest comparative period is
prepared when an entity makes (choose the incorrect statement)
a. retrospective application c. prospective application
b. retrospective restatement d. makes reclassification adjustments

6 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

6. Presenting a separate ‘statement of profit or loss’ or ‘income statement’ is
a. required under IAS 1
b. required under IAS 1 to be presented together with the statement of financial position
c. permitted under IAS 1 as a substitute for a statement of comprehensive income
d. permitted under IAS 1 provided that a statement of comprehensive is still presented

7. According to IAS 1, the general features of financial statements include all of the following, except
a. fair presentation and compliance with IFRSs c. materiality and aggregation
b. comparability of presentation d. comparative information

8. According to IAS 1, inappropriate accounting policies are

a. rectified either by disclosure of the accounting policies used or by notes or explanatory material
b. not rectified either by disclosure of the accounting policies used or by notes or explanatory material
c. permitted as long as they are used consistently from period to period
d. disclosed in the notes only

9. When an entity changes the end of its reporting period and presents financial statements for a period
longer or shorter than one year, an entity shall disclose all of the following, except
a. the 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. a quantification of the possible adjustments that would eliminate the effects of the longer or shorter
reporting period

10. The statement of financial position may be presented either by showing current/noncurrent distinction
(classified) or based on liquidity (unclassified). IAS 1 encourages the
a. classified presentation c. combination of a and b
b. unclassified presentation d. none of these

11. In a classified statement of financial position, IAS 1 requires deferred tax assets and deferred tax
liabilities to be presented as
a. current items b. noncurrent items c. either a or b d. none of these

12. IAS 1 Presentation of Financial Statements

a. prescribes the order or format in which an entity presents items in the financial statements
b. does not prescribe the order or format in which an entity presents items in the financial statements
c. prescribes some order or some format in which an entity presents items in the financial statements
d. does not deal with the presentation of items in the financial statements

13. According to IAS 1, an entity shall present all items of income and expense recognized in a period:
a. in a single statement of profit or loss and other comprehensive income
b. in two statements – an income statement and a statement of comprehensive income
c. in a single statement of changes in equity
d. either a or b

14. Other comprehensive income comprises items of income and expense (including reclassification
adjustments) that are
a. not recognized in profit or loss as required or permitted by other PFRSs
b. recognized in profit or loss as required or permitted by other PFRSs
c. either a or b
d. none of these

15. Which of the following is not one of the components of other comprehensive income?
a. changes in revaluation surplus
b. remeasurements of the net defined benefit liability (asset) unrealized gains and losses on FVPL
c. translation gains and losses on foreign operation
d. effective portion of gains and losses on hedging instruments in a cash flow hedge

16. According to IAS 1, reclassification adjustments are

a. assets and expenses reclassified to other asset accounts in the current period
b. amounts reclassified to other comprehensive income in the current period that were recognized in
profit or loss in the current or previous periods
c. amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous periods
d. both a and b

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 7

17. Other comprehensive income, including reclassification adjustments, are presented
a. net of related taxes b. gross of related taxes c. either a or b d. taxes ignored

18. Total comprehensive income includes

a. all non-owner changes in equity c. some non-owner changes in equity
b. all owner changes in equity d. either a or b

19. Comprehensive income comprises

a. revaluation surplus and remeasurements of the net defined benefit liability (asset) only
b. revaluation surplus, actuarial gains and some other items
c. both owner and non-owner changes in equity
d. profit or loss and other comprehensive income

20. Presenting extraordinary items in the financial statements

a. is prohibited on the face of the financial statements but is permitted in the notes
b. is prohibited on both the face of the financial statements and in the notes.
c. is permitted in some rare cases
d. makes the financial statements totally useless

21. According to IAS 1, expenses are presented using

a. nature of expense method c. either a or b
b. function of expense method d. classified or unclassified

22. Additional disclosure is required when expenses are presented under the
a. nature of expense method c. either a or b
b. function of expense method d. classified or unclassified

23. Dividends are disclosed in the

a. statement of changes in equity c. statement of financial position
b. notes d. either a or b

24. Which of the following statements is correct in relation to the provisions of IAS 1?
a. Owner changes in equity are presented in the statement of profit or loss and other comprehensive
income.
b. Non-owner changes in equity are presented in the statement of changes in equity.
c. Both a and b
d. None of these

25. The notes is an integral part of the financial statements. It presents all of the following except
a. information regarding the basis of preparation of financial statements
b. information required by the PFRSs
c. other information relevant to users of financial statements
d. auditor’s opinion

26. Financial statements include a statement of financial position, a statement of comprehensive income, a
statement of changes in equity and a statement of cash flows. Which of the following is also included
within the financial statements?
a. A statement of retained earnings c. An auditor’s report
b. Accounting policies d. A directors’ report

27. 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 its financial statements.
c. When an entity reclassifies items in its financial statements.
d. In all of the above cases.

28. An entity shall present

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

29. “Fair presentation” requires an entity (choose the incorrect one)

a. To comply with applicable PFRS.

8 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 b. To present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information.
c. To provide additional disclosures when compliance with the specific requirements in PFRS is
insufficient to enable users to understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial performance.
d. To rectify inappropriate accounting policies used either by disclosure or by note or explanation
material.

30. Items of dissimilar nature or function

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

31. Which statement is incorrect concerning the rule on “offsetting”?

a. An entity shall not offset assets and liabilities, and income and expenses, unless required or
permitted by PFRS.
b. Measuring assets net of valuation allowance is offsetting.
c. Gains and losses on disposal of noncurrent assets are reported by deducting from the proceeds on
disposal the carrying amount of the asset and related selling expenses.
d. Gains and losses arising from a group of similar transactions are reported on a net basis, for example,
foreign exchange gains and losses arising from financial instruments held for trading

32. An entity shall present a complete set of financial statements, including comparative information, at least
annually. When an entity changes the end of its reporting period longer or shorter than one year, an
entity shall disclose all of the following, 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 in the
current year.

33. 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 current period’s financial statements.
d. The previous two comparable periods for all amounts reported.

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

35. An entity can change the presentation and classification of items in the financial statements from one
period to the next when
I. It is apparent following a significant change in the nature of the entity’s operations or a review of
its financial statement that another presentation or classification would be more appropriate.
II. A PFRS requires a change in presentation.
a. I only b. II only c. Either I or II d. Neither I nor II

36. Which of the following must be included in an entity’s statement of financial position?
a. Contingent asset c. Share capital and reserves analyzed by class
b. Property, plant and equipment analyzed by class d. Deferred tax

37. Which of the following must be included in an entity’s statement of financial position?
a. Investment property c. Contingent liability
b. Number of shares authorized d. Shares in an entity owned by that entity

38. 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.

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 9

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

39. 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.

40. 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

41. 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 c. Government-owned entity
b. Public utility d. Service provider

42. An entity shall classify an asset as current when (choose the incorrect one)
a. The entity expects to realize, or intends to sell or consume it, in its normal operating cycle.
b. The entity holds the asset primarily 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 restricted to settle a liability for more than twelve months after
the reporting period.

43. When there is much variability in the duration of the entity’s normal operating cycle, the operating cycle
is measured at
a. Its mean value b. Its median value c. Twelve months d. Three years

44. An entity shall classify a liability as current when (choose the incorrect one)
a. The entity expects to settle the liability in its 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.

45. A financial liability that is due to be settled within twelve months after the reporting period shall be
classified as noncurrent
I. When it is refinanced on a long-term basis on or before the end of the reporting period.
II. When the entity has the discretion to refinance or roll over the obligation for at least twelve
months after the reporting period under an existing loan facility.
a. I only b. II only c. Both I and II d. Neither I nor II

46. When an entity breaches an undertaking 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
I. The liability is classified as 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.
II. The liability is classified as noncurrent if the lender agreed on or before the end of the reporting
period to provide a grace period for at least twelve months after the reporting period within
which to rectify the breach.
a. I only b. II only c. Either I or II d. Neither I nor II

47. The two-statement approach of presenting comprehensive income includes

I. A separate income statement showing the components of profit or loss.
II. A separate statement of comprehensive income beginning with profit or loss plus or minus the
components of other comprehensive income.
a. I only b. II only c. Both I and II d. Neither I nor II

48. It is the change in equity during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners.
a. Profit or loss c. Other comprehensive income

10 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 b. Comprehensive income d. Share capital

49. It comprises items of income and expense, including reclassification adjustments, that are not recognized
in profit or loss as required or permitted by other PFRS.
a. Comprehensive income c. Profit or loss
b. Other comprehensive income d. Retained profit

50. Other comprehensive income includes all of the following, except

a. Gain and loss arising from translating the financial statements of a foreign operation.
b. Gain and loss on remeasuring available for sale financial asset.
c. The effective portion of gain and loss on hedging instrument in a cash flow hedge.
d. Dividend paid to shareholders.

