1.

According to PAS 1, an entity shall make an explicit and unreserved statement of

compliance with the PFRSs in the notes only if the entity complies with all the
requirements of PFRSs. (T/F)
2. The application of PFRSs, with additional disclosure when necessary, is presumed to
result in financial statements that achieve a fair presentation. (T/F)
3. PAS1 encourages, but does not require, the presentation of the preceding year's
financial statements as comparative information to the current year's financial
statements. (T/F)
4. According to PAS 1, assets and liabilities or income and expenses are offset, unless a
separate presentation is required or permitted by a PFRS. (T/F)
5. According to PAS 1, PFRSs apply to financial statements as well as to other
information presented in an annual report, a regulatory filing, or another document.
(T/F)
6. According to PAS 1, the line item "Cash and cash equivalents" should always be
presented first in the statement of financial position. (T/F)
7. PAS 1 does not prescribe an order or format of presenting items in the financial
statements. (T/F)
8. An entity may omit the notes when presenting general purpose financial statements.
(T/F)
9. If profit or loss is P100 while other comprehensive income is P20, total
comprehensive income must be P120. (T/F)
10. PAS 1 requires the disclosure of an entity's domicile and legal form, its country of
incorporation and the address of its registered office and a description of the nature of
its operations and its principal activities. (T/F)
1. The objective of PAS 1 is

to ensure comparability by prescribing the basis for the presentation of general purpose
financial statements.

2. Entity A's financial statements in the current period are comparable with Entity A's
financial statements in the previous period. This type of comparability is called

3. The Scope of PAS 1 is

the preparation and presentation of general purpose financial statements.

4. The statement of financial position is also called

5. When preparing financial statements, PAS 1 requires management to assess the entity's
ability to continue as a going concern. The assessment covers a minimum period of

6. Which of the following is not considered an appropriate application of offsetting under

PAS 1?

a. Presenting a gain from the sale of a noncurrent asset net of the related selling expenses.

b. Deducting foreign exchange losses from foreign exchange gains and presenting only the
net amount.

c. Deducting unrealized losses from unrealized gains from trading securities and presenting
only the net amount.

d. Deducting accumulated depreciation from the equipment account and presenting only the
carrying amount.

7. PAS 1 requires an entity to provide an additional balance sheet dated as of the beginning of
the preceding period if certain instances occur. Which of the following is not one of those
instances? (Assume all of the following has a material effect)

a. Retrospective application of an accounting policy.

b. Retrospective restatement

c. Reclassification of items in the financial statements

d. Change in the frequency of reporting

8. The PFRSs apply to which of the following?

a. A management's review of the entity's financial performance during the period vis-à-vis its
targets for that period contained in the entity's annual report, which also includes the entity's
financial statements.

b. Schedules, reconciliations and returns required by the Bureau of Internal Revenue (BIR) to
be filed together with the financial statements.

c. Environmental reports required by the Department of Environment and Natural Resources

(DENR) that are included in the entity's annual report.

d. Explanatory material and other information that are disclosed in the notes to the financial
statements.

9. This is the most commonly used method of presenting a statement of financial position. It
facilitates the computation of liquidity and solvency ratios.

10. Which of the following best reflects the definition of the normal operating cycle under
PAS 1?

a. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw
materials, process those raw materials into finished goods, and sell the finished goods.

b. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw
materials, process those raw materials into finished goods, sell the finished goods on account,
and collect the receivables.

c. For a manufacturing entity, this is the usual time it takes for the entity to acquire raw
materials on account and settle the account.

d. For a manufacturing entity, this is the usual time it takes for the entity to sell finished
goods on account and collect the receivables.

11. Who is responsible for the preparation and fair presentation of an entity's financial
statements in accordance with the PFRSs?
12. The statement of financial position may be presented either showing current/non-current
distinction (classified) or based on liquidity (unclassified). PAS 1 encourages a(an)

13. Which of the following is a current asset

a. Deferred tax asset expected to reverse within 3 months from the reporting date

b. Property, plant and equipment

c. Non-trade note receivable due in 13 months

d. Accounts receivable

14. Which of the following statements is incorrect regarding the provisions of PAS 1?

a. An entity is required to present separate sections of profit or loss and other comprehensive
income.

b. Presenting an income statement or statement of profit or loss in addition to a statement of

other comprehensive income is permitted when an entity elects to use the two-statement
presentation.

c. Presenting an income statement or statement of profit or loss alone without a statement of

other comprehensive income is allowed.

d. Presenting comprehensive income as a note disclosure only is prohibited.