51. These are amounts reclassified to profit or loss in the current period that were recognized in other
comprehensive income in the current or previous period.
a. Prior period errors c. Unusual and irregular items
b. Reclassification adjustments d. Correcting entries

52. An entity shall present an analysis of expenses using a classification based on

a. The nature of expenses.
b. The function of expenses.
c. Either the nature of expenses or the function of expenses within the entity, whichever provides
information that is reliable and more relevant.
d. Either the nature of expenses or the function of expenses within the entity, whichever the entity
would prefer to present.

53. Separate line items in an analysis of expenses by nature include

a. Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items
b. Purchases of materials, distribution costs, administrative costs, employee benefits, depreciation,
taxes
c. Depreciation, purchases of materials, transport costs, employee benefits and advertising costs
d. Cost of sales, administrative costs, transport costs and distribution costs

54. Separate line items in an analysis of expenses by function include

a. Purchases of materials, transport costs, employee benefits, depreciation, extraordinary items
b. Purchases of materials, distribution costs, administrative costs, employee benefits, depreciation,
taxes
c. Depreciation, purchases of materials, employee benefits and advertising costs
d. Cost of sales, administrative expenses and distribution expenses

55. What is the purpose of the notes to financial statements?

I. To present information about the basis of preparation of the financial statements and the specific
accounting policies used.
II. To disclose the information required by PFRS that is not presented elsewhere in the financial
statements.
III. To provide information that is not presented elsewhere in the financial statements but is
relevant to an understanding of the statements.
a. I only b. I and II only c. I and III only d. I, II and III

56. What is the “first item” presented in the notes to financial statements?
a. Statement of compliance with PFRS.
b. Summary of significant accounting policies.
c. Supporting information for items presented in of the financial statements.
d. Other disclosures, including contingent liabilities, unrecognized contractual commitments and
nonfinancial disclosures.

57. 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 PFRS irrespective of whether they were used by the entity in
preparing its financial statements.
c. The measurement basis used in preparing the financial statements and the accounting policies used
that are relevant to an understanding of the financial statements.
d. All of the measurement bases and the accounting policy choices available to the entity specified in
PFRS irrespective of whether they were used by the entity in preparing its financial statements.

58. The presentation of notes to financial statements in a systematic manner

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 11

 a. Is voluntary c. Is mandatory, as far as practicable
b. Is mandatory d. Depends on the industry

59. Disclosure of information about key sources of estimation uncertainty and judgments
a. Is voluntary c. Is either voluntary or mandatory
b. Is mandatory d. Depends on the industry

60. The cross-reference between each line item in the financial statements and any related information
disclosed in the notes to the financial statements
a. Is voluntary c. Depends on the industry
b. Is mandatory d. Is either voluntary or mandatory

TOAMOD2.2 IAS 7 STATEMENT OF CASH FLOWS

Effective date Periods beginning on or after 1 January 1994

Scope All entities that prepare financial statements in conformity with IFRSs are required to
present a statement of cash flows.
Objective The objective of IAS 7 is to require the presentation of information about the
historical changes in cash and cash equivalents of an entity by means of a statement
of cash flows, which classifies cash flows during the period according to operating,
investing, and financing activities.

Fundamental principle in IAS 7

• The statement of cash flows analyses changes in cash and cash equivalents during a period.
• Cash and cash equivalents comprise:
a. cash on hand
b. demand deposits
c. short-term, highly liquid investments that are readily convertible to a known amount of cash and
that are subject to an insignificant risk of changes in value.
• Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it
has a maturity of three months or less from the date of acquisition.
• Equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred
shares acquired within three months of their specified redemption date).
• Bank overdrafts which are repayable on demand and which form an integral part of an entity's cash
management are also included as a component of cash and cash equivalents.
Components of a Statement of Cash Flows
The statement of cash flows shall report cash flows during the period classified by operating activities,
investing activities and financing activities.
Operating activities Investing activities Financing activities
Main revenue producing Activities that relate to the Activities that cause changes to
activities of the entity and other acquisition and disposal of long- contributed equity and
activities that are not investing or term assets and other borrowings of an entity.
financing activities (including investments that are not included
taxes paid/received, unless in cash equivalents.
clearly attributable to investing
or financing activities).
Affects non-current liabilities
Affects profit or loss Affects non-current assets and equity
Other classification considerations:
1. Interest and dividends received and paid may be classified as operating, investing, or financing cash
flows, provided that they are classified consistently from period to period.
Cash flows from/for Option 1 Option 2
Interest income received Operating Investing
Interest expense paid Operating Financing
Dividend income Operating Investing
received
Dividend paid to owners Financing Operating
NOTE: Financial institutions shall apply Option 1 in classifying interests and dividends. Option 2 does
not normally apply to financial institutions as per industry practice.
2. Cash flows arising from taxes on income are normally classified as operating, unless they can be
specifically identified with financing or investing activities.
Example: taxes paid that are capitalized as part of the cost of an item of property, plant and equipment
are presented in investing activities

12 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

3. The exchange rate used for translation of transactions denominated in a foreign currency should be the
rate in effect at the date of the cash flows (i.e. spot rate at the time of the transaction)
Reporting Cash Flows from Operating Activities
Cash flows from operating activities may be presented using either direct method or indirect method.
Both methods are acceptable by IAS 7, however, direct method is encouraged under IAS 7.
Direct method Indirect method
Shows each major class of gross cash receipts and Adjusts accrual basis net profit or loss for the effects
gross cash payments. of non-cash transactions.
Cash receipts from customers • Changes during the period in inventories and
Cash paid to suppliers operating receivables and payables
Cash paid to employees • Non-cash items such as depreciation,
Cash paid for other operating expenses provisions, deferred taxes, unrealized foreign
Interest paid currency gains and losses, and undistributed
Income taxes paid profits of associates
Net cash from operating activities • All other items for which the cash effects are
investing or financing cash flows.
Other considerations to note:
1. Non cash investing and financing activities must be disclosed separately.
2. Cash flows must be reported gross. Set-off is only permitted in very limited cases and additional
disclosures are required (refer to IAS 7.24 for examples relating to term deposits and loans).
3. Foreign exchange transactions should be recorded at the rate at the date of the cash flow.
4. Acquisition and disposal of subsidiaries are investment activities and specific additional disclosures
are required.
5. Where the equity method is used for joint ventures and associates, the statement of cash flows should
only show cash flows between the investor and investee.
6. Where a joint venture is proportionately consolidated, the venturer should only include its
proportionate share of the cash flows of the joint venture.
7. Disclose cash not available for use by the group.
8. Assets and liabilities denominated in a foreign currency generally include an element of unrealized
exchange difference at the reporting date.
9. Disclose the components of cash and cash equivalents and provide a reconciliation back to the
statement of financial position amount if required.
10. Non-cash investing and financing transactions are not to be disclosed in the statement of cash flows.

1. The historical changes of cash flows are classified in the statement of cash flows into
a. operating activities b. investing activities c. financing activities d. all of these

2. These include transactions that affect long-term assets and other non-operating assets.
a. operating activities b. investing activities c. financing activities d. all of these

3. These include transactions that enter into the determination of profit or loss. These transactions
normally affect income statement accounts.
a. operating activities b. investing activities c. financing activities d. all of these

4. These include transactions that affect equity and non-operating liabilities.

a. operating activities b. investing activities c. financing activities d. all of these

5. Which of the following statements is correct regarding the provisions of IAS 7?

a. Only transactions that affected cash are included in the statement of cash flows.
b. Non-cash transactions are excluded from the statement of cash flows and disclosed only.
c. Cash flows from operating activities may be reported using either direct method or indirect method.
d. All of these

6. According to IAS 7, interest income that is received in cash is presented in the statement of cash flows as
a. operating activities b. investing activities c. financing activities d. either a or b

7. According to IAS 7, interest expense that is paid in cash is presented in the statement of cash flows as
a. operating activities b. investing activities c. financing activities d. either a or c

8. According to IAS 7, dividends paid in cash are presented in the statement of cash flows as
a. operating activities b. investing activities c. financing activities d. either a or c

9. It refers to a method of presenting the operating activities section of a statement of cash flows whereby
each major class of gross cash receipts and gross cash payments are shown separately.
a. direct method c. indirect method
b. nature of expense method d. function of expense method

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 13

10. It refers to a method of presenting the operating activities section of a statement of cash flows whereby
the accrual basis profit or loss is adjusted for noncash items and changes in operating assets and
liabilities.
a. direct method c. indirect method
b. nature of expense method d. function of expense method

11. Under the indirect method, the cash flow from operating activities is determined by adjusting the
reported profit or loss by (choose the incorrect statement)
a. adding back non-cash expenses c. deducting decreases in operating liabilities
b. adding back decreases in operating assets d. adding back increases in operating assets

12. Under the indirect method, the cash flow from operating activities is determined by adjusting the
reported profit or loss by (choose the incorrect statement)
a. deducting non-cash income c. deducting decreases in non-operating liabilities
b. deducting increases in operating assets d. deducting gains on sale of non-operating assets

13. An entity shall prepare a statement of cash flows and present it as

a. Supplementary financial statement
b. Note to financial statement
c. Supporting schedule for the amount appearing as cash and cash equivalent
d. An integral part of the entity's basic financial statements.