15. When a separate statement of profit or loss (income statement) is presented, it shall be
displayed immediately before the statement presenting

16. Which of the following is not correct when an entity opts to use the two-statement
presentation of income and expenses?

a. The separate income statement forms part of a complete set of financial statements and
shall be displayed immediately before the statement presenting comprehensive income.
b. The profit or loss section is not presented anymore in the statement presenting
comprehensive income.

c. The profit or loss section is required to be presented in the statement presenting

comprehensive income.

d. The separate statement presenting comprehensive income begins with the amount of profit
or loss.

17. Entity A reclassifies a gain that was previously recognized in other comprehensive
income to the current period's profit or loss. According to PAS 1, how should Entity A
present the reclassification adjustment in the other comprehensive income section of the
statement of comprehensive income?

18. Which of the following is a current liability?

a. Deferred tax liability

b. An obligation for which the entity has an unconditional right to defer.

c. A long-term obligation that becomes payable on demand because of a breach of loan

agreement but the lender agrees before the balance sheet date to provide a grace period for
the lender to rectify the breach.

d. An obligation for which the entity has a conditional right to defer.

19. According to PAS 1, items of other comprehensive income are presented according to the
following groupings

a. those that are subsequently reclassified to profit or loss and those that are not

20. 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.

21. PAS 1 applies to which of the following?

a. The preparation and presentation of general purpose financial statements.

b. The recognition and measurement of specific assets, liabilities, income and expenses.

c. The disclosure requirements for specific transactions and other events.

d. All of these.

22. In 20x3, Entity A makes a retrospective application of an accounting policy that has a
material effect on the information in the statement of financial position as at the beginning of
the preceding period. Entity A wishes to provide comparative information in addition to the
minimum requirement of PAS 1, i.e., Entity A will be presenting its 20x3 financial statements
together with the 20x2 and 20x1 financial statements. In this case, the additional statement of
financial position required by PAS 1 will be dated

23. Entity A wants to change the presentation of and the classification of some items in its
financial statements. Which of the following statements is incorrect?

a. Entity A can make the change if it is required by a PFRS.

b. Entity A can make the change if the change is expected to result in reliable and more
relevant information to the users of its financial statements.

c. Entity A may be required to provide an additional balance sheet dated as at the beginning
of the preceding period.

d. Entity A can make the change only if it makes an irrevocable promise not to make another
change within the next five years.
24. The financial statements of Entity A show line items described as "Other current assets,"
"Other noncurrent liabilities," and "Miscellaneous expenses." Which of the following is
correct?

a. Entity A considers the items included in these line items as dissimilar and cannot be
included in material classes of similar items and are also individually immaterial to warrant
separate presentation.

b. Entity A considers the items included in these line items as individually material but with
dissimilar nature or function.

c. Entity A considers the items included in these line items as comprising a material class of
similar items.

d. This manner of presenting items is unacceptable under PAS 1.

25. According to PAS 1, a complete set of financial statements includes which of the
following?

a. Income tax return

b. Directors' reports

c. Notes

d. All of these

26. PAS 1 requires an entity to present an additional statement of financial position as at the
beginning of the preceding period when an entity makes any of the following except

a. the retrospective application of an accounting policy.

b. the retrospective restatement of items in the financial statements.

c. the reclassification of items in the financial statements.

d. the prospective application of a change in accounting estimate.

27. The statement of financial position of which of the following entities does not show
current and noncurrent distinctions among assets and liabilities?

a. Banks and other financial institutions

b. Mining companies

c. Trading enterprises

d. Manufacturing firms

28. Which of the following is not an acceptable method of presenting income and expenses?

a. Presenting income and expenses that affect profit or loss and those that are components of
other comprehensive income in a single statement.

b. Presenting an income statement in addition to a statement that presents comprehensive

income.

c. Presenting an income statement alone without a statement that presents comprehensive

income.

d. All of these are acceptable methods of presentation.