14. Cash comprises

a. Cash on hand and demand deposits c. Cash on hand and cash equivalents
b. Cash on hand, demand deposits and cash equivalents d. Demand deposits and cash equivalents

15. Cash flows

I. Are inflows and outflows of cash and cash equivalents.
II. Exclude movements between items that constitute cash or cash equivalents because these
components are part of the cash management of an entity.
a. I only b. II only c. Both I and II d. Neither I nor II

16. An investment is normally classified as cash equivalent when it has a short maturity of
a. 3 months or less from the date of acquisition c. 6 months from the end of reporting period
b. 3 months or less from the end of reporting period d. 6 months from the date of acquisition

17. All of the following can be classified as cash and cash equivalent, except
a. Redeemable preference shares acquired and due in 60 days c. Equity investments
b. Loan notes held due for repayment in 90 days d. A bank overdraft

18. An entity purchased a three-month treasury bill. In preparing the entity's statement of cash flows, this
purchase would
a. Be treated as outflow from operating activities c. Be treated as outflow from financing activities
b. Be treated as outflow from investing activities d. Have no effect

19. Which statement is true in relation to cash flows?

I. Operating activities are the principal revenue producing activities of the entity.
II. Investing activities are the acquisition and disposal of long-term assets and other investments
not included in cash equivalents,
III. Financing activities are activities that result in changes in the size and composition of equity
capital and borrowings of the entity.
a. I and II only b. II and III only c. I and III only d. I, II and III

20. Bank borrowings are generally considered

a. operating activities b. investing activities c. financing activities d. borrowing activities

21. Bank overdrafts that are repayable on demand and the bank balance often fluctuates from positive to
overdrawn shall be classified as
a. operating activities c. financing activities
b. investing activities d. component of cash and cash equivalents

22. Operating activities include all of the following, except

a. Cash receipts from royalties, fees, commissions and other revenue.
b. Cash payments to and in behalf of employees

14 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 c. Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other
policy benefits
d. Cash receipts from sales of property, plant and equipment, intangible assets and other long-term
assets.

23. Investing activities include all of the following, except

a. Cash payments to acquire property, plant and equipment, intangible assets and other long-term
assets.
b. Cash payments to acquire equity and debt instruments of other entities, and interest in joint venture.
c. Cash payments for futures contracts, forward contracts, option contracts and swap contracts.
d. Cash payments to supplier of goods and services.

24. Financing activities include all of the following, except

a. Cash proceeds from issuing shares and other equity instruments.
b. Cash payments to owners to acquire or redeem the entity’s shares.
c. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease
d. Cash advances and loans made to other parties, other than advances and loans made by a financial
institution.

25. Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement
would be most appropriate?
a. Cash flows from operating activities c. Cash flows from financing activities
b. Cash flows from investing activities d. Does not appear in the statement of cash flows

26. Which of the following items should be presented under cash flows from investing activities?
a. Employee costs c. Redemption of debentures
b. Property revaluation d. Development costs capitalized in the period

27. Which classification of the cash flow arising from the disposal proceeds of a major item of plant would be
most appropriate?
a. Cash flows from operating activities c. Cash flows from financing activities
b. Cash flows from investing activities d. Does not appear in the statement of cash flows

28. Noncash investing and financing transactions include all of the following, except
a. The acquisition of asset either by assuming directly related liability or by means of a finance lease.
b. The acquisition of an entity by means of an equity issue.
c. The conversion of debt to equity.
d. Noncash items such as depreciation provisions, deferred taxes and unrealized foreign currency gains
and losses.

29. Noncash investing and financing activities are

a. Reported in the statement of cash flows only if the direct method is used.
b. Reported in the statement of cash flows only if the indirect method is used.
c. Disclosed in a note or separate schedule accompanying the statement of cash flows.
d. Not reported or disclosed because they have no impact on cash.

30. An entity shall report cash flows from operating activities using
a. Direct method b. Indirect method c. Either a or b d. Neither a nor b

31. An entity shall report separately cash flows arising from investing and financing activities using
a. Direct method b. Indirect method c. Either a or b d. Neither a nor b

32. Under the indirect method, the net cash flow from operating activities is determined by adjusting net
income or loss for the effects of
I. Changes during the period in inventories, operating receivables and operating payables.
II. Noncash items such as depreciation provisions, deferred taxes, unrealized foreign currency gains
and losses, undistributed earnings of associates, and noncontrolling interest.
III. All other items for which the cash effects are investing or financing cash flows.
a. I and II only b. I and III only c. I only d. I, II and III

33. Cash advances and loans made by financial institutions are usually classified as
a. operating activities c. financing activities
b. investing activities d. component of cash and cash equivalents

34. Interest paid and interest and dividend received may be classified as cash outflows for
a. operating activities b. borrowing activities c. lending activities d. financing activities

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 15

35. Dividend paid may be classified as cash outflows for
a. operating activities b. investing activities c. financing activities d. ordinary activities

36. Alternatively, which of the following cash flows should be classified as operating cash flows?
a. interest paid b. interest received c. dividend received d. dividend paid

37. Cash flows arising from income taxes shall be separately disclosed and classified as
a. operating activities b. investing activities c. financing activities d. ordinary activities

38. The aggregate cash flows from acquisition and disposal of a subsidiary shall
a. Be classified as operating activities c. Be classified as financing activities
b. Be classified as investing activities d. Not be reported

39. Dividends received from an equity investee shall be presented in the statement of cash flows as
a. Deduction from cash flows from operating activities
b. Addition to cash flows from operating activities
c. Deduction from cash flows from investing activities
d. Addition to cash flows from investing activities

40. Which of the following cash flows does not appear in a statement of cash flows using indirect method?
a. Net cash flow from operating activities c. Cash inflow from sale of equipment
b. Cash received from customers d. Cash outflow for dividend payment

41. In a statement of cash flows, which of the following would increase reported cash flows from operating
activities using the direct method?
a. Dividends received from investments c. Gain or retirement of bonds
b. Gain on sale of equipment d. Change from straight line to accelerated depreciation

42. Which should not be disclosed in the statement of cash flows using the indirect method?
a. Interest paid, net of amounts capitalized c. Cash flow per share
b. Income taxes paid d. Dividends paid on preference shares

43. How should a gain from the sale of an equipment for cash be reported in a statement of cash flows using
the indirect method?
a. In investing activities as a reduction of the cash inflow from the sale
b. In investing activities as a cash outflow
c. In operating activities as a deduction from income
d. In operating activities as an addition to income

44. In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash flow from
investing activities equals the carrying amount of the equipment
a. Plus the gain
b. Plus the gain and less the amount of tax attributable to the gain
c. Plus both the gain and the amount of tax attributable to the gain
d. With no addition or subtraction

45. When preparing a reconciliation of net income to cash from operations, an increase in inventory will
result in an adjustment to reported net income because
a. Cash is increased because inventory is a current asset.
b. Inventory is an expense deducted in computing net earnings, but is not a use of cash.
c. The net increase in inventory is part of the difference between cost of goods sold and cash paid to
suppliers.
d. All changes in noncash accounts must be disclosed.

46. The amortization of bond premium related to long-term debt shall be presented in a statement of cash
flows prepared using the indirect method as
a. Inflow and outflow of cash.
b. Outflow of cash.
c. Deduction from net income to reconcile net income to cash from operating activities.
d. Addition to net income to reconcile net income to cash from operating activities.

47. The amortization of patent shall be presented in a statement of cash flows prepared using the indirect
method as
a. Inflow and outflow of cash c. Addition to net income
b. Outflow of cash. d. Deduction from net income

16 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

48. When preparing a statement of cash flows using the direct method, amortization of goodwill is
a. Shown as an increase in cash flows from operating activities
b. Shown as a reduction in cash flows from operating activities
c. Included with supplemental disclosures of noncash transactions.
d. Not reported in the statement of cash flows or related disclosures.

49. Which of the following is not added to net income as an adjustment to reconcile net income to cash from
operating activities in the statement of cash flows?
a. Increase in an accrued liability c. Loss on sale of non-operating asset
b. Amortization of discount on bond payable d. Increase in deferred tax asset

50. An entity acquired a building paying a portion of the purchase price in cash and issuing a mortgage note
payable to the seller for the balance. In a statement of cash flows what amount is included in investing
activities for the transaction?
a. cash payment b. acquisition price c. zero d. mortgage amount

51. Which of the following should be reported when preparing a statement of cash flows?
I. Conversion of long-term debt to equity
II. Conversion of preference share to ordinary share
a. I only b. II only c. Both I and II d. Neither I nor II
52. At the beginning of the current year, an entity sold used equipment for a cash amount equaling its
carrying amount for both book and tax purposes. During the year, the entity replaced the equipment by
paying cash and signing a note payable for new equipment. The cash paid for the new equipment
exceeded the cash received for the old equipment. How should these equipment transactions be reported
in the entity's statement of cash flows?
a. Cash outflow equal to the cash paid less the cash received
b. Cash outflow equal to the cash paid and note payable less the cash received
c. Cash inflow equal to the cash received and a cash outflow equal to the cash paid and note payable
d. Cash inflow equal to the cash received and a cash outflow equal to the cash paid

53. At the beginning of the current year, an entity signed a 20-year building lease that it reported as a finance
lease. The entity paid the monthly lease payment when due. How should the entity report the effect of the
lease payment in the financing activities section of its statement of cash flows?
a. An inflow equal to the present value of future lease payment at the beginning of the year less
principal and interest payment
b. An outflow equal to the principal and interest payment on the lease
c. An outflow equal to the principal payment only
d. The lease payment should not be reported in the financing activities section

54. An entity’s wages payable increased from the beginning to the end of the year. In the entity's statement of
cash flows in which the operating activities section is prepared under the direct method, the cash paid for
wages would be
a. Salary expense plus wages payable at the beginning of the year
b. Salary expense plus the increase in wages payable
c. Salary expense less the increase in wages payable
d. The same as salary expense

55. Which of the following is not disclosed in the statement of cash flows when prepared under the direct
method, either on the face of the statement or in a separate schedule?
a. The major classes of gross cash receipts and gross cash payments
b. The amount of income taxes paid
c. A reconciliation of net income to net cash flow from operations
d. A reconciliation of ending retained earnings to net cash flow from operations

TOAMOD2.3 IAS 8 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES

AND ERRORS

Effective date Periods beginning on or after 1 January 2005

Scope IAS 8 shall be applied in selecting and applying accounting policies, and accounting for
changes in accounting policies, changes in accounting estimates and corrections of prior
period errors.
Objective The objective of IAS 8 is to prescribe the criteria for selecting and changing
accounting policies, together with the accounting treatment and disclosure of changes
in accounting policies, changes in accounting estimates and corrections of errors. The

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 17

 Standard is intended to enhance the relevance and reliability of an entity’s financial
statements, and the comparability of those financial statements over time and with the
financial statements of other entities.

Accounting policies
specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting
financial statements.
Selection and application of accounting Changes in accounting policies
policies An entity shall change an accounting policy only if the
a. When an IFRS specifically applies to a change:
transaction, other event or condition, the a. is required by an IFRS; or
accounting policy or policies applied to b. results in the financial statements providing reliable
that item shall be determined by applying and more relevant information about the effects of
the IFRS. transactions, other events or conditions on the entity’s
b. In the absence of an IFRS that specifically financial position, financial performance or cash flows.
applies to a transaction, other event or
condition, management shall use its
judgment. The following sources should
be referred to, to make the judgment:
● Requirements and guidance in other The following are not changes in accounting policies:
standards/interpretations dealing with a. the application of an accounting policy for transactions,
similar issues other events or conditions that differ in substance
● Definitions, recognition criteria and from those previously occurring; and
measurement concepts in the b. the application of a new accounting policy for
framework transactions, other events or conditions that did not
● May use other GAAP that use a similar occur previously or were immaterial.
conceptual framework and/or may
Principle:
consult other industry
practice/accounting literature that is not ● If change is due to new standard/interpretation, apply
in conflict with standards or transitional provisions.
interpretations ● If no transitional provisions, apply retrospectively.
Consistency of accounting policies
An entity shall select and apply its Retrospective application - applying a new accounting
accounting policies consistently for policy to transactions, other events and conditions as if
similar transactions, other events and that policy had always been applied.
conditions, unless an IFRS specifically ● However, if it is impracticable to determine either the
requires or permits categorization of items period-specific effects or the cumulative effect of the
for which different policies may be change for one or more prior periods presented, the
appropriate. If an IFRS requires or permits entity shall apply the new accounting policy to the
such categorization, an appropriate carrying amounts of assets and liabilities as at the
accounting policy shall be selected and beginning of the earliest period for which retrospective
applied consistently to each category. application is practicable, which may be the current
period, and shall make a corresponding adjustment to
the opening balance of each affected component of
equity for that period.
● Also, if it is impracticable to determine the cumulative
effect, at the beginning of the current period, of
applying a new accounting policy to all prior periods,
the entity shall adjust the comparative information to
apply the new accounting policy prospectively from the
earliest date practicable.

Disclosures relating to changes in accounting policies

1. Initial application of IFRS:
a. the title of the IFRS
b. when applicable, that the change in accounting policy is made in accordance with its transitional
provisions
c. the nature of the change in accounting policy
d. when applicable, a description of the transitional provisions
e. when applicable, the transitional provisions that might have an effect on future periods
f. for the current period and each prior period presented, to the extent practicable, the amount of the
adjustment:
i. for each financial statement line item affected; and
ii. if IAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share
g. the amount of the adjustment relating to periods before those presented, to the extent practicable

18 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 h. if retrospective application is impracticable for a particular prior period, or for periods before those
presented, the circumstances that led to the existence of that condition and a description of how and
from when the change in accounting policy has been applied.
NOTE: Financial statements of subsequent periods need not repeat these disclosures.

2. Voluntary change in accounting policy:

a. the nature of the change in accounting policy
b. the reasons why applying the new accounting policy provides reliable and more relevant
information
c. for the current period and each prior period presented, to the extent practicable, the amount of the
adjustment:
i. for each financial statement line item affected; and
ii. if IAS 33 applies to the entity, for basic and diluted earnings per share
d. the amount of the adjustment relating to periods before those presented, to the extent practicable
e. if retrospective application is impracticable for a particular prior period, or for periods before those
presented, the circumstances that led to the existence of that condition and a description of how and
from when the change in accounting policy has been applied.
NOTE: Financial statements of subsequent periods need not repeat these disclosures.

3. Application of a new IFRS issued but not yet effective:

a. the title of the new IFRS
b. the nature of the impending change or changes in accounting policy
c. the date by which application of the IFRS is required
d. the date as at which it plans to apply the IFRS initially
e. either:
(i) a discussion of the impact that initial application of the IFRS is expected to have on the entity’s
financial statements; or
(ii) if that impact is not known or reasonably estimable, a statement to that effect.

Changes in accounting estimates

an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption
of an asset, that results from the assessment of the present status of, and expected future benefits and
obligations associated with, assets and liabilities. Changes in accounting estimates result from new
information or new developments and, accordingly, are not corrections of errors.
Principles: Disclosures:
Recognize the change prospectively in a. Nature and amount of change that has an effect in the
profit or loss in: current period (or expected to have in future)
a. the period of the change, if the change b. Fact that the effect of future periods is not disclosed
affects that period only; or because of impracticality
b. the period of the change and future c. Subsequent periods need not repeat these disclosures
periods, if the change affects both

Prior period errors

omissions from, and misstatements in, the entity’s financial statements for one or more prior periods
arising from a failure to use, or misuse of, reliable information that:
a. was available when financial statements for those periods were authorized for issue
b. could reasonably be expected to have been obtained and taken into account in the preparation and
presentation of those financial statements

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies,
oversights or misinterpretations of facts, and fraud.
Principle: Disclosures:
Correct material prior period errors retrospectively in the first a. the nature of the prior period
set of financial statements authorized for issue after their error
discovery by: b. for each prior period presented,
a. restating the comparative amounts for the prior period(s) to the extent practicable, the
presented in which the error occurred; or amount of the correction:
b. if the error occurred before the earliest prior period i.for each financial statement
presented, restating the opening balances of assets, line item affected
liabilities and equity for the earliest prior period presented. ii. if IAS 33 applies to
the entity, for basic and
A prior period error shall be corrected by retrospective diluted earnings per share
restatement except to the extent that it is impracticable to c. the amount of the correction at
determine either the period-specific effects or the cumulative the beginning of the earliest
effect of the error. prior period presented

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 19

 a. When it is impracticable to determine the period-specific d. if retrospective restatement is
effects of an error on comparative information for one or impracticable for a particular
more prior periods presented, the entity shall restate the prior period, the circumstances
opening balances of assets, liabilities and equity for the that led to the existence of that
earliest period for which retrospective restatement is condition and a description of
practicable (which may be the current period). how and from when the error
b. When it is impracticable to determine the cumulative effect, has been corrected
at the beginning of the current period, of an error on all prior e. Subsequent periods need not
periods, the entity shall restate the comparative information repeat these disclosures
to correct the error prospectively from the earliest date
practicable.