29. This method of presenting expenses is more difficult to apply but has the potential of
providing more relevant information to users. Its downside, however, is that it involves
considerable judgment and may require arbitrary allocations.

30. Which of the following is not a purpose of the notes?

a. to present information about the basis of preparation of the financial statements and the
specific accounting policies

b. to disclose the information required by PFRSS that is not presented elsewhere in the
financial statements

c. to provide information that is not presented elsewhere in the financial statements but is
relevant to an understanding of any of the financial statements.
d. to rectify inappropriate accounting policies
Answer Key

True or False

1. T
2. T
3. F
4. F
5. F
6. F
7. T
8. F
9. T
10. T

Multiple Choice

2. Intra-Comparability
4. Balance Sheet
5. at least one year from the end of the reporting period.
6. D
7. D
8. D
9. Classified Presentation
10. B
11. Management
12. Classified Presentation
13. D
14. A & C
15. comprehensive income
16. B
17. as a deduction
18. D
20. D
21. A
22. as at January 1, 20x2
23. D
24. A
25. C
26. D
27. A
28. C
29. Function of Expense
30. D
PAS 2

Write-downs of inventories to their net realizable value are recognized in profit or loss

T/F-Reversals of inventory write-downs may exceed the amount of the original write-down
previously recognized.

False

Entity A buys and sells two types of products Product A and Product B. Items of Product A
are not ordinarily interchangeable while items of Product B are ordinarily interchangeable.
According to PAS 2, what cost formula shall Entity A use? (specific identification 'SI',
first-in, first out 'FIFO', weighted average 'WA')

Product A - SI; Product B - FIFO or WA

Entity A is a distributor of oil. Entity A's inventories are ordinarily interchangeable. Entity A
maintains a specific level of inventory such that the latest purchases are the ones dispatched
first to the sales outlets. Consequently, the latest purchases are sold first. Which of the
following cost formulas shall be used by Entity A?

Last-in, First-out (LIFO)

Which of the following is not included as part of the cost of an inventory?

a. Purchase cost, net of trade discount

b. Direct labor cost

c. Freight in

d. Selling cost

Entity A's inventories consist of items that are ordinarily interchangeable. According to PAS
2, which of the following cost formulas shall Entity A use?
Weighted Average or FIFO

T/F- According to PAS 2, net realizable value and fair value less costs to sell are the same.

False

These deal with the computation of cost of sales and cost of ending inventory cost formulas

T/F- According to PAS 2, inventories are measured at net realizable value.

False

Conversion costs do not include which of the following costs?

A Production Overhead

B All of these are included

C Direct materials

D Direct labor

T/F- The cost of factory management is included in the cost of inventory

TRUE

Inventories are usually written-down to net realizable value on an item-by-item basis.

T/F- Trade discounts are added to the cost of inventories.

FALSE
Which of the following statements is incorrect regarding the use of cost formulas?

A. PAS 2 requires the use of specific identification of costs for inventories that are not
ordinarily interchangeable.

B. Entities may choose between the FIFO and the Weighted Average cost formulas for
inventories that are ordinarily interchangeable.

C. Different cost formulas may be used for each class of inventory with dissimilar nature and
use.

D. Only one formula shall be used for all inventories regardless of differences in their nature
and use.

T/F- Raw materials inventory is not written down below cost if the finished goods to which
they will be incorporated are expected to be sold at or above cost.

TRUE

T/F- Import duties, freight-in and non-refundable purchase taxes form part of the cost of
inventories.

TRUE

T/F- The maintenance costs of a machine used in the manufacturing process are not included
in the cost of inventories.

FALSE

In which of the following instances is a write-down of inventories to net realizable value may
not be required?

A. the inventories are damaged

B. the inventories have become wholly or partially obsolete

C. the estimated costs to complete or costs to sell have increased

D. selling prices are rising because demand has increased

T/F- If the cost of an inventory is P8 while its net realizable value is P6, the amount of
write-down is P2.

TRUE

T/F- Storage costs of part-finished goods may be included in the cost of inventory, but not
storage costs of finished goods.

TRUE