1. Choose the correct order of the hierarchy of financial reporting standards under IAS 8.
I. IFRSs comprising IASs, IFRSs, and Interpretations
II. Other accounting literature and industry practices
III. Requirements in other IFRSs dealing with similar transactions
IV. Management’s judgment
V. Standards issued by other standard-setting bodies that use a similar conceptual framework
VI. Conceptual framework
a. I, III, VI, V, IV, II c. I, IV, III, VI, V, II
b. I, III, VI, V, II, IV d. I, III, VI, IV, V, II

2. It results from a change in measurement basis.

a. change in accounting policy c. error
b. change in accounting estimate d. any of these

3. It results from changes in the realization (or incurrence) of expected inflow (or outflow) of economic
benefits from assets (or liabilities).
a. change in accounting policy c. error
b. change in accounting estimate d. any of these

4. Accounting policies shall be changed only when the change

a. is required by IFRSs c. required by legislation
b. results in a more relevant and reliable information d. either a or b

5. According to IAS 8, changes in accounting policies are accounted for

a. retrospectively
b. prospectively
c. retrospectively, unless retrospective application is too costly
d. based on specific transitional provisions of relevant IFRS or in the absence of transitional provision,
by retrospective application by restatement of the beginning balance of retained earnings and by
restatement of previously presented financial statements, unless impracticable

6. A voluntary change in accounting policy is accounted for

a. by retrospective restatement c. by retrospective application
b. by prospective application d. not accounted for

7. Early application of an IFRS is

a. a voluntary change in accounting policy c. sometimes required under IFRSs
b. required in most cases d. not a voluntary change in accounting policy

8. Changes in accounting estimates are accounted for

a. by retrospective restatement c. by retrospective application
b. by prospective application d. not accounted for

9. The effect of a change in accounting estimate

a. affects the year of change only c. is recognized directly in retained earnings
b. affects the year of change and subsequent years d. either a or b

10. Correction of prior period errors are accounted for

a. by retrospective restatement c. by retrospective application
b. by prospective application d. not accounted for

11. These are the specific principles, bases, conventions, rules and practice applied by an entity in preparing
and presenting financial statements.

20 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 a. accounting policies c. accounting standards
b. accounting principles d. accounting concepts

12. It is an adjustment of the carrying amount of an asset or a liability or the amount of the periodic
consumption of an asset that results from the assessment of the present status and expected future
benefit and obligation associated with the asset and liability.
a. Change in accounting estimate c. Correction of a prior period error
b. Change in accounting policy d. Change in reporting entity

13. This means “applying a new accounting policy to transactions, other events and conditions as if that
policy had always been applied”.
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Prospective restatement

14. This means “applying a new accounting policy to transactions occurring after that date at which the
policy changed”.
a. Retrospective application c. Retrospective restatement
b. Prospective application d. Prospective restatement

15. This means “correcting the recognition, measurement and disclosure of amounts of elements of financial
statements as if a prior period error never occurred.”
a. Retrospective application c. Prospective application
b. Retrospective restatement d. Prospective restatement

16. An entity changes its accounting policy if

I. It is required by law.
II. The change will result in providing reliable and more relevant information about the entity’s
financial position financial performance and cash flows.
a. I only b. II only c. Both I and II d. Neither I nor II

17. How is a change in accounting policy reported?

I. A change in accounting policy required by PFRS shall be reported in accordance with the
transitional provisions therein.
II. If the PFRS contains no transitional provisions or if an accounting policy is changed voluntarily,
the change shall be reported retrospectively.
a. I only b. II only c. Either I or II d. Neither I nor II

18. A change in measurement basis

a. is not an accounting change c. is a change in accounting estimate
b. is a change in accounting policy d. is a correction of an error

19. Which of the following statements in relation to a change in accounting estimate is true?
I. Changes in accounting estimates are accounted for retrospectively. x
II. Changes in accounting estimates result from new information or new developments.
a. I only b. II only c. Both I and II d. Neither I nor II

20. When it is difficult to distinguish a change in an accounting policy from a change in an accounting
estimate, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy

TOAMOD2.4 IAS 10 EVENTS AFTER THE REPORTING PERIOD

Effective date Periods beginning on or after 1 January 2005

Scope IAS 10 shall be applied in the accounting for, and disclosure of, events after the
reporting period.
Objective The objective of IAS 10 is to prescribe:
(a) when an entity should adjust its financial statements for events after the reporting
period; and
(b) the disclosures that an entity should give about the date when the financial
statements were authorized for issue and about events after the reporting period.
The Standard also requires that an entity should not prepare its financial statements on
a going concern basis if events after the reporting period indicate that the going concern

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 21

 assumption is not appropriate.

Events after the reporting period

those events, favorable and unfavorable, that occur between the end of the reporting period and the date
when the financial statements are authorized for issue.
Adjusting events after the reporting period Non-adjusting events after the reporting period
those that provide evidence of conditions that those that are indicative of conditions that arose
existed at the end of the reporting period after the reporting period

An entity shall adjust the amounts recognized in An entity shall not adjust the amounts
its financial statements to reflect adjusting events recognized in its financial statements to reflect
after the reporting period. non-adjusting events after the reporting period.
Examples:
a. the settlement after the reporting period of a Examples:
court case that confirms that the entity had a a. decline in fair value of investments between
present obligation at the end of the reporting the end of the reporting period and the date
period. when the financial statements are authorized for
b. the receipt of information after the reporting issue.
period indicating that an asset was impaired b. a major business combination after the
at the end of the reporting period, or that the reporting period or disposing of a major
amount of a previously recognized impairment subsidiary
loss for that asset needs to be adjusted. For c. announcing a plan to discontinue an
example: operation
i. the bankruptcy of a customer that occurs d. major purchases of assets, classification of
after the reporting period usually confirms assets as held for sale in accordance with
that the customer was credit-impaired at the IFRS 5, other disposals of assets, or
end of the reporting period; expropriation of major assets by government
ii. the sale of inventories after the reporting e. the destruction of a major production plant
period may give evidence about their net by a fire after the reporting period
realizable value at the end of the reporting f. announcing, or commencing the implementation
period. of, a major restructuring (see IAS 37)
c. the determination after the reporting period of g. major ordinary share transactions and
the cost of assets purchased, or the proceeds potential ordinary share transactions after
from assets sold, before the end of the reporting the reporting period
period. h. abnormally large changes after the reporting
d. the determination after the reporting period of period in asset prices or foreign exchange
the amount of profit-sharing or bonus rates
payments, if the entity had a present legal or i. changes in tax rates or tax laws enacted or
constructive obligation at the end of the announced after the reporting period that have
reporting period to make such payments as a a significant effect on current and deferred tax
result of events before that date assets and liabilities
e. the discovery of fraud or errors that show that j. entering into significant commitments or
the financial statements are incorrect. contingent liabilities, for example, by issuing
significant guarantees
k. commencing major litigation arising solely out
of events that occurred after the reporting
period.
Disclosures:
1. The date when the financial statements were authorized for issue and who gave that
authorization. If the entity’s owners or others have the power to amend the financial statements after
issue, the entity shall disclose that fact.
2. If an entity receives information after the reporting period about conditions that existed at the end of
the reporting period (adjusting events), it shall update disclosures that relate to those conditions, in
the light of the new information.
3. If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions that users make on the basis of the financial statements. Accordingly, an entity shall
disclose the following for each material category of non-adjusting event after the reporting period:
a. the nature of the event; and
b. an estimate of its financial effect, or a statement that such an estimate cannot be made.
Other considerations:
1. Going concern:
An entity shall not prepare its financial statements on a going concern basis if management determines
after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has
no realistic alternative but to do so.
2. Dividends:
If an entity declares dividends to holders of equity instruments after the reporting period, the entity

22 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 shall not recognize those dividends as a liability at the end of the reporting period.

Disclosures in the notes about going concern and dividends declaration shall be in accordance with IAS 1.

1. These refer to those that occur between then end of reporting period and the date the financial
statements are authorized by an entity’s management for issue.
a. events after the income statement c. external events
b. events after the reporting period d. intervening events

2. CPA Co. uses a calendar period for its financial reporting. Its current financial statements are authorized
for issue on March 1, 2015. CPA’s events after the reporting period are those events that occur
a. from January 1, 2015 to March 1, 2015 c. from January 1, 2014 to March 1, 2015
b. from December 31, 2014 to March 1, 2015 d. from March 1, 2015 to December 31, 2015

3. These are events that provide conditions that existed at the end of reporting period.
a. adjusting events c. nonreciprocal transfers
b. non-adjusting events d. events other than transfers

4. These are events that provide conditions that arose after the end of reporting period. If relevant to users,
these events are disclosed in the financial statements
a. adjusting events c. nonreciprocal transfers
b. non-adjusting events d. events other than transfers

5. It is the date when an entity’s management authorizes the financial statements for issue, regardless of
whether such authorization is for final issuance or for further approval by other parties.
a. date of authorization of financial statements for issue c. balance sheet date
b. financial reporting date d. valentine’s date

6. Events after the end of the reporting period are defined as

a. Events, favorable and unfavorable, that occur between the end of the reporting period and the date of
the entity’s next annual financial statements.
b. Events, favorable and unfavorable, that occur between the end of the reporting period and the date of
the entity’s next interim or annual financial statements.
c. Events, favorable and unfavorable, that occur between the end of the reporting period and the date
when the financial statements are authorized for issue.
d. Events, favorable and unfavorable, that occur between the end of reporting period and the date of the
entity’s next interim financial statements.

7. Adjusting events are those that

a. Provide evidence of conditions that existed at the end of the reporting period.
b. Are indicative of conditions that arose after the end of the reporting period.
c. Are favorable or unfavorable and indicative of conditions that arose after the end of the reporting
period.
d. Provide for conditions that existed after the date the financial statements were authorized for issue.

8. When after the end of the reporting period an event occurs that is indicative of conditions that arose after
the end of the reporting period
a. The entity shall disclose the nature and effect of the event in the financial statements.
b. The entity shall adjust the related amounts recognized in the financial statements.
c. The entity shall not disclose the nature and effect of the event in the financial statements.
d. The entity shall not adjust the related amounts recognized in the financial statements.

9. Financial statements are said to be authorized for issue when

a. The financial statements are filed with the SEC.
b. The shareholders approve the financial statements at their annual meeting.
c. The management is required to submit the financial statements to a supervisory body made up solely
of nonexecutives and the supervisory body approves the financial statements.
d. The management (board of directors) reviews the financial statements and authorizes them for issue.

10. Which of the following statements is incorrect?

a. Events after the reporting period are those that occur between the end of reporting period and the
date the financial statements are authorized by an entity’s management for issue.
b. Adjusting events are those that provide conditions that existed at the end of reporting period. The
financial statements are adjusted for these events.
c. Non-adjusting events are those that provide conditions that arose after the end of reporting period. If
relevant to users, these events are disclosed in the financial statements.

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 23

 d. The date the financial statements are authorized for issue is the date when an entity’s management
authorizes the financial statements for issue, if such authorization is subject to further approval by
other parties, the date the financial statements are authorized for issue is the date the financial
statements are approved by other parties.

TOAMOD2.5 IAS 24 RELATED PARTY DISCLOSURES

Effective date Periods beginning on or after 1 January 2011

Scope IAS 24 shall be applied in:
a. identifying related party relationships and transactions;
b. identifying outstanding balances, including commitments, between an entity and its
related parties;
c. identifying the circumstances in which disclosure of the items in (a) and (b) is
required; and
d. determining the disclosures to be made about those items.

IAS 24 requires disclosure of:

● Related party relationships
● Related party transactions
● Outstanding balances with related parties
● Commitments to related parties

The disclosures have to be made in the related consolidated and separate financial
statements of:
● A parent
● Investors with joint control of an investee
● Investor with significant influence over an investee.
Objective The objective of this IAS 24 is to ensure that an entity’s financial statements contain the
disclosures necessary to draw attention to the possibility that its financial position and
profit or loss may have been affected by the existence of related parties and by
transactions and outstanding balances, including commitments, with such parties.

Definitions
1. Related party - a person or entity that is related to the entity that is preparing its financial statements
(in this Standard referred to as the ‘reporting entity’)
a. A person or a close member of that person’s family is related to a reporting entity if that person:
i. has control or joint control of the reporting entity
ii. has significant influence over the reporting entity
iii. is a member of the key management personnel of the reporting entity or of a parent of the
reporting entity
b. An entity is related to a reporting entity if any of the following conditions applies:
i. The entity and the reporting entity are members of the same group (which means that each
parent, subsidiary and fellow subsidiary is related to the others).
ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a
member of a group of which the other entity is a member).
iii. Both entities are joint ventures of the same third party.
iv. One entity is a joint venture of a third entity and the other entity is an associate of the third
entity.
v. The entity is a post-employment benefit plan for the benefit of employees of either the reporting
entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the
sponsoring employers are also related to the reporting entity.
vi. The entity is controlled or jointly controlled by a person identified in (a).
vii. A person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity).
viii. The entity, or any member of a group of which it is a part, provides key management personnel
services to the reporting entity or to the parent of the reporting entity.
2. Related party transaction - a transfer of resources, services or obligations between a reporting entity
and a related party, regardless of whether a price is charged
3. Close members of the family of a person - those family members who may be expected to influence,
or be influenced by, that person in their dealings with the entity and include:
a. that person’s children and spouse or domestic partner;
b. children of that person’s spouse or domestic partner; and
c. dependents of that person or that person’s spouse or domestic partner
4. Compensation - includes all employee benefits (as defined in IAS 19 Employee Benefits) including

24 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 employee benefits to which IFRS 2 Share-based Payment applies.
5. Key management personnel - those persons having authority and responsibility for planning,
directing and controlling the activities of the entity, directly or indirectly, including any director
(whether executive or otherwise) of that entity.
6. Government - refers to government, government agencies and similar bodies whether local, national or
international.
7. Government-related entity - an entity that is controlled, jointly controlled or significantly influenced
by a government.
Disclosures
1. Relationships between a parent and its subsidiaries
● Disclose irrespective of whether there have been transactions between them, shall disclose the name
of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the
ultimate controlling party produces consolidated financial statements available for public use, the
name of the next most senior parent that does so shall also be disclosed.
2. Key management personnel compensation
● Disclose in total and for each of the following categories:
a. short-term employee benefits
b. post-employment benefits
c. other long-term benefits
d. termination benefits
e. share-based payment
3. Management entities
● If an entity obtains key management personnel services from a management entity, the requirements
in (2) to analyze compensation into short term, post- employment, other long term and termination
benefits, and share-based payments, do not have to be applied to the compensation paid by the
management entity to the management entity’s employees or directors.
● Instead, the entity has to disclose the amount incurred for the service fee paid to the management
entity.

4. Related party transactions

● Only if there have been transactions, disclose:
a. The nature of related party relationship
b. Information about transactions
c. Information about outstanding balances, including commitments, to understand the potential
effect of the relationship on the financial statements
d. Information about impairment or bad debts with related parties.
● The above disclosures shall be presented separately for each of the following categories:
a. The parent
b. Entities with joint control of, or significant influence over, the entity
c. Subsidiaries
d. Associates
e. Joint ventures in which the entity is a joint venturer
f. Key management personnel of the entity or its parent
g. Other related parties
5. Government-related entities
● A reporting entity is exempt from the disclosure requirements in (4) in relation to related party
transactions and outstanding balances, including commitments, with:
a. a government that has control or joint control of, or significant influence over, the reporting entity;
b. another entity that is a related party because the same government has control or joint control of,
or significant influence over, both the reporting entity and the other entity
● Shall disclose the following about the transactions and related outstanding balances:
a. the name of the government and the nature of its relationship with the reporting entity (ie control,
joint control or significant influence);
b. the following information in sufficient detail to enable users of the entity’s financial statements to
understand the effect of related party transactions on its financial statements:
i. the nature and amount of each individually significant transaction; and
ii. for other transactions that are collectively, but not individually, significant, a qualitative or
quantitative indication of their extent.
Sample Diagram Showing Related Parties

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 25

 Person Y Entity A
-Has (ultimate) control of RE -Controls R
-Has joint control of RE

Entity
-Subsidiar
-Joint ventu
Entity Y1 Entity Y2 - Associat
-Controlled by Y -Y is KMP
-Jointly controlled by Y
-Significant influence
held by Y Entity Y3
-Controlled by Y2

Person Z
-Close family member of Y

Entity Z1 Entity Z2
-Controlled by Z -Z is KMP
-Jointly controlled by Z
-Significant influence
held by Z Entity Z3
-Controlled by Z2

Person X Person W
-Close family member -KMP of RE
of W -Significant influence over RE

i
Entity X1
-Controlled by X Entity W1
-Jointly controlled -Controlled by W REPORTING ENTITY
by X -Jointly controlled by W

Entity RE1
-Subsidiary of RE
-Joint venture of RE
-Associate of RE

1. According to IAS 24, entities are related parties if

a. one party has the ability to affect the financial and operating policies of the other party through the
presence of control, joint control or significant influence.
b. they are close family members
c. they are husband and wife
d. one party has the ability to significantly influence the other

2. Related party relationships between a parent and a subsidiary

a. should be disclosed only if there have been transactions between them during the period
b. should be disclosed regardless of whether there have been transactions between them during the
period
c. should be disclosed only in the separate financial statements
d. should not be disclosed

3. According to IAS 24, it is a transfer of resources, services or obligations between a reporting entity and a
related party, regardless of whether a price is charged.
a. related party disclosure c. related party transaction
b. related party relationship d. intercompany transfer

26 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

4. An entity shall disclose its key management personnel compensation which includes all of the following
except
a. post-employment benefits c. share-based payments
b. termination benefits d. reimbursable expenses

5. Intragroup related party transactions and outstanding balances are

a. disclosed in the preparation of consolidated financial statements of the group
b. eliminated in the preparation of consolidated financial statements of the group
c. ignored in the preparation of consolidated financial statements of the group
d. Either of the 3 choices is acceptable

6. A party is related to an entity if the party, directly or indirectly through one or more intermediaries
I. Controls, is controlled by or is under common control with the entity
II. Has an interest in the entity that gives it significant influence over the entity
III. Has joint control over the entity.
a. I only b. I and II only c. I and III only d. I, II and III

7. Related parties include all of the following, except

a. Parent, subsidiary, and fellow subsidiaries
b. Associate
c. Key management personnel and close family members of such individuals
d. Two venturers simply because they share joint control over a joint venture

8. Close family members of an individual include all of the following, except

a. The individual’s spouse and children
b. Children of the individual’s spouse
c. Dependents of the individual or the individual’s spouse
d. Brother or sister of the individual

9. Unrelated parties include all of the following, except

a. Two entities simply because they have a common director
b. Providers of finance simply by virtue of their normal dealing with an entity
c. Customers with whom an entity transacts a significant volume of business, merely by virtue of the
resulting economic dependence
d. Postemployment benefit plan for the benefit of employees

10. An entity shall disclose key management personnel compensation. Which of the following is included in
key management personnel compensation?
a. Social security contribution only
b. Postemployment benefit only
c. Both social security contribution and postemployment benefit
d. Neither social security contribution nor postemployment benefit

TOAMOD2.6 IFRS 5 NONCURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS

Effective date Periods beginning on or after 1 January 2005

Scope IFRS 5 applies to all recognized non-current assets and disposal groups of an entity
that are:
● held for sale; or
● held for distribution to owners.

Assets classified as non-current in accordance with IAS 1 shall not be reclassified as

current assets until they meet the criteria of IFRS 5.

If an entity disposes of a group of assets, possibly with directly associated liabilities (i.e.
an entire cash-generating unit), together in a single transaction, if a non-current asset in
the group meets the measurement requirements in IFRS 5, then IFRS 5 applies to the
group as a whole. The entire group is measured at the lower of its carrying amount and

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 27

 fair value less costs to sell.

Non-current assets to be abandoned cannot be classified as held for sale.

Exclusions to measurement requirements of IFRS 5. Disclosure requirements still to be
complied with:
● Deferred tax assets (IAS 12 Income Taxes)
● Assets arising from employee benefits (IAS 19 Employee Benefits)
● Financial assets in the scope of IAS 39 Financial Instruments: Recognition and
Measurement / IFRS 9 Financial Instruments
● Non-current assets that are accounted for in accordance with the fair value
model (IAS 40 Investment Property)
● Non-current assets that are measured at fair value less estimated point of sale
costs (IAS 41 Biological Assets)
● Contractual rights under insurance contracts (IFRS 4 Insurance Contracts)
Objective The objective of IFRS 5 is to specify the accounting for assets held for sale, and the
presentation and disclosure of discontinued operations.

In particular, the IFRS requires:

(a) assets that meet the criteria to be classified as held for sale to be measured at the
lower of carrying amount and fair value less costs to sell, and depreciation on such
assets to cease; and
(b) assets that meet the criteria to be classified as held for sale to be presented
separately in the statement of financial position and the results of discontinued
operations to be presented separately in the statement of comprehensive income.

Definitions
1. Cash-generating unit – the smallest identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or groups of assets.
2. Discontinued operations – a component of an entity that either has been disposed of or is classified as
held for sale and:
a. represents a separate major line of business or geographical area of operations,
b. is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations or
c. is a subsidiary acquired exclusively with a view to resale
3. Disposal group – a group of assets to be disposed of, by sale or otherwise, together as a group in a
single transaction, and liabilities directly associated with those assets that will be transferred in the
transaction.
4. Fair value – the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Classification
1. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will
be recovered principally through a sale transaction rather than through continuing use. The following
criteria must be met:
a. The asset (or disposal group) is available for immediate sale.
b. The terms of asset sale must be usual and customary for sales of such assets
c. The sale must be highly probable
● Management is committed to a plan to sell the asset
● An active programme to locate a buyer and complete the plan must have been initiated
● Asset must be actively marketed for a sale at a reasonable price in relation to its current fair
value
d. Sale should be completed within one year from classification date (except if delay is caused by
events or circumstances beyond the entity’s control and the entity remains committed to its plan to
sell the asset or disposal group)
2. Sale transactions include exchanges of non-current assets for other non-current assets when the
exchange has commercial substance in accordance with IAS 16 Property, Plant and Equipment.
3. When an entity acquires a non-current asset exclusively with a view to its subsequent disposal, it shall
classify the non-current asset as held for sale at the acquisition date only if the one-year requirement is
met.
Measurement
1. An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of
its carrying amount and fair value less costs to sell.
2. An entity shall measure a non-current asset (or disposal group) classified as held for distribution to
owners at the lower of its carrying amount and fair value less costs to distribute.
3. Immediately before the initial classification of the asset (or disposal group) as held for sale, the carrying
amounts of the asset (or all the assets and liabilities in the group) shall be measured in accordance with

28 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 applicable IFRSs.
4. On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities
that are not within the scope of the measurement requirements of this IFRS, but are included in a
disposal group classified as held for sale, shall be remeasured in accordance with applicable IFRSs
before the fair value less costs to sell of the disposal group is remeasured.
Recognition of impairment losses and reversals
1. An entity shall recognize an impairment loss for any initial or subsequent write-down of the asset (or
disposal group) to fair value less costs to sell, to the extent that it has not been recognized.
2. An entity shall recognize a gain for any subsequent increase in fair value less costs to sell of an asset, but
not in excess of the cumulative impairment loss that has been recognized either in accordance with
this IFRS or previously in accordance with IAS 36.
3. The impairment loss (or any subsequent gain) recognized for a disposal group shall reduce (or
increase) the carrying amount of the non-current assets in the group that are within the scope of the
measurement requirements of this IFRS.
4. A gain or loss not previously recognized by the date of the sale of a non-current asset (or disposal
group) shall be recognized at the date of derecognition.
5. An entity shall not depreciate (or amortize) a non-current asset while it is classified as held for sale or
while it is part of a disposal group classified as held for sale.
6. Interest and other expenses attributable to the liabilities of a disposal group classified as held for
sale shall continue to be recognized.
Changes to a plan of sale or to a plan of distribution to owners
1. If an entity has classified an asset (or disposal group) as held for sale or as held for distribution to
owners, but the criteria are no longer met, the entity shall cease to classify the asset (or disposal group)
as held for sale or held for distribution to owners.
NOTE: The classification criteria also apply to non-current assets (or disposal groups) held for distribution
to owners. A reclassification from held for sale to held for distribution to owners is not a change to a plan
and therefore not a new plan.

2. Shall be measured at the lower of:

a. its carrying amount before the asset (or disposal group) was classified as held for sale or as
held for distribution to owners, adjusted for any depreciation, amortization or revaluations
that would have been recognized had the asset (or disposal group) not been classified as held for sale
or as held for distribution to owners, and
b. its recoverable amount at the date of the subsequent decision not to sell or distribute.
Presentation and disclosure
An entity shall present and disclose information that enables users of the financial statements to evaluate
the financial effects of discontinued operations and disposals of non-current assets (or disposal groups).
a. Presenting discontinued operations
● Classification as a discontinued operation depends on when the operation also meets the
requirements to be classified as held for sale.
● A single amount in the statement of comprehensive income comprising the total of:
i. the post-tax profit or loss of discontinued operations and
ii. the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the
disposal of the assets or disposal group(s) constituting the discontinued operation.
● An analysis of the single amount (either in the notes or in the statement of comprehensive income):
i. the revenue, expenses and pre-tax profit or loss of discontinued operations;
ii. the related income tax expense as required by IAS 12.
iii. the gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of
the assets or disposal group(s) constituting the discontinued operation; and
iv. the related income tax expense as required by IAS 12.
● Cash flow disclosure is required – either in the notes or statement of cash flows.
● Amount of income attributable to owners of the parent – either in the notes or statement of
comprehensive income.
● Comparatives are restated.
b. Gains or losses related to continuing operations
● Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held
for sale that does not meet the definition of a discontinued operation shall be included in profit or
loss from continuing operations.
c. Presentation of a noncurrent asset or disposal group classified as held for sale
● An entity shall present a non-current asset classified as held for sale and the assets of a disposal group
classified as held for sale separately from other assets in the statement of financial position.
● The liabilities of a disposal group classified as held for sale shall be presented separately from other
liabilities in the statement of financial position.
● Those assets and liabilities shall not be offset and presented as a single amount.
● The major classes of assets and liabilities classified as held for sale shall be separately disclosed

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 29

 either in the statement of financial position or in the notes, except if the disposal group is a newly
acquired subsidiary.
● An entity shall present separately any cumulative income or expense recognized in other
comprehensive income relating to a non-current asset (or disposal group) classified as held for sale.
● Prior year balances in the statement of financial positions are not reclassified as held for sale.
d. Additional disclosures
● An entity shall disclose the following information in the notes in the period in which a non-current
asset (or disposal group) has been either classified as held for sale or sold:
i. a description of the non-current asset (or disposal group)
ii. a description of the facts and circumstances of the sale, or leading to the expected disposal, and the
expected manner and timing of that disposal
iii. the gain or loss recognized (impairment) and, if not separately presented in the statement of
comprehensive income, the caption in the statement of comprehensive income that includes that
gain or loss
iv. if applicable, the reportable segment in which the non-current asset (or disposal group) is
presented (IFRS 8 Operating Segments)
● An entity shall disclose, in the period of the decision to change the plan to sell the non-current asset
(or disposal group), a description of the facts and circumstances leading to the decision and the effect
of the decision on the results of operations for the period and any prior periods presented.

1. Assets held for sale are

a. required under IAS 36 to be tested for impairment annually c. depreciated
b. amortized over a period not exceeding 5 years d. not depreciated

2. Non-current assets are presented as current items in the statement of financial position
a. only when they are expected to be sold within 12 months from the end of the reporting period
b. only if they are actually sold after the reporting period but before the date of authorization of the
financial statements for issue
c. only when they qualify as held for sale assets under IFRS 5
d. never presented as current items

3. According to IFRS 5, held for sale classification is permitted when

a. the noncurrent asset or disposal group is available for immediate sale in its present condition
b. the sale is highly probable
c. both a and b
d. the sale actually occurred after the reporting period but before the financial statements were
authorized for issue

4. A noncurrent asset classified as held for sale in accordance with IFRS 5 has not been sold after a year. The
asset shall continue to be presented as held for sale under IFRS 5 if
a. the delay is due to events beyond the entity’s control
b. the entity remains committed to its plan to sell the asset
c. the noncurrent asset is actually sold after the reporting period but before the financial statements
were authorized for issue
d. both a and b

5. The qualification of an asset to be classified as held for sale after the reporting period but before the
financial statements are authorized for issue
a. is a non-adjusting event after the reporting period
b. is an adjusting event after the reporting period
c. is an extraordinary item
d. either a or b
6. Which of the following statements is true regarding the accounting treatment of costs to sell under IFRS
5?
a. Costs to sell are added to the fair value when determining the measurement basis for an asset held
for sale.
b. Costs to sell are never discounted because held for sale assets should be sold within one year.
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. Both a and c

7. According to IFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss c. recognized only for impairment losses
b. recognized in other comprehensive income d. not recognized

8. According to IFRS 5, gain on impairment reversal on an asset held for sale is

a. recognized for the fair value change during the period

30 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 b. recognized in other comprehensive income
c. recognized only to the extent of cumulative impairment losses previously recognized
d. not recognized

9. According to IFRS 5, assets and liabilities of a disposal group are presented

a. as one line item in either current assets or current liabilities
b. as one line item in either noncurrent assets or noncurrent liabilities
c. separately on the face of the statement of financial position
d. either a or b

10. The results of discontinued operations are presented separately in the statement of profit or loss and
other comprehensive income
a. as a single amount gross of tax c. as part of the regular line items
b. as a single amount net of tax d. either a or b

11. According to IFRS 5, a disposal group may qualify as discontinued operation if

a. it is a component of an entity c. both a and b
b. meets the held for sale classification criteria d. neither a nor b

12. It is a group of assets to be disposed of by sale or otherwise, together as a group in a single transaction,
and liabilities directly associated with those assets that will be transferred in the transaction.
a. Disposal group c. Noncurrent asset held for sale
b. Discontinued operation d. Cash-generating unit

13. A noncurrent asset or disposal group shall be classified as held for sale when
I. The sale is highly probable.
II. The asset is available for immediate sale in its present condition subject only to terms that are usual
and customary for sales of such asset or disposal group.
a. I only b. II only c. Both I and II d. Either I or II

14. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. “Highly
probable” means
a. The future sale is likely to occur.
b. The future sale is more likely than not to occur.
c. The sale is certain.
d. The probability is higher than more likely than not.

15. For the sale of a noncurrent asset held for sale to be highly probable (choose the incorrect one)
a. Management must be committed to a plan to sell the asset.
b. An active program to locate a buyer and complete the plan must have been initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to its current fair value.
d. The sale should be expected to qualify for recognition as a completed sale within two years from the
date of classification of the asset as “held for sale”.

16. An entity shall classify a noncurrent asset or disposal group as “held for sale” when
a. The carrying amount of the asset or disposal group will be recovered through a sale transaction.
b. The carrying amount of the asset or disposal group will be recovered through continuing use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

17. A noncurrent asset that is to be abandoned should not be classified as held for sale because
a. Its carrying amount will be recovered principally through continuing use.
b. It is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.

18. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
a. carrying amount c. lower of carrying amount and fair value less cost to sell
b. fair value less cost to sell d. higher of carrying amount and fair value less cost to sell

19. Which of the following statements in relation to noncurrent asset held for sale is true?

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 31

 I. An asset that meets the criteria for classification as held for sale after the end of the reporting period
but before the authorization of the financial statements shall be measured in the statement of
financial position at the lower of carrying amount and fair value less cost to sell.
II. To be classified as asset held for sale, the sale must be expected to be completed within 12 months
from the end of the financial year.
a. I only b. II only c. Both I and II d. Neither I nor II

20. A noncurrent asset classified as “held for sale” shall be presented in the statement of financial position as
a. Current asset c. Property, plant and equipment
b. Noncurrent investment d. Intangible asset

21. Which statement is incorrect concerning presentation of noncurrent asset or disposal group classified as
held for sale?
a. An entity shall present a noncurrent asset held for sale and the assets of a disposal group classified as
held for sale under current assets separately from other assets.
b. The liabilities of a disposal group classified as held for sale shall be presented under current
liabilities separately from other liabilities.
c. The assets and liabilities a disposal group classified as held for sale shall not be offset as a single
amount.
d. An entity shall depreciate a noncurrent asset classified as held for sale or while it is part of a disposal
group classified as held for sale.

22. An entity shall recognize any subsequent increase in fair value less cost to sell of a noncurrent asset or
disposal group classified as held for sale as
a. Deferred gain as component of equity
b. Deferred gain as component of liability
c. Gain entirely to be included in profit or loss
d. Gain to be included in profit or loss but not in excess of the cumulative impairment loss previously
recognized

23. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the current
year-end. Because no offers were received at an acceptable price, the entity decided at the end of the
following year not to sell the asset, but to continue to use it. The asset should be measured at the end of
the following year at
a. The lower of carrying amount and recoverable amount.
b. The higher of carrying amount and recoverable amount.
c. The lower of carrying amount on the basis that it had never been classified as held for sale and
recoverable amount.
d. The higher of carrying amount on the basis that it had never been classified as held for sale and
recoverable amount.

24. This is defined as the “operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity.
a. Component of an entity b. Disposal group c. Noncurrent asset d. Foreign operation

25. A component of an entity is classified as a discontinued operation

I. When the entity has actually disposed of the operation.
II. When the operation meets the criteria to be classified as “held for sale”.
a. Either I or II b. Neither I nor II c. I only d. II only

26. A discontinued operation is a component of an entity that either has been disposed of or is classified as
held for sale and
I. Represents a separate major line of business or geographical area of operations.
II. Is part of a single coordinated plan to dispose of a separate major line of business or geographical
area of operations.
III. Is a subsidiary exclusively with a view to resale.
a. I only b. I and II only c. I and III only d. I, II and III

27. Which of the following is a requirement for a component of an entity to be classified as discontinued
operation?
a. Its activities must permanently cease prior to the financial statements being authorized for issue.

32 TOAMOD2 FINANCIAL STATEMENT PRESENTATION

 b. It must comprise a separately reportable segment in accordance with IFRS 8.
c. Its assets must have been classified as held for sale in previous financial statements.
d. It must have been a cash generating unit or group of cash generating units while being held for use.

28. The results of discontinued operation shall be presented

a. On the face of the income statement as a single amount below the income from continuing
operations.
b. On the face of the income statement with details of revenue and expenses side by side with
continuing operations.
c. As a single amount in the statement of retained earnings.
d. In the accompanying notes to the financial statements.

29. Which of the following statements in relation to a discontinued operation is true?

I. When the discontinued criteria are met after the end of the reporting period, the operation shall
retrospectively be separately presented as a discontinued operation.
II. The net cash flows attributable to the operating, investing and financing activities of a discontinued
operation shall be separately presented.
a. I only b. II only c. Both I and II d. Neither I nor II

30. An entity has correctly classified its manufacturing operation as a disposal group held for sale and as
discontinued operation during the current year. Which of the following statements is true?
I. The disposal group’s results for the preceding year shall be re-presented as relating to discontinued
operation in the comparative figures for the statement of comprehensive income for the current year.
II. The disposal group’s assets at the end of the preceding year shall be re-presented as held for sale in
the comparative figures for the statement of financial position at the current year-end.
a. I only b. II only c. Both I and II d. Neither I nor II

TOAMOD2 FINANCIAL STATEMENT PRESENTATION 